The Arab region is one of the fastest in the world regarding telecom services penetration growth. The United Arab Emirates (UAE) telecom sector is the second-largest contributor to the UAE Federal Government budget after oil revenues (Ellam, 2008). Two major companies with comparatively equal share distribution represent the telecommunication market: Etisalat (Emirates Telecommunication Corporation) and Du (Emirate Integrated Telecommunication Company PJSC). While the sector is snowballing, there emerged policy-making and competition issues that affect service usage in the country. High prices, the government presence in ownership, and the lack of true competition negatively influence the telecom market in the UAE.
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The telecom market of UAE consists of two major players, Etisalat and Du, taking up almost equal shares in the sector. The central characteristics of the market are high-level GDP per capita, a great level of mobile penetration, a swiftly growing internet user penetration, and a steady level of fixed-line penetration (Ellam, 2008). The market was a monopoly until Etisalatuntil the UAE government, issued a license to Du in 2006. By 2008 Etisalat commanded 80% of the telecom market, and its share continued to decrease until the present day (Ellam, 2008), as Du’s overall market share reached 48.7% in 2012 (Ameet &Willis, 2016a). In short, the UAE telecom market is a duopoly relatively balanced between the two major players.
While the competition seems to be intact in the sector, it is based on special offers and promotions rather than on direct price competition. The price of the services provided by the companies is high; however, the fact is negated by the level of GDP per capita, as the UAE citizens can pay the price. The central reason for the situation is the high royalty fee paid by the service providers. Ellam (2008) states that “A royalty fee of 50% of the pre-tax profit makes Etisalat the second largest contributor to the UAE government budget after oil revenues” (p.11). Considering this factor, neither Etisalat nor Du can offer lower prices, making direct price competition impossible in the UAE.
Another characteristic of the market is the government possessing a large proportion of both players’ shares. According to Ellam (2008), the Ministry of Finance owns 60% of Etisalat’s share, and 40% are in free float. A similar situation can be observed in Du’s ownership structure, where the Federal Government holds 40% of the company’s shares (Ellam, 2008). The matter could be the second reason for the low level of competition between the two major players in the sector, as the government would not want to compete with itself. In short, the low liberalization level in the segment is a crucial component of the UAE telecom market.
The UAE telecom sector is considered the least liberalized due to the strict regulations in the sphere. The Telecommunication Regulatory Authority (TRA) is the body responsible for managing the frequency spectrum and elaborating policies and procedures in the matter. The authority is owned by the government and protects Etisalat and Du from all outside competition by limiting foreign investments and controlling the number of issued licenses (Ameet &Willis, 2016a).
The body even restricted the Voice over Internet Protocol (VoIP), making the citizens of the UAE unable to use Skype, Viber, WhatsApp, or FaceTime (Ameet &Willis, 2016a). This was made to ensure the duopoly of the two service providers in the telecom sector. In brief, the fact that both Etisalat and Du essentially belong to the government and the TRA protecting the telecom market with conservative policies makes the UAE telecom sector least liberalized.
Considering that the UAE Federal Government holds large shares of the two major players, one may deem the telecom market in the country a monopoly. Etisalat and Du recently received authorization to provide pre-paid packages without obtaining special approval (Ameet &Willis, 2016a). This fact allowed Mobile Network Virtual Operators (MNVOs) to enter the UAE telecom market. However, the two new service providers, Virgin and Axiom Telecom, cannot compete with Etisalat and Du in pricing, leaving the duopoly intact. However, Etisalat and Du essentially belong to the government, and there is no rivalry between them (Ameet &Willis, 2016a). Therefore, it would be rational to consider the UAE telecom market a Federal Government monopoly due to the absence of true competition in the sector.
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The peculiar structure of the sector considerably affects supply outcomes and important businesses. First, the prices are very high, making telecom service a significant expense item for companies. Second, VoIP ban for outside use makes it challenging and costly to run an international business. Third, due to limitations in competition, enterprises cannot acquire adequate service plans spending even more money on the matter. Overall, customers are not satisfied with the level of service provided by Etisalat and Du (Ameet &Willis, 2016a). To summarize, the non-perfect market structure in the UAE makes businesses face apparent difficulties.
