Mobile operator du no longer second fiddle

The years of du as the underdog in the telecommunications market are coming to a close, and it is good news for us all.

ABU DHABI, UNITED ARAB EMIRATES - May 30, 2009: A etisalat outlet in Abu Dhabi Mall. 

 ( Ryan Carter / The National )

*** stock, etisalat, cell phone, telecomunications, mobile phones, phone,  *** Local Caption ***  RC023-StockMay.JPGRC023-StockMay.JPG
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The years of du as the underdog in the telecommunications market are coming to a close, and it is good news for us all. Established in 2005, du launched its services to the public in early 2007, and was long perceived as a low-cost, low-quality network compared with Etisalat. Both companies were government-owned and both came under the responsibility of the Telecommunications Regulatory Authority (TRA), which kept a tight control over pricing and competitive actions.

Prices stayed high, du lost money - as all start-ups do - and it struggled to build a new network from scratch that could compete with Etisalat, which operates one of the world's most technically solid mobile networks. Most importantly, few customers felt they enjoyed the benefits of a truly competitive market. A poll conducted in the middle of last year found that more than 50 per cent of UAE subscribers said they were not getting value for money from their provider, and the price of telecoms services was a common complaint among consumers.

Customers may still have these feelings, but there is now little doubt that the dynamics of the market have changed for good. The UAE has 156,000 more mobile subscribers than it did three months ago, and du is responsible for every one of them. Osman Sultan, the chief executive, said du's dominance of what analysts call the "marginal market", meaning new subscribers, was a source of great pride for his young company.

"The mandate when we started this company was: 'You have to be the driver who introduces competition to the UAE'; and we have done that," Mr Sultan said yesterday. In practical terms, the cost of a new mobile line today is a third of what it was a year ago, mobile data rates and fixed-line internet costs have fallen, and any number of special deals are now being pushed by both companies. The state of competition remains well behind mature markets abroad, but it has moved forward significantly in the past year.

More importantly, the new reality raises a big question: for how much longer does du need the TRA's protection? On its launch, du could have been strangled by Etisalat, whose huge cash reserves and market dominance could have crushed it in an all-out price war. The TRA prevented such a war in the same way regulators across the world help shepherd new entrants to markets monopolised by one major player.

With du now firmly established as the low-cost, value for money operator, and sprinting ahead of its competitor in the race for new customers, does the TRA still need to keep prices so tightly in check? Etisalat has previously complained that it would like to lower some prices, but has not been given regulatory permission. Equally, the TRA has said du needed three years as the sole competitor to become established and profitable. With that three years coming to an end early next year, and the company doubling its quarterly profits, at what point should regulators and the Government consider the introduction of a new, third operator?

The sooner du is seen by the regulator as a mature operator ready to stand on its own feet and fight its own battles, the better. Etisalat could start to discount its prices more aggressively, du could fight back in the way it knows best, and a new operator could enter the market. All of these things would be good not only for consumers, but for du and Etisalat. Plenty of markets tend towards a duopoly. Think of Coke and Pepsi, or Intel and AMD. But the telecoms market is not one of them and a hallmark of well developed mobile markets around the world is the presence of at least three operators.

For Etisalat, a more competitive home market means the development of a battle-hardened management team that can take the fight to the hugely competitive foreign markets it has entered. In India or Nigeria, the company is facing a competitive landscape that is a world apart from its domestic situation. And for du, a third competitor would remove the distinction it enjoys as the spirited young competitor facing off against a dominant former monopoly.

After Etisalat's recent global public relations fiasco relating to a software upgrade for BlackBerrys, many customers said they were thinking of moving to du, simply because it is not Etisalat. With three operators in town, du would have to earn that same consideration, a challenge that would make it a better company. There are now more than two mobile phone lines for every person in the country and it is clear that the growth story of both operators is changing.

Instead of adding hundreds of thousands of new customers every quarter, each will need to spend more time thinking about how to make each customer count for more. Such a transition would be best done in a market where tougher competition is the norm, and where both operators are not just looking at their balance sheets, but looking over their shoulders as well.