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ETISALAT takes UAE to elite telecom club

posted on 01/12/2005: 2308 views

For the past 30 years, telecoms in the UAE have been synonymous with Emirates Telecommunications Corporation (ETISALAT), the giant that has been functioning as a commercial operator with a reputation for efficiency and technological advancement.

Established in 1976, ETISALAT has been pushed by the UAE's ambition to be a regional economic force and by a demanding customer base. 'Over the past three decades, it has been a regional leader in introducing new services and has helped to push the UAE to extremely high telecommunications penetration rates.

During this period, ETISALAT has progressed beyond the direct provision of telecommunications services to develop a comprehensive range of activities that extends from card manufacturing to laying under-sea cables,' according to a report in 'Emerging Abu Dhabi 2006', a business review published recently by the Oxford Business Group in association with the Mubadala Development Company,

Both the UAE's telecoms landscape and ETISALAT's own business environment are now undergoing radical change. At home, liberalisation means that ETISALAT will soon be facing competition from a second telecoms operator that is due to be licensed before the end of 2005. ETISALAT has been gearing up for the change with new services and a streamlining of divisions management structure.

In the international arena, it has been investing heavily in a drive to establish itself as a major fixed-line and mobile operator in a region that now extends from Pakistan to West Africa.

OPENING UP: A crucial change for ETISALAT and the UAE telecoms scene began in April 2004, when the government issued a new law allowing for liberalisation of the sector. The first result of the new law was the creation of the Telecommunications Regulatory Authority (TRA) to oversee the industry. Its missions are, among other things, to create an enabling environment for competition - including establishing rules for the relationship between a second operator and ETISALAT, as well as to establish a national spectrum plan, manage and license new entrants in the market, and to protect consumers.

Full liberalisation of the sector is not planned before 2015. At present, the TRA believes the UAE could not sustain more than two operators and is concerned that excessive competition would be bad for both operators and consumers, although if the authorities believe there is a need for a third operator, it could be licensed before the 2015 full-liberalisation date.

While ETISALAT is recognised as a high quality service provider, the TRA is looking for improvements. It wants to see competition and greater efficiency in the sector, and is particularly keen to see a rapid expansion of wireless and broadband services to match the pace of the UAE's overall growth. It looks to Singapore and South Korea as models for top service, and is keen to see the introduction of the latest technology.

This new company will have a substantial challenge on its hands as it squares up to an incumbent enjoying the benefits of an established position, reputation and technology. However, in an analysis of ETISALAT published in early 2005, Kuwait-based Gulf Investment Corporation (GIC) pointed out that the changes will also bring new challenges for ETISALAT. GIC noted that with the new regulatory authority, ETISALAT will have to "stay abreast of developments, secure the proper expertise to handle regulatory issues and establish a healthy communication channel with the regulator." ETISALAT chief emphasised that they had already sharpened their edge for the upcoming competition.

'We are confident that competition will make us more energetic and innovative, so both our customers and ETISALAT will win. It is also important to remember that we have a mobile licence in Saudi Arabia and we are expanding our operations outside the UAE, so it is natural that we should open up to competition at home,' said Mohammed Omran, CEO of ETISALAT.

He added that the new operator will take a market share, but it will also raise awareness and the telecoms pie will get bigger. 'The idea of liberalisation has been around, off and on, for several years, so we are expecting it and had time to prepare,' he remarked.

GEARING UP: In May 2005, the company celebrated signing on its four-millionth mobile customer, which translates as an estimated market penetration rate of 80%. Fixed-line penetration rates are also high, at about 28%, while internet penetration is one of the highest in the region, at 7%, with usage estimated at about 24%.

Expansion has not been confined to subscriber numbers. In 2004 alone, the company pumped Dhl.36bn (US$370.33m) into the expansion of its backbone network and new technologies.

The total included a Dhl00m (US$27 .23m) investment in its UMTS/3G mobile network. It also began trials for the next generation network (NGN) infrastructure for the fixed-line network in Dubai, Abu Dhabi and Sharjah.

The investment is all part of ETISALAT's preparation for competition. It has been rolling out new and improved services over the past year, and it is not difficult to see from where the company anticipates at least some of the competition will be coming.

Responsibility for keeping internet customers online lies with its subsidiary eCompany, which was established in 2004 as an information and communications technology provider for both corporate and retail customers.

The subsidiary is promising that internet services, especially digital-subscriber lines (DSL) for both domestic and business users, will be both cheaper and faster by year-end 2005. By the fourth-quarter of 2005, its domestic DSL al-Shamil users received double their subscribed speed at no extra cost, increased email storage capacity and other perks. Competitive pricing and value additions to Business One customers from small- and medium-sized companies are also expected before the end of 2005.

