Etisalat: saturation point looms
Etisalat has been the telecommunications service provider in the UAE since 1976 and was one of the first companies to offer mobile phone services in the Middle East. The company is ranked 140th among the Financial Times Top 500 Corporations in the world in terms of market capitalisation, and is ranked by The Middle East magazine as the sixth-largest company in the region in terms of capitalisation and revenues.
Apart from providing the UAE with basic telecommunications services, etisalat also offers a range of products that have positioned the country as one of the most advanced nations in telecoms. Mobile phone users enjoy voice and data applications like WAP, GPRS, 3G, MMS, Push-to-Talk and BlackBerry services. Enterprise customers have services such as Asynchronous Transfer Mode, Frame Relay, VSAT and ISDN. Mobile phone subscribers exceeded six million by the end of last year, representing a penetration of more than 150 per cent.
Etisalat now faces competition for the first time from du, the UAE’s second telecoms operator. The company has been aggressive in its entry into other countries in the Middle East, North Africa and Southeast Asia.
Excerpts from an interview with etisalat Chief Executive Mohamed Khalfan Al Qamzi:
Mohamed Khalfan Al Qamzi, CEO
Mohamed Khalfan Al Qamzi became Chief Executive of etisalat in April 2006. Since then, he has overseen the company’s rise to global prominence. He has also placed emphasis on the positive role etisalat can play in promoting the economic and social well-being of the UAE. He is a vocal advocate of the principles of social responsibility, and has actively supported educational and environmental initiatives.
What do you have to say about recent complaints related to the efficiency of your network and its inability to accommodate new lines you have recently sold?
It is not true that we have overloaded our network; it has a bigger capacity than several countries in Europe. And I believe you are talking about breakdowns and lack of coverage. This happened in the Global Village recently when it was difficult to make phone calls from there. It was because of a breakdown in transformers and has nothing to do with the network or its capacity. Also, in case of special events such as exhibitions or concerts, we send back-up vehicles with GSM systems to secure better coverage and boost capacity. We have deployed 47 such extra systems. Breakdowns happen due to various reasons, including power failures.
What about network congestion during Eid holidays and on important occasions?
During Eid the problem is often due to the inefficiency of the receiving party’s network. The proof is that internal phone calls do not face the same problems.
You have obtained approval for new mobile prefix 056. What does this mean?
It was natural to ask for a new code. Several countries have more than one code for mobile communications. The new code will help avoid increasing the number of digits in the 050 phone numbers to 10. The new prefix will make it easier for customers. This has nothing to do with the capacity of the current prefix. We will introduce 056 soon.
What is the capacity of the new code?
Some 10 million lines.
Are you satisfied with the level of competition in the country’s telecommunications sector, given that both etisalat and du are simultaneously delivering special offers?
Until now I have not seen any competition from the new operator, which is still in the establishment phase. It has not reached the position where it can be a rival.
How has the new telecoms operator affected your growth?
Growth has not been affected by the introduction of the new company. Rather etisalat has achieved higher growth rates than last year. This is what the figures have to say. Etisalat has managed to increase the number of subscribers. We have some one million new subscribers to our mobile phone services. The total number of subscribers is 6.3 million. This means the rate of penetration of mobile phones on etisalat’s network has reached 150 per cent, the highest in the world. We have 1.32 million fixed lines, while the users of internet services are more than two million, with a 60 per cent penetration, which is the highest in the Middle East.
There are allegations that etisalat has become used to being a monopoly and has not taken care of its customers before the emergence of the new operator.
It is not true. We have to be fair here. Maybe you remember when etisalat started its GSM service 12 years ago, the prices were high compared with now. We have voluntarily reduced the prices more than once and before the emergence of the new operator. Also, international calls now cost less. A call to the United Kingdom now costs less than Dh3 a minute from some Dh12 previously. We have won the consumers’ satisfaction because we offer quality services and keep our promises. There is no fairness in this accusation, especially with the pressures we are facing.
What pressures are you facing?
Etisalat is facing several pressures and burdens that are not experienced by the other operator. A study is under way to reduce the volume of government concession to etisalat. Another issue is the free local calls from landlines. This adds greatly to costs because the network cost is very high. We disperse huge amounts of money to cover this service. However, we recover these expenses from somewhere else. We are not aware of any other company offering this service for free. There is also the issue of GSM coverage in remote areas such as deserts, mountains, out at sea and on remote roads. This costs us millions. In some countries, the service is available only in cities and on main roads, and the operator does not commit itself to providing services in unprofitable sectors. Etisalat is not getting the appreciation it deserves in serving the consumer and the country.
