Crossed wires in the Libyan telco sector

How do you run a telecoms company in a deeply divided country? Faisal Gergab, chairman of the Libyan Post, Telecommunications and Information Technology Company (LPTIC), says the state-owned giant will focus on its outside investments while planning for peace at home
Crossed wires in the Libyan telco sector
By Sarah Townsend
Fri 11 Sep 2015 01:09 AM

Libya plans to rebuild its economy one broadband cable at a time, according to the chairman of its state-owned telecoms company.

The troubled African nation, which is awaiting the appointment of a unity government to end years of chaos, believes its sizeable telecoms industry holds the key to future prosperity.

As talks continue between United Nations peacekeepers and rival factions battling for power, the country is already paving the way for the estimated $3bn sector to thrive.   

Last month, a deal was completed to transfer more than a billion dollars’ worth of telecoms assets from the country’s sovereign wealth fund, the Libyan Investment Authority (LIA), to the Libyan Post, Telecommunications and Information Technology Company (LPTIC).

Under the restructuring, the country’s shareholdings in mobile and fixed-line network operators across Libya and Sub-Saharan Africa — most held within LAP Green, the LIA’s $1bn-plus telecoms subsidiary — will be consolidated into a portfolio of three companies from their current eight, growing LPTIC’s holdings to in excess of $10bn.

LPTIC intends to develop the portfolio by expanding existing operations, opening up the domestic sector to foreign investment and acquiring new operations as time goes on.

But there are plenty of hurdles to cross — not least the fact that an estimated $1bn of telecoms cables and other infrastructure was destroyed during Libya’s civil war, according to Australian telecoms consultancy BuddeComm.

Electricity blackouts, though less frequent than they were, are common and the security situation remains such that in some locations it is impossible to maintain the infrastructure enabling ICT networks to function reliably.

The man in charge of restoring and developing the holdings is Faisal Gergab, who was appointed chairman of LPTIC’s board in 2013 and sits on the board of directors of the LIA.

In an interview with Arabian Business, Gergab, who divides his time between the UK and Malta where LPTIC has a temporary base, details how the assets have been restructured and how the company will work to create a world-class telecoms industry in Libya.

“This consolidation of the African telecoms portfolio [which took effect following a directive from the internationally recognised interim government of Libya, known as the House of Representatives] is the largest restructuring of any telecoms operation in the region in recent years. It’s a massive project,” he states.

LPTIC’s portfolio includes the two state-owned mobile operators, Libyana and Al Madar; four fixed-line operators, Hatif Libya, Al Jeel, Libya International Telecoms Company and Libya Telecoms & Technology Company; a real estate operator called Al Bouniya, and the Libyan Post company. Libyan assets generate around $2bn a year of revenue, says Gergab.

Beyond this, LPTIC has shareholdings in two of the region’s biggest subterranean cable companies — EIG, which delivers services across the Mediterranean between Europe and Africa, and WIOCC, which delivers capacity around Africa.

There is also a portfolio of investments, mainly in private equity, across Canada, the UK, the Middle East and Europe. They include shares in Dubai-based satellite communications firm Thuraya, Borsa Italiana-listed Retelit, Measat in the UK and a majority share in a telematics company in Canada. Investments outside Libya represent around 5 percent of the total portfolio. 

Under the restructuring, advised by the World Bank, the two state-owned mobile operators remain the same and the rest is consolidated into a single telecoms infrastructure company. LPTIC’s circa-18,000 employees will remain in post, Gergab says.

It is a move he hopes will help Libya to grow the size of its telecoms industry to 5 percent of total GDP — it represents 4 percent at present — and maintain already high mobile penetration rates estimated to be around 120 percent of the population.

“These figures are already impressive. If you look at ICT in other countries, it contributes on average 2-3 percent of GDP, but rarely more.

“The reason for Libya’s higher figure is that the mobile penetration rate has soared in recent years, and we think telecoms in general can form a large part of the country’s plan to diversify the economy away from oil.”

The country had begun devising plans to expand the sector after the Arab Spring. But these stalled when the political situation worsened. “Straight after the revolution, there was a sort of honeymoon period for Libya,” Gergab says. “The country was no longer a dictatorship; it was a democracy, and foreign companies flocked to take advantage [of the improved business climate]. For about six months Libya was extremely busy.

