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NOW & Zahra Hankir

Connecting Lebanon

In a fiery speech last weekend, Hezbollah leader Sayyed Hassan Nasrallah stated that "the biggest looting operation in the history of Lebanon is [currently] taking place." He cited the privatization of Lebanon’s mobile telecommunications sector as an example.

Earlier this month, the Higher Council for Privatization (HCP) and the Telecommunications Regulatory Authority (TRA) announced the beginning of the move toward the privatization of Lebanon’s mobile networks. It was announced that the long-awaited bidding process itself will take place in a public session on February 21, 2008, and will consist of a series of rounds in which bidders must make offers in multiples of $5 million. The two winning companies will receive a license that grants them 20 years to own, operate and expand the existing mobile networks in Lebanon. 

This move put into motion a process that will, according to TRA chairman Dr. Kamal Shehade and HCP Secretary-General Ziad Hayek, have positive effects on Lebanon’s struggling economy, given that a large portion of the accrued funds will be transferred to the Lebanese government and subsequently used to pay off the country’s mounting $41 billion debt. The move will also spur much-needed reforms within the telecommunications sector.

“This is the beginning of a transformation,” Shehadi told NOW Lebanon in an exclusive interview.

The privatization process

According to Hayek, the transaction is designed to optimize proceeds to the Lebanese government, and as such, “reduce the public debt… Even a partial reduction can have a positive impact on Lebanon’s cost of debt in the first instance.” But beyond that, Hayek noted that privatization would also create new jobs, with auxiliary businesses likely to spring up around the privatized mobile-communication companies.

Moreover, the change will have a positive impact on financial markets in Lebanon, mostly because 100% of each company will float on the Beirut Stock Exchange, while one-third of the shares will be owned by the government, which will be sold off to the Lebanese public within 12 months. Hayek noted that today the stock exchange has only one prominent stock – real-estate company Solidere – and that because telecom companies have much more active trading patterns than real-estate companies, “by increasing the volume of trading on Beirut’s stock exchange, we can encourage Lebanese companies, which today are family-owned and in need of capital, to enlist on the Beirut stock exchange so they can raise the additional capital.”

The move will also lower mobile call rates and significantly improve the current poor service quality. Lebanon has astronomical mobile phone rates, and the cellular phone network is currently fully owned by the MoT and operated by MTC and Alfa. As such, the MoT has a monopoly over the market. Following the privatization process, Ogero staff, along with the Ministry of Telecom’s assets, will be transferred to Liban Telecom, a corporatized state-owned entity which will also operate as a mobile-phone operator. If this is not done in six months, the TRA would have to right to issue a third license to another company.

The privatization of the mobile network will be implemented and overseen through a joint effort by the HCP and the TRA, and the outlined procedures are accessible online. According to a memorandum of understanding between the TRA and the HCP, the transfer of mobile assets is specifically designed to avoid arbitrary decision making.

Nonetheless, the move has been criticized by the opposition, which claims that the process was designed to ensure that bidding companies will be close to the Siniora government. The criticism could stem from the fact that Saudi Oger, privately owned and directed by the Hariri family, is expected to step in and make a bid, with plans to increase its market shares in the telecommunication sector through Oger telecom. But Hayek noted that both the HCP and the TRA have been fully transparent about the process and are confident that it will be fair. In addition, the minimum requirements for any company to enter the bidding are very low.

When asked whether the process is designed in a way that will give the government of Lebanon unfair market power since one-third of each company will still be owned by the government, and an additional company will be fully owned by the government, Hayek replied that “it is not an ideal situation, but this is meant to be temporary until the government is able to IPO [initial public offerings] its shares in the two companies. We intend to do this as quickly as possible and start working on the IPO from the time that the new companies are formed.” The TRA also has the power to penalize the companies for unfair competition.

The TRA and HCP’s jobs have been rendered far more difficult by parliament’s failure to convene in the past year. Hayek concluded that although he is hopeful, “if it weren’t for the current political situation, we would be launching this in a much better environment than we are today.”

Indeed, it is imperative that the mobile auction be launched as soon as possible and without further obstruction, as the management contracts for MTC and Alfa are set to expire soon, after which much of the progress on privatization since Paris III would then be lost.

Limited connectivity

Even though the Lebanese population makes up of one-third of the region’s internet users, the internet’s infrastructure is riddled with problems. According to the MoT website, the internet sector “is liberalized in Lebanon,” mainly because licensing is open, meaning that anyone can become an ISP (Internet Service Provider). Nonetheless, the MoT has a monopoly over the international and national fixed gateway as well, through Ogero. In practice, Ogero and the MoT have shown bias against the private-sector ISPs and DSPs (Date Service Providers), according to Shehadi.

Shehadi explained that this is why the internet is not fully liberalized, and despite some limited competition in the market, it is still not fully competitive. Additionally, though there are several wireless-only DSPs, they are restricted in terms of the services they can offer.

DSL (Digital Subscriber Line) services were first launched in January of last year, while high-speed ADSL (Asymmetric Digital Subscriber Line) internet arrived in Lebanon in May 2007, making it the last country in the Arab world to adopt the technology. The introduction of ADSL internet in Lebanon, however, has been fraught with problems. Despite its implementation, ADSL penetration has been minimal. Ogero has a monopoly on DSP service and an unfair market advantage on ISP service. There are no separate data operators representing the ministry.

Shehadi noted that “the ADSL market is a living example of an incumbent using and misusing its control over essential facilities and using its control over pricing and access to certain services to acquire a dominant position in the service without making a commercial effort.”

The MoT has a monopoly on the country's fixed voice/data infrastructure and on international backbone access. Satellite backbone access is restricted only to downloading, while uploading has to go through the MoT due to concerns over VoIP (Voice over IP services, such as Skype). VoIP is currently banned in Lebanon, out of fear of the potential loss of revenue from telephone usage. 
 
In addition, the MoT lacks transparency when it comes to launching services and does not engage with the private sector “on a fair competitive basis,” Shehadi said. Its efforts are considered to be the abuse of market power rather than an initiative aimed at increasing commercial strategy. Currently, one of the TRA’s most significant goals is to license providers to offer international connectivity, consequently solving the problem of bandwidth.

Joining the knowledge economy

The privatization of the mobile telecom industry, though essential, should be considered the beginning of a process that will reform the entire telecommunications sector. Given that economies are generally boosted by the installation of high-speed internet, there is a pressing need for Lebanon to enter the “knowledge economy” by further improving the telecommunications sector and opening it up to competition.

With this goal in mind, it is high time that the MoT recognize the need to develop the sector and to put an end to Ogero’s monopoly. Access to fast and reliable internet is crucial to attracting foreign investment to Lebanon and for the fluid operation of businesses already located here. Shehadi acknowledged that Lebanon’s lack of adequate broadband connectivity has rendered the country “unattractive” to potential investors.

Lebanon’s hope here lies with the TRA. It is clear that the TRA’s operation has had positive effects on the telecommunications sector in general, given its ability to place pressure on the MoT and to push for reform. However, the onus remains on the MoT to collaborate efficiently with the TRA to ensure further progress.

It may be time for the ministry to reassess priorities, if Lebanon is to have any hope of entering the 21st century some time before the 22nd rolls around.