What are the negative effects of government concessions, and how does it affect your development plans?
The market is changing and more operators are expected. Etisalat will definitely need more funds to keep pace and to execute development programmes. Therefore, a reduction in the rate of government concession is inevitable.
We have a long record of success and high growth rates. Etisalat’s net profit in the first nine months of 2007 amounted to Dh5.5 billion. The market had responded positively last year: we have had more customers and met our targets. Some results even exceeded forecasts.
How was etisalat’s performance in foreign markets?
We have achieved considerable growth in foreign markets. It is not easy to enter new markets and prove your efficiency within a short span of time. This growth has come even with the burden of government concessions.
Are you planning further overseas expansion?
Our focus at the moment is on Asia and Africa. I am not in a position to reveal more.
The total value of your foreign investments reached Dh36bn recently. What is the figure now?
We have no limits. When there is an opportunity somewhere, we go for it. The market value of etisalat is rising by the day as we attract more and more customers. In Egypt we managed to attract some four million subscribers in six months, and we are not working to our full capacity yet. We are aiming for further growth, but there is no hurry.
Is there any possibility of the government giving up part of its 60 per cent stake in etisalat?
The state can decide what it deems fit. It can invest in the sector it sees as appropriate. When we see the time is suitable for new investors we will not hesitate.
There are expectations of a unified infrastructure for etisalat and du. Is it possible?
This expectation is far from logical for several reasons. The co-operation currently taking place is something common in all counties. It happens within commercial frames. However, a unified infrastructure for operators is unrealistic, especially in view of the fact that etisalat has worked largely alone on the establishment of this infrastructure, winning the first position in the Arab world with regard to network readiness.
Will work be distributed between you and du on a geographical basis, even partly?
Under the licence, both companies can provide services across the country. This is what the [UAE Telecommunications Regulatory] Authority has said on several occasions despite the fact that no agreement on a link between the operators exists. So far we are not able to meet requests by customers who insist on having our services in areas we have not been able to reach for reasons beyond our control. In this scenario, the principle of equal opportunities is somewhat impaired.
From etisalat’s point of view what are the expected growth opportunities in the telecommunications sector in the country?
The UAE market is almost saturated, but there is still some growth opportunity of about 10 per cent a year because of the economic and construction boom in the country. However, the growth rate will not continue forever, especially since mobile phone service alone has exceeded 150 per cent penetration. We will reach a saturation point. This means everybody has to benefit from the current state of growth in a carefully studied manner that should take the future scenario into account.
Of late etisalat has been offering extra value and diverse services to its subscribers. It has invested in regional and international markets to create a balance in its growth rate, should the local market reach full saturation and go down.
What is etisalat’s present position?
Etisalat has reached a better phase and has gone international. There is a big difference between yesterday and today. Etisalat is now a leading provider of products and services and has a lot to offer to the consumer.
What is the market response to third-generation (3G) services?
We have covered about 97 per cent of the UAE’s populated areas and have some 1,500 GSM stations. I believe that we have some 1.4 million 3G subscribers as well as 20,000 subscribers to the T-Mobile service, which are higher figures of penetration than some European countries.
How do you explain this growth?
The quality of service attracts more people. We had achieved a GSM penetration rate of 100 per cent in 2004, which has not happened anywhere else in the world. Now it is around 150 per cent, which means we cover the whole UAE population. In Saudi Arabia, the average was 29 per cent before we entered the market. Now it has reached 92 per cent of the population.
What services are you planning to introduce in the near future?
The future belongs to the internet protocol system. In this regard, we are installing a switchboard in Abu Dhabi and Dubai to serve all areas of the country. This will save us some 400 switchboards at the moment. Under this system, fibre-optic cables will deliver [both businesses and residences] high-speed internet and television connections. The capacity is 100 megabytes for households and one gigabyte for companies.
How many lines are you offering?
Currently, we have some 7,000 lines that will be operational in the coming two months in Abu Dhabi, while Dubai will have three times the number. The service is now extended to all new areas and real estate projects. Over the next three years we will complete the entire project. Our prices will be highly competitive because new technology will offer flexibility of installation, which means less cost. We actually have the infrastructure for underground fibre-optics and therefore the transformation will be easier.
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