Introduction
The telecommunication sector plays an essential role in the development of modern economies worldwide. It allows countries to get substantial revenues from the exploitation of various information and communication technologies (ICTs), infrastructures, and networks and, therefore, may help them to stimulate the economic growth considerably (Ameen & Willis, 2016). For this reason, it is essential to ensure that the telecommunication sector remains competitive, innovative, and advanced as these features can contribute to the strengthening of the national economy.
As for the telecommunications market in the United Arab Emirates (UAE), its performance is currently flawed. According to Ameen and Willis (2016), two primary telecommunications operators in the UAE, Emirates Telecommunications Corporation (Etisalat) and Emirates Integrated Telecommunications Company (du), have been experiencing a decrease in profitability since 2015. The duopoly structure of the local sector may be viewed as the major reason why it is underperforming nowadays because duopolies and monopolies are characterized by reduced competition levels and, thus, do not motivate enterprises enough to enhance their product portfolios, pricing, quality, and value of services (Enhan, 2016).
In its turn, the lack of competition in the UAE telecommunications market is defined by its present-day legal environment. Therefore, the present paper will aim to analyze relevant laws and policies determining how the sector works nowadays and will focus mainly on the UAE Telecommunications Law and the Competition Law since these pieces of legislation play the most important roles in regulating telecoms and competition across the local markets. As part of the review, major market failures and regulatory flaws will be identified and, consequently, recommendations for the improvement will be proposed.
Overview of the Relevant Regulatory Environment
Sector-Specific Regulations
The most important legislation in the UAE telecoms sector is the Federal Law by Decree No. 3 of 2002 Regarding the Organization of the Telecommunications Sector, also known as the UAE Telecommunications Law. In accordance with the provisions of this law, the Telecommunications Regulatory Authority (TRA) was established and is now responsible for the management of each legal and practical aspect of the sector’s performance. According to Yallapragada (2017), the main duties of this independent governmental body include the monitoring of service quality, promotion of the sector development, as well as creation and enforcement of the relevant policies, norms, and rules. Among them is the General Policy for the Telecommunications Sector in the State of the UAE.
Regulation Objectives
It is valid to say that the latter policy is primarily growth-oriented and is aligned with the government’s overall strategic objectives for the development of non-oil sectors in the country. A few of the ways through which the TRA strives to attain these targets is the promotion and development of new technologies, infrastructure enhancement, and investment in research and development (TRA, 2005). The outlined objectives imply that innovation and efficiency are two of the main goals within the sector-related regulatory framework.
It is worth noting that the policy also emphasizes the need for introducing the competition in the UAE telecommunications sector with the purpose of encouraging better efficiency and quality (TRA, 2005). According to Enhan (2016), innovation induced by greater competition has a greater potential to result in the dynamic efficiency of enterprises or, in other words, their better productivity and performance in terms of higher variety and quality of products and services. By increasing product/service reliability and providing a greater range of choice options for consumers, dynamic efficiency can maximize social welfare in the long run (Enhan, 2016).
Nevertheless, the statement about the gradual introduction of competition in the telecoms has not been realized in practice yet. At the present moment, the existing policy protects the duopoly structure of the telecoms market in the UAE (DLA Piper, 2019). Thus, the chance to simulate allocative, productive and dynamic efficiency gains in the sector may currently be insignificant due to the high degree of monopolization.
Besides, the telecom regulations in the UAE serve to meet the social objectives, including an uninterrupted and universal service provision and consumer protection. For example, consistently with the UAE Federal Telecom Law No. (3) for the Year 2003 and its amendments, TRA must “ensure that the telecommunications services provided throughout the state, are sufficient to satisfy the public demands of those who wish to make use of such services” (TRA, n.d., p. 13). This responsibility of the agency is associated with the prevention of market failure through the promotion of adequate allocation of goods and productive outputs of telecom operators.
As for consumer protection, it refers to the protection of their personal data, promotion of informational and operational transparency, catering to the needs of diverse society members, provision of public communications networks’ security and easy processes for complaint resolution, and so forth (Enhan, 2016). Overall, the UAE Telecommunications Law and the General Policy largely address these issues.
However, as noted by Enhan (2016), consumer protection also implies that individuals’ self-interest in the context of modern economics are met. In other words, consumers should be provided with enough opportunities to choose between multiple options in the market based on their preferences and perceptions of product/service-related economic benefits. It is valid to say that the failure of the current UAE regulatory framework to establish a sufficient level of competition in the telecom sector limits consumers’ chances to choose between operators and services. Therefore, the latter requirement for effective consumer protection is not satisfied in the sector as yet.
The Competition Law
The UAE has introduced its competition law framework merely several years ago. According to Bowden and Girot (2017), it became enacted on 23 February 2013 and now serves as the major means with the help of which the UAE can control anti-competitive practices. Overall, the policy aims to provide restrictions on anti-competitive agreements and behaviors of operators that occupy dominant positions in various UAE markets and sectors (Bowden & Girot, 2017). Additionally, it requires that the “mergers between entities with a sufficiently large combined market share [must] obtain clearance in advance from the Ministry of Economy” (Bowden & Girot, 2017, par. 1).
