Technological advances and their role in Dubai's ICT market

Dubai offers a healthy environment for ICT operators, with its strong, high-tech and high-coverage network combining well with a tech-savvy and internationally connected population. At the same time, the government of Dubai – and that of the UAE – has repeatedly demonstrated its commitment to become a world leader in terms of IT. Initiatives such as Smart Dubai and the Dubai Future Foundation, along with a minister of state for artificial intelligence (AI) and a minister for cabinet affairs and the future, are all positive indicators of the emirate’s forward-looking commitment.

This innovative approach is more necessary than ever in a market where basic ICT services long ago reached saturation point. Growth in SIM card sales is largely driven by population growth alone, though demand for data continues to expand. This demand is being driven by vastly increasing video usage, instant messaging services, voice over internet protocol (VoIP) services and other applications, all of which are making ground at the expense of traditional mobile voice services. At the same time, expansion is continuing in fixed line, alongside parallel growth in data centres, handset upgrades, IT services and apps.

The challenges faced by the sector are those of mature telecoms markets worldwide. Where Dubai and the UAE have an edge, however, is in the strength of their providers and the network behind them. This will make the country and the emirate some of the first places in the world to offer 5G going into 2019-20, with all of the implications that this involves for big data, AI and a range of other new services.

Structure & Oversight

As one of the UAE’s seven emirates, Dubai is subject to federal ICT law and is part of a single, nationwide ICT infrastructure.

Federal Law No. 3 of 2003 is the legal instrument governing the sector. The Telecommunications Regulatory Authority (TRA), which was established as part of the law in 2003, is responsible for overseeing the sector, ensuring adequate provision of services across the country, and for making sure all licensees adhere to the terms of licensing. In addition, it is also tasked with encouraging training and development, resolving disputes, and promoting new technologies, research and development, and innovation in the ICT sector.

In 2011 the TRA was tasked with enabling federal e-government, and in 2013 it was similarly given responsibility for overseeing the UAE Mobile Government Initiative. Indeed, the TRA has since taken on a major enabling role when it comes to the country’s digital infrastructure. This includes services such as Federal Network, the UAE government portal; SmartPass – a one-stop-shop device for accessing federal services; and the UAE Government Services Bus, which assists local and federal entities in exchanging data.

The TRA is also a member of several key international groups, including the International Telecommunication Union, the Arab Regulators Network, and the GCC Technical Committee.

The TRA is thus the sole authority for the issuing of licences, with the possession of such a licence obligatory for any ICT entity that wishes to work in the UAE. The authority also monitors the market for unlicensed activities and has the power to block or shut down any such services. It has exercised this power in recent times, most notably against unlicensed VoIP services.

Data Protection

Although the UAE’s constitution guarantees a right to privacy, there is currently no specific UAE-wide law that deals in absolute terms with data protection. Dubai is unique among the UAE, however, in that it also has a Dubai Statistics Centre (DSC) Law, which restricts the disclosure of personal information collected through its census and polling work. Dubai also has specific data protection laws in its various free zones, such as the Dubai International Financial Centre (DIFC) and Dubai Healthcare City.

In terms of cybersecurity, the National E-Security Authority was established in 2012 to enforce a federal decree against cybercrime. In addition, in 2008 the TRA established the UAE Computer Emergency Response Team, tasking it with protecting the country’s IT infrastructure. In January 2017 the TRA issued its Consumer Protection Regulations, Version 1.3, which aim to protect the personal information submitted online by service subscribers.

Moreover, Dubai’s regulatory environment is changing in response to legal reforms regarding data privacy in foreign markets. “The introduction of the EU’s General Data Protection Regulation in May 2018 has been a significant step towards protecting the use of customer data,” Petra Spanko, Middle East managing director for the Europe-based technology solutions provider Clever Monitor, told OBG. “Although this change is geared towards regulating European companies, gradually, the rest of the world will catch up.”

