Government and regulator backed initiatives to boost mobile penetration and increase the number of broadband providers could give Lebanon's telecom sector the lift that it needs.
Lebanon's telecom sector has been a perennial underachiever, regularly topping polls for the highest tariffs and coming towards the bottom of Middle East teledensity charts. It also has a strong claim for the dubious title of the most politically charged telecoms sector in the region. But a series of changes are taking place that could pull the performance of the county's telecom sector closer in line with those of its Middle Eastern cousins.
Many other countries in the Middle East - some with much smaller populations than Lebanon - have produced incumbent operators that have conquered their domestic markets and are now embarking on a period of expansion in neighbouring continents.
We have taken a proactive approach to sharing the incumbent infrastructure for the purpose of lowering the capital expenditure, lowering the requirements, and speeding up the roll out of the national broadband licenses. - Dr Kamal Shehadi, Lebanon TRA
Lebanon, as the first country in the Middle East to adopt a mobile network, and with a base of high spending customers, could perhaps have experienced something similar. But political divisions have prevented private involvement in the country's two government-owned mobile networks or serious investment in the country's telecom infrastructure.
The mobile operators, Alfa and MTC Touch, are a major source of income for the government, and so it is perhaps unsurprising that some political leaders do not want to lose such a considerable source of revenue. The value of the two operators to the Lebanese government, including VAT, is US$900 million per year, and is estimated to provide the state with one third of its income.
At the start of the year, Lebanon's Council of Ministers announced a number of reforms to be implemented by the operators that should see them both increase their reach and subscriber base while lowering call charges. A report released by Arab Advisors in March found that of 46 operators across 19 Arab countries, Lebanon had the highest average prepaid minutes.
It is not surprising then that penetration levels languish around 36%, but this figure is likely to change after both operators were given the target of increasing their subscriber base by 400,000 customers.
At present, Orascom-managed Alfa claims 600,000 subscribers and Zain-managed MTC Touch 800,000. As both operators are coming from such a low base the targets should not be hard to meet, but Dr Shehadi, the head of Lebanon's telecoms regulatory authority (TRA), feels that while there will be a "tremendous increase" in subscriber numbers it is overly ambitious to expect the additional subscribers to be added by the end of the year.
Annual growth in the mobile sector is currently 18%, but Budde analyst Tine Lewis says that this figure could rise dramatically given the right circumstances. "If all constraints were lifted, such as government limits on subscriber numbers and other limitations in retail distribution, mobile subscriber numbers could well show 100% annual growth, reaching penetration levels of 75% or so," she says.
Georges Dabaghi, regional sales manager for Motorola Home & Networks Mobility in the Middle East and Africa, feels that further improvements could be made in order to encourage growth.
"The current management agreements are fixed in terms of revenues which does not incentivise the operators to put efforts to enhance the quality of service, and there are no KPIs...the commercial contracts that exist today are not clearly spelled out and are mainly generic. This leaves operators with a lot of leeway to interpret the management contracts quite liberally and broadly," he says.
Dr Shehadi says that while the mobile operators have a greater incentive today to drive penetration and growth, there is still a limit to how much they can do, as investment in the mobile sector comes from the republic of Lebanon, and the ministry of telecoms is still closely involved in the day-to-day operations of the mobile operators. "I think it is going to continue to be a hindrance to genuine competition," he says.
In order to boost the amount of people in Lebanon with a mobile phone two key areas are being addressed: call charges, and coverage. In March, both operators cut their tariffs by 40% and calls by 15% and they also introduced a monthly tariff of $15, reduced from $25. The cost per minute for calls has been cut from 13 cents to 11 cents. Chairman and CEO of Alfa, Samer Salameh, said he believed the reductions would "catalyse a steep growth in the Lebanese mobile sector".
More customers will place a greater strain on the operators' networks, and a programe of base station roll outs is underway, with Alfa deploying 61 new base stations since February. These improvements are paid for solely by the government, but it should recoup the expenditure when the networks are eventually privatised. Increasing the coverage and subscriber base of the operators is seen as a ways of making both networks more desirable to potential bidders, when they eventually go on sale.
"This is what will create the value - the more numbers you put on the cellular operators today, this will make their value as an asset look significant," says Motorola's Georges Dabaghi.
Last month, Etisalat went on record to say that it is interested in acquiring one of the operators when they are privatised, and the UAE-based operator is just the latest in a line of at least 10 bidders to have expressed an interest in purchasing a 67% stake in one of the networks (with the remaining 33% to be offered to the Lebanese public). But nothing will be done until after the general elections take place in June, and then much will depend on which party wins.
Tine Lewis of analysys firm Budde, says that political agreement and an improvement in the global economic environment are both required before any sale is made.
"But even in the current environment, many of the big regional players have made their interest in the market clear," she says. "The lifting of artificial constraints on subscriber numbers in all sectors of the market would make it a very attractive proposition. There is the possibility of a well-regulated, competitive, prosperous market if the political will is present."
Dr Shehadi, a fierce advocate of privatisation, won't be drawn on an estimate for the price that a successful bidder will have to pay for the operators.
"Our job as a regulator is to do the best we can and to provide the best environment possible, and I think that's also the responsibility of the government of Lebanon," he says.
"It's the market that will determine it. I think as soon as the government of Lebanon decides [privatise the networks], it should do it. I will be urging the new government that is formed after the parliamentary elections to resume the privatisation as soon as possible."
Shehadi says that the TRA has been "monitoring and discussing" the situation and he feels that it will be a priority for the new government. But until the privatisation becomes a reality, the TRA is focusing its energy on other areas of the telecom landscape in Lebanon.
Arab Advisors estimates that as of May 2008, fixed broadband penetration was only 1%. And according to statistics from Budde, Lebanon has just 100,000 DSL subscribers and 170,000 cable modem subscribers.
"Broadband penetration levels require more competition in the market to grow," says Budde's Lewis.
Two new national broadband licenses for wireless and wireline broadband networks will be issued later this year, with one for Liban Telecom, the incumbent to be established through the corporatisation of the ministry's operations. The holders of the broadband licenses will be able to access current telecom and electrical infrastructure.
"We have taken a proactive approach to sharing the incumbent infrastructure as well as other infrastructure owned by the republic of Lebanon, all for the purpose of lowering the capital expenditure, lowering the requirements, and speeding up the roll out of the national broadband licenses," says the TRA's Shehadi.
The technical requirements that clarify the rights and obligations of the licenses are expected to be issued this month, while a decree on the pricing of spectrum has already been finalised.
"We will be launching the national broadband licenses in the third quarter of 2009. The licensing process will take two to three months, and the objective is to launch it and conclude it before the end of 2009," Shehadi says.
"For us, this is a major event in the development of the telecom sector, and our motivation is to introduce competition and new services to the market."
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