Regulator puts third telecom operator on hold

The incumbents Etisalat and du have at least three years to build their subscriber bases and infrastructure.

The telecommunications regulator yesterday ruled out the introduction of a third mobile operator in the UAE for at least three years. The decision means consumers may have to wait longer to reap the benefits of greater competition. Delays in further liberalisation also protect the profits of the incumbents, Etisalat and du, in what is one of the most lucrative markets in the region.

"The market is not ready, and it's premature to talk about a third operator," said Mohammed al Ghanim, the director general of the Telecommunications Regulatory Authority (TRA). "Today, the economy of the market does not support a third player. The market is surviving through the financial crisis and you don't want to disturb that sector by starting a third operator that might inhibit the operators to invest in its infrastructure."

The incumbent operators needed more time to invest in their networks to build up their subscriber base, Mr al Ghanim said on the sidelines of a telecoms conference. The two operators generated Dh32 billion (US$8.71bn) of revenue last year. The UAE has had two competing domestic telecoms operators since 2007, when du launched its mobile network and broke the monopoly held by Etisalat. Yahsat, a satellite communications company owned wholly by Mubadala Development, is expected to begin offering television and internet services this year but has no plans to introduce a mobile network.

Through a mix of promotions and new mobile device offerings, the du network has added more than 1.25 million subscribers since the beginning of last year, while Etisalat added about 400,000. In the region, only two outside operators have successfully entered the market - Viva in Kuwait and Vodafone in Qatar. Oman has also seen the introduction of two mobile virtual network operators (MVNOs), Friendi and Renni, that purchase mobile voice minutes on a wholesale basis from an incumbent operator and resell them at lower rates but do not build their own telecoms infrastructure.

Qatar has also seen the introduction of Virgin Mobile, which entered the Qatari market last week, but the company is fully owned by the country's incumbent operator, Qatar Telecom, under a brand licence agreement. Mr al Ghanim dismissed the possibility that a third operator working under a brand licence or MVNO-type business model would work in the UAE. "Prices are going down gradually, and that's good news," he said. "But before we see the market stabilise, it's difficult to add a third operator, especially in a financial crisis where other sectors that were booming are now not growing as they used to."

With mobile penetration rates in the region soaring above 100 per cent, and in some cases - such as in the UAE and Saudi Arabia - beyond 200 per cent, the business case to successfully introduce an operator in a market weakens, said Irfan Ellam, a telecoms analyst with Al Mal Capital. "I think that if we have a third operator, it would not be in the form of someone who owns infrastructure. It will make sense for it to be an MVNO," Mr Ellam said.

"MVNOs are good for segmenting the market; du does that pretty well already, but how much growth is there [in the UAE market]? They don't need that many subscribers to be profitable, but they wouldn't get 20 per cent market share." Although a third operator would increase the likelihood of lowering mobile costs for consumers, the TRA is set to begin deregulating the telecoms market as early as the beginning of next year, allowing Etisalat and du to change prices without regulatory approval.