The emirate has also had to tackle data security issues in the context of its drive towards Smart Dubai. A highly secure infrastructure has been reinforced with the Dubai Data Law No. 26 of 2015, which aims to enable sharing of data between agencies within the emirate in order to facilitate the integration of those central to the Smart Dubai concept.

Future use of blockchain in this is also likely to further increase data protection. The Dubai government has set itself a target of 100% of its applicable transactions on blockchain by 2020, while other institutions, too, are moving forward with the adoption of this technology. One recent example of this is DIFC Courts, which announced a partnership with Smart Dubai in August 2018 over the establishment of a Court of Blockchain – the world’s first. This will place a host of smart contracts, legal documents and rulings within a well-protected blockchain-based network.

As new technologies and innovations have developed and spread into various industries, a range of other institutions in Dubai and the UAE have also been obliged to issue regulations pertinent to the ICT sector. In financial technology (fintech), for example, in September 2018 the UAE Securities and Commodities Authority issued plans to regulate initial coin offerings to bring international standards and best practices to UAE cryptocurrency and crowdfunding initiatives.

Lastly, the Digital Payment Regulation, issued by the central bank in January 2017, requires digital payment service providers to store all their records within the UAE and outlines what restrictions, applicable to whom, are in force to limit the availability of data.

Penetration Rates

The UAE had a population of some 9.5m in early 2019, with Dubai accounting for 3.19m people, according to the DSC. The country as a whole, according to the TRA, had a mobile penetration rate of 217.8 lines per 100 subscribers at the end of October 2018. Fixed-line penetration was 26.4 lines per 100 residents, while broadband subscriptions stood at 15.5 lines per 100 subscribers.

Thus, the mobile market is heavily saturated, with many Emiratis holding more than one SIM card and subscribing to more than one provider. Given that the overwhelming majority of the population are non-Emiratis – in Dubai, the figure is approximately 90% – with many of these on temporary contracts in the country, many of these subscriptions may also only be temporary. Telecoms companies thus generally only count as active subscribers those who have performed at least one function, such as call, text or the usage of data, on their mobile within the previous 90 days.

The TRA numbers for October 2018 show a total of 19.26m active mobile subscriptions across the UAE, a figure down from the 19.69m recorded in October 2017. The number of fixed lines rose from 2.31m to 2.34m over the same period, while the number of broadband subscriptions went from 1.34m to 1.37m.

The temporary nature of many subscribers also shows in the predominance of pre-paid mobile users who accounted for 15.81m of the total in October 2018, with post-paid users accounting for 3.45m. These are compared to pre-paid and post-paid of 16.37m and 3.32m, respectively, in October 2017.

Figures for Dubai were only available for 2017, when the DSC put the number of active mobile subscription lines at 5.88m, down 7.4% from 6.35m in 2016. The number of fixed lines within the emirate in 2017 was 1.41m, up from 1.38m in 2016. The pattern is one of a mobile market plateau, while fixed line still shows some growth, which may have been helped by the FIFA World Cup in the summer of 2018.

Yet, steady fixed-line growth has been a consistent feature in recent years, regardless of such cyclical phenomena. The stable pattern of increase was also due to telecoms operators offering more attractive fibreto-home, bundled services and premium content.

Market Players

As in the rest of the UAE, the telecoms market in Dubai is a duopoly. The two players are Etisalat and du, which both now have spin-off, youth-targeted subsidiaries, swyp and Virgin Mobile.

Both Etisalat and du are majority state-owned. Etisalat, or the Emirates Telecommunication Group Company, began in 1976, with a change in ownership structure in 1983 delivering a 60% share to the UAE government, with the remainder publicly traded. Its rival, du, or the Emirates Integrated Telecommunications Company, came later – in 2006. Its ownership structure is more complex, with 39.5% belonging to the state-owned Emirates Investment Authority; 19.75% to the state-owned sovereign wealth fund, Abu Dhabi’s Mubadala Investment Company; and 19.5% by Emirates International Telecommunications, itself owned by Dubai Holding – in turn, majority owned by the vice-president and prime minister of the UAE and ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum. The remaining share of 21% is publicly owned.

