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Sat 27 Dec 2008 04:00 AM

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Waiting game

The head of Lebanon's regulator on how to improve competition in the country's mobile sector.

The head of Lebanon's Telecoms Regulatory Authority, Dr Kamal Shehadi, tells CommsMEA what needs to be done to improve competition and the level of service in the country's mobile sector.

For Dr Kamal Shehadi, chairman and chief executive officer of Lebanon's Telecommunications Regulatory Authority (TRA), the protracted privitisation of Lebanon's two state owned mobile networks is an obstacle that is blocking a range of key reforms in the country.

At present, both networks are run under management contracts, with the largest operated by Zain subsidiary MTC Touch and the other by Alfa, which is part of Lebanese telecommunications company Fal Dete, which is in turn owned by a consortium of German and Saudi Arabian companies.

I have no illusions about what needs to be done to sort out the telecoms mess in Lebanon. - Dr Kamal Shehadi.

Mobile penetration is currently languishing around 33% (MTC Touch has 800,000 subscribers, while Alfa claims 550,000) - considerably lower than most of its Middle Eastern neighbours - and Shehadi says it will struggle to grow unless both companies are turned over to private investors.

"Management contracts did not give any financial incentive to increase the number of subscribers, quite the opposite. Every additional subscriber to them meant more work, more effort for a fixed sum, and so they had no interest in increasing the number of subscribers," he says.

Shehadi says that so far 10 bidders have expressed an interest in purchasing 67% stakes in the networks (with the remaining 33% to be offered to the Lebanese public), with due diligence already completed. But he says the process has been "on hold" without any indication of timescale from the government.

Requirements have been set out in the draft licence and in separate documents published earlier this year that detail the levels of quality of service the TRA expects from the new mobile operators.

Shehadi says that the ministry has shown interest in investing in the networks in the past two months, but prior to this, it suffered from eight years of neglect.

"With every delay that we see in the mobile privitisation we see delays in the growth of mobile subscribers, a drop in prices, improvement of the quality of service, and a delay in much needed investment in the sector. And what we are seeing as well is the consumers getting a less than acceptable customer care," he says.

"As long as the networks are not privatised and they are not being invested in to improve the quality and are not working quickly to lower prices I expect complaints to keep rolling in and for things to get worse. I have no illusions about what needs to be done to sort out the telecoms mess in Lebanon. It all starts with a clear policy decision which to this point has been made in declarations and statements but in effect has not been translated into any real action and really that's what will make a difference to trigger telecoms reform."

Shehadi explains the reasons for the delay: "What's holding it up is a desire by the minister of telecoms to see what conditions in the tender documents and the tender rules need to be changed so that the government can get a higher level of participation by Lebanese share holders. That was the main driver. I think it should be clarified before the end of the year," he says.

The TRA boss says that even if the government were to give it the go-ahead today, bidders would be given eight weeks to prepare their technical bid, before an auction takes place and the winner is announced live on television.

Price concerns

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.Shehadi would not be drawn on the amount the sale is expected to raise, but some reports have put the figure in the region of US$6 billion, with Kuwait's Noor Financial Investment and the UAE's Etisalat, both thought to be keen purchase stakes in the operators.

Lebanon's high ARPU and low penetration rates should mean that there is a large amount of interest in the networks, with competition between rival bidders expected to keep the price high.

But the crisis that has gripped the world's financial markets is now threatening to add further delay to the process.

The two mobile networks are over-utilised, under invested in, the quality of service is bad, and they are unable to take on any new customers in any large numbers. - Dr Kamal Shehadi.

Shehadi admits that the market is "much more difficult" than it was two or three months ago. "There is a concern about whether the financial markets will allow the government of Lebanon to get a good price for the operators," he says.

"If we were to hold the auction today, or in December, I would be concerned. If we are going to hold the auction close to March or April, which I think is possible, then I think no I wouldn't be too concerned."

"Having said that, I will continue to listen to our financial advisors, I will listen to them and hear what they have to say abut the market and we'll take it from there. If the government decides to go ahead with a spring 2009 auction and our investment bankers tell us not to go ahead then of course we will reconsider."

"The decision rests with the TRA and the council of ministers. They cannot go ahead with the licensing which we are in charge of, and we cannot go ahead without the sale of assets which the council of ministers is in charge of."

Knock-on effect

Other reforms that the TRA plans to introduce to increase competition in the mobile sector, including mobile number portability (MNP) and the introduction of mobile virtual networks (MVNOs) have been out on hold until the privatisation has been completed.

"We will only have MVNOs after the privatsation of the mobile sector. They require SLAs which today the mobile operators are unable to meet," he says adding that an assessment will be made in 2010, once the privitisation has taken place and the successful bidders have been given time to establish their operations.

"Anyone in his right mind would not want to launch an MVNO today in Lebanon; the two networks are over-utilised, under invested in, the quality of service is bad and they are unable to take on any new customers in any large numbers. So an MVNO will only be throwing its money away if they were to launch in the current situation. You're not going to launch an MVNO if you're forced to work with one operator."

Plans for a third mobile operator in Lebanon are already well under way, with a pilot for Lebanon Telecom. But, according to Shehadi, the project has come up against an all too familiar obstacle.

"Our expectation is that the board of Lebanon Telecom will be established over the next few weeks, and that Lebanon Telecom will then launch its own mobile network. It should be in 2009. That too is awaiting a decision by the council of ministers," he adds.

"Lebanon has in the past missed a number of golden opportunities for deregulation," he says.

"I don't want to see Lebanon miss out as we move on. We need decisive action and decisive measure. What we are looking for in the government of Lebanon is a partner who will be as committed as the TRA is to telecom reform and competition but we're also looking for a partner who will be as decisive when it comes to identifying what needs to be done in implementing it.

"They have a lot to do," Shehadi says. "The ball is in their court."

2009 PRIORITY: Broadband rollout

Shehadi says that his top two priorities for 2009 are the licensing of three new national fixed broadband operators, and the rollout of a WiMAX network.

"WiMAX and broadband, they will proceed irrespective of the decision on the mobile," Shehadi says. "We already have a vibrant, Lebanese data service provider) industry, and they are the basis for the future of the Lebanese telecoms industry. And I think they are the ones who are best placed to expand in this environment and take advantage of the licensing opportunities."

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