Shifting goalposts

The UAE has decided to introduce competition through the establishment of an all-service operator in which the government will own at least a 40% stake. Qatar is the last Gulf State after the UAE yet to formally announce plans to introduce competition into its telecoms sector, and faced with similar market dynamics as in the UAE, it remains to be seen whether Qatar will also choose to maintain a presence in subsequently licensed operators.

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By  Tawanda Chihota Published  May 31, 2005

|~|Etisalat-Dubai200.jpg|~|The UAE government already owns a 60% stake in incumbent operator, Etisalat.|~|Last month, Qatar's monopoly telecoms services provider Qatar Telecom (Qtel) announced a 50% reduction in international call and text messaging rates. The drastic price cuts were not, as many expatriates and commercial businesses would have hoped, a pre-emptive move by the monopoly ahead of the entrance of competition. Nor were the rate reductions permanent - they were in place, instead, for merely two days from May 17, to mark World Telecommunication Day. Change is on the horizon though. At the time of going to press, CommsMEA had learnt of plans to establish an independent regulatory authority in Qatar, a crucial first step in the direction towards the introduction of competition into that market. Qatar along with the UAE is the last of the Gulf States to see the entry of competition into either its fixed or mobile communications sectors. At present Qatar's telecoms market is the least regulated in the Middle East, with the Ministry of Communications having been dissolved in August 2001 to be replaced by the Postal Public Corporation, whose responsibilities extend to the telecoms sector. This has left Qtel as an essentially self-regulating body up until now. However, a Supreme Committee for CIT has been established in Qatar, which has been charged with navigating the sector towards market liberalisation. The introduction of competition in the country, or at least the establishment of an independent regulatory authority and the drawing-up of a timeframe in which to usher in competition, has been expected for some time. Market commentators expect some details along this theme to be made public during the course of the year, though it remains largely unknown what policy direction Qatar will take. It has been suggested that authorities there are taking close note of developments in the UAE as a guide to their own liberation process, and with the UAE's recent decision to directly appoint a new telecoms licensee without organising a public tender, it remains to be seen to what degree this same process will be duplicated in Qatar. “It seems to me that at this point they (the Qatar government) are moving in a similar direction to the UAE, though it's very hard to tell from a policy perspective what they are going to do, says Justin Connor, telecoms attorney with Al Tamimi & Co. “They definitely are under a lot of pressure from both the World Trade Organisation (WTO) as well as from the United States to liberalise the sector and to end Qtel's monopoly in most of telecoms,” he adds. The establishment of the Telecommunications Regulatory Authority (TRA) in the UAE in 2004 underlined the government's intention to liberalise the sector, though the timing of the announcement of the intention to license a second operator is described as “purposeful” by Connor given the advanced stage of Free Trade Agreement (FTA) negotiations taking place between the UAE and US governments. The announcement of the new competitor, it has been suggested, has been timed carefully in order for the UAE to make it seem as though there is activity in the sector, in order to meet US demands for the establishment of competitive markets ahead of the final negotiation and ratification of a FTA. It will be interesting to see the US' reaction to the moves in the UAE given that the US government is the party seeking commitments greater than those laid down by the WTO regarding the opening up of markets. “The USA is pushing for much greater liberalisation and if the UAE is actually going to adhere to the FTA and sign it, which the political people at the top seem to be keen to do, then they need to think very carefully about how they implement that because they are going to be watched very carefully," Connor predicts. ||**|||~|Lib-cash200.2.jpg|~|Etisalat’s importance to the national economy is substantial. The operator reported a rise in net profit coming in at AED1.02 billion (US$278 million). |~|In many respects, the Qatari situation has similarities to what is happening in the UAE, with Qatar having established a preliminary basis for further free trade talks with the US. In March last year the two countries signed a Trade and Investment Framework Agreement (TIFA) in Washington DC as a step towards developing closer trade ties. The TIFA opens the possibility of working towards a US-Qatar FTA, though negotiations are yet to commence. US exports to Qatar in 2003 amounted to US$408 million while Qatari exports to the US reached US$331 million, and at the time of signing, it was the ninth TIFA the US had entered into in the Middle East. The others were: Algeria, Bahrain, Egypt, Kuwait, Saudi Arabia, Tunisia, the UAE, and Yemen. The US already has an FTA with Jordan and concluded respective agreements with Morocco and Bahrain in June and September of last year. All these countries, bar the UAE, have competitive telecoms sectors. Dependent on the