Telecoms operators in the UAE have been grappling with the challenges of mobile market maturity over the past year, very similar to what some of their peers are experiencing elsewhere in the Arabian Gulf and in the jurisdictions beyond. With mobile and smartphone ownership rates hitting saturation point in the GCC's second-biggest economy, operators are turning to alternative strategies to boost profitability.
The UAE's mobile penetration is one of the highest in the world, reaching 228 per cent at the end of March, according to the Telecommunications Regulatory Authority (TRA). Subsequent data showed that more than 80 per cent of mobile phones registered on the country's mobile networks are smartphones.
Such figures suggest that there is little room for growth in mobile revenues, which traditionally have been the great money maker for telcos.
Indeed, revenues for Dubai operator du grew by just 3 per cent year-on-year for the nine months to the end of September. While the operator's profit rose in the second and third quarters of 2017, its nine-month net income was down 5 per cent compared to the figures it reported for the same period of 2016.
The picture was similar for Etisalat, whose segment result for the UAE – the operator does not split out net profit for its individual markets – fell 1.5 per cent year-on-year for the first nine months of 2017.
As boosting top and bottom lines become increasingly difficult tasks , both operators are likely to continue dragging their feet when it comes to voice over internet protocol (VoIP) services, such as Skype and WhatsApp calling, which threaten to eat further into revenues if made fully available in the UAE.
WhatsApp calling briefly became functional in June of last year, only to stop working a few days later.
Fahad Al Hassawi, du’s chief commercial officer, said later in the year that the operator had no objection to allowing VoIP calling services over its network, but that formal agreements had to be signed between the networks and providers first.
In a bid to boost profitability from mobile services, both operators tried their hands at new brands this year. Du’s parent Emirates Integrated Telecommunications Company (EITC) unveiled a partnership with the Virgin Mobile brand last January, eventually launching the full service in September. Etisalat meanwhile unveiled its own youth-oriented brand, Swyp, in September, targeted squarely at millennial customers.
“Market saturation often leads operators to undertake a more granular segmentation of the subscriber base, launching smaller niche brands to prevent any damage to the market’s perception of the original brand identity,” said Omar Maher, an analyst with investment bank EFG Hermes.
Both operators have kept the number of users of their youth-oriented services close to their chest so far, and have not commented on whether such customers are generating higher average revenues per user (Arpu). However, NBAD Securities said that the introduction of the Virgin Mobile brand by EITC “should aid in stabilising Arpu and mobile customers in the near term.”
Perhaps more importantly than new consumer brands, du and Etisalat are increasingly positioning themselves as providers of ICT solutions to enterprise customers, a business line that promises higher margins than traditional telecoms services.
EITC recently unveiled an ICT Solutions division, geared towards the delivery of managed IT and telecoms services to government and enterprises, encompassing technologies including enterprise networks, security, data centre services, as well as cloud services and applications.
The EITC chief executive Osman Sultan wants to make such services account for 15 per cent of the operator’s revenues by 2021, up from around mid-2017 levels of 2.5 per cent.
Mr Maher described the move as "a positive strategic shift" but said that it was difficult to quantify "the size of the long-term opportunity."
EITC’s move into digital space follows Etisalat’s Digital division launch in late 2016.
Both operators are expected to continue consolidating and reorganising their domestic businesses in 2018. Etisalat is likely to do the same with its overseas investments.
Following the acquisition of Maroc Telecom in 2014, and the subsequent reorganising of its francophone African footprint under the Moroccan telco’s management, Etisalat has been trimming its international portfolio to focus on key markets such as Egypt, Saudi Arabia and Pakistan.
After exiting from Sudanese fixed-line operator Canar in 2016, Etisalat quit its troubled Nigerian operation in July, after it defaulted on loans following a sharp collapse in the Nigerian naira.
While Etisalat and other investors shy away from new foreign investments, Omantel surprised the market by doing the opposite. The Omani operator, whose previous international ambitions were confined to the ill-fated acquisition of Pakistani ISP Worldcall, purchased a 10 per cent stake in regional operator Zain for US$846 million, acquiring a further 12.1 per cent shareholding for $1.3 billion in October.
“We find it difficult to justify Omantel’s offer price for Zain Group, especially when bearing in mind the latter’s rather challenging geographic exposure, with Kuwait [a no-growth market], Iraq, and Sudan being the main contributors to its value,” said Mr Maher.
Such sentiment suggests that unless attractive investment opportunities present themselves, Etisalat, du and other operators will spend 2018 getting their domestic operations in order, rather than chasing expansion overseas, which was the case in the boom days a decade ago. Domestic reinvention, with a higher emphasis on digital services and more attractive brands, is likely to be the order of the day for telcos in the UAE and elsewhere.