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Tue 10 Nov 2009 04:00 AM

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Work in progress

The telecom sector in Iraq has witnessed enormous growth over the past few years, but with security still a problem and operators voicing concerns about an uncertain regulatory regime, maintaining growth could be a challenge.

Work in progress
Motaz says that indesiciveness from the regulator is slowing progress.
Work in progress
Saadi says that war and years of embargo damaged Iraq’s telco sector.
Work in progress


The telecom sector in Iraq has witnessed enormous growth over the past few years, but with security still a problem and operators voicing concerns about an uncertain regulatory regime, maintaining growth could be a challenge.

A word that is often associated with the telecom sector in Iraq is “potential”, and although it is true that there is still room for plenty of further growth, such a description perhaps overlooks the considerable gains that have already been made. The Middle East’s telecom majors that lack a presence in the country are keen to expand into Iraq, and for those that already have a presence it is an important market and considerable source of revenue.

The market leader in the mobile sector in Iraq is
Zain

, with just over 10.1 million customers, according to the operator’s last set of results. That figure is up from 7.9 million during the first half of last year, an increase of 28%. Iraq is an important market for the Kuwait-based telco as it provides 16% of
Zain

’s total revenue.

Rival Asiacell is 30% owned by Qatar-based
Qtel

and it plays a similar role in the fortunes of the Qatar-based group; during the first half of the year Asiacell provided 15.8% of Qtel’s total revenue, behind only
Qtel

’s domestic operation in Qatar and recent-acquisition Indosat.

Like Asiacell, Korek began life in the north of the country. As the third largest operator by subscriber numbers, Korek says it is “committed to providing the best mobile telephony products and services to Iraqi Kurdistan and to the whole Iraq”. It describes its coverage north of Kirkuk and to the east of Mosul as “high”, and the service 100 miles south east of Kirkuk as “variable”. This is set to improve, the operator says, with plans to invest US$100 million to expand its mobile network across the country with the aim of increasing subscribers to four million over the next few years. Last year, it was announced that Asiacell would invest $1 billion in a network expansion drive, and Mai Barakat, analyst, Informa Telecoms and Media, says that Korek and Asiacell’s “aggressive network expansion strategies” have helped them to win more customers over the past few months.

Security problems

The massive explosions that rocked Baghdad’s Ministry of Justice building last month - said to have been one of the largest bombings since 2007 - were a grim reminder of the scale of the security problems facing the country. Rolling out a network in a country that has to contend with security threats on a daily bases is not easy, as Asiacell in particular has experienced with the operator’s premises and cell towers being repeatedly targeted by bomb attacks. The operator has also been the most vocal critic of the jamming devices used by security forces to disrupt the use of improvised explosive devices.

Although security continues to be a concern, Motorola’s country manager for Iraq, Hourani Motaz, says that compared to last year, jamming devices are not as much of a problem for the country’s mobile operators, a point that Ericsson’s head of North Middle East, Tarek Saadi, agrees with.

It was claimed that the authorities in Iraq failed to take the jamming devices into account when fines totaling US$20 million were dished out in May this year to
Zain

, Asiacell and Korek in relation to issues surrounding the quality of their networks. The operators questioned the way the fines had been calculated and communicated. A week after news of the fines had filtered through to the operators, Ali Al Dahwi, CEO of Zain Iraq - which received the largest fine of the three operators - told CommsMEA that the charges were evidence of the government’s “strongly anti-investment” stance, and he cautioned foreign investors to be wary of entering the country “until somebody gets their act together”.

While Ericsson’s Saadi points to the licencing of three national operators and a mobile penetration rate of 66% as proof that the regulator in Iraq is “quite progressive compared to other under-developed countries around the world” others involved in the telecom sector in Iraq take a harder line.

The language used in
Zain

’s last set of results was more restrained than the CEO’s comments in Jordan. “The Iraqi mobile market continues to endure the absence of clear telecom regulations and an effective regulatory authority. Regulatory decisions are carried out by the Iraqi government and tend to be driven by politics,” Al Dahwi says.

