Cheap calls to ring in rivalry

The number two telecoms operator du will be the first to offer cheaper internet-based overseas calls from next month.

The upstart number two telecoms operator du is hoping to fuel its subscriber gains against Etisalat, the market leader, by becoming the first to offer residents cheap internet-based overseas calls from next month. Companies in the region have been hesitant to embrace voice-over-the-internet (VoIP) packages to residential customers because they hit revenue from international landline calls, a lucrative part of their businesses.

Last month, the Telecommunications Regulatory Authority (TRA) gave its approval for local operators to provide VoIP services, while maintaining a ban on internet telephone services such as Skype. "We will start to develop services that are based on voice over IP for the end user. Whether it is through handset or the Web or different types of devices, these things will happen," said Farid Faraidooni, the company's chief commercial officer.

"Calling through your mobile and landline will still be there ? and you will create a market where people are receptive to compromising a bit on quality to get a cheaper method of calling locally or internationally." In the three months to December, du gained 337,000 mobile subscribers to 3.47 million, and added 48,000 "fixed-line" customers, including landline, broadband and television users, to reach 406,000. Etisalat had 7.71 million mobile subscribers at the end of March, down 30,000 from December. It lost 10,000 fixed-line subscribers but added 50,000 internet users domestically.

Etisalat already offers VoIP to its business customers, but does not have a similar promotion for its non-business clients. "It all comes down to offering choice to consumers," Mr Faraidooni said. du is talking with Skype about the company installing the application on du's mobile devices. Skype has signed deals with operators such as Verizon of the US to install its software on their devices in a revenue-sharing deal.

Irfan Ellam, a telecoms analyst with Al Mal Capital in Dubai, said a VoIP service could be successful in the UAE but that operators needed to carefully watch the demand to find what level of pricing they should offer, to avoid harming their landline revenue. "It could work out very well with the national expansion with the fixed line [scheduled for the end of June]," Mr Ellam said. To fund its broadband and mobile plans, including VoIP, du announced it was seeking to raise Dh1 billion (US$272.2 million) in a rights issue next month.

Osman Sultan, the chief executive of du, said the rights issue would not be worth more than Dh1.91 a share and had the support of its major shareholders, which planned to subscribe to the issue. du shares fell 4.55 per cent yesterday to close at Dh2.73 per share. The telecoms company's biggest owners are Dubai Holding, the investment company of Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai; Emirates Investment Authority (EIA), which is owned by the UAE Government; and by the Abu Dhabi investment vehicle Mubadala Development.

The remaining 20 per cent of its shares are traded on the Dubai Financial Market. Mr Sultan said majority shareholders could subscribe to their maximum allotment, with the remaining 20 per cent to be offered to the general market. Dubai Holding, EIA and Mubadala would also have the option of increasing their stake in the issue after the market finishes subscribing to the shares, he said. "We have established a plan for the coming three to four years to allow us to have the right funding and financial structure to meet our ambition," Mr Sultan said.

"The rights issue is one step into this; it is a controlled step. We hope that ? we will have a more optimised capital structure that will allow us to leverage better and have the flexibility to explore other financial options in the years to come." Mr Ellam called the rights issue announcement a "positive" one and said it would help the operator raise more debt in the future. Etisalat said it was also considering a VoIP service for consumers.

Khalifa al Shamsi, the vice president of consumer market for Etisalat, said "innovative tariffs and technologies" such as VoIP services will be coming soon, without elaborating on a specific date. [e-mail]