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Small-time internet shops threaten UAE telcos

Small-time internet shops threaten UAE telcos

With strong demand from UAE expatriates, back alley internet shops are offering VoIP despite government restriction and at a tenth of Etisalat and du’s regulated prices, making them tough competition.

November 10, 2011 4:30 by

In the gritty streets of Deira, the old commercial heart of Dubai, lurks a threat to some of the region’s biggest telecommunications firms.

It is here on the northern bank of Dubai creek, among the grocery stores and barbers, the discount tailors and food stalls, where low-wage workers come after a day’s toil to phone their family and friends overseas.

Instead of using their pre-paid mobile phones, they cram into the sweaty booths of dilapidated backstreet internet shops to call home at prices a fraction of those charged by telecom operators Etisalat , the United Arab Emirates’ most valuable listed company, and rival du .

These shops dodge government inspectors to offer unlicensed Voice over internet Protocol (VoIP) services — free internet-to-internet calls and cheap internet-to-phone calls. The UAE’s regulator says only licensed companies can provide VoIP.

“It’s less than a tenth of the cost of Etisalat, that’s why I come here,” said Mansour, 21. The Afghan works in a Deira clothes shop and calls his family in Kabul three times a week from a 14-booth VoIP shop run by managers Mamun and Shajib, both 22.

The Bangladeshi pair have been offering VoIP services for more than a year and spoke on condition that their full names and company details were not disclosed.

“For internet we can only charge 3 dirhams (82 U.S. cents) an hour and that’s not enough to pay two salaries, shop rent, licences and broadband costs,” said Shajib. “We would have shut if it wasn’t for VoIP, but this is very popular and more and more people are telling their friends.

“Most people’s salaries are not even 1,400 dirhams per month and they can’t spend much on the telephone, so that’s why they come here. If Etisalat or du offered the same rates as us, we would close down tomorrow.”

internet-to-phone calls via Skype, the global leader for consumer VoIP, are intermittently blocked in the UAE, but the Deira shops use other programmes such as Calls Telecom and Call World for internet-to-phone calls, and these seem to work without hindrance.

Rates start at 0.1 dirham per minute to phone a landline in India, with Pakistan, Bangladesh and Sri Lanka the other top destinations, Shajib said.

Prices to these countries are about 0.25 dirham per minute on average.

To call India, Etisalat and du charge 1.89 dirhams per minute for off-peak calls between 9 p.m. and 7 am, and 2.40 dirhams at other times.

The regulator sets their tariffs, so the two operators cannot directly compete on price and instead tout various call packages. Etisalat offers subscribers a 60 percent discount on late-night calls to the subcontinent, but its fees are still much higher than the rates offered by Shajib and rival shops.

Etisalat operates across 18 countries but three-quarters of its revenue comes from the UAE, while du is a single-country carrier, and international calls are among their biggest income streams. So VoIP is potentially disastrous for them.

“It’s a losing battle – when you try to ban or restrict something on the internet, the harder you squeeze, the more it gets between your fingers,” said Oliver Johnson, chief executive of British-based telecoms research firm Point Topic.

“As speeds increase, people will value VoIP more and more and they won’t see why they should make a normal international call instead. Margins on international calls are yesterday’s revenues.”

Four-fifths of UAE residents are expatriates, which spurs demand for international calls. Wealthier Western and Arab residents have better access to the internet, at home and at work, and were the first to use VoIP services in the UAE; its spread to the lower-income majority could be a game changer for Etisalat and du.

“If VoIP was legal and widely available, it would be a disaster for Gulf operators,” said Pedro Oliveira, partner at consultants Oliver Wyman. (CONTINUED TO NEXT PAGE)

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