After the introduction of Du, Etisalat’s profits from domestic operations are projected to decrease; however, the fact does not overly concern the company. The earnings of the duopoly are expected to grow regardless of the introduction of competition. The first reason for the matter is that the Federal Government is a substantial shareholder of both companies and wants both of them to succeed. Second, according to Ellam (2008), “Etisalat needs du to succeed for the telecom liberalization process to be viewed as a success” (p. 13).
Otherwise, WTO may consider the market a monopoly and demand a harsher regime for the company. Moreover, while Du’s objective is to establish high-quality domestic services, Etisalat aims at conquering the overseas’ markets and finding additional revenues from international services. In short, the profit of the two major players in the UAE telecom sector is expected to grow, as both of the companies have clear perspectives on their future development without interfering in each other’s affairs.
The mobile and internet connection markets are expected to grow in subscriptions and penetration levels. According to Ellam (2008), the penetration in mobile services was 166% in 2007 and was projected to increase to 188% by 2012. However, Ameet and Willis (2016a) stated that penetration level, while being the highest in the Arab states, reached only 178% in 2014. The number of mobile subscribers is also forecasted to grow from 9.2 million in 2007 to 11.9 million in 2012 and further (Ellam, 2008). The internet subscriber count is projected to increase from 0.9 million in 2007 to 1.15 million in 2008 and to 2.66 million in 2012 (Ellam, 2008). In summary, the projections for the UAE market are promising both for internet and mobile services.
Comparison of Telecom Sectors
The UAE telecom market structure is typical for the Gulf region due to the similarity of essential characteristics. According to Ameet and Willis (2016b), all of the Gulf countries have a high level of government control over the market and lack independent regulatory bodies, privatization, and true competition. At the same time, the prices of the telecom services are the highest in the United Arabic Emirates because the royalty fee is 50% (Ameet &Willis, 2016b). Moreover, the UAE shares leadership with Qatar in the number of unique subscribers in the mobile sector (Ameet &Willis, 2016a). In short, while sharing some similarities in the telecom market structure with other Gulf countries, the UAE is the front-runner of the sector in the region.
In European countries, the telecom sector is more advanced in comparison with the UAE, and it offers more exceptional services at a lower price. Mariniello and Salemi (2015) state that the central character of the European telecom market is true competition among numerous service providers and a high level of liberalization. Due to the progressive structure of the sector, the level of the services is superior to the one in UAE (Ameet &Willis, 2016a). Moreover, government interventions and interests in the matter are limited, which contrasts greatly with the issue in the UAE (Mariniello & Salemi, 2015). In short, the telecommunication sector in the European countries differs considerably from the UAE in key characteristics.
The UAE telecommunication market is a duopoly with a set of distinctive characteristics that include high pricing, considerable government presence, and lack of true competition. While the sector is trying to adapt to the rapidly changing demands of the customers, its structure still poses appreciable problems in front of the businesses in the UAE. The researches examined in the present paper show that the UAE government should follow the example of the European countries and offer policies that support liberalization of the sector. In conclusion, while the telecom market is growing steadily, the companies’ shareholders should focus on customers’ satisfaction as their primary goal.
Ameen, N., & Willis, R. (2016a). An investigation of the challenges facing the mobile telecommunications industry in the United Arab Emirates from the young consumers’ perspective. 27th European Regional Conference of the International Telecommunications Society (ITS). Cambridge, United Kingdom: International Telecommunications Society.
Ameen, N., & Willis, R. (2016b). Current and future challenges facing the mobile telecommunications industry in the Arab world. The 3rd World Congress on Computer Applications and Information Systems 2016. Dubai, United Arab Emirates: N&N Global Technology.
Ellam, I. (2008). UAE Telecoms Sector Report. Web.
Mariniello, M., & Salemi, F. (2015). Addressing fragmentation in EU mobile telecom markets. Bruegel Policy Contribution, 2015(13). Web.