The latter component of the Competition Law indicates that the Ministry of Economy plays a crucial role in its enforcement. As noted by Global Legal Group (2019), when doing so, the Ministry acts primarily through its Competition Department. Besides, the Competition Law required the establishment of a specialized Competition Regulation Committee that held its first meeting merely in March 2018 (Hogan Lovells Publications, 2018).
The main responsibility of the Committee is to oversee the implementation of the competition policies in the country and develop rules and standards to guide firms’ performance (Hogan Lovells Publications, 2018). According to Enhan (2016), the creation of an independent regulatory authority is a crucial part of the competition promotion process since it ensures that no conflict of interest prevents new entrants from taking a share in the market. Overall, although the Committee’s functions are substantially related to the UAE government as such, the former is still independent in terms of enforcing the regulation “without excessive political interference or enterprises lobbying” (Enhan, 2016, p. 44). Thus, the ministerial department meets the necessary requirement for independence.
Regulation Objectives
The UAE competition policy is similar to the one adopted in the European Union and has the main purpose of promoting economic efficiency. It is primarily designed to address potential market failures inherently associated with monopolies. For instance, when dominant business entities abuse power and, in the attempts to maximize profit, implement price mechanisms that fail to capture costs and values of products/services, it results in distributional efficiency loss (Schmitz Jr, 2016).
In contrast, the establishment of a competition-driven market is always linked to efforts “to optimize the utilization of resources and the allocation welfare of members of the society” (Enhan, 2016, p. 6). In other words, competition is characterized by a free flow of resources and their greater availability to consumers, business competitors, and new entrants in the market. Thus, the Competition Law helps to facilitate exchange in the markets and maximizes opportunities for individual freedom of choice.
At the same time, the Competition Law is growth-oriented because by encouraging competition it also promotes greater innovation and continuous engagement in quality improvement among enterprises. According to Enhan (2016), dynamic efficiency is one of the core features of perfect competition, and it implies that businesses in such an environment need to strive to develop new high-quality and demanded products regularly in order to survive. In this way, in competition-driven markets, innovation becomes an essential component of companies’ strategic thinking and it drives industry development and economic growth.
Summary of Main Flaws in the Regulatory Environment
As such, the passage of the Competition Law and the establishment of relevant regulatory bodies indicates that the UAE is on the right way towards the promotion of competition across its markets, yet the fact that these initiatives were undertaken just recently means that the regulation is on its initial developmental stages. However, the major deficiency of this policy is that it does not regulate the telecommunications sector at all at the present moment. As noted by Global Legal Group (2019), nowadays, “the TRA includes terms in the licenses issued to operators requiring them not to participate in anti-competitive practices” (p. 251).
It means that the UAE Telecommunications Law and especially the current policy of a duopoly market in the sector is contradictory to the general premises of the Competition Law. Clearly, in the UAE, the telecoms sector is still regarded as a natural monopoly and, therefore, the sector-specific regulations play a major role there and serve as an alternative to the competition.
Evaluation of the UAE Telecommunications Policy Alternatives
Liberalization
The main alternative to the telecom market monopolization is its liberalization. Enhan (2016) distinguishes three major elements of market liberalization, including the removal of privileges given to certain enterprises in monopolies, establishment of a regulatory framework and independent agencies that would support the promotion of market openness, and, lastly, consistent implementation of the competition law. At the current stage, the UAE telecom sector does not meet these requirements considering that Etisalat and du are given exclusive rights to operate in the market and the existing regulations exempt them from the influence of the Competition Law.
Taking into account that both of the major telecom operators in the UAE are largely owned by the government, the process of eliminating monopoly privileges in the sector may be complicated and time-consuming. However, liberalization is characterized by many economic and social benefits. The direct effects of deregulation include a significant increase in productivity output due to the entry of new enterprises in the market, improvements in the existing networks and infrastructures, and consequent industry growth (Huderek-Glapska, 2010).
The latter observation is in line with evidence on the acceleration of innovation in liberalized markets as, when put in such a context, businesses commence to undertake significant efforts to diversify products/services and increase their quality for customers (Enhan, 2016). In its turn, an increase in output and the appearance of a wider range of different-quality and distinct-price options contribute to greater product/service consumption levels, leading to economic growth and the emergence of more employment opportunities (Huderek-Glapska, 2010). In this way, both the economic and the social welfare of citizens is promoted through the liberalization process.
Privatization
Privatization may be viewed as a specific tool through which the deregulation of the telecoms sector can take place. Megginson and Netter (2000) broadly define this process as “the deliberate sale by a government of state-owned enterprises (SOEs) or assets to private economic agents” (p. 1). It means that privatization creates barriers to the government’s intervention in the industry and decreases costs linked to this kind of intervention.
However, it is valid to say that privatization alone may have no substantial effect on the market if a regulatory framework supporting the promotion of competition is not developed. As Megginson and Netter (2000) note, the positive effects of privatization, including an increase in the revenue volumes for the state and an achievement of greater economic efficiency, depend on the extent of market failure and are usually particularly pronounced in either competitive markets or “markets that can become readily competitive” (p. 9). In contrast, the effects of privatization are normally weak in natural monopolies and similar market contexts (Megginson & Netter, 2000).
