UAE RETAINS CONTROL OF TELECOM SECTOR

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 000046

SIPDIS

STATE FOR EB/TPP/BTA
STATE FOR NEA, NEA/ARPI
STATE PASS USTR FOR DOUG BELL, SHAUN DONNELLY

E.O. 12958: DECL: 01/04/2016
TAGS: ETRD ECON EFIN TINT AE
SUBJECT: UAE RETAINS CONTROL OF TELECOM SECTOR

REF: 2005 DUBAI 1520

Classified By: Ambassador Michele J. Sison for reasons 1.5 b and c.


1. (SBU) Summary. Recent decisions by the UAE's
Telecommunications Regulatory Authority (TRA) indicate the
UAEG intends to maintain its control over the telecom market
for the short and mid-term, despite the UAE's WTO obligations
to liberalize. In December of 2005, TRA announced the name
of the second telecommunications operator, which will be a
government-owned company. On December 28th, Etisalat -- the
state-owned telecommunications operator -- raided and
shut-down unlicensed Voice over Internet Protocol vendors in
the northern Emirate of Ras al-Khaimah. End summary.

The Second Telecom Company, Also State-Owned
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2. (SBU) The company that was granted the second UAE
telecommunications license, Emirates Integrated
Telecommunication Company (EITC),is expected to start
commercial operations by the middle of 2006. This new
operator will offer mobile services, fixed phone lines, and
Internet access. High expectations for the long-anticipated
launch of a second telecom company are mitigated by the fact
that this company is UAEG-owned. The UAEG owns 50 percent of
the capital of EITC, and Mubadala Development Company and
Emirates Communication and Technology each own 25 percent of
EITC. An official at Mubadala told econoff on December 24th
that the three owners will reduce their total share ownership
so that EITC can offer 20 percent of the company's capital to
the public via an IPO. He did not know when the IPO would be
offered, but speculated that it would be within a few months
of EITC commencing operations.


3. (SBU) Press articles have noted that industry experts are
concerned that a second UAEG-owned telecom operator will not
lead to increased competition in the market. In September
2005, the UAE's Telecommunications Regulatory Authority (TRA)
announced it will control the price of services of both
telecom operators. UAEG officials maintain that the two
companies will compete, but with price controls in place, it
is not clear how. In a December 12th article in the Khaleej
Times, Sultan bin Saeed al Mansouri, the UAE Minister of
Communications and chairman of the UAE Supreme Committee for
the Supervision of the Telecommunications Sector, said, "This
new license affirms the UAE's intention to introduce
competition in the telecom sector and spare no effort to
develop the sector."

Etisalat Shuts Down Unlicensed Competition
--------------


4. (C) On December 28, the national telecom company Etisalat
shuttered the operations of a group of mainly south Asians in
the northern Emirate of Ras al-Khaimah who were selling
access to Voice over Internet Protocol (VoIP) technology.
(VoIP services enable routing of voice conversations over the
Internet, and Etisalat blocks internet sites -- such as Skype
-- that provide this access.) Customers were paying a
nominal fee to make international phone calls, skirting
Etisalat,s telecommunications monopoly and significantly
higher rates. Colonel Abdullah Hamis Al Hadidi of the Ras
al-Khaimah Police Department (RAKPD) confirmed to ConGen
PolEconoff that Etisalat confiscated the technology and shut
the operation down. Al Hadidi denied press claims that
arrests were made but said RAKPD &went along with
Etisalat.8 According to Al Hadidi, the unlicensed
commercial activity of this group was against Etisalat's
regulations. Etisalat has not responded to inquiries from
post. (Note: In September of 2005, local press reported that
TRA was considering allowing VoIP services in 2006, once the
second telecom operator entered the market. According to
Mohammed al-Ghanim, Director General of TRA, as of January
3rd TRA has not decided whether it will permit the use and
sale of this service in the UAE.)

Comment
--------------


5. (C) Consulate contacts had long-speculated that Dubai's
TECOM (a company owned by the Government of Dubai that
provides the telecommunications support to businesses in
Dubai Internet and Media Cities and to some freehold
residential developments in Dubai) would be granted the
second telecom license (reftel). The surprising announcement
of a second UAEG-owned telecommunications company as the
long-awaited "competitor" to Etisalat is a disappointment.
This decision -- coupled with Etisalat's strong action
against the unlicensed VoIP vendors -- indicates the UAEG is
continuing its policy of retaining control of the telecom
sector.
SISON