Etisalat

Etisalat remains the larger of the two outfits and was responsible for launching the country’s first mobile network in 1982. In 1995 it opened the UAE’s first SIM card factory and in 2000 rolled out mobile data services for the first time. Etisalat’s first 3G network was launched in 2003. This was followed by mobile TV in 2007, and 3DTV in 2010, when it also began commercial trials of LTE.

The company’s most recently available results, for the third quarter of 2018, show revenue up 2% yearon-year (y-o-y) to Dh13.15bn ($3.6bn), while net profit fell 2%, to Dh2.74bn ($745.1m), over the same period. In the first nine months of 2018, the company saw improved earnings before interest, taxes, depreciation and amortisation (EBITDA), up 1%, although changes in the revenue mix meant the EBITDA margin fell one percentage point. The company is an international outfit, operating in some 16 different countries, including in the MENA region, Saudi Arabia (as Mobily), Morocco (as Maroc Telecom), Egypt (as Etisalat Misr), and Mauritania (as Mauritel). Thus the figures above are for its combined group operations. In the UAE, revenue growth was reported at 2% in the third quarter of 2018, y-o-y, with the UAE accounting for some 59% of Etisalat’s total revenue. Meanwhile, EBITDA shrank 1%, with the UAE responsible for 61% of the total. Net profit decreased 7.2% from the previous quarter, domestically. Capital expenditure was at 12% of revenue in the third quarter of 2018, with higher capital spending in the UAE when compared to the previous quarter’s financial results.

Etisalat saw its mobile subscriptions increase from 8.53m pre-paid and 2.06m post-paid in the third quarter of 2017 to 8.56m pre-paid and 2.09m post-paid in the third quarter of 2018. Quarter-on-quarter, however, there was a decline in pre-paid, from 8.84m in the second quarter of 2018, although post-paid continued to increase, up from 2.05m. Average revenue per user (ARPU) has shown a steady decline, falling from Dh103 ($28.04) in the third quarter of 2017 to Dh96 ($26.13) in the second quarter of 2018 and Dh98 ($26.68) in the third quarter of 2018. This is likely the result of the continuing overall economic downturn.

A brighter spot was fixed broadband subscriptions. These went from 0.75m fixed-mobile-broadband bundles (3P) to 0.76m between the third quarter of 2017 and the third quarter of 2018, while fixed-broadband bundles (2P) subscriptions increased from 0.21m to 0.25m, and fixed (1P) subscriptions declined from 0.16m to 0.15m. The total number of subscriptions thus went from a total of 1.12m to 1.16m.

SWYP

Etisalat also launched swyp in September 2017 to target a young customer base, as only those aged 15-29 are eligible to join. With global mobile data traffic market set to expand nearly seven-fold between 2017 and 2022, according to Statista, the service is looking to capitalise on the shift from voice to data, particularly among younger users. A pre-paid subscription currently costs Dh50 ($13.61) per month for a basic package, which entitles users to a variety of mobile data and social media plans. The service also works by subscribers downloading an app, through which they choose a plan and order a SIM card, which is then delivered to their door, or can be collected from Etisalat stores in a range of malls – obviating the need for independent storefronts. swyp was launched after a similar service had been opened by Etisalat’s rival, du.

DU

du’s 2018 third-quarter results show revenues up 6.4%, compared to the same period in 2017, at Dh3.33bn ($906.4m). This was achieved thanks to good growth in fixed revenues, rather than mobile, with the former rising 7.8% over the period, while the latter grew by 0.3%. In the third quarter of 2018, mobile accounted for Dh1.78bn ($484.2m) in revenue and fixed for Dh579m ($157.6m), meaning that around Dh973m ($264.9m) came from other revenues – a figure up some 18.5% on the second quarter of 2017.

In terms of profits, EBITDA was up 2.8%, to Dh1.37bn ($372.9m), while net profit after royalty fell 7.4%, to Dh441m ($120m). Capital expenditure showed a similar pattern to Etisalat, and was down substantially – falling from Dh368m ($100.2m) in the third quarter of 2017 to Dh185m ($50.4m) in the third quarter of 2018. du began an efficiency programme in 2017, called RESET, which positively affected its EBITDA growth.

