The President of the UAE has issued a federal decree that paves the way for the introduction of competition within the telecommunications sector. The new proclamation sets up a Supreme Committee to oversee the telecommunications sector and a Monitoring Authority to track and ensure the smooth running of operations.
Analysts see the decision as necessary and consider the decree by HH Sheikh Zayed Bin Sultan Al Nahyan to be long overdue. According to Faisal Hakki, Research Analyst at Arab Advisors, the UAE had very little time left before having to comply with the regulations of the World Trade Organisation (WTO). "They've totally exhausted their exemptions that they received for joining the WTO," he explained. "This is the main reason why they did this now."
Three people will make up the Supreme Committee. Dr Mohammed Khalfan bin Kharbash, Minister of State for Financial and Industrial Affairs, representing the Cabinet. The two others represent the wealthiest Emirates: Ahmed Mohammed AL Mamiari of the President's Office and Ahmed Bin Byat of the Court of the Vice President and Ruler of Dubai. "These are the two most powerful Emirates and the ruling parties of these emirates are the most influential and have the most power and money," added Hakki. "They have a vested interest in selecting people from these regions rather than people from Ras Al Khaimah or Al Ain."
However, the move is considered largely symbolic, considering the lack of clear timetable towards liberalization or what sectors are open to competition. The decree does not outline any of this, and there are concerns as to how transparent the levels of competition will be. One example, notes Hakki, is the international gateway for long distance communications. "I'm not sure if the new decree if the international gateway licence will be liberalized. If this does not happen, the new competitor will remain under the mercy of Etisalat," said Hakki. "International calls will still be done through Etisalat: it will cost the competitors a lot and this will not be to their comparative gain."
Other telcos in the region have been more proactive in embracing competition. Batelco has worked to a clear roadmap towards competition, having received its first competitor in the form of mobile operator MTC-Vodafone. Other telcos, such as Saudi Telecommunications Corporation (STC) and Jordan Telecom have begun to sell off shares to move towards privatization.
Despite no clear picture as to how and when liberalization will occur in the Emirates, Hakki believes that there will be competition occurring by the end of next year, at the very latest. However, there will be immediate ramifications for Etisalat, the UAE's incumbent telco. It is currently over-manned and, despite its series of technical firsts in the Gulf, is still unsuited to competition. "Etisalat has around 20,000 employees, now you don't need 20,000 employees to service a population of 2.7 million. So they need major restructuring and outsource a lot of their services and concentrate on their core operations," he added. "So they have a lot of scope for cost-cutting."
Other regional telcos, such as Jordan's Fastlink, have had to make severe staff cuts in the face of competition: before liberalization it employed 1,400 staff, now it operates with just 800.
The cuts will follow a massive restructure by Etisalat, according to Hakki, along with further price across its services. Currently Etisalat offers some of the lowest prices across the region, which will mean competitors will need to be well prepared. "Restructuring of the company will probably take place before the end of the year. As for the layoffs, these will also take place before the new competitor enters the market. They will also be cutting down prices even further," warned Hakki.
This means new entrants will have to work to tight profit margins and look to exploit new opportunities, according to Hakki. "Anybody who tries to enter the market will have a very tough time," he said. "They will have very low margins and would be very competitive, cutting costs to the bare minimum and they would probably target niche markets not covered by Etisalat."