“LPTIC was working with [the House of Representatives] to liberalise the telecoms market and introduce managed competition, with more private sector involvement, foreign direct investment and better services as a result. It was an ambitious plan we are trying to resurrect.”

The first plank of the strategy is to improve service provision in Libya. Projects that have already commenced are work to upgrade the two mobile operators to 4G — “Contracts have been signed and we are in the final stages of mobilising vendors,” says Gergab — and a partnership with UAE telecoms giant Etisalat to build an ‘iCity academy’ in Libya for up to 10,000 people. It will be similar to Etisalat’s facility in Dubai that provides training across a range of telecoms-related business, technical and consultancy services to build expertise.

The company is also rolling out a fibre to the home (FTTH) network. It envisages connecting up every home, office and other building in Libya with the country’s extensive subterranean broadband network. This is a key part of LPTIC’s strategy to shift mobile penetration from being 95 percent voice and 5 percent data, to 70 percent voice and 30 percent data, Gergab says, and increase internet speeds. According to a report by Akamai last July, Libya had one of the slowest average internet speeds in the world, at 0.5 Mbps.

“The [broadband] fibre infrastructure of Libya covers the entire country — around 20,000km of fibres connecting all the main cities. We have huge capacity through these underground cables, more than we can absorb in Libya, so we would look to sell surplus to the rest of the Africa at a later stage,” he says.

There are also plans to resurrect the tender for a management services contract related to Libya’s two main mobile operators. This was something Etisalat had been involved in until the process was halted in 2013 amid escalating political instability.

Under the terms of the contract, a foreign telecoms company would run Libyana and Al Madar, and there would be the potential to break the state-run monopoly by acquiring a licence as the third operator in Libya. In 2009, before the Arab Spring, Etisalat bid for Libya’s third mobile licence, which was never awarded as the country started to unravel. Other operators that have expressed interest in Libya include Saudi Telecoms Company (STC) and Qatar’s Ooredoo.

“Our plan is to introduce managed competition in Libya’s telecoms industry. If you look at how the market is managed in the UAE, it’s not a fully liberalised market if I may say so; it’s somewhat controlled by the regulator because of the size of the market.

“Libya is similar, except it’s bigger and has high potential due to the connection to sub-Saharan Africa and neighbouring countries. We definitely want to open it up to foreign direct investment and are targeting the level of competition that exists between du and Etisalat.

“There will be an equity stake up for grabs subject to the bidder fulfilling certain thresholds and benchmarks [yet to be made publicly available]. But we need the right fiscal policies and regulations to ensure that foreign investments are protected and they add value to the economy and to the sector.”

As Gergab notes, his hands are tied until Libya introduces specific laws governing foreign direct investment. At present, there are guidelines on foreign ownership structures but when it comes to investment in telecoms, this must be tightly regulated because of the huge scale of the market. Gergab reveals LPTIC has been working with the transitional government and the LIA to draw up the country’s first telecoms law — with help from law firm Hogan Lovells and the World Bank — which he describes as “a robust revision of existing [FDI] rules”.

The new law will seek to regulate foreign ownership of telecoms companies in Libya, and set out the specific parameters within which additional mobile licences can be offered. A draft will be ready to hand to the new administration as soon as it is in place: “It’s important we get this telecoms law approved by parliament but this cannot happen until a unity government is in place, at which point we can resume stalled projects.”

Gergab adds: “In telecoms, having investments and operations outside your home country without having a strong core base is never a successful formula. Look at the big players — Orange, Etisalat and so on — they start with a strong home market then expand globally.

“However, our growth strategy for the domestic telecoms market in Libya is reliant upon stability on the ground, because you need to bring in international suppliers, vendors, companies and experts. In July 2014, the situation reached its absolute worst and everybody left the country, particularly Tripoli, because of persistent attacks on the capital.

“Our modus operandi since has been to continue supplying key services and we’ve managed to achieve growth. However, challenges like power outages disrupt services. It used to be pretty bad — daily outages for several hours. It’s got better now but because of the security situation, upkeep of infrastructure is hard as we can’t access difficult locations to maintain the wires.

