Emergence of a New Telecom Operator In A Monopoly market Of UAE: DU

In February 2006, du received its integrated provider license at a cost of AED 124.5mn, thereby ending Etisalat’s near 30-year

monopoly on the provision of telecom services in the UAE.

DU offers mobile and fixed telephony, broadband connectivity and IPTV services to individuals, homes and businesses.  It also provides carrier services for businesses and satellite up/downlink services for TV broadcasters. Above all it also offers value, while it continues to deploy state-of-the art technology to keep enhancing its services.By October 2011 over 5 million people and over 40,000 businesses have chosen to use its services and become its customers.As a rapidly-growing enterprise it has over 2,000 staff working to enhance and expand its bouquet of service offerings. The UAE (United Arab Emirates) is one such country where the 30-year monopoly of Etisalat was ended with the entry of a new player, du.

Company Overview

Emirates Integrated Telecommunications Company (EITC) became the UAE’s second integrated telecom provider in December 2005, owned by:the UAE Federal Government (50%), Mubadala Development Co. (25%), Emirates Communications and Technology Co. (25%). EITC then acquired from TECOM Investments the assets, capital and businesses of a number of its subsidiaries, including an initial fixed-line subscriber base of 19,100 business and consumer customers.

The UAE Telecom Regulatory Authority awarded EITC the nation’s second universal telecom license (20-year validity) in February 2006, at which point EITC unveiled its operating brand name, du.In April 2006, 20% of du’s shares were listed on the Dubai Financial Market in an IPO oversubscribed by 166 times. The company launched domestic mobile services in February 2007, and by the end of 2007 claimed 1.5mn mobile customers and 46,000 fixed-line subscribers, yielding a market share of 19% by management’s estimate.

Vision of du

To enhance your life, anytime, anywhere.

Mission of du It wants to delight its customers, be the employer of choice for the best talent, create optimal value for its shareholders through business excellence and innovation, and proudly contribute to the transformation of its community.It works to deliver its vision by using its talent, skills and energies to connect, inspire and reward all it touches, every day.

Values of duWe are Confident, Friendly, Honest, and Surprising, and our values guide our actions.

The du team:

Telecom Sector worldwide

Over the last two decades, the telecom industry world over has grown and evolved at an incredible pace and has considerably changed the way people interact. Although, fixed line is still the most penetrated telecom segment; wireless or mobile segment has been the key contributor over the last decade, offering a wide range of opportunities to provider and services to customers. Today, there are more than 4 billion mobile phone users worldwide and this number is expected to reach 5 billion in coming years. The shift of revenue from fixed to mobile and from voice to data is accelerating. Apart from its social and cultural impact on modern society, telecom industry is one of the significant contributors of world economy with an estimated 3% of the global GDP. Driven by strong mobile and broadband penetration in emerging markets and substantial economic recovery in developed markets, global telecom industry is expected to see double digit growth over the next four to five years.

UAE Telecoms Sector: A “Du-opoly”?

The United Arab Emirates telecommunication sector is now worth AED 977 million or about $266 million based on Q1 estimates by market research firm GfK (Gesellschaft für Konsumforschung (Society for Consumer Research Germany)

The figure represents a 30% increase over the same quarter last year, with the value of the UAE telecommunication sector remaining in the AED 700 million ($190 million) range for most of 2009 before recording the jump earlier this year. The rise is credited to burgeoning demand for smartphones in the country.

GfK's research also shows that the smartphone market has overtaken the traditional mobile phone segment in terms of value for the first time, growing 47% quarter-on-quarter.In the smartphone sector, the touchscreen segment grew by 58% in value, followed by QWERTY phones with a 26% value rise

The table below sets out a range of main indicators specific to the UAE telecommunications sector for 2010:

DU OPEARATION

Du business mobile services provides a host of business and entertainment features with single structured billing, mobile roaming , closed business user group, competitive calling rates coupled with preferred international destinations and power -Bill for added convenience to businesses across the UAE.

