Du Company - Creating a Sustainable Environment of Convenient and Value-Added Telecom Company in UAE - Example

Title: Du Company and industry analysis Name Institution Date of submission Executive summary Industry background Telecommunication industry is one of the fastest growing sectors in United Arabs Emirates. The UAE is currently the leading country in ICT ranking in Middle East Arab Countries. It has a well-developed telecom sector with high level of mobile and broadband entry in the industry. This has made it to have the highest penetration level in the entire MENA. Landline competition in the region however has a slow developing rate in the market despite the opportunity crated by market liberalization. The reforms of 2015 in the telecom sector by the mandate of World Trade Organization (WTO) could extend the industry growth both in terms of quality and competition. Apparently, it is evident that telecom industry is a vital contributor to GDP of United Arab Emirates. This report examines the current market situations in the telecom industry and prospects trends of the main players in the industry. Telecommunication industry in UAE has two network operators: du, who is the newer operator in the industry and Incumbent Etisalat who has been operating for some time now. Du telecom is 6 years old in the industry and has significantly captured up to 40% of the market share of mobile in UAE. The innovative contributions to the industry, for example, easy tariffs and flawless customer services make du the most decent brand in the market at the moment. The financial growth in terms of profits and revenues is remarkable. The future of telecommunication industry in UAE is perceived to transform the community to the usage of mobile and broadband services. Also, it is noted that the market could be changed from landline to mobile portability through acceleration by advance in technology. Seemingly, with this force, mobile virtual network operators (MVNOs) entrance will unquestionably initiate intense competition in UAE Telecom industry. Introduction and background Telecommunication sector in UAE is currently the developed sector with technological advances compared to other sectors. Besides, it is the sector that is boosting UAE economy at the moment. Telecom sector contributes up to 5% of GDP of UAE annually. Considering the high level of mobile penetration, statistics shows that by the end of 2012 there was 10.69 million subscribers (Byat, 2013). Industry is still experiencing a steady growth with no possibility of saturation in future. There are various reforms that have been introduced in the telecom sector in UAE. The first reform was in 2003 where the UAE government developed an independent organ: Telecommunications Regulation Authority (TRA). TRA introduced development funds in order to foster investment in ICT in UAE. The introduction of TRA has encouraged market growth in various ways for instance, it has introduced the usage of 4G and mobile internet services. According to Du Report (2013) the usage of internet was 70% in 2013 with a growth rate of 15%. Companies in Telecom industry in UAE Incumbent Etisalat and du are the two major players in the telecom industry in UAE. In 2014, the two reached revenues of about AED 71 billion and AED 15 respectively from their operations (Byat, 2015). This implies that Etisalat is the leading competitor with high growth volume in the industry and has established itself with the likes of getting GCC economic Honor and Middle East Award on customer care services (Du, 2013). On the other side, du telecom is mounting its market share with over 7 million subscribers registered by the end of 2013 (Byat, 2015). Etisalat monopoly was broken in February when Du Company was given telecom service provider license at AED 124 million. The license is renewed after every 20 years meaning that both the competitors will ensure that full telecommunication services are provided to the customers. These services include national and international call services, fixed networks mobile services and internet services. Telecommunication Duopoly Since the entry of Du Company in the industry in 2008, there has been discussion on how to implement mobile number portability (MNP). Both the companies are controlling the industry with du being the carrier selection and Incumbent’s being a commander in the industry. When it comes to specification of the segments, the market for the two companies are both defined geographically where Du is focused on delivering its services to New Dubai while Etisalat serving the rest of the country. This report examines the overview of the telecom industry in United Arab Emirate by focusing on industry analysis: growth, size, products, profitability, customer characteristics and market situations: driving forces, value chain, positioning, attractiveness and future outlook of the industry. Industry indicators Size and growth rate The high oil prices have led to economic boom of GCC. This has resulted to an estimated population growth of 80%-expatriate population. If we estimate UAE to grow at the rate of 5% annually, then the market share of the two companies will increase with relative significance. Assuming there was no new market entrant in 2014, a 5% growth rate of the expatriate population would boost the revenue growth of the industry (only for the two telecom operators) by relatively the same figure making it about AED 35.2 billion. Market size The good thing about Middle East is that the opportunities of expansion are unlimited since there is a