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For many UAE residents, the start of 2018 was marred by the discovery that Skype – one of the few internet-calling services still functioning in the country – had been blocked.


The status of VoIP-based internet-calling services such as those offered by Skype has long been precarious in the UAE, as the UAE telecoms regulator's policy for VoIP says that the provision of VoIP services is a regulated activity, only to be undertaken by a holder of a license to provide telecoms services. The policy also says that if a licensee believes that a VoIP service is being offered by a person not licensed to do so, over the licensee's network, the licensee is entitled to block that VoIP service.


In effect, the policy gives the licensees – primarily the two main operators, Etisalat and Du – considerable discretion to decide whether to allow or block internet-calling services such as those provided by Google, WhatsApp, Viber, Skype, and others. The operators' own policies on the exercise of their discretionary powers are opaque.


Several popular internet-calling services had earlier been blocked. But until recently, Skype was one of the few services of its kind that still functioned in the UAE. Anecdotally, Skype users in the UAE used to find that it was possible to make Skype-in calls (Skype-to-Skype), but not Skype-out calls (from Skype to mobile or fixed phone numbers). However, at the start of 2018, many Skype users in the UAE found that the service no longer worked at all. At the same time, Etisalat and Du introduced their own internet-calling services, priced at AED50 ($13.60) per month for a mobile version and AED100 per month for fixed.


The move by Etisalat and Du to block Skype is out of step with recent developments in neighboring Saudi Arabia, where in September the telecoms regulator, the CITC, lifted a ban on internet-calling services from Skype and similar providers, saying that this was in line with what it described as a global trend in the telecoms sector toward data revenues and new services. The CITC's decision is also in line with Saudi Arabia's efforts to diversify its oil-dependent economy, and develop new, high-tech skills and sectors.


As pointed out by the CITC, the global telecoms market is going through profound change. Revenues from fixed and mobile voice calls and from SMS are in decline, as customers increasingly use internet-based communications services instead. Some operators argue that internet-based providers are taking unfair advantage of the operators' network investments, and that the operators' businesses are under threat. But many operators are enjoying strong growth in data connectivity revenues, as their customers use the internet more. Digital services are becoming significant businesses for some operators too.


And there is evidence from the Middle East that operators can do well, even as the telecoms market changes. Zain Saudi Arabia, which launched operations a decade ago, recently reported its first-ever full-year net profit, for 2017, even though the removal of the ban on Skype and similar services during the year hit Zain's international call revenues. Zain Saudi Arabia said the decline in international call revenues was mitigated by growth in revenues from mobile broadband, postpaid packages, and the enterprise sector.


In the UAE, neither Etisalat nor Du can be said to be struggling financially. For 3Q17, Etisalat UAE reported that its revenue had increased by 3% year on year, and that it had an EBITDA margin of 54%, and a net profit margin of 26%. Du's revenue for 3Q17 was down 0.2% year on year, but net profit after royalty increased by 4%.


Like Saudi Arabia, but perhaps even more so, the UAE has put technology at the heart of its plans for the future. The UAE recently appointed a Minister for Artificial Intelligence, which is thought to be the first position of its kind in the world, and the emirate of Dubai has set up the Dubai Future Foundation, which aims to be a center for innovation. The UAE is already among the most advanced countries in the world in its deployment of fixed and mobile broadband, and it is expected to among the first in the region to introduce 5G.


A favorable environment for start-up businesses is important if the UAE's technology sector is to thrive. But small businesses such as tech start-ups are typically heavy users of internet-calling services, and blocking these services could represent an obstacle to the start-ups' development. Countries with an open internet tend to be more innovative, according to the World Economic Forum's Global Information Technology Report 2016 (the most recent edition).


The operators in the UAE should reconsider the restrictions that they are imposing on internet-calling services, which are part of the fabric of modern life for much of the world. Blocking Skype and similar services is not essential for the operators' businesses to be successful, and it could hinder national plans to foster innovation and technology.


Straight Talk is a weekly briefing from the desk of the Chief Research Officer. To receive this newsletter by email, please contact us.

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