The revision of the fees paid by Etisalat and du to the UAE Government may bring some short-term pain to the operators - but will ultimately prove a key development for the industry.
Structure will give Etisalat and du investors certainty
While the rates charged to the operators are higher this year, the fact that the UAE Government has set out the fee structure through to 2016 adds greater certainty for investors, and will eventually lead to a level playing field between the operators.
Since its launch in 2007, du has enjoyed exponential growth in its market share at the expense of Etisalat's previous monopoly in the UAE and has also benefited at inception from a grace period from any royalties before it started paying comparatively timid rates from 2010.
Last year, it paid 15 per cent of its profit and 5 per cent on revenues to the Government. Etisalat, on the other hand, has historically been charged 50 per cent on its net profit.
And so the announcement yesterday by the Ministry of Finance of the increase to du's royalty rates is only in the spirit of fair competition, with the fees charged to the two operators set to come into alignment in 2016. Meanwhile, Etisalat will for the first time see its revenues as well as its profits subject to royalty fees, coiniciding with a return to profits growth. Furthermore, du's royalty rate has historically been set retroactively.
The establishment of the fee structure will give certainty to investors and do away with the less than ideal scenario of provisioning for royalty payments without knowing what levels they will ultimately reach.
Yet as du matures, it faces other challenges. Unlike Etisalat, the UAE is du's only source of income. There has been talk of expanding outside of the country as a mobile virtual network operator. How such a move would further alter the telecoms landscape remains to be seen.
* with Triska Hamid