Competition rules may harm Etisalat profits

What's down Telecom. UAE's Telecommunications Regulatory Authority rules could ring in real changes if they are enforced.

If competitive reforms announced yesterday by the UAE Telecommunications Regulatory Authority (TRA) are implemented and enforced, the mouth-watering margins of the country's national telecoms operator could be headed for a sharp correction. The most significant of the reforms is that the country's two telecoms will no longer need to submit pricing and promotional offers for regulatory approval.

Since the start of competition in 2007, the TRA has used the approval system to prevent a price war between the upstart, du, and Etisalat, the deep-pocketed incumbent. The absence of such a war may have been bad for customers but it was good for Etisalat, which jostled with du in a stage-managed wrestling match. Profits swelled, with margins for earnings before interest, tax, depreciation and amortisation above 65 per cent.

Now, the TRA says, the choreography is coming to an end. We may have a fight on our hands. That in itself is not bad news for Etisalat, which could easily win a price war. But the second side of the reforms includes limits on what a company with "market power", defined as more than 40 per cent of market share, can do. Selling services below cost is against the rules, as is cross-subsidising one service with revenues from another. Hampering competition by bundling together different services, such as broadband internet and pay-TV, is also not allowed.

These rules will not apply to du, at least as long as the company has less than 40 per cent of the market. In the new version of UAE telecoms wrestling, du could be taking on an opponent that has one arm tied behind its back. But it all depends on how the TRA enforces the new regulations. Its track record on this front is not good, with tough pronouncements often not immediately followed by action on the ground.

Mobile-number portability, a pillar of competitive reform, has been promised for more than a year. Last October, TRA officials said the facility was just weeks away, but it still had not happened. In interviews yesterday, the regulatory chief said only that it should happen at some point this year. If the new pricing regulations are implemented with similar vigour, Etisalat's stellar margins may yet survive.

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