United Arab Emirates Telecommunications Report Q2 2008

Based on figures released by UAE's two mobile operators, Etisalat and du, we estimate that there were a total of 7.656mn mobile subscribers in the UAE at the end of 2007. Based on population figures provided by UAE's Ministry of Economy and Commerce, this means that mobile penetration had risen to 174%. Although it is not uncommon to find mobile markets with penetration rates that have surpassed the 100% penetration threshold by a significant margin, the UAE stands out for having a penetration rate which is hurtling rapidly towards 200%. Growth in the last three quarters of 2007 was consistently strong, and BMI sees no reason why such growth will not continue into 2008 and beyond. We believe that multiple SIM ownership, together with an expanding population, will help to sustain continued growth in the months ahead. We also believe that the reported subscriber figures of the UAE's mobile operators contain a certain number of inactive prepaid users which, if discounted, would reduce the country's actual penetration rate.

In addition to updating our mobile growth forecasts for the UAE, we have revised our forecast for fixedline subscriber growth, following evidence of a stagnating market in the final quarter of 2007. At the end of December 2007, Etisalat reported 1.32mn fixed-line subscribers, a figure which was unchanged on the September 2007 total. Despite the apparent slowdown in Etisalat's fixed-line growth, we believe that fixed-line growth will continue, albeit at a reduced rate; growth will be supported by the ongoing rollout of fixed-line services by du, as well as by the demand which comes with an expanding population.

Meanwhile, the cost of broadband services has continued to fall, thanks to price cuts by both operators. In January 2008, Etisalat doubled the download speeds on its 'Al-Shamil' broadband package and extended the number of Wi-Fi hotspots it runs for broadband subscribers. Also in January 2008, Etisalat announced that it had completed the first phase of its fibre-to-the-home (FTTH) deployment, reportedly bringing customers speeds of up to 60Mbps.

The UAE sits in sixth place in our latest set of revised Business Environment Rankings for the Middle East. Although the UAE benefits from having high country structure and country risk scores, it scores less well in the area of regulatory independence.