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Wed 1 Jul 2009 04:00 AM

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Breaking free

Operators in the region say they want to be left alone to develop high speed broadband that will propel the region along the information superhighway. But what role is there for the government?

Breaking free

Operators in the region say they want to be left alone to develop high speed broadband that will propel the region along the information superhighway. But what role is there for the government?At last month's Arab Advisors conference Saad Al-Barrak issued a stark warning to governments in the region to leave the development of broadband to the private sector.

"I would beg governments to stay out of it otherwise we will be stuck for the next 10 years. Partnerships with the public sector are totally ridiculous. It is a poisonous ideology of the past," he said, drawing parallels between public involvement in infrastructure projects to the policies of the former Soviet Union.

Broadband is a big challenge; there is a lot of infrastructure and investment that is required, but the only way forward is the private sector. - Saad Al-Barrak, Zain Group CEO.

Al-Barrak says such projects should not be controlled by any governments of countries in the region, and that governments should do no more than regulate and monitor the telecoms industry. But with many governments around the world identifying the role a fast and efficient broadband network can have in stimulating the economy and driving growth, some are reluctant to leave it to private enterprise.

Iraq offers an extreme example of a government that is unwilling to relinquish control of broadband infrastructure rollout. Although comparing Iraq to other countries in the Middle East and Africa can be problematic, it does provide an example of a country that is in dire need of the kind of boost that can be provided by a speedy, ubiquitous internet service.

Mohammed Serieh, marketing manager of Asiacell, Iraq's second largest operator by subscriber numbers, is clear about the potential benefits. "If you raise the penetration rate of the internet 10% in Iraq, you will increase the national GDP per capita by 1.5%. We have 3% now, if you increase it to 40%we'll have a 6% increase in the national GDP per capita. That's a huge leap. The government of Iraq should understand that the only way is to let go of the regulations and allow the private sector to invest.

"We have the money, we have the resources and we have the experience. We can invest in the country just like any other company. We want to invest, we want to put our money on the table," he says.

Ali Dahwi, CEO of market leader and rival operator Zain Iraq, describes the government as "strongly anti-investment".

"I think they are going to continue to hurt the Iraqi citizens and the nation by their actions. These actions are unfortunate and will not lead to the bettering of the Iraqi economic status." He says the chaotic state of the telecoms law, together with a perennially vacant CEO's chair at the country's regulator has led to a confusing state of affairs.

"The minister of telecommunication handles everything; international gateways will be under its control, data has to go through them, and there is nationalisation of the internet. It's scary stuff. It's going back even behind Russia under Stalin."

Ricardo Ruggerio, global senior telecoms director for Value Partners and former Telecom Italia CEO says that comprehensive internet coverage can have a very direct impact on the growth of adjacent sectors like ICT and the media. "Broadband penetration in selected parts of the Middle East needs to improve to benefit both consumers and the industry," he says.

Government subsidies

Broadband build outs have happened quickly in countries such South Korea and Japan due largely to increased government involvement, such as subsidies. According to the latest figures from the ITU, produced in March, internet penetration in both countries was over 70%. In Sweden, where penetration is among the highest in Europe at 80%, a universal broadband initiative was kick started with subsidies for rural development and tax incentives for broadband infrastructure capex. Government legislation also mandated local backbone build outs by government owned utilities.

IDC's Chris Lewis says that in order to drive universal service obligations for both mobile and fixed broadband to every remote location, there must be some sort of subsidy somewhere in the system.

"If you think about some of the African markets - can they really go for a universal broadband licence? It's pretty unlikely, certainly on a fixed basis," he says. "The motivations are there to drive investment, but part of the problem is that the financial community has seen telecoms as a growth stock for the last five or ten years, and in reality it's a commodity stock; it's a utility. The more we see pressures on margins, the more that will become true."

The outcome could be that the private sector is not equipped to offer universal broadband. Ruggerio says that governments need to intervene as market forces alone will not be sufficient for acceptable broadband coverage and penetration. "This is applicable, with very few exceptions, in most of the countries in the region," he says. "But government funds alone are not sufficient, you need vehicles to execute, including PPPs."

He says that the best way to increase broadband penetration depends largely on the country and its definition of broadband. "For large, oil rich markets like KSA, government intervention to facilitate FTTX penetration is an option. For other countries, such as Bahrain and the UAE, market forces are sometimes sufficient but not for ubiquitous affordable broadband."

He adds that in markets like Egypt, Oman and Morocco wireless options should be considered as an alternative to fixed, including lower frequency bands.

Osman Sultan, CEO of the UAE's second telecom operator Du, has never advocated public sector owned broadband, but policy makers have to ensure that the right of broadband is not something that is questioned, he says.

"Broadband will become vital, like electricity and roads. You cannot just leave it to investors. Policy makers have to interfere in the decision making process, to ensure there is broadband."

He says that a lot depends on financial resources and demand, but that in future it should be made a priority for policy makers. "It is not enough to be pulled by the availability of a business model."

Public funding

Now, more than ever before, a range of other industries rely on the internet not only for communication, but also to deliver products, services and content.

Last month the UK unveiled plans to tax fixed line users to help pay for its universal broadband proposals. The UK already taxes residents to fund public service broadcasters, and the latest plans underline the increasingly converging relationship between telecoms and content.Lord Carter, the UK's communications minister, last month highlighted the revenues of more than £1.9 billion generated by the independent TV sector since recent intervention that decreed that public service broadcasters source a quarter of all their programmes from independent producers. "The challenge is to replicate that sort of intervention-benefit equation in different areas, such as the market for digital content distributed over high-speed networks," he says.

In Jordan, where Al-Barrak addressed the assembled delegates, internet penetration is among the lowest in the region. The head of the country's telecom regulator, Dr Ahmad Hiasat, estimates that penetration is in the region of 25%, but the government wants to push this figure up to 50% by 2011. Operators have been pressing for a universal service fund, but the government has other initiatives that it hopes will boost the number of internet users, including lowering the tax on PCs to increase ownership, and creating a dedicated telecoms, media and technology park to foster the creation of local content.

It is a softer, less didactic approach than taxing telecom users, and it is likely to be more favourable to staunch advocates of private enterprise like Al-Barrak. And if successful it should help to stimulate demand for the internet, which in turn could help justify the case for private enterprise to extend internet networks.

"Broadband is a big challenge," says Al-Barrak. "There is a lot of infrastructure and investment that is required, but the only way forward is the private sector, whether that is the smallest enterprise or the largest multi-national. Economic freedom is the mother of all freedoms." says Al-Barrak.

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