Etisalat and du face the prospect of a new rival in the lucrative UAE market, which may well be good news for customers as a 'virtual' alternative could spur changes. Tom Gara reports All good things come to an end, and for the two companies running the UAE's telecommunications infrastructure, the end of business as usual will begin in the coming year. Since du broke 30 years of monopoly in 2007, Etisalat has posted record profits and grown at a breakneck pace, domestically and internationally. And du has rapidly emerged as a serious competitor in one of the world's most profitable markets, posting margins of more than 50 per cent and breaking even in just 18 months.
For consumers, the story is mixed. Prices have come down and real choice is emerging in the mobile market. Despite remaining a popular target for complaints, Etisalat's customer service system has improved significantly. But in some areas, prices remain high. Despite a regulatory system designed to enable competition, the UAE internet market remains divided into geographic monopolies, severely limiting customer the choice of internet access provider. And international calling costs remain steep.
Both companies benefit from the duopoly. For du, the position as Etisalat's only competitor means that it stands to gain in any area where the latter may lag. For Etisalat, the power of inertia - and the lack of a system to "port" your phone number to another operator - means its customers are sticking where they are. The Telecommunications Regulatory Authority (TRA) has said du would be given a three-year grace period, with no new competitors, to become sustainable and profitable. That period is coming to an end and those in the know say the regulator is already commissioning studies on the best way to move competition forward through new market participants. One assumption it is safe to make is that the next operator to launch here will not invest billions of dirhams building a new network, as Etisalat and du have done.
The UAE is a small country now blanketed by a high-speed mobile network, with a fibre-optic internet system to reach almost every home and office in the country by next year. There are already more than two mobile phone subscribers for every man, woman and child, meaning a new operator would be unlikely to attract hundreds of thousands of new customers every quarter as has been done in recent years.
These factors mean the economic logic of building an entirely new network is simply not there, and the costs of a third set of mobile transmission towers popping up in every neighbourhood in the country would not be paid back by significantly better service. This all points to a "virtual" network operator being the most likely to emerge. Virtual operators purchase access to an existing infrastructure network and resell it under their own brand with their own customer service and marketing. Such a network can be launched quickly, cheaply and with a maximum focus on customer service and unique offerings.
There are a number of international examples of how virtual networks can bring something new to a market. In Oman, Hala FM, a radio station part-owned by the MBC broadcasting group, has launched Halafon. The virtual network targets Hala FM's young listeners, with a tight integration between the phone service and the radio station. In Japan, Nokia operates a virtual network for customers of Vertu, the brand of high-end mobile handsets owned by the Finnish manufacturer. The Vertu virtual network is built around luxury and exclusivity, incorporating a personal concierge service and private events for subscribers.
And in the UK, the Blyk virtual network offers a free mobile service to teenage customers, earning revenues from advertisers rather than callers. In return for accepting a number of multimedia advertisements sent to their phones each day, Blyk customers are given a free monthly allowance of calls and text messages. Virtual networks need not be built on a gimmick or a new business model. The Virgin Mobile network in the US applied the same branding savvy and focus on quality customer experiences that Sir Richard Branson is famous for across the globe. He recently announced the sale of the network in a deal that included stock valued at $483 million (Dh1.77bn). A report in The Times said Virgin was considering using some of the proceeds to invest in virtual network opportunities in the Middle East.
The UAE has no shortage of companies interested in running such a network, from media operators to mobile retailers. Vodafone, which recently became the Arab world's last mobile monopoly in Qatar, has said its entrance into the Gulf state had made it more comfortable running networks as joint ventures with local partners (Vodafone Qatar is a partnership between Vodafone and the government-owned Qatar Foundation).
A previous reluctance to enter such partnerships meant Vodafone has largely avoided the Middle East, but persistent rumours say the company is looking very closely at the UAE. The system that licenses telecoms companies, including mobile operators, is theoretically open for applications from any interested party. In practice, however, the decision in most countries to allow a new mobile operator into the market often has a political dimension. For instance, telecoms is one of the UAE's strategic national industries, with Etisalat the nation's largest public company (and a leading employer).
Regardless of how it happens, a third network provider would be welcome news for customers. email@example.com