SIM card fees on way out

Etisalat and du appear to be quietly removing annual renewal fees charged on pre-paid mobile lines.

The UAE's two mobile operators appear to be quietly removing the annual renewal fees charged on the country's more than 10 million pre-paid mobile lines. The fees of about Dh100 per year for each line set the companies apart from most regional operators, which do not levy an annual charge on their customers. They also represented a lucrative income stream, helping the UAE become one of the most profitable mobile markets in the world.

But with competition intensifying and the country now home to more than two mobile lines per person, both companies have announced deals in recent months that effectively remove the fees. Etisalat's offer halves the renewal cost and refunds it to the customer in the form of calling credit, while du will abolish the fee for customers who spend more than Dh500 (US$136) per year. It has also announced an offer to remove the renewal fee for the lifetime of the customer for a one-time payment of Dh20.

For Etisalat, which added more than 500,000 customers last year, the annual fees have been an important method for generating revenue from an overwhelmingly pre-paid customer base. At least 10 per cent of Etisalat's 7.7 million subscribers would be classified as inactive, industry analysts say, meaning they have not made a call or sent a text message in the past three months. While most companies in the industry do not include inactive customers in the subscriber numbers they disclose to markets and the public, Etisalat does - due in large part, analysts say, to the annual renewal fees.

"Their argument is that even if a subscriber is inactive, they still paid for the SIM, and they will still pay the renewal," said Irfan Ellam, the vice president of equity research at Al Mal Capital. "As far as they are concerned, they're still generating revenues." The practice is not a major concern, Mr Ellam said, because a more important metric for analysts and the market is the company's revenues, which provide a clear view of spending by subscribers. "It all comes out in the wash," he said. "The one thing that will always be accurate is the revenues."

But as the two operators remove the high-margin annual charge from their revenue streams, it will become more important for both to convince subscribers to boost spending on calls, messages and other services. One analyst, who asked not to be named because he is in the process of reviewing his ratings of both operators, said the trend of removing fees was good for customers but would put pressure on the companies.

"This renewal fee has been a great way for both of them to keep making money off of all those SIM cards that are sitting in people's bedside drawers, getting used a few times each year," he said. "This is a very pre-paid market and you have a whole lot of SIMs floating around. Some people have two or three, maybe even four. "For a long time that has been alright, because those lines still brought in a guaranteed spend every year. If that is coming to an end, I think they [the operators] need to rethink some of their numbers."