No company is guaranteed perpetual growth. All face the challenge of the corporate cycle, when changing external market conditions and internal dynamics have to be recalibrated and fine-tuned.
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Last Updated: May 18, 2011
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Etisalat is in such a position now. For a host of reasons, the UAE's telecommunications champion finds itself at a crossroads. The decisions it makes in the next few months will be crucial, not just for its own corporate wellbeing, but also for the UAE.
It's hard to overstate the importance of the company. It is the biggest stock on the Abu Dhabi Securities Exchange, with a capitalisation of about US$23 billion (Dh84.48bn); it is a major contributor to the UAE federal budget, via royalty payments that pulled in $2bn last year; it is a big local employer and a focus of the Emiratisation strategy, with enormous consumer interface.
Internationally, it is regarded as the leading telecoms provider in the Middle East, and is one of the few UAE companies that regularly makes it on to the lists of global brands. So what happens at Etisalat matters hugely for the Emirates.
It is at home that Etisalat faces perhaps its greatest challenge. Since 2007, when rival du was launched, Etisalat has ceased to be a monopoly provider and has faced the brisk wind of domestic competition.
The newcomer has made steady inroads into Etisalat's domain. At the last count, du had 41 per cent of the mobile market and was eating further into the premium market for post-paid subscribers.
This trend could be accelerated with planned moves to increase mobile number portability, and to give du access for broadband and landline across the UAE.
Etisalat is naturally aware of the threat from du; it has always said it welcomes competition. It recently appointed a new chief marketing officer for the UAE to take up the challenge. But in a near-saturated market it is going to be a demanding task without structural changes.
While Etisalat has been trying to fight off du at home, all eyes have been on international ventures, and in recent months, a series of setbacks.
Perhaps the most serious was the decision not to proceed with the takeover of Zain, the Kuwaiti telecoms group, after many hours of management time had been expended on the multibillion-dollar attempt.
Etisalat fell victim to changing circumstances among the shareholders of Zain who, it appears, were not wholeheartedly committed to a sale anyway.
The decision to pull out of bidding for the third Syrian licence was another setback, mainly prompted by fears of overpaying, although the way things have gone in the country since then may make it a blessing in disguise.
India and Pakistan are two important but difficult markets, with high levels of competition and low margins. The telecoms corruption scandals that have hit India in recent months merely confirmed how tough it can be on the subcontinent.
Etisalat faces the same problem as all the big mobile operators the world over: opportunities to purchase instant growth in mobile are becoming more limited.
It might buy bigger stakes in those successful operators in which it is already involved, such as in Egypt, Saudi Arabia and Nigeria; it might even have another go at Zain or some part of that business once the situation in Kuwait is clarified. But overseas growth will be much tougher.
One concern for shareholders is whether Etisalat has the management strength in depth to face these challenges. It currently has acting executives in the roles of chief financial officer and chief executive.
It would calm investor sentiment if a permanent decision were made on these positions, and help the board make decisions on cost control, vital in the era of Microsoft-Skype.
The Government can help too, and there are signs the authorities are prepared to take further steps along the path of telecoms liberalisation that would simplify Etisalat's decision-making.
The system of royalty payments, by which Etisalat handed over 50 per cent of its net income last year (compared with du's 15 per cent), is being examined by international consultants with a view to establishing a more level playing field. The Government, anyway, is committed to complete liberalisation of the telecoms business by 2015.
Finally, Etisalat and the UAE authorities should begin to address the issue of foreign investment in the company. As the Middle East's leading telecoms group, and a symbol of the UAE's modern economic growth, it is a story overseas investors would surely buy into.