Meanwhile, du’s subscriber base showed declines in mobile, while rising in fixed. In the former, between third quarter of 2017 and third quarter of 2018, those registered as 90 days active fell 3.3%, from 7.98m to 7.71m, while fixed subscribers rose from 724,000 to 760,000 between the third quarter of 2017 and the third quarter of 2018. This was reported by du to be the result of growth in the consumer segment, rather than business. Mobile ARPU also rose by 3.8%, from Dh78 ($21.23) to Dh81 ($22.05) between the third quarter of 2017 and the third quarter of 2018, which du attributed to a strategy of concentration on value, rather than volume, in the mobile sector.

At the third quarter of 2018, du had a market share of 44.8%, UAE-wide, in terms of mobile subscriptions, with Etisalat on 55.2%, while in terms of revenues, the latter took 70.1% and the former 29.9%.

Some of du’s share was also taken by its youth-targeted spin-off, Virgin Mobile. This is the UAE’s first fully digital mobile service, launched just before swyp, and also operates via a subscription model, activated via an app, with home delivery of the SIM card anywhere in the country within an hour. The basic package is also Dh50 ($13.61) a month, yet unlike swyp, Virgin Mobile is not age-restricted.

In a market where mobile subscriptions are in decline, or have plateaued out, these two new services are not only hoping to attract customers from new arrivals in Dubai and elsewhere, but also from each other. Virgin thus offers easy number portability, enabling subscribers to keep numbers issued by previous providers. There is of course a danger too of cannibalisation, as Etisalat customers shift to swyp, or du customers switch to Virgin, yet both operators are hoping their offshoots attract new market segments, looking for very flexible where plans can be changed month by month, and data exclusive packages.

Network Expansion

With the emirate of Dubai covering some 4114 sq km out of the UAE’s 83,600 sq km, and with most of its territory urban, Dubai has comprehensive coverage from both Etisalat and du. The most recent TRA survey of voice call completion success – conducted for the UAE as a whole in 2017 – showed Etisalat with a 99.53% success rate and du with 99.15%. Both networks’ call drop rates were 0.14%, while du had a 94.58% voice quality in outdoor coverage and Etisalat with 94.35%. Now, both networks are gearing up for the next innovation – near doubling of speed with the change from 4G to 5G services.

In December 2017 Etisalat announced the pre-commercial launch of its 5G capability, with the company then announcing in May 2018 that its first commercial operations would begin in September 2018. In late January 2019, du announced that it would begin to launch its 5G mobile network service prior to the end of 2019. In mid-2018 du had launched its first 5G website with a throughput of 1.5 Gbps in initiating its version of the technology in the UAE.

In 2019 the service will then expand, because of the current, low availability of 5G-enabled devices. As these become more widespread, the 5G network coverage will expand to meet this. Expo 2020 is likely to be one of the major venues where this will be showcased to the wider region and world.

IT Ecospheres

One of the great advantages a 5G network will give Dubai is the enabling of more advanced technologies and applications to become widespread. Telecoms operators will have a central part to play in the rollout of driverless cars, AI, blockchain and big data applications across the UAE, with Dubai well placed to take a leading position in all these.

At the same time, the emirate is seeking to continue to develop its IT ecosphere at the smaller end of the scale, due in large part by encouraging startups, as well as tech-driven innovation via the many tech-focused free zones and start-up spaces that are currently positioned within the emirate.

“Here, you have a mix of good technology, a very international population, with people who are quite technologically savvy and are often working here for large multinationals with increased exposure to international trends, so yes, there is a significant start-up scene here as a direct result,” Matthew Reed, practice leader, Middle East and Africa for Ovum, told OBG.

