Four years ago it appeared that nothing could push Etisalat off its pedestal.
The telecommunications operator held a virtual monopoly on the UAE's mobile phone, land-line and internet market, much to the chagrin of many customers who griped about the company's significantly high costs.
All that changed the following year when the upstart operator du entered the market, offering mobile services across the UAE and internet packages in select areas of Dubai.
Since then, du has steadily gained on Etisalat, winning an increasing number of mobile customers. And it stands to capture a large piece of the internet and television market once the operators acquire the ability to share networks early next year.
Despite leading the way in the UAE's telecoms market, competition has begun to chip away at Etisalat's revenues. That picture became clearer when the operator posted its bond prospectus before issuing its US$1 billion (Dh3.67bn) sukuk on the London Stock Exchange.
Etisalat's mobile operation in the UAE is its most lucrative business, yet it is also its most vulnerable.
The company's share of the domestic mobile market is about 63 per cent, with flat subscriber growth adding only 10,000 new mobile customers in the third quarter. By comparison, du added 159,800 new customers to its mobile business in the last quarter, and now has about 37 per cent of the market.
"[du was] coming into a market where prices were very high and it's been pretty easy for them. Quite frankly, you'd have to be really bad not to take a decent share from a market which is that lucrative," said Martin Mabbutt, an analyst with Nomura Securities in London.
"You can do two things as an incumbent. You can decide to try to keep a decent amount of market share and drop prices, or you can decide to lose a bit of market share and keep pricing reasonably high in your legacy base."
Etisalat's monthly average revenue per user (ARPU) figures, a key financial measure in the telecoms business, has also been affected by the competition, decreasing from Dh176 in 2007 to Dh118 in the most recent quarter.
Etisalat's mobile business has also suffered from a high rate of "churn", the number of customers that have left the operator.
Although it is not clear how many of Etisalat's customers have signed up with du or left the country entirely, Etisalat's churn rate rose from 15 per cent in 2007 to 25 per cent last year. It has since declined to 17 per cent in the first nine months of this year.
Along with competition from du, Etisalat has also been affected by Voice over Internet Protocol (VoIP), a technology banned in the UAE. Although rates vary throughout the world, VoIP is cited as the main reason that Etisalat's customers made 10 per cent fewer international calls between 2008 and last year.
"If customers continue to utilise illegal and unlicensed VoIP services and/or if Etisalat cannot offer competitive [international calling] rates compared with its international and local competitors, this may have a material adverse effect on its business," said Etisalat in its prospectus.
To counter this trend, Etisalat says it will "focus on introducing more value-added services, such as specialised media content and enhanced mobile internet services", to help it increase its revenue from data services and offset the decline from its ARPU.
To mitigate the fortunes it is experiencing at home, Etisalat is casting its net across the Middle East, Africa and Asia. Using its financial clout, it has invested in 17 countries and now has about 94.7 million customers beyond its domestic base.
And its international operations are beginning to pay off. Led primarily from its Egyptian subsidiary, these revenues contributed Dh5.2bn, or 22.5 per cent, of Etisalat's profit in the first nine months of this year, an increase from Dh3.4bn, or 14.5 per cent, on the same period last year.
Etisalat's new strategy was confirmed last month with its offer to buy Zain of Kuwait for $11bn, or 1.7 Kuwaiti dinars per share. While Etisalat will issue $8bn in bonds to help finance the deal, which is expected to close in the first quarter of next year, it should benefit by leveraging its scale in building telecoms networks and procuring handset devices.
"The lifeblood to telecoms operators is international expansion," said Mr Mabbutt. "Etisalat's been the most aggressive, or at least the most expansionary, out of any of the Middle East operators. The Zain deal makes it into a big player and the most significant player in the region."
Etisalat officials declined to comment.
1976: Etisalat is established as the UAE’s main telecommunications operator, enjoying a monopoly on mobile, internet and fixed-line services.
2004: The company makes its first international venture after it is awarded a mobile licence in Saudi Arabia for US$3.25 billion (Dh11.93bn)
2005: Etisalat acquires a 50 per cent stake in Atlantique Telecom, a company with operations in Benin, Burkina Faso, Togo, Niger, Central African Republic, Gabon and Ivory Coast. Etisalat purchased the operator outright in February this year.
2006: In May, Etisalat establishes a subsidiary in Afghanistan after paying $1.2bn for a licence. In August, Etisalat is awarded a licence to operate in Egypt for 16.7bn Egyptian pounds (Dh10.66bn) and begins operating as the country’s third mobile operator under the Etisalat Misr brand one year later.
2006: Etisalat acquires a 26 per cent stake in Pakistan Telecommunication Company for $2.56bn in October that includes a premium for management control.
2007: In February, du begins operations, offering mobile services across the UAE and internet packages in select areas of Dubai.
2007: Etisalat takes a 16 per cent stake in the Indonesian mobile operator XL Axiata for $438 million in December.
2009: Etisalat buys a 45 per cent stake in Swan Telecom, a mobile operator in India, for $900m. The deal includes management control of the company, later renamed as Etisalat DB India. In October, Etisalat acquires Tigo, a Sri Lankan operator, for $207m.
2010: Etisalat makes a $11bn offer for Zain, the Kuwaiti company that has operations in eight countries across the MENA region, with more than 37 million subscribers.
* compiled by David George-Cosh