growing demand of telecommunication services. Incumbent’s has maintained its leadership in the market with stable value share in three consecutive years and du being the runners-up. For instance, between 2011 and 2012, incumbent’s had a market share of 55% and 54% respectively. The du on the other side had a market share of 45% and 46% in 2011 and 2012 respectively. The interesting perspective of the two market shares is that as incumbent’s decreases, du market share increases almost at the same rate incumbent’s is decreasing. Products The telecommunication industry offers four services in the market: mobile services, internet services, broadband and fixed-line services. Mobile services have a high penetration in the market of about 188% followed by fixed-line t at about 30%. Broadband and internet has penetration rate of 10% and 16% respectively. Profitability It is evident that Etisalat’s domestic market is reducing since the entry of Du Company. However, the profitability is currently driven by its rapid expansion in overseas operations. Du Company’s profitability is largely driven by domestic customers since its brand image is increasingly recognized within the domestic domain. Capital requirements With the strong capital base of the two companies, acquisition of the new ideas in the industry has been seen to be the best way to continue their duopoly. This is one of the capital requirements in the industry. For example, in March 2006, Etisalat acquired 26% of PTCL issued capital thus securing up to 53% of the voting rights of the company. This form of doing business has reduced the number of entrants to the industry. Entry and exit barriers One of major barrier to entry is huge license fee in order to enter the industry. The exit barrier is the legal contract between the government and the business signed at the beginning of operations. Customer characteristics in the industry One of the main characteristics of customers to Telecom industry in UAE is that they are tech savvy. Due to this strong characteristic, the customers are much connected to the companies which are more connected to the technological world. Du Company has gained more customers from this characteristic since it has embraced high technology. Also, most of the customers in this industry are adventures. Also, the customers are high spending in this industry. This is explains why the industry is growing since there is high consumption rate of products by the customers (Byat, 2013). Industry analysis Industry driving forces Telecom industry in UAE is growing at a fast rate and it is driven by the following industry forces. a) Mobile money Du Company and Incumbent’s Company are there in the industry to pursue fresh revenue streams. In the contemporary world, most of the transactions are done through mobile. For example, one may buy a product overseas using PayPal. Internet access mobile has to be internet enabled in order to perform this transaction. There is increasing number of customers in UAE that buy products overseas. b) Over the top players in the market: The intensive usage of social network platform by individuals and companies has led to more people using mobile and internet services in connecting to people. Telecommunication industry in UAE has redefined itself and come up with new ways promoting customer satisfaction. c) The power of duopoly: It is only du and incumbent’s companies that are industry leaders. The high profit margin and revenues received from their services have made them stay committed in the industry by ensuring that customers are offered telecommunication services that are recommended in the 21st century. PEST analysis Political analysis The telecommunication reforms made in 2003 of forming an independent body that protects telecommunication services fostered the investment of the two companies (du Company and Incumbent’s Company). This policy introduced a line of operation between the two companies to avoid conflicts in the market. Also, the 2015 reform in the telecommunication sector ensured that the companies provide quality services to the consumers. The two policies are protecting Du Company from having a direct competition in the industry (Byat, 2013). Economic analysis Telecommunication sector in UAE has been the building block of not only UAE but also world economy. In 2007, telecom sector in UAE contributed about 11% revenue to the world economy and is expected to grow by 2% in the next two years. Etisalat and du Company contributed a total of 38% of the federal government budget in 2012. The market capitalization of the two companies was AED 21 billion where du was the third largest telecom operator in GCC and UAE region. Telecom industry in UAE raised the GDP by 2% in 2012 (Du, 2013). The drivers in the economic sector are increase in the disposable incomes, the lowering of prices of mobile phones, call charges falling and the extension of network coverage. Apparently, these drivers have boosted the performance of du Company in the industry and possibly in the next two years the revenue will increase by 4%. By the end of 2015, du Company with the industry will have an increased share from 0.3% to 3.3% in world telecommunication sector. The products that will increase the market share are mobile and internet services (Byat, 2015). Social analysis It is evident that customers in UAE like other countries of the world are changing their lifestyle. This has forced du and Incumbent’s Companies to enlarge their breaths and depth on their services to the customers. There is also a regional shift in