timing of the commencement of first-round FTA negotiations between the US and Qatar, the issue of the Gulf State's policy on the liberalisation of its telecoms sector is likely to come under close scrutiny, with the US' reaction to developments in the context of the UAE telecoms sector likely to be a factor. In the UAE, Etisalat's importance to the national economy is substantial. The operator reported a rise in net revenues to AED3.04 billion (US$828 million) during the first quarter of this year, with net profit coming in at AED1.02 billion. This represented an increase of 23% and 24% quarter-on-quarter respectively, with total assets having grown by AED2.7 billion or 15% over last year. Etisalat's strong emiratisation drive, which saw the telco laying off 200 employees earlier this year, is looking to achieve emiratisation of 50% of Etisalat’s 9,500-strong workforce by the end of this year, up from 43% currently. It is thus unlikely that the government would wish to threaten this state institution's success through the licensing of a full-blown competitor, over which it had limited commercial control. “I think the government wants to be seen to be in compliance with plans to liberalise the sector, but at the same time I think that it does want to protect the value of the sector and is reluctant to move towards a fully liberalised sector as we see in Bahrain or Jordan where there are no restrictions on licensing of new entrants,” says Kamal Shehadi, managing director of Beirut-based Connexus Consulting. Analysts, though do agree that the UAE is an unusual market in that there already exists a high level of penetration with very advanced services available, so perhaps the choice of independent operator willing to invest the substantial amount of capital required to build out an entire competing network would be limited. “They (the UAE government) also have a complex regulatory system. They have the Ministry of Communications, they have the Supreme Committee, which was charged with liberalising the sector in 2003, and last year the Telecommunications Regulatory Authority was created so there's a lot of different hands in the pot,” Shehadi comments. It has been suggested that leading global mobile operator Vodafone may be interested in any opportunities arising from the opening up of the telecoms sector in the UAE, given the fact that the operator utilises different strategies to enter markets. “They may not necessarily enter the market directly,” explains Sehadi. “They could instead opt to enter like they did in Bahrain, with a joint-venture, like a licensing agreement in a way that would allow their local partner to use the Vodafone name.” In many respects, the UAE market functions like a competitive one, and the government will likely use this fact to defend its proposed choice of liberalisation process. “There's a valid argument in some cases where a government will ask what's the sense in doing something like this. The UAE could argue that it has the lowest (domestic) rates in the region, it has high levels of penetration, people have access to the services, the quality of services is fairly high,” Al Tamimi & Co’s Connor suggests. ||**|||~||~||~|“The UAE (telecoms) market by nature is very competitive despite having only one operator. It relates to customers and suppliers in a competitive manner and Etisalat is supportive of the liberalisation process,” Ahmed Bin Byat, director general of Dubai Technology & Media Free Zone, stated earlier this year. The UAE pension and social security fund is set to hold a 40% stake in the UAE's new operator, with the remaining 60% to be held by the general public as well as a strategic investors. The government already holds a 60% stake in Etisalat, and a spokesperson for the TRA has said that no further licences would be offered to other firms until 2015. The new operator is expected to be operational early next year and further details regarding the ownership of the remaining 60%, and the timing of its commercialisation are expected in the coming months. TECOM, Dubai's free zone operator, declined to comment on ongoing speculation that it would become the UAE's second telecoms player. It had also been speculated that Saudi Telecom (STC) had been in a good position to be awarded a second mobile licence in the UAE, in reciprocation for the licence an Etisalat-led consortium won in Saudi last year, to operate the kingdom's second mobile network. ||**|||~|Picture3.jpg|~|Both the UAE and Qatar have been involved in negotiations with the US regarding the institution of trade agreements. |~|“The thing is that STC has not shown the same kind of desire to compete in international markets as Etisalat has, so I think that may be part of the reason that the licensing timeframe (in the UAE) has been shorter,” Shehadi suggests. According to Mohammad Al-Ganem, director-general of the TRA, the new company will comprise local investment only. “The new company will be based exactly on the model of Etisalat and it will be a purely local investment venture,” Al-Ganem says. “At this stage there will be no foreign company involved. We will create a fertile ground and environment for all telecoms companies,” he added. The TRA does have plans to allow service providers of various description to enter the market, and players such as value-added data providers are likely. Infrastructure, it appears, will continue to be owned by the state, while the services market will be opened up. ||**||

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