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Mobile telephony in UAE


The United Arab Emirates’ sole present provider of mobile telephony and other telecommunications’ services is Etisalat.

Etisalat is the monolith of Gulf telecommunications companies. Established initially in 1976, its monopoly was established by Federal Act 1 of 1991. Etisalat was one of the first countries to introduce mobile phones to the Middle East in 1982. Digital GSM telephony services began in September 1994. The company aims to provide state-of-the-art technologies to its customers and invests heavily in CAPEX – fixed asset investments in a given year.

Such is Etisalat’s stature that not only is it one of the largest joint stock companies in the region, it has also been named as one of the world’s top 500 companies, coming 485th in terms of market capitalization according to a report by the Kuwaiti-based Inter-Arab Investment Guarantee Corporation (IAIGC). By the end of 2003, Etisalat accounted for nearly 25 per cent of the total market capitalisation of the companies trading their shares on the UAE's two main bourses of Abu Dhabi and Dubai, and those trading over the counter.

Figures from the government-controlled National Bank of Abu Dhabi (NBAD) show that Etisalat's market capitalisation peaked at nearly Dh49.5 billion ($13.49 billion) at the end of 2003 compared with Dh48.7 billion ($10.5 billion) at the end of 2002. Continuing strong demand and rising revenues boosted Etisalat’s profits by $3 billion in 2003. Net profit rose by about 17% in 2003 to reach Dh2.8bn (US$763m), on a turnover of Dh9.2bn. Much of the profit is re-invested in new developments.

Etisalat is majority-owned by the government of UAE with a 60% holding of the shares. Individual UAE shareholders hold most of the remaining 40%, although some foreign investment funds have managed to find ways of owning Etisalat shares, according to a recent report by the Economist Intelligence Unit.

Etisalat is a major source of revenue for the UAE federal government, with an annual contribution of some Dh2.5bn, including 50% of net profits provided directly to the federal budget - the second largest contributor after the oil sector. Mobile telephony services provide a substantial part of this revenue, given the depth of penetration in the population as a whole.

UAE Communications Minister Ahmed Humaid Al Tayer, speaking at the launch of Etisalat’s 3G service in December last year, said that personal and business communication was entering an era of connectivity, content and convergence. Whereas, in the past, mobility was seen as an add-on, it was becoming a fundamental aspect of many of Etisalat’s services.

Etisalat has not confined itself to operating telecoms in UAE. The company has also been bidding for a mobile telephone licence in Saudi Arabia.

Mobile penetration in the UAE

The global trend for disparity between fixed line penetration and mobile line penetration is most marked in UAE. Mobile penetration in UAE has reached 79% by Etisalat’s own estimate, whereas fixed line penetration is only 30%.

Given that mobile phone penetration averages 34% in developed countries and just 5% in developing countries, the high rate of mobile penetration in UAE is a measure of the relative wealth and maturity of the market.

At 90% usage, Dubai has the highest rate of mobile penetration in the UAE. The Economist’s city guide to Dubai names the mobile phone as the ‘must-have’ accessory. Abu Dhabi has the next highest rate of mobile penetration at 62.5 per cent. Together, the two emirates account for 74 per cent mobile phone lines in UAE.

Figure 1 comparing fixed and mobile lines for the emirates (Madar Research data, 2003)

Despite the very high penetration of mobile telephony, the market continues to expand at something like 10% a year. Expansion is fuelled by the popularity of SMS and multi-messaging facilities, introduced in July 2003, which encourage consumers to buy new handsets with the capability to take advantage of new technologies. It is not unusual for some people to exchange their handset every month.


Etisalat offers basic post-paid and pre-paid mobile GSM phone plans. The Wasel pre-paid plan, and the availability of cheap handsets has proved a boon to the many expatriates who support Dubai’s economy. At the beginning of December 2003, Etisalat reduced the price of international calls, including on the Wasel service, notably to India, Pakistan, Sri Lanka, Bangladesh, Egypt, Iran, Syria, Lebanon, Sudan and Yemen. Reduced tariffs have increased revenue, rather than reduced it, since consumers make more and longer calls.

International roaming is available on Wasel phones for incoming calls only. Subscribers to the standard GSM service are obliged to make a Dh500 deposit for the facility, which also includes outgoing calls.

