At the helm since its induction into the UAE’s telecom sector seven-plus years ago, du’s chief executive officer, Osman Sultan, discusses with TRENDS changing consumer telecom requirements, rising costs and the move towards closer co-operation through network sharing.
How do you view the progression of the telecommunications sector in the UAE in recent years?
Telecom plays a pivotal role in any country today because the outcome of its development goes beyond the telecom companies. When this sector develops, it positively affects the other sectors in the economic wheel. One cannot imagine a growth in tourism, trade, banking, or media without the access to the latest connection and communication technologies. All of these sectors hinge upon a basic infrastructure provided by the telecom sector to secure connection and communication means.
When it comes to the telecom sector in the UAE, it fulfills this role, because it is necessary for it to keep up with the advanced position the state has acquired. In other words, this sector should play a major role in a state, which has been able to achieve the highest positions in terms of flow of goods and people, capital and investment, creativity and ideas. Therefore, the telecom sector should take this responsibility into account as it continues to develop.
As for the telecom sector, the UAE is considered one of the most advanced countries, not only regionally, but internationally as well. In terms of the spread of fibre-optic broadband, perhaps the UAE is the most advanced country in the world for example, and in du we managed to cover 100 percent of the areas serviced with fibre optic.
Moreover, the state is one of the most advanced in terms of infrastructure. This transformed the UAE into a hub for most of the emerging Internet and modern application companies in the region, chosen by the creative to launch their companies. This paved the way for an interaction between the existing solid infrastructure and these applications, which creates a dynamic and momentum.
What are the opportunities provided by this development?
The rapid spread of broadband, the required broadband applications in the Internet world and the cloud applications and services provide countless opportunities, especially in terms of creating new business models.
At the same time, we are working on developing related services such as data centers which are essential for telecom services. People believe telecom companies provide voice, messaging, video, broadband and Internet services for individuals and companies, but in order to achieve this we need centers of data storage with a capacity to deal with the digital flow. Therefore we do not consider these services an investment in new areas.
However, it is possible to consider investing in new areas, given that the telecom sector today is not restricted to the communication system, it rather branches out while having new ambits with other sectors.
What are the challenges you see the telecom sector facing across this region?
The major challenges are related to technology, where we must keep abreast with modern technologies while lacking the time to do so. We also have to make the necessary investments.
The other challenges are related to the human factor and the ongoing development of the sector. We have to work on developing skills and anticipating future needs. We cannot settle for the existing skills, this is why we should develop the human factor and skills by adopting a proactive and future thinking approach.
Nowadays, this sector requires the labor force to deal with skills that did not exist in the telecom sector, but were restricted to other sectors such as the Internet, television or media sectors, digital content or distribution. Today, the picture has grown more inclusive; it requires a dialogue between the different parties.
Furthermore, every telecom company faces today another challenge, namely maintaining a healthy equation of investments and revenues. This is because every service provided by telecom companies today is also offered by Internet companies that do not have to abide by the same regulations. This is a challenge for all telecom companies around the world, not only for local and regional companies.
How ready are the communication networks to deal with these data volumes on broadband?
Networks are ready to fulfill today’s need; proof is they do not use their full capacity. However, would this be enough to satisfy the demand tomorrow? By tomorrow I mean 2015 and not 2020. The answer is: of course not. According to consultants and specialists, there is a tremendous increase of video content which is currently the alternative to text and voice messages.
According to experts, if we want to watch all the video content downloaded in one second around the world, it would take us five years, which means every second, five years of video content goes through the network. There is no doubt that the networks which will deal with this amount of data tomorrow will be different than those we use today in terms of capacity and installation.
How would you describe the telecom companies’ monopoly of some areas in the state?
This includes providing landline phone and television services to specific areas. The competition in the UAE today is restricted to mobile phone services; it does not include landline and related fixed Internet or fiber-optic TV services where each company offers its services exclusively to specific regions.
Years ago, the Telecom Regulatory Authority called upon each company to open its networks to each other. This was a key step, because as much as each company can invest in the mobile phone network, it is much more costly in terms of investment in infrastructure construction as it would require digging trenches and installing optical fibers.
What is your competition strategy?
The secret ingredient is to satisfy the customer more and more. Every customer who believes they are getting a service and paying for it could become another company.
Why have du’s costs risen? And how did you deal with this?
Some of the costs result from the fees paid to operators outside of the country; they have increased in 2013, especially in countries with strong inflows such as Pakistan and India. Operators have increased the taxes and prices from one side to the other which affected the profit margin. We compensate this increase by an operational efficiency: we reduce our costs and rationalize our expenses. This way we can maintain the profit margin before deducting the franchise fees.
Why do you opt for borrowing despite your profits and liquidity?
Despite the monetary stock and cash flow, we must always assess the company’s investment needs in the ongoing operations, as well as the potential company need, in case it had to invest in new areas. Then the company has to fulfill its obligations which include franchising. Once done, we evaluate the profits which are then distributed to the shareholders.
These needs require adopting a long-term rational policy which takes the norms we should abide by into account, analyzes the company’s rate of profit and compares it to the debt ratio. Then it determines whether we should opt for borrowing or not. According to the best practices, it is preferable not to rely entirely on the company’s own funds. Today, as a company, du’s borrowing rate is considered very low compared to that of other companies. We have also opted for borrowing to restructure existing loans and guarantee a greater profit for the company. This is evident and normal.
Do you have any plans to invest in other countries?
Our company evaluates opportunities on a permanent basis, but for the time being we have no intention to invest. The decision is in the hands of the company’s Board of Directors. However, in my opinion, I believe if we want to enter new markets, we must make our presence unconventional, because the licensing system today thwarts entering a market as a forth operator in countries like Egypt and KSA, while the third operator faces some difficulties. Yet, the telecom market is volatile and moving, and I am certain there are opportunities we fail to think about today.
On what field do you focus your future growth? Internet, mobile phone, fixed phone, video services. And why?
With the growing demand on video content and television, the data revenues have increased, while voice service revenues are dwindling and their profit margin has decreased.
TV content is considered essential today for fixed telecom services. This is why we endeavor to partner and cooperate with providers of this content, and continue developing our networks and working to provide what we call the overall experience for our customers.