Genuine competition needed in telecoms

Etisalat and du may soon be able to set prices without TRA oversight, but smaller businesses need the lower costs that new service providers are likely to stimulate.

Abu Dhabi - July 28, 2008: Nezir Al Smadi, 26, talks on his cell phone in front of mobile phone shops on 11th street. ( Philip Cheung / The National ) *** Local Caption ***  PC0010-etisalatdu.jpgPC0010-etisalatdu.jpg

Telecommunications operators have a love-hate relationship with their business customers. Companies and organisations love their telecoms operator when they are looking for sponsorship or donations. The rest of the time they hate them. It is no different here.

But really it does not have to be this way. Telecoms operators perform a vital role in any economy: they provide connectivity and convergence within a certain context - at home, in the office, on the move. They need to be paid for this service, but they also need careful watching. It is surprising, therefore, that the Telecommunications Regulatory Agency (TRA) announced last week that it was considering allowing both Etisalat and du to set their prices without consultation with the agency.

We do not have an open and genuinely competitive market for telecoms services, which is really a precursor for the regulator to remove price ceilings and allow the operators to set their own prices. Open competition would mean that customers, wherever they are in the country, would be able to select from multiple service providers - no fewer than three - for fixed, mobile and broadband services. We are as close to this as the US President Barack Obama is to convincing Lloyd Blankfein, the chief executive of Goldman Sachs, to donate his lucrative bonus to a charitable fund helping low-paid workers who have lost their jobs in the recession.

When just two service providers exist in any industry, they both adopt the classic rules of the logic problem known as the Prisoner's Dilemma. Proponents of game theory will know this means that in order to prosper, the prisoners will work together. For customers this presents a situation where there is little choice in service differentiation, having to put up with weak customer service and lacklustre attempts by the service providers at innovation.

The majority of businesses in the country, as in any economy, are small or medium-sized enterprises. Typically they need their telecoms service provider to offer such features as watertight service-level agreements, a 24/7 customer-service centre, competitive rates and converged billing across multiple services. Where competition exists, or where the government or regulator have set a clear direction, then the economy will benefit. Take the case of Finland, with a population of 5.3 million. Its ministry of transport and communications has said that from July of this year every person in Finland will have the legal right to a 1 megabyte (MB) broadband connection. By the end of 2015, it will be 100MB. I am sure this has concentrated the senior management at TeleFinland on delivering the commitment.

In practice, the majority of small-business customers cannot afford to take out point-to-point data lines in non-competitive markets, such as the one we have here, as the costs are too prohibitive. Instead they will often end up sharing a home-use broadband connection instead. In the UK, when there was little or no competition in broadband service, some business customers preferred sharing what broadband they had by illegally reselling or "pairing" it. The much maligned British Telecom took a lot of flak for this, and rightly so. When Ben Verwaayen joined BT as the chief executive in 2002, he recognised the problem and put broadband at the heart of the company. He even appointed the company's first chief broadband officer to make it clear to all the staff that this was the organisations number one objective.

I know as I spent 10 years with the company, and the strategy paid off. Today BT can offer a 20MB service for Dh148 (US$40) per month. Likewise, other telecoms companies that have aggressively placed broadband at the centre of their strategy have also delivered at low cost. In New Zealand, which is geographically isolated and has a population of 4.2 million, Telecom New Zealand offers 24MB of broadband for NZ$59.95 (Dh154) per month. Even on the Isle of Man, with a population of 80,000, Manx Telecom offers 16MB of broadband for ?33 (Dh168) per month. Unfortunately in the UAE, with a population of about 4.4 million, we are paying well more than Dh349 per month for a 16MB broadband connection, according to figures from Etisalat. The prices quoted are all for residential or small office/home office users. If we look at the actual business packages or point-to-point data connections, the price differential is even greater.

When it comes to mobile roaming charges in the UK and Europe, then it is an entirely different story. The operators there have been sluggish and far from benevolent. A UK-based Vodafone customer travelling anywhere in Europe would pay ?0.43 per minute to make a call back home and ?0.18 to receive a call, Vodafone's website said. Similarly an Etisalat mobile customer roaming in Bahrain would pay Dh2.50 (?0.48) to make a call back home and Dh2.18 (?0.42) to receive a call, according to Etisalat's website. Not much difference.

The reason for this is that in Europe the mobile operators have been running a cosy cartel for as long as anyone can remember. Commercial arrangements and interconnect agreements have been done on a nod and a wink. They have maintained price parity with one another, offered similar service levels and tried not to upset the apple cart. The customer has been the loser. Over the past year or so, the EU has been proactively working to break up this unhealthy arrangement. In September 2008, major operators such as Vodafone and Orange through the GSM Association went whining to the EU telecoms commissioner Viviane Reding about what they said would be a loss of revenue if the EU kept policing their prices. Her response was unequivocal. "We would have no need for micromanagement at a political level if the industry had done its management at a commercial level."

In fact, the EU has gone a step further and told the European mobile operators that by July 2012 it expects the maximum price for making and receiving calls in the EU while roaming to be ?0.34 and ?0.10, respectively. The EU plays an active role in monitoring and setting prices; it is championing the customer because when it comes to mobile roaming charges it recognises there is a lack of genuine competition. This heavy-handed approach is in stark contrast to broadband, where after some initial regulatory cajoling the service providers have done a good job.

The TRA is well placed to use its legislative powers to set lower price points for Etisalat and du to achieve, as well as introducing more competition. A third mobile operator licence and multiple broadband licences would be a nice start. Rehan Khan is a business consultant and writer based in Dubai