population in UAE where most of the customers are moving to industrial areas around the cities in search of jobs. Du and incumbent’s Companies are providing their networks in the rural areas making the villagers to enjoy their services as well. This coverage has helped du Company developed its brand image in the industry thus increasing its market share. Telecommunication industry has also provides employment opportunities locally, nationally and internationally thus increasing the performance of UAE economy (Byat, 2013). Technology analysis Advance in technology has opened up opportunities for du Company and its competitor (Cheverton, 2004). Technology has enhanced productivity improvement, providing an integrated mobile communication system linking the customers to the world and 3G and 4G technology has ensured there is fast internet surfing to the customers. Environmental analysis The growth of telecom industry in UAE has increased the production of electronic waste in the environment. As a result, the industry has a pressure of sustainable development in the environment. For example, there is a plan of launching ‘Green Initiative’ by the end of 2016 in UAE to ensure that the companies take full responsibility of their wastes in the environment. Legal analysis The legal framework guiding du and Incumbent’s is Telecommunication communication authority (TCA) and presents guidelines that should be adhered to. This legal framework has protected the exisatnce of the two companies and avoids intense competition in the industry which could lead to poor service delivery to customers. Porter’s five forces Internal industry rivalry Incumbent is a strong competitor to du Company and therefore it may set competitive prices on its services. However, du Company will survive since there is coexistence that is protected by the TCA of UAE. The products in the industry are homogeneous and therefore it is difficult for customers to differentiate the products (Roy, 2011). Entry Most firms in UAE have been attracted by economic profits gained by du and incumbent Companies. The entry of the new firms in the industry will reduce the profits through reduction in sales and market share as well as shifting the concentration form market to competitors. Barriers to entry of the firms in UAE include economies of scale created by du and incumbent and the legal framework of operation that require payment of huge license (Du, 2013). Substitutes Substitutes in the telecommunication industry reflect the new technology advances in the market. The threatening substitutes for du Company are the services provided by incumbent Company which are also licensed to du Company despite being in the same industry. These services include broadband services. Supply power Suppliers to telecommunication industry include labor unions, equipment and energy. Due to the economic situations in UAE, unions have increased wages thus affecting the profitability of the company. If the economic situations do not change and the pressure from the suppliers persist in 2016, then it this will challenge the company from achieving its financial objectives. Buyer power Buyer power of telecommunication services in UAE is low since the service providers are only two. However, customers may shift from one provider to another as an indirect way of bargaining and this may reduce the profit margin of du Company. The coexistence of the two companies has helped reduce the buyer power of the customers thus operating under uninfluenced service provision to the customers since the bargaining power is low (Du, 2013). Value chain analysis in assessing competitive advantage of du Company The value chain of the company is based on suppliers and customers. On the side of suppliers, the company is committed to eliminate the pressure from the labor unions and waste generation. On the other side, the company is committed to on customers’ service satisfaction. As a result, this strategy will boost the company’s efficient allocation of resources in order to reach its mission (Du, 2013). Company attractiveness Over the last 6 years of operation, du Company has developed an appealing brand image with the products and service offered to the customers. For example, different tariffs have offered flexibility in the market thus attracting majority of the customers (Byat, 2013). Positioning Du positions its products as the most updated in the industry, convenient and value-added telecom company in UAE. The marketing strategy is focused on customer’s needs rather than just presenting its product in the company. There is always hunting for new and innovative plan for the company to enhance a long term existence in the market (Byat, 2015). Future outlook Du Company is guided by its mission and therefore, the outlook of the company is intended to create a sustainable environment whereby the business is created in a responsible manner. As a result, the telecommunication services provided will lead to the development of economy as well as the well-being of UAE society (Byat, 2015). References Byat, A. (2013). Emirates integrated telecommunications company PJSC and its subsidiary.Consolidated Financial Statement, 22-28. Byat, A. (2015). Emirates integrated telecommunications company PJSC and its subsidiary. Company’s shareholders meeting report, 1-15. Cheverton, P. (2004). Key Marketing Skills 2. London: Kogan Page. Du Annual Report. (2013). Du sustainability report, listen, connect and innovate(1). Roy, D. (2011). Strategic Foresight and Porter's Five Forces. München: GRIN Verlag GmbH. Read More