A number of initiatives have been key in this. Dubai Internet City (DIC) is one, a free zone where non-native entrepreneurs can retain 100% ownership of their company, while enjoying a 50-year exemption from both income and corporate taxes. Dubai Media City and Dubai Knowledge Park are also free zones, which offer similar packages to ICT firms. In addition, the Dubai Future Foundation runs additional programmes such as Dubai Future Accelerators, a nine-week programme that brings IT entrepreneurs, businesses and government entities together in order to facilitate new ideas and commercialise them.

Also key is the Dubai Silicon Oasis (DSO), another free zone, which is home to the Dubai Technology Entrepreneur Centre (Dtec). This is the largest start-up centre in the Middle East and the largest co-working space in Dubai. It also has the facility to provide seed funds, as well as other forms of support. Another outfit offering this is TURN8, an accelerator programme that offers a Series A follow-on investment fund and has an interest in robotics, nanotechnology and internet of things applications. It also operates The Cribb accelerator host, with a co-working space in Dubai.

In addition, IN5, located within DIC, has a strong network of venture capital and angel investors around it, while also housing three further innovation centres, specialising in media, design and technology. ImpactHub Dubai is another co-working and community space, with a pop-up presence in the city’s downtown core, while AstroLabs Dubai offers company set-up, a 24/7 workspace and an active start-up community to its members.

Two other key outfits for building the ecosphere are Dubai Angel Investors (DAI) and Start-up Grind Dubai (SGD). DAI typically allocates $100,000-250,000 in companies it decides to invest in, with start-ups such as food and beverage service LUNCH:ON, e-commerce site Zbooni and fintech outfit MoneyFellows in its portfolio. SGD, meanwhile, is the local chapter of Google for Entrepreneurs, under the purview of Google for Start-ups, which organises networking and training events throughout the emirate, while also including local outfits into its global membership of over 1.5m entrepreneurs.

Commercial Success

The fruits of these labours are becoming increasingly evident in a swathe of commercially successful outfits, some of which have attracted the attention of global giants. These include Careem – the ride-hailing start-up, which launched a company with the Dubai government’s Roads and Transport Authority in December 2018 as a rival to Uber; Bridg, a mobile payment platform using bluetooth that was one of Forbes’ top-20 Middle Eastern fintech start-ups for 2018; and souq.com, the online marketplace acquired by Amazon for $580m in July 2017. The firm announced in late 2018 it would soon open the Amazon Global Store on its e-commerce site.

DSO reported 11.2% growth in revenue in 2017, year-on-year, while the number of companies present at the park rose by 339 to reach 2459, with some 82% of them specialising in technology. DIC is also expanding, with Canon establishing its own incubator there in April 2018, while 2019 will see offices in the first phase of a 450,000-sq-feet, two-building extension become commercially available.

Dubai is also keen to develop opportunities for Emirati start-ups in particular. Promoting the sector to locals involves programmes such as the Emirati Tech Boot Camps, run by DSO and Dtec, in cooperation with the Dubai Chamber of Commerce and Industry. The four-day camps aim to tap the potential of nationals, while offering advice, training and expertise.

Outlook

With the firm support of Dubai’s ruler and administration for the ICT sector – indeed, with its whole view of the future intimately dependent on IT development – the period ahead looks likely to be one of continued growth. The forthcoming Expo 2020, beginning in October 2020, will also act as a focal point for much of this development, setting a timeline for many current projects, such as 5G and Smart Dubai.

Meanwhile, there is a critical mass in start-ups and at the innovative end of the spectrum, with the emirate and the UAE, as a whole, making continued efforts to attract more tech business. Naturally, the overall state of play with the local, regional and international economy also impacts business – yet the current downturn is also providing good opportunities for IT advancement. Smart systems, AI, integration of platforms and other IT-based solutions can help companies and governments streamline their budgets and introduce greater efficiencies, with initiatives such as Smart Dubai able to demonstrate clear savings.

The next steps will be in widening the IT uptake within the small and medium-sized enterprises realm, as well as bring existing, more conventional private sector businesses the advantages now enjoyed by the larger outfits and government entities. A clear momentum is clearly under way for this, with the period ahead likely to see the ICT sector become a more indispensable part of daily life in the emirate.