Etisalat: An FTTH strategy without a business plan?
This week, Informa held its third annual Middle East broadband event, at the Jumeira Beach Hotel in Dubai. In a region where benchmarking is so critical not only to attracting investment but also to establishing and enhancing reputation, Etisalat was the highlight of the show – in more ways than one.
The UAE incumbent was the “platinum sponsor,” with a large stall at the entrance door and three privileged timeslots on each morning dedicated to outlining the company’s visions and goals. By setting the tone of the conference, it echoed its aspirations for setting the regional benchmark. On the podium, its representatives had an easy time lauding the virtues of the company’s unique fiber-to-the-home deployments, amounting to the colossal figure of AED5 billion (US$1.4 billion), which the company has spent entirely in Abu Dhabi – the city that is soon to become the world’s first fully connected FTTH capital.
And Etisalat stresses the “H” in FTTH: It is pure fiber-optics – not Ethernet or cable – that is used for the last few meters to residents’ houses and apartments. As of end-2010, 68% of the UAE’s 924,000 homes and apartments had been migrated – a phenomenal figure, considering that FTTH migration was initiated less than two years ago. Such dedication is seldom known in any other operator in the world.
Last year, we received news at what was then the Broadband World Summit that Etisalat engineers were hurriedly migrating residents’ home without even their consent. A year later, with European operators at the conference benchmarking their fiber plans against the UAE, the burning question fellow regional incumbents – most notably Q-Tel and STC – had was the obvious one: What plan did Etisalat have to make a return on this massive investment? Simply put, when pushed, the affirmation came: “The commitment of Etisalat to the UAE goes beyond business.”
So is that it? That, for the past couple of years, Etisalat has merely wanted to help the country? That might be justifiable through UAE 2021 Vision national project, but I highly doubt that Etisalat is motivated by it. Or is it the case that the steamrolling of FTTH has not turned out as planned, and the only thing keeping the company from discontinuing the pursuit of its strategy is its pride? If I was an investor, I would for sure be nervous.
Or is Etisalat keeping its true intentions behind its FTTH strategy up its sleeve? Time will tell, because with bitstream network-sharing just around the corner, customer churn to Du in Etisalat’s larger coverage area is inevitable. This will represent a significant loss to Etisalat: No amount of PR (which Du is superior at), price reductions and bundle enhancements (in which Du and Etisalat are, for the most part, neck-and-neck), or content partnerships (which was a main theme for all regional operators at the conference) will save the UAE operator from the “Du effect.”
The irony is that the conference went on as if certain people were completely oblivious to the above, highlighting the benefits of FTTH in the UAE, the potentially massive ROI it will yield in the medium-to-long term and the growth in GDP that is connected to national take-up of broadband. Not only this, but another Etisalat representative spoke about the three goals of fiber deployment: quality of network, quality of service, and revenue (i.e. ROI – return on investment) from customer access.
Nobody really is privy to why mixed messages are coming from the company. All that is known is that not only is Etisalat committed to covering 100% of the UAE with fiber, but it has now proved itself to be boldly dissimilar to almost every other operator out there. And if it is true to its word that “this is the company’s commitment to the UAE,” it would be a rare example in the business world of the most benevolent generosity. In all these aspects, Etisalat’s FTTH deployment is truly unprecedented. But it’s not all about data consumption, speed or pricing; user customization, applications and content all form the real revenue drivers, which were identified by Etisalat and others as having far more potential to be monetized than mere access to FTTH.
In a fashion more befitting Manchester City, the Emirati-owned spendthrift soccer club of the English Premier League, Etisalat has no doubt opened up its wallet in order to state its intention to rule the whole regional telecoms scene (and after an eight month story of twists and turns, it might just pull through with its 46% acquisition of Zain for US$12 billion, extending its global footprint from 17 to 24 countries).
The company recently proved itself somewhat true to its patriotic commitment no matter the cost by announcing plans to spend an additional AED7 billion to expand its FTTH network outside the capital. Overall, the company announced just yesterday that it will spend an enormous AED55.2 billion to develop its networks nationally and in other markets (such as Saudi Arabia and Egypt) over the next five years. This includes its proposed LTE deployments, scheduled for later this year.
However, as Manchester City knows all too well, money does not guarantee success. LTE, for example, might prove to be an Achilles’ heel for the company’s FTTH investment, with Emirati data trends indicating that fixed Internet usage is dropping and 3G+ mobile broadband is on the rise (I shall soon be completing a piece for Informa’s IC on “the battle of the broadbands” in the UAE).
It has been only two years since Etisalat embarked on its copper-to-fiber migration strategy. Although its NGA efforts are to be commended, FTTH is still being rocked in the cradle; nobody knows how the networks will respond to the potentially huge demand for data as speeds keep increasing. The networks’ behavior will be monitored over the next couple of years, and critical lessons will be learned with it. Etisalat affirms that a traditional Emirati household with several family members can easily hit peak data usage at even a 30Mbps connection (which is its fastest retailed connection).
We will all be there in March 2012 – when, most likely, the national and regional telecoms market will be more sophisticated than it is today – to scrutinize how Etisalat’s commitment to the UAE and ROI from FTTH are faring.