Thuraya satellite service

In 2001, Etisalat signed an agreement with Thuraya to initiate its satellite mobile service in UAE. Customers with Thuraya phones can use them for standard GSM service in-country while switching to connections through Thuraya satellites when out of range of the terrestrial system. Thuraya enables voice, data, fax, short messaging and GPS (global positioning services).

3G high speed, high bandwidth services

In April last year, Etisalat engaged Alcatel (France) to operate a 3G service in UAE providing subscribers with high-speed/high-quality mobile multimedia facilities such as high speed data, video streaming, music downloading, web browsing, chat, on-line gaming and video telephony calls between multimedia terminals (voice, images and video). The service became operational at the end of 2003 following an investment of Dh60 to implement the first phase.

At the launch ceremony, His Excellency the Minister of Communications of UAE, Ahmed Humaid Al Tayer, became the first user of the network, when he conducted a video telephony call in Dubai with Etisalat's President and CEO Ali Salem Al Owais in Abu Dhabi, using a third generation mobile phone

A second agreement with Huawei Technologies (China) to supply UMTS technology for 3G services was signed in December 2003. Commercial launch of the 3G service is scheduled for the third or fourth quarter of 2004.

The operational system includes pre-paid suites, which give Etisalat the ability to apply pre-paid charging in real time for voice, data and content. Voice data transfer charges are the same as GSM, but for other services, like streaming video, charges are three to four times those of GSM. The 3G service, branded as the Mubashir plan, was announced in January 2004, making the UAE one of the first countries in the world to experience 3G mobile telephony.

Registration for Mubashir costs Dh200 with a flat monthly fee of Dh25 which includes video calling, MMS and high-speed mobile Internet access, in addition to GSM/Wasel standard rental charges. Video calls are priced at 75 fils per minute while data services cost one fil per kilobyte of information.

GSM postpaid and Wasel pre-paid customers can migrate to Mubashir without the need to change their existing numbers or SIM cards.

Mohammed Ahmed Al Fahim, executive vice-president of marketing for Etisalat, said the availability of instruments was the biggest problem the company faced. "There are a handful of companies involved in manufacturing these handsets. Only a few are available but at too high a price," he said.

The company would focus initially on key businesses such as handset manufacturers, content providers and resellers to make sure the UAE marketplace became fully conversant with the third generation technology.

The future for Etisalat

Etisalat’s monopoly has ended. Federal Act 3 of 2004, published on 11th April 2004, provided for the re-structuring of the telecommunications industry in UAE. Two new bodies were created to regulate entry of new companies into the market and to oversee licensing and tariffs.

The Act also set up a Supreme Committee for supervising the telecommunication sector, making it the highest authority, and appointed the minister of finance and industry to oversee the government's share in Etisalat in place of the minister of communications. The company’s monopoly position had been exempted by the World Trade Organisation, but was due for review in 2004.

The market responded negatively to the announcement. Etisalat’s shares fell 20% by the beginning of May. On the other hand, business leaders had claimed that ending Etisalat's monopoly would result in better and cheaper services and new investment opportunities.

Uncertainty remains about the prospects for Etisalat. The decree does not specify whether the company will be broken into components for sale to bidders, or whether the government will retain its infrastructure. Should Etisalat’s commitment to pay 50% of its profits to government be conceded, then investors could receive higher dividends. If government retains infrastructure, investors can anticipate legal wrangling over how revenue is divided.

A decision taken at the first meeting of the newly constituted Supreme Committee overseeing the UAE's telecommunications sector specified that the UAE Government is to hold the same stake in any new telecom service provider in the UAE as is the case with Etisalat now. This means that new telecom firms will have to pay royalty fees to the Federal Government. In addition, future licensing of telecom service providers in the UAE will be regulated according to international standards, and will follow the same system as that applied to Etisalat.

Industry analysts believe that Etisalat will hold its own, given its infrastructure, experience and outlook, although double-digit profit growth is unlikely in the short to medium term, given the relative maturity of the market and the likelihood of intense price competition

Orascom, the Egyptian telecoms giant, which was granted a licence to operate in Iraq earlier this year, is believed to be interested in entering the market in UAE. Within the week, it has emerged that the governments of Dubai and Abu Dhabi are negotiating with a foreign partner to set up a new telecoms firm, which would sell mobile telephony. The two governments would hold 30% each and the foreign partner 20%, with the remaining 20% being offered to the public.

Published in Oman Economic Review, June 2004