On July 31, 2005, eCompany also launched iZone services at a number of "hot spots" around the UAE. The hot spots enable customers to use laptops or PDAs to access high-speed internet connections in public areas such as convention centres, airports and major hotels.

RISING PROFITS: ETISALAT has 60:40 government/private- sector ownership and is a publicly listed company that has always worked as a commercial entity. Profits rose 19% in 2004 to reach Dh3.4bn (US$925.82m), while the first-five months of 2005 saw a further 23.2% increase to Dh2.11bn (US$575.55m).

Full-year profits are now expected to pass the Dh4bn (US$l.09bn) mark.

The corporation provides 50% of its revenues to the government as royalties plus 60% of profits, making it a major contributor to the UAE budget.

HORIZONTAL EXPANSION: Over the past decade, ETISALAT has worked to strengthen its position and broaden its profit base by extending the range of its activities beyond the conventional trio of fixed-line, mobile and data services to virtually all elements in the telecoms chain. Emirates Cable TV and Multimedia (EVision) uses fibre-optic, co-axial cable and broadband-wireless access (BWA) to deliver triple-play services to 300,000 homes in the UAE.

In 2004, it added 13 new channels and now offers 200 channels in 21 languages. ETISALAT established its own card manufacturing facility in Ajman under its Ebtikar brand and produced 200m cards in 2004. It is now planning to boost production capacity to 350m in 2005, including 310m pre-paid cards,10m SIM cards and 30m cards.

GOING ABROAD : With its coffers full and facing competition in its domestic market, ETISALAT has been on a drive to find new pastures. In the past two years, it has spent heavily on licences for telecommunications companies stretching from Saudi Arabia to Pakistan and Africa, in a drive to leverage its investment and experience in its home market and ensure long-term growth.

It enjoyed notable success in August 2004 when Etihad ETISALAT, a consortium led by ETISALAT, won the hotly contested second mobile licence in Saudi Arabia for US$3.45bn and took the first Saudi 3G licence. The company now has a 25-year option to own and operate GSM and 3G services in Saudi Arabia

The value of the ETISALAT brand was clear in November 2004, when an initial public offering (lPO) of 20% of Etihad ETISALAT's shares in Saudi Arabia was 51-times oversubscribed. When trading in the stock began, its value soared. By January 2005, the company had a market capitalisation of about US$10 billion. With Etihad ETISALAT, the company finds itself in the challenging position of a newcomer competing against a well-established former-monopoly incumbent in Saudi Telecom.

ETISALAT has been moving aggressively to expand its presence throughout Africa. In November 2004, it was awarded a licence to operate a second fixed-line service in Sudan through a 40 per cent stake in the Canartel Consortium operator. It plans to invest US$ 200 m in the venture and expects to have 500,000 fixed lines operational in the first year. ETISALAT will manage, operate and maintain the Canartel network, while its ETISALAT Academy will train the company's Sudanese labour force.

ETISALAT also holds a 34% stake in Zanzibar Telecom (Zantel), and now has a licence to provide mobile services in Tanzania.ln April 2005, ETISALAT agreed to pay US$80m for a 50% stake in Atlantique Telecom, which operates in seven West African countries.

The company made its first foray into Asia in June 2005 with a successful US$2.6bn bid for a 26% share of the Pakistan Telecommunications Company. In addition, ETISALAT has minor holdings in Sudan Telecommunications (Sudatel), the incumbent operator in Sudan, in Qatari national provider Q-Tel, and a 34.5% share in Thuraya Satellite Communications.

With its international portfolio skyrocketing, ETISALAT has established ETISALAT International as a wholly owned subsidiary to handle its overseas operations. ETISALAT has clearly established itself as a leader in the regional telecommunications sector. Its competitors will be watching to see how well it handles its vastly expanded range of operations.

OUTLOOK: ETISALAT has a reputation for staying ahead of the field in regional terms, and in the next few years it will be interesting to see how it copes with direct competition at home. Analysts will also be watching to see how the new licensee can carve out a share in an already well-provided market, and how customers will react to the changes. The mobile sector is expected to be a major focus of competition.

Over 85% of UAE mobile users are in the pre-paid segment, which bases rates on price sensitivity rather than loyalty. Penetration rates are expected to continue to rise and GIC anticipates they will surpass the 100% mark in the next few years, as many business people and tourists who visit the UAE on a regular basis maintain their non-resident mobile lines. About 13% of UAE residents subscribe to two mobile lines, one for work and one for personal use.(The Emirates News Agency, WAM)


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