Mobility solutions such as BlackBerry and Mobile Data extend the reach of business processes beyond the conventional boundaries; accordingly du enables business professionals to connect and access business data while on the move and from anywhere. du voice solutions offer an array of value-added services as well as premium reporting and billing options for inbound and outbound voice traffic. Business contact centre, hosted voice, call select and several other solutions are also part of the product portfolio.

du’s internet & IP access solutions namely MPLS, IPLC, DLC, IP VPN and broad band services, are designed to provide reliable data connectivity for domestic and international business. Managed business TV services include a wide range of TV content solutions suited to commercial and hospitality industry customers. Managed Services aim to enhance the business value of IT investments through improved operational efficiency and service levels , enabling customers to manage control over IT operations as required, while staff focuses on core business .

To stay ahead of competition, the fully integrated telco places customers at the centre of its strategy. Offering business customers high-touch account management with industry expertise to proactively consult and advise specific businesses on how to best utilize communication resources. Professional services offers pre-sales technical consultancy, complete project management, implementation and support, performance management and service auditing to enable businesses take the right decisions at every stage of the business life cycle.

Designed for sophisticated and complex business needs, du offers dedicated service professionals with vast knowledge and experience to tailor the best telecommunication solution. This is further bolstered by exclusive business customer support , offering top quality multilingual round the clock service support to ensure that requests and queries are fulfilled within the agreed service levels.

UAE telecom market lacks competition The UAE telecom market lacks competition but customers are seeing some improvement in the number of services offered by the country’s two operators.

Du was launched in 2006 as part of a government plan to boost competition in the telecommunications sector but delays in infrastructure and number portability deals have failed to create value.A shared infrastructure deal with Etisalat, which would allow du to reach areas that could not be accessed before for fixed line telephone, internet and television services, is being hammered by technical glitches.

Prices are significantly higher in Dubai then they are in Qatar and this is due to lack of real competition.There is competition in what is happening to customers; every day there is a new offer, every day there is new offer of getting value for money, there is competition from the customer point of view.

Diversification:

Du, is shifting its focus from growing mobile market share to increasing subscribers to its data package services.The operator, which currently has a 44 percent share of the UAE mobile market has subscribers to data package services is increasing four-fold,.

Despite the shift in strategy there is no reason why du cannot overtake its competitor, Etisalat, in terms of market share.

Dubai-based du, which broke Etisalat’s monopoly in 2007, has steadily been gaining market share but mobile subscriber

growth is slowing down, making data services increasingly important.The firm in August said its mobile phone subscriber base had increased by 171,100 in the second quarter to 4.8 million, while fixed-line customers grew 25 percent to 623,600 lines.The network currently has five million active customers in the UAE.Subscribers to the operator’s data package services are quadrupling.“

Customer interest due to price

Etisalat

du

both

0

20

40

60

80

100

VOIP- a threat to uae telecom:

Voice over Internet Protocol (VoIP)-a revolutionary technology, it is a combination of hardware and software that enables companies, organizations and individual users to use the Internet as a

transmission medium for telecommunication. In VoIP both technology and services are involved where the Internet protocol is a technology which is using a common computer network and transmission as a service. The VoIP mechanism is different from the traditional phone system. In VoIP analog audio signals human voice converts into digital signals and then these audio digital data transmitted over the Internet in the form of data packets. The Internet plays a major role as a backbone in VoIP communication system. Following are the key factors which come in favor of VoIP Technolygy over Public Switched Telephone Network PSTN.

Reduce communication cost• Multiple users• VoIP-Hardware and software• Reduced administrative cost• Improved manageability• Increased flexibility

In UAE Etisalat and Du are two main telephone and Internet services provider. Currently most of the business users and home users are making international calls either from Etisalat or from Du and VoIP in UAE is legally not allowed. On the other hand it is no denying a fact that the large number of people are still using VoIP from different source like Internet cafes, homes etc. The major use of VoIP in UAE is mostly for cheap international calls through the Internet using software like Skype, SweetCalls, FreeCalls, IntVoIP, VoIPWise, etc., with relatively cheaper rates. Most of the VoIP software use Virtual Private Network (VPN) for example, Hotspot shield, Smart surf, KongShare etc., where these VoIP communication packets can transfer through VPN tunnel and that make it easiest and safer way for making international calls and Etisalat or Du are mostly not able to chase these kinds of VoIP data packets.

Skype and all other major VoIP services are completely blocked in UAE. There are however some ways to get around. User can use a VPN hosted in foreign countries and just connect to that VPN. So effectively all voice call traffic is carried on the VPN server and user can use VoIP from UAE. Etisalat and Du are trying their best to block the known VPN and the new VPN are emerging to facilitate Etisalat and Du users to connect to them and use the VoIP services and this hide and seek game is

going on.

