UAE telecoms duopoly set to continue

10 September 2014

There is little prospect of anyone undermining the dominant position of Etisalat and Du in the UAE’s telecoms market in the short term

The telecoms market in the UAE is in many ways a mature one. There were more than 16 million mobile phone subscriptions in the country at the end of last year, according to the Telecommunications Regulatory Authority (TRA), which oversees the sector, along with more than 2 million fixed-line subscriptions.

Given its relatively small population of less than 10 million, these figures mean the UAE has one of the highest telecoms penetration rates in the region. The UAE leads the rest of the GCC when it comes to mobile penetration rates, with a figure of 198 per cent, according to the US’ Pyramid Research, and at 61 per cent, it is second only to Qatar when it comes to fixed-line broadband subscriptions.

However, one area where the UAE lags behind is in the amount of consumer choice on offer. For many years, the market was served by just one company, Emirates Telecommunications Corporation (Etisalat). Since 2006, it has faced competition from Emirates Integrated Telecommunications Company (Du), but no other licences have been issued in the intervening years and the market effectively remains a duopoly.

Latest technology

That has not hampered the rollout of technology. Next-generation mobile networks, known as 4G, are being introduced and there are faster broadband connections for residential customers, with ‘fibre-to-the-home’ (FTTH) connections having replaced most of the older digital subscriber line (DSL) links.

UAE telecoms market, 2013
 Fixed lineMobileInternetTotal
Number of subscribers2,086,01516,063,5471,043,27619,192,838
Revenues (AEDbn)2.622.34.329
Voice minutes (billion)3.626.1na29.7
Average revenue per user (monthly, AED)108124357na
Average minutes per user (monthly)147146nana
na=Not applicable. Source: Telecommunications Regulatory Authority

“The UAE telecoms market is indeed a duopoly, with nearly equal market share for Etisalat and Du in the mobile market,” says Karim Yaici, a Dubai-based analyst at UK telecoms, media and IT research firm Analysys Mason. “This situation has not hindered mobile market growth [and] both Etisalat and Du plan to have ubiquitous 4G population coverage by the end of 2015.

“On the fixed side, the UAE became the world leader in terms of FTTH penetration in 2013. Fibre has overtaken DSL in the broadband market in the country since 2011; it represented more than 85 per cent of broadband connections at the end of 2013.”

Telecoms subscriptions, 2013 (percentage)
CountryMobile subscriptions* Fixed broadband subscriptions** 
Saudi Arabia17554
*=As a percentage of population; **=As a percentage of households. Source: Pyramid Research

Such technology may be welcomed by many consumers, but it comes at a price. With little competitive pressure, the operators do not have to vie for new customers as strongly as in other markets where there are more service providers. The two telecoms firms also know that, with an expanding population, there is a steady stream of new customers to target and, across the country as a whole, there are high levels of disposable income.

Little choice

“Customers in the UAE are usually not very happy about how expensive the telecoms services are and that they do not have many options,” says Kerem Arsal, analyst for the Middle East and North Africa region at Pyramid Research. “This is partly an outcome of the relatively low degree of competitiveness. But this does not stop them from subscribing. In other words, the competitiveness may not be high in the market, but it does not drastically affect demand. The continuous influx of expatriates and high disposable income means that, although services may be expensive, growth is sustained. For instance, in the past three years, mobile penetration grew from 160 per cent to almost 200 per cent.”

GCC mobile services revenue
CountryCompound annual growth 2010-13 (%)
Saudi Arabia6.1
Source: Pyramid Research

While most customers find they have no alternative to signing up with either Etisalat and Du, the TRA has loosened up the market a little at the margins. In recent years, it has issued several niche satellite broadcasting licences to other companies, including subsidiaries of Al-Yah Satellite Communications Company (Yahsat), which is itself owned by the Abu Dhabi government investment vehicle Mubadala Development Company.

Some of these companies are bringing an element of competition to the market, but they are unlikely to be suitable for the vast majority of people. To use these services, you do not need to have a telephone line, but you do need to install a dish to connect to a satellite. At the same time, the widespread availability of mobile broadband services from the two incumbents means it is unlikely to represent a viable alternative unless you happen to need a connection in a remote location, such as in the desert or out at sea.

