LLU: fantasy land madness or clever ruse?

Posted by Julian Herbert Thursday, March 12th, 2009

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A senior Etisalat executive admitted yesterday that the economic downturn has begun to affect Dubai. The clearest evidence, he suggested, was that cab journeys which routinely took an hour and a half six months ago, now take no more than 30 minutes. This was his way of saying that not all the news is bad and I concur.

The sinking feeling you would get when, after a day spent at some swanky steel and glass conference hotel, you’d find yourself in a line of 200 toursists, all queuing for a cab which may not turn up, was deeper than the Burj Tower (the world’s tallest free-standing structure) is tall. If you were lucky enough to get into a cab, you would join a procession of Ferraris (Dubai apparently has the highest concentration of Ferraris in the word) and Porsches crawling down the Sheikh Zayed Road, and your driver would take you somewhere you didn’t want to go, because he’s fresh off the plane and thinks Old Town Mall is in the old town. In short, global recession has helped solve Dubai’s chronic traffic congestion and made it easy to get a cab.

Arguably, Etisalat and fellow duopolist du are well set to benefit too. The same volume of population is going out less and spending more time at home using broadband, making phone calls and watching TV. Whilst the rest of Dubai is floating on an ocean of financing, Etisalat has bundles of cash which it is looking to invest, through Etisalat International, in developing world projects across the Middle East and Africa. Etisalat issued a press release on Tuesday, to coincide with the Broadband Global Summit, stating that it had signed its 500,000^th HSDPA customer and had connected more than 500,000 homes to its residential broadband service. Chief Corporate Affairs Officer, Nasser Bin Obood also told me that more than 300,000 homes were now passed with FTTH.

In my brief presentation at the event, I made the point that fixed broadband penetration in Dubai now exceeds 70% (the second highest in the region behind Qatar), a level which compares comfortably well with all but the “greater than 90%” coterie of Denmark, The Netherlands, Korea and Japan. This success has come about without effective competition, since du, which is often heralded as a competitor, operates as a monopoly in its own right in exclusive concession areas in ‘new Dubai’.

Nor has Etisalat been a benign, state-regulated monopolist, since prices are swingeingly high. Simply, the mobile phone and home broadband have become as much a must-have for the UAE population as a gas-guzzling 4×4 or a Gucci handbag and by and large, Etisalat has met its noblesse oblige by providing good quality and reasonable customer service.

So imagine my bewilderment when I hear that the TRA (UAE’s telecom regulator) is considering the introduction of local loop unbundling at some point later in 2009. Why on earth would a regulator mandate an instrument which has been used in Europe to boost penetration and introduce infrastructure competition, in markets which for the most part at the time, had fixed broadband penetration of no more than 30 to 40%?

The cynics might say it’s because the owners of du think that firstly it’s high time that they got a piece of Etisalat’s lucrative fixed line action and secondly because there are hints that du is harbouring international ambitions of its own and would need cash to finance them.

The less conspiratorial theory is that rumours of LLU are an elaborate double-bluff. The best way to ensure that your copper network can’t be unbundled is to replace it with fibre, so the LLU rumour is being used to spur on the roll out of FTTH. It’s working. By the end of 2010, say Etisalat, every home and business in Abu Dhabi will have fibre.

I reckon this means that by 2011, well over half of Etisalat’s 1.2 million fixed lines will be fibre and if you add the homes served by du’s FTTH network, the UAE, with around 60% of homes, will have the highest penetration of FTTH in the world. Think of it as Etisalat’s contribution to Dubai’s vision of itself as the biggest, the best and the most lavish place on Earth.