Lebanon's mobile sector has enormous potential, but its growth hinges on the government's commitment to liberalisation.
Lebanon's telecom sector has been in the spotlight in the past couple of months, with the government's decision to delay the auction of stakes in the country's state-run mobile companies, and political problems slowing down the potential privatisation of its fixed-line operator.
For most players in the sector, Lebanon's telecommunications industry, both mobile and fixed-line, has much potential, but delays to the introduction of competition are doing little to help the industry achieve its potential.
Indeed, the slow pace of change in the sector has left Lebanon with low mobile penetration rates compared with the country's GDP, according to Andrawes Snobar, a senior research analyst at Arab Advisers Group.
"The growth in the Lebanese market is relatively low. The penetration level was not more than 31% by end of 2007," he says. "This - as the Arab Advisors Group believes - is mainly due to the fact that the current rates in Lebanon are not flexible nor does the country have any major price competition between the two operators.
"The known trend in the many countries in the Arab World of multiple line usage is minimal in Lebanon (not more than 3.5% of total subscribers use two or more lines). This is also due to the high rates in the country.
As chief commercial officer of Lebanese mobile player MTC Touch, Nadim Khater, is also convinced that more competition is needed in the Lebanese mobile sector. "The Lebanese mobile telecommunication sector is state-owned and this fact keeps the market withheld from its real potential, which will only be felt through liberalisation and proper competition," he says.
"This is confirmed by the Lebanese GSM penetration rate which is around 33% as opposed to other markets with a similar GDP and purchasing power where penetration has reached 80% or even 90%.
With Lebanon's low penetration rates, the proposed privatisation of the country's two mobile networks is likely to lead to a significant boom in the sector. "In case of privatisation, given the low penetration rate, the mobile market will definitely witness a boom in terms of growth and penetration rate," Khater says. "We believe mobile penetration in Lebanon should not be less than 80% in the coming five years under normal competition."
For Khater, the mobile telecommunication sector in Lebanon has the ability to attract major investment, which in turn will help to develop new business opportunities and uncover new sources of revenue. "In the case of privatisation, the market will drastically grow in terms of technology innovations, services and penetration rates," he says.
But plans to introduce competition were delayed after the Lebanese government postponed the auction of majority stakes in its two mobile phone companies from February 2008, to the summer of 2008, according to a report from Reuters.
Lebanon intends to sell two-thirds of its mobile operators Alfa and MTC Touch and is expected to offer the remaining shares in an initial public offering within a year. The initial sale is expected to raise some US$7 billion, which will be used to pay of some of Lebanon's $41 billion public debt.
Despite the absence of substantial competition, MTC Touch has managed to sustain steady annual customer growth for the past four years, mainly driven by high demand in the Lebanese market as well as by the introduction of new services, Khater says.
And for Khater, recent delays to the introduction of competition are unlikely to last long, as a pent-up demand for new services looks set to help drive change in the sector. "The Lebanese mobile market is continuously eager and enthusiastic for new services," he says.
"The Lebanese consumers are considered to be ideal in the region due to their particular passion for mobile telecommunications and their permanent demand for new and diversified services," he adds.
Khater says that he is already seeing growing demand for new added-value services. "Despite the inadequate competitive environment, MTC Touch succeeded in developing a substantial competitive edge in terms of customer's experience by effectively introducing a broad range of convenient, innovative and flexible services that witnessed a tremendous and unprecedented take-up in the Lebanese market.
Khater points to services such as ‘credit transfer prepaid to prepaid' and ‘credit transfer post paid to prepaid' as proving particularly popular with the Lebanese people.
These services are breaking regional records with regards to usage and penetration while new convenient on-line payment, recharging channels through bill e-pay and e-recharge services and new roaming services - prepaid SMS roaming & GPRS roaming - are witnessing a considerable boom.
And while many state-owned companies view competition as something to avoid, Khater is convinced that it will benefit the entire industry, and will also bring significant opportunities to MTC Touch. "We consider competition as being the ultimate driver for excellence and a healthy presence in all mobile markets.
"Zain Group has been successful in achieving tremendous growth in 22 countries across the Middle East and Africa with existing fierce competition, and we look forward to achieving the same and even more in Lebanon.
Snobar agrees that competition is key to modernising Lebanon's market, although he is less optimistic about this happening any time soon.
"The key of growth in Lebanon would be the liberalisation which is planned by selling the two mobile networks," he says. "But in a country like Lebanon with a lot of political eruptions and instability, the plans would take longer than scheduled to take place. Take the long time it took them to introduce ADSL as an example.
He adds that if and when plans are implemented, competition would definitely drive the prices down, which in turn would increase adoption of the cellular service and increase mobile usage of existing customers.
It moreover will encourage the introduction of new services. This will also be triggered by the fact that regional players are interested in buying the Lebanese cellular networks," he says.For all the latest tech news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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