It means that in order to capture the benefits of privatization, the UAE government must be committed to the promotion of market openness and, like in the case with general deregulation, must develop and enforce policies that favor competition.
Costs and Benefits of Monopoly
The abovementioned evidence indicates that if the UAE wants to stimulate economic growth at the national and the sector levels, telecoms deregulation will be more beneficial for it. In contrast, the costs of preserving the market monopolized are significant because monopolies are associated with reduced productivity and negative impacts on economic welfare (Schmitz Jr, 2016). Besides, the fact that in monopolized sectors prices tend to be high adversely impacts product/service accessibility among population groups with lower income levels (Schmitz Jr, 2016).
While the UAE has a high GDP level, which means that a vast majority of citizens have high income and can afford pricy items and services, the issue of telecommunication service accessibility may not be of significant concern for Etisalat and du. Nevertheless, local consumers tend to perceive communication service prices in the country as excessively high and unfair, and this factor can contribute to their dissatisfaction and reduced use of products offered by those companies (Yallapragada, 2017; Kovacs, 2014). Besides, due to the absence of real competition in the sector, the UAE telecoms operators may be insufficiently motivated to innovate and enhance the quality of their products/services. This situation is risky because it limits consumers’ abilities to economize and find optimal tradeoffs between quality and price.
At the same time, it would be wrong to presume that monopoly is associated merely with costs in terms of the UAE telecoms management. As stated by Kovacs (2014), the government’s legislative system is more autocratic than democratic and, therefore, it is in its interests to keep telecommunications centralized. Besides the ability to gain greater profits through the maintenance of high pricing in the context of monopoly and duopoly, the government also exercises a substantial degree of control over every aspect of the industry. For example, it may block certain activities such as the use of such Voice Over Internet Protocol applications as Skype and Face Time (Ameen & Willis, 2016).
This particular type of restriction does not benefit consumers since it prevents them from switching to lower-cost service substitutes. However, the government may use centralized control in order to produce consumer values as well.
In SEOs, the government may control the realization of initiatives aimed at the promotion of innovation and improvement of customer service and satisfaction in accordance with the sector-specific policy. By focusing on these activities, the government will become able to mitigate and respond to the risks pertaining to customer dissatisfaction with telecommunication services to a large extent. Nevertheless, considering all the evidence discussed previously in the paper, it is valid to say that the establishment of the competition-driven market can still substantially enhance the efficacy of sector innovation and quality improvement endeavors.
Recommendation
In order to promote greater economic, allocative, and dynamic efficiency in its telecommunications sector, the UAE needs to work towards the realization of its general policy objective for the gradual introduction of competition. The ways through which the government may satisfy this aim is the inclusion of the telecoms sector in the Competition Law and consequent market liberalization. The reason why these two steps must be undertaken is because, at the present moment, there is a conflict between the major sector regulation, the telecommunications policy objectives aimed at the promotion of competition, and the Competition Law itself. It is valid to say that by extending the influence of the Competition Law on the telecoms sector, this conflict will be automatically resolved.
When commencing the deregulation process, the UAE may follow the British government’s example and primarily exercise the entry control mechanisms. The current UAE duopoly policy is similar to the one that was implemented in Britain in the 1980’s and it granted exclusive rights for two large enterprises’ joint operations in the local telecom market (Enhan, 2016). However, when the policy expired after seven years of action, the British government developed a new one, ensuring that only to qualified domestic entrants are granted with licenses (Enhan, 2016).
Besides, the newly introduced policy, cable companies were allowed to render direct communication services by using their networks and infrastructures and, as a result, a lot of new businesses emerged quickly (Enhan, 2016). In this way, it will be possible to strengthen the competitive force against Etisalat and du.
Noteworthily, when the telecoms sector will start to be guided by the UAE Competition Law, the issue of overlapping jurisdiction between the TRA and the Competition Committee will arise since both of the agencies will have the same responsibilities of ensuring competition promotion in the sector. It may be recommended to give greater authority in the management of competition issues in the telecommunications sector to TRA because it has necessary knowledge and specialization for monitoring the performance of relevant companies. The expertise that TRA management now has will help it to apply more effective tools for the response to environmental changes affecting the market.
Besides the impacts of increased competition that were discussed previously in the paper, such as changes in the rates of demand and supply of goods and provision of more chances for consumers’ economization, another significant economic and social effect of the policy modification will include the improvement in national standards of living. Such an outcome is closely interrelated with an increase in competition-induced labor productivity that may arise as a result of a growing number of job opportunities with the appearance of more telecom operators in the UAE market.
In its turn, a higher standard of living can contribute to the development of human capital in the country, which is regarded as one of the primary factors that indirectly stimulate economic progress (Ali, et al., 2018). It means that the inclusion of the telecommunications sector in the Competition Law will help the UAE meet its strategic objectives much more effectively than the implementation of the sector-specific regulations alone.
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