Du to struggle to poach Etisalat customers

The telecoms newcomer won't steal too many of its rival's customers, but could still achieve a 10% market share by year-end, say analysts.

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By  Reuters Published  February 26, 2007

Telecoms newcomer du will struggle to poach customers from Emirates Telecommunications Corp. (Etisalat) but a rapidly growing population should help it capture up to a 10% market share by year-end, analysts said.

Du launched nationwide mobile phone services on Sunday, ending the virtual monopoly of Emirates Telecom, or Etisalat, in the Gulf Arab state with a mobile penetration rate of 125%.

With the United Arab Emirates' population growing at 9% a year as a surging economy draws more migrant labour, the mobile market will increase by 20-25% in 2007, Mohamed al-Ghanim, director-general of the Telecommunications Regulatory Authority, said this month.

Du, which like Etisalat is majority state-owned, should capture 9% of the mobile market by the end of 2007, a share that could rise to 33% by 2010, according to estimates by Cairo-based investment bank EFG-Hermes.

"Population growth in the UAE, which is the highest in the region, will be a driver for mobile growth for the second operator," said Wael Ziada, senior telecom analyst at EFG.

"Migration from Etisalat to du will be an important element to get to 33% of the market by 2010," he said.

However, poaching some of Etisalat's 5.5 million users will not be easy, at least in the short term, because of restrictions on mobile-number portability.

Regulations allowing users to retain their phone number when they switch operators will not be in place until at least August, Ghanim said. Ziada said he did not expect that to happen before 2008.

About 500,000 customers registered their interest in du's mobile service last month, giving the company a market share of 8%.

But without number portability most would be reluctant to drop their primary number - the one with Etisalat, said Marc Hammoud, senior telecom analyst at Dubai-based investment bank Shuaa Capital.

Du will particularly struggle to lure post-paid subscribers who account for about 20-25% of Etisalat's customers without the service, he said.

"MNP will be more valued by post-paid subscribers, who focus more on quality of customer service," said Hammoud, who said he expected du to get 10% of the market before 2008.

Competing on price will be tough for du, facing a cash-rich competitor with mobile calling rates that are already lower than in the rest of the region, said Daniyah Darwish, an analyst who covers Etisalat at EFG-Hermes.

EFG estimates monthly average revenue per user in the UAE at 97 dirhams ($26.42), rising to 106 dirhams by 2010.

An average revenue of 155 dirhams can be maintained in the medium to long term due to market growth, it said.

"There is room for lower prices, but I think a big part of competition will be introducing bundled packages and trying to introduce certain segments to the market," Darwish said.

Such service packages aimed at certain groups of people will be key to du's growth, he said.

"Despite the high penetration numbers there is an untapped market. A lot of people have two, three or four lines so it hides this," Ghanim said. "People are waiting for the choice."

Etisalat also expects the battle to be over service rather than a price war, Chief Operations Officer Ahmad Julfar said.

"Du and especially us will be targeting customers to win their hearts and minds by offering better services and packages," he said.

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