Telecom Liberalization - WTO Driver

The liberalization of the UAE telecoms sector is driven by the UAE’s membership of the World Trade Organization (WTO), which it joined in 1996. In 1998 a total of 69 member countries agreed to open their telecommunications sectors to competition, under the WTO Basic Agreement on Telecommunications. The WTO aims for the global telecom sector to be completely liberalized, free from monopoly or government protection by 2010.

However, the UAE negotiated concessions and, under current WTO rules, its deadline for complete telecoms market liberalization has been extended until 2015. The telecoms sector in the UAE is regulated by the Telecommunications Regulatory Authority (TRA).

Telecom Regulatory Authority: (TRA)

The UAE’s Telecom Regulatory Authority was formed in 2003 with the aims of:

i) building and implementing a regulatory framework to foster and facilitate competition between telecom operators in accordance with World Trade Organization stipulations, and

ii) helping meet the federal government objective of turning the UAE into a regional ICT hub by developing training institutes and encouraging research and development.

The TRA is funded through license and spectrum fees as well as government funding via royalty fee payments.

The TRA granted licences for companies offering various telecom and IT services such as satellite services and Public Access Mobile Radio based on its licensing framework as per the UAE Federal Law by Decree No. 3 of 2003 – Telecom Law. Currently there are six licences that have been granted to different companies: Etisalat, du, Nedaa, Al Yah Satellite Communication Services and Star Satellite Communications Company.

Key Regulatory Policies in Place

National Roaming: The TRA requires Etisalat to offer roaming services to du on Etisalat’s own mobile network. As du continues to expand its own mobile network infrastructure, it is becoming less reliant on the roaming agreement. We understand du is still utilizing a limited amount of Etisalat’s network in the western and middle regions of the UAE.

Mobile Number Portability (MNP): Initially MNP was planned to be introduced at the same time as du launched its mobile services, but its introduction has been delayed. The TRA has now stated that it intends to introduce MNP in 2008. If this is implemented on the basis of full number portability, including the prefix carrier code (i.e. 050 for Etisalat, 055 for du), we believe this will be have a material impact in determining market share and subscriber growth. However we believe telephone number are “sticky”. Without full number portability, users may be deterred from changing their operator because of the inconvenience of having to inform all their existing contacts of a new telephone number and the potential cost of having to changing business cards and other stationery.

Voice-over-Internet Protocol (VoIP): VoIP is allowed to be used on private telecommunication networks, i.e. corporate networks, but not to make international calls or calls to other networks. This means use of VoIP services like Skype, Net2Phone and Vonage are banned in the UAE. Under their license terms, both Etisalat and du can provide VoIP services to the public, but neither operator provides such service nor has indicated they will do in the future. We assume that the UAE’s ban on VoIP services such as Skype will continue for the time being. VoIP services were accessible from the

free zone areas serviced by du, but have been blocked recently as du complies with the TRA policy on VoIP.

Interconnection: Until recently, du enjoyed an unofficial monopoly of fixed-line services in most of the areas colloquially known as ‘New Dubai.’ Within most New Dubai areas, Etisalat’s internet, voice telephony, and TV services are delivered via du’s infrastructure. At the same time, du relies heavily on Etisalat’s wireline infrastructure for outgoing voice and data traffic from New Dubai.

Carrier selection and pre-selection: Under TRA regulations, fixed-line carrier and pre-selection is allowed and has been implemented by du, while Etisalat in the process of implementation. Once implemented fully, we could see users taking advantage of du’s cheaper peak time international charges. This should encourage Etisalat to lower its international call rates.

References:www.Arabianbusines.comwww.Gulfnews.comhttp://www.itp.net/580602-uae-telecom-sector-now-worth-aed-977mhttp://www.businesswire.com/news/home/20110930005069/en/Research-Markets-Telecom-Sector-UAE---Trendshttp://en.wikipedia.org/wiki/Emirates_Telecommunications_Corporation#Historyhttp://www.almalcapital.com/files/news_pdf/Initial%20Telecoms%20Sector.pdfhttp://www.busmanagementme.com/article/du--Taking-the-UAEs-Communication-Industry-Forward/