“It is not a real threat for Etisalat and Du,” says Arsal. “There is no obvious price advantage over the existing services.”

Number portability

There are other ways in which competition has been increased, such as allowing customers to keep their existing mobile phone number when they switch providers, although this took a long time to be introduced. Plans to allow mobile number portability were first announced in April 2006 and reiterated on several occasions over the following years, but the measure was only finally launched in December last year.

GCC mobile subscriptions (2013)
CountryPenetration rate (% of population)
Saudi Arabia175
Source: Pyramid Research

Given the current duopoly, the potential impact of that move will also be limited; as the high mobile penetration rate indicates, many people already have contracts with both operators. Beyond that, the TRA does not appear to be in much of a hurry to expand competition in more meaningful ways.

The idea of a mobile virtual network operator (MVNO), for example, appears to be going nowhere. This would boost competition by allowing a new provider to offer services while using the existing networks of Etisalat or Du. Like the idea of a third licence being put up for auction, there appears little prospect of the TRA making this option available any time soon.

“The regulator has been rather reluctant to increase competitiveness in the market, partly because the telecoms industry is the biggest single contributor to the revenue of the Finance Ministry, which will not look favourably on actions that could reduce its revenue” says Yaici. “Our understanding is that the TRA does not plan to grant a licence to a third operator in the short term. In November 2012, the TRA announced it was satisfied with the state of the mobile market and that it was no longer considering licensing MVNOs in the UAE in the short term.”

Strong growth

The regulator may also be influenced by the fact that growth levels are currently strong and expected to remain so in the coming years, particularly in the area of mobile services. According to the TRA, revenues from mobile services increased by 6.3 per cent in 2013 to AED22.3bn ($6.1bn), while fixed-line revenues declined by 0.8 per cent to AED2.6bn. Other areas of the market are also doing well. The number of internet service subscriptions increased by 10.5 per cent last year to more than 1 million.

GCC fixed broadband subscriptions (2013)
CountryPenetration rate (% of population)
Saudi Arabia54
Source: Pyramid Research

The dominance of mobile over fixed-line telephony appears to be increasing as more people use their mobile phones more often. Last year, international outgoing minutes from mobile phones increased by 37 per cent, while the number of international minutes from fixed-line phones fell by 12 per cent, for example. The TRA says calls to mobile phones represent the largest proportion of fixed-line call minutes.

In the coming years, these trends are expected to continue and perhaps accelerate. Mobile data is widely anticipated to be the fastest-growing segment of the market, among both industry executives and analysts. Pyramid Research predicts that revenues for the entire mobile telecoms services will grow from $5.2bn to nearly $7bn in five years, equivalent to an average annual growth rate of about 5 per cent. The fixed-line market is expected to grow at a slower rate of about 4 per cent a year, helped by the widespread availability of FTTH connections.

Announcing his company’s latest results in July, Osman Sultan, CEO of Du, offered some support for these predictions, remarking that “data continued to be a key market driver during the quarter”.

Online threat

The reluctance of the TRA to offer a third licence does not mean that Sultan and his counterpart at Etisalat, Ahmad Abdulkarim Julfar, will have an entirely easy ride in the coming years. Instead of facing competition from a third licence holder, the biggest threat for Etisalat and Du is the likes of Skype and other internet-based telephony providers. This may yet force them to focus on alternative revenue streams, perhaps by developing digital content services for consumers, or IT and data centre services for corporate customers.

In the short term, however, the wider context of strong economic growth in the UAE means the prospects for both telecoms firms appear fairly bright.

“The entrance of a third operator would have imposed a downward force on prices and contributed to increasing competition in the market. However, this does not change the fact that the telecoms landscape is witnessing healthy levels of growth,”  says Mohammed al-Shawwa, research manager at Amman-headquartered analysis and consulting firm Arab Advisors Group. “The ongoing growth in the country’s economy sets the scene for future growth.”

It is just frustrating for consumers that this growth will not include any increase in the number of providers.

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