“Security is improving apart from localised issues in Benghazi and Sirte. However, we are reliant on the main grid to supply the whole country, so if there’s a disruption somewhere, supplementary generators can never compensate.”

For now, LPTIC is focussing on its portfolio outside Libya. The LAP Green companies make up the bulk: nine mobile licences in Africa acquired for a total of $1.1bn between 2003 and 2009 when Africa first opened up to foreign investors. However, Gergab says the Muammar Gaddafi regime’s motivation for acquiring the assets was “for political influence, nothing else” and, as such, they have never realised their potential.

What is more, in 2011, Libya was in chaos with a power vacuum and five countries took the opportunity to nationalise these assets. “It was a major loss for the country but nobody could do anything about it,” Gergab says. As reported by Arabian Business last month, the LIA is pursuing legal action against four of the countries — Rwanda, Zambia, Chad and Niger (the fifth is Togo) — to win compensation for the licences that were reclaimed. Many of the licences never got off the ground but the key functioning ones are Zambian telecoms company Zamtel, in which LAP Green has a $259m investment, and RwandaTel in which it has $144m. The Zambia case is closest to settling, says Gergab, and the LIA is seeking $260m in compensation. However, LPTIC does not necessarily wish to re-acquire the licences in question as “they are run by governments, some of which have declared bankruptcy, and we do not know what state they are in now”.

In the meantime, LPTIC is working to rationalise and protect the remaining licences, in Sierra Leone, Uganda, Ivory Coast and South Sudan (only three are operating because of the Ebola outbreak in Sierra Leone). Transferring them from the LIA to LPTIC was a “wise decision”, Gergab says. “We have the international infrastructure, long-term relationships with vendors and suppliers, resources and expertise and are better placed to manage these assets compared to the LIA.”

After Zamtel, Uganda Telecom is LAP Green’s next biggest investment — $208m. “We are the main fixed-line operator in the country and we want to make sure we meet our obligations there.”

Meanwhile, Ivory Coast’s Oricel, in which Libya has a $135m investment, operates in a busy, competitive market with seven licences representing a potential challenge. The government plans to scrap three of the operators and LPTIC hopes Oricel will be one of the remaining four. “Africa in general is a very congested market,” says Gergab. “Big players find it very difficult to sustain their operations there and some have actually withdrawn — Vodafone, Orange. That’s why we see it as a niche for us and want to capitalise on our vast infrastructure.

“Imagine, it takes only 50km of cables to connect Libya with Chad, Sudan, Niger, so selling traffic and capacity from subterranean cables to sub-Saharan Africa is a huge opportunity for us.”

He insists any outstanding damage to the country’s power network is localised, and that LPTIC has robust governance enabling it to expand beyond Libya once the political situation is resolved. Perhaps unsurprisingly, Libya’s economy is also paying the price for the instability, with the country posting a budget deficit of $3.3bn in the first seven months of the year.

LPTIC is not yet in acquisition mode, he says, but in time it may seek partnerships with foreign telecoms providers including in the UAE. “Dubai has excellent accessibility to African nations. Believe it or not, to travel from Ivory Coast to Uganda you have to go to a third country such as South Africa; from Dubai, you have direct flights everywhere — plus the presence of all the financial advisors and consultants.

“Telecoms is a rapidly evolving sector; we are seeing paradigm shifts every few years — right now, ‘smart cities’ is the new frontier of the telecoms industry: connected cars, connected buildings, connected machines. It is no longer the traditional voice and we have to keep up with that.” 

What if national security fails to improve any time soon? “I have to be frank: it will have a direct impact on [LPTIC],” Gergab admits. “We are not immune to the Libyan economy; we are linked to the central bank and government entities and the current split is frustrating our activities because most of the parties on whom we rely will not go back in to the country. We cannot finalise our projects or carry out basic practical operations. It’s critical.

“But, along with the LIA, Central Bank and National Oil Corporation, LPTIC is one of the institutions protected by a directive issued by the UN, the US and the EU in June. We are part of the backbone of the Libyan economy and of people’s everyday lives and I hope we will soon be able to fulfil our goals.”

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