US embassy cable - 05ABUDHABI1315

UNCLAS SECTION 01 OF 02 ABU DHABI 001315 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB/CIP AND EB/TPP/BTA 
 
E.O. 12958: N/A 
TAGS: ETRD, ECON, ECPS, OTRA, TC 
SUBJECT: SCENESETTER FOR VISIT OF AMBASSADOR DAVID GROSS TO 
THE UAE 
 
 
1. (SBU) Summary:   Embassy and Consulate General welcome the 
visit of Ambassador David A. Gross, U.S. Coordinator of 
International Communications and Information Policy.  The UAE 
has both a rapidly growing economy and a rapidly growing 
population, which makes it an attractive market for U.S. 
companies.  The UAE only issued the law breaking Etisalat's 
telecom monopoly last April, and the new regulatory authority 
is still establishing itself.  The relative newness of the 
authority and the lack of implementing regulations 
complicated discussions of the telecommunications chapter 
during the first round of FTA negotiations.  End Summary. 
 
 
Economic Background 
------------------- 
 
2. (U) The UAE has followed a market-oriented growth strategy 
aimed at diversifying the economy.  It is the third largest 
economy in the Arab world behind Saudi Arabia and Egypt. 
2004 GDP was approximately $85 billion, with a per capita GDP 
of more than $20,000.  Oil accounts for about 30 percent of 
the UAE's GDP.  There are over 500 U.S. companies physically 
present in the UAE, and the U.S. trade surplus is 
significant; in 2004 U.S. non-military exports to the UAE 
were $4 billion, while imports were $1.1 billion.  With an 
estimated economic growth rate in 2004 of 6.6% (or higher), 
the UAE can be a growth market for U.S. exports in goods and 
services.  The UAE is a member of the GCC Customs Union, 
which has fixed tariffs on most goods at 5% (cigarettes at 
100% and alcohol at 50% are two notable exceptions). 
 
The Telecom Environment 
----------------------- 
 
3. (U) As a rich, rapidly developing country, the UAE has a 
modern and growing telecommunications infrastructure. 
According to Etisalat's figures, at the end of 2003, there 
were 1.13 million fixed line subscribers in the UAE 
(approximately 28 per hundred residents) and 3 million GSM 
subscribers (74 per hundred residents) in the country.  There 
were also approximately 317 thousand dial-up internet 
connections and 24 thousand cable modem internet connections 
serving an estimated 1.4 million users.  Given the wealth of 
the UAE and the rapidly growing population, we expect that 
the demand for telecommunications services will continue to 
grow rapidly. 
 
4. (U) In April 2004, the UAE issued Federal Law number 3 
(Law 3/2004) breaking Etisalat's monopoly.  The law 
established a Supreme Committee to oversee the 
telecommunications sector and an independent regulatory 
authority (the Telecommunications Regulatory Authority). 
Etisalat remains a 60% UAEG owned entity.  (Note:  The 
federal government is largely funded by contributions from 
the Emirate of Abu Dhabi and, to a much lesser extent, Dubai. 
 Etisalat is the major independent source of revenue for the 
federal government.)  The Supreme Committee decision 
requiring new telecom providers to pay royalties to the 
federal government probably is an effort to balance 
liberalizing the telecommunications sector and maintaining an 
independent source of federal government revenue. 
 
5. (U) Law 3/2004 gives the Supreme Committee the authority 
to issue licenses to companies to offer telecommunications 
services.  The law does not specify the mechanism by which 
the authority will issue licenses, nor does it specify 
whether the licenses will cover the entire range of 
telecommunications services or only particular sectors (i.e. 
GSM licenses).  We understand that the UAE will permit a 
second fixed line provider. In the short run, most observers 
believe that Etisalat will be able to weather increased 
competition.  It has a strong revenue base and has invested 
in infrastructure in the UAE as well as in regional markets, 
such as Saudi Arabia.  (It recently won the second mobile 
phone operating license in Saudi Arabia.) 
 
FTA Negotiations 
---------------- 
 
6. (SBU) The lack of information regarding the future of the 
telecommunications sector and the relative newness of the 
regulatory authority hampered discussions of the 
telecommunications chapter during the first round of FTA 
negotiations from March 8-10.  According to the Director 
General of the Telecommunications Regulatory Authority, the 
UAE is considering new telecommunications regulations, but he 
was unwilling to describe those regulations to U.S. 
negotiators. 
ALBRIGHT