Iraq’s telecoms regulator, known as the CMC (Communications and Media Commission), was without a director for most of the months since April 2008, when the previous head, Dr Siyamend Othman, completed his term in office. The CEO of regional operator Kalimat, Wilson Varghese, says although the Ministry of Communications is getting stronger, it is the regulator that should be given more powers. He says that the government-owned and operated Iraq Telecommunications and Post Company (ITPC), with its own CDMA network and fixed line is a competitor, but “they are the ones telling us what to do, so that is a conflict of interest”.

“We have been raising our voices against this and telling the head of the regulator this will not work because ITPC cannot be telling us what to do,” Varghese adds.

More licences?

The licencing of additional operators has been talked about in Iraq for some months now, and it has been reported that the country’s first national 3G licence will be issued at some point this year, with some suggesting that it will be a government backed entity, much to the chagrin of the existing operators.

Informa’s Barakat says: “Iraq’s finance minister said the cabinet is to approve the issuance of two new mobile phone licences for auction soon. One mobile phone licence is to be founded jointly by Iraq and the private sector. No timeline was given, and it was unclear how much of the proposed new mobile phone firm would be in private hands. Nonetheless, Iraq’s Telecommunications Ministry has submitted a request for the new licence, expected to be for a 3G network, to be awarded to the proposed public-private mobile phone firm.”

Motorola’s Motaz says one reason for the delay is the indecisiveness of the regulator. “There is a different story every day,” he says. “Today they want to approve it, tomorrow they want to talk about something else. In Iraq there are so many forces involved in the decision making. Some people within the regulator want to do it, but on the Ministry side they are not sure that they like the idea.

“Basically, between someone saying ‘yes’ and someone saying ‘no’, a decision has not been taken yet,” Motaz continues. “If no decision is taken in the next few months, that window for 3G may be lost and people will start talking about new technologies like LTE.”

For Motaz, the regulatory regime is “a shambles” and he says that the uncertainty surrounding the governance and leadership of the sector, together with “regional operators popping up here and there it is scaring off investors”. But in spite the warnings about deterring foreign investors, companies from outside Iraq appear keen to do business in the country. Last month
Etisalat

confirmed that it was still in talks with Korek, with the Wall Street Journal reporting that the UAE operator was keen to secure a 51% stake in the operator.

Even if further foreign investment is discounted, there is the distinct prospect of M&A activity taking place between the smaller, regional players and the three national operators.

Regional CDMA operators Itisaluna, Mobitel and Kalimat not only emphasise the geographical split between national operators and those based in the Kurdistan region of the country, but they also highlight the technological divide that seems to exists.

CDMA and WiMAX operator Kalimat, which describes itself as “Iraq’s national 4G telecom network” is yet to spread its coverage across the country, but according to CEO Wilson Varghese, by the end of the year Kalimat will be in Mosul, Basra, Falujah and parts of Al Anbar along with Kurkuk and Baghdad.

“Around 60-70% of the population will be covered by then, and by the end of 2011 we will be covering the rest of the country,” Varghese says. The operator has an ambitious target of moving from a current base of 80,000 to 5 million subscribers across consumer and enterprise by 2011, and Varghese agrees that if Kalimat is to achieve the target a dramatic rate of growth will be required.

Varghese says that regional operators are building themselves into acquisition targets, helping to fill in the areas that national operators may not yet cover. A tie-up with another of Iraq’s regional operators is something that Kalimat is considering, but it is also weighing up the potential of a “strategic investor” to help it expand.

Fixed affect

Years of conflict and embargo have taken their toll on the fixed infrastructure in Iraq, and the low level of internet penetration illustrates the fact that further investment is needed. According to the International Telecommunication Union, at the end of last year there were only 275,000 internet users in Iraq, which equates to just 1% of the population.

“The fixed network in Iraq was severely damaged during the war and by several years of embargo,” Ericsson’s Saadi says, adding that ITPC, with Ericsson, has been working to rebuild the network. He says that compared to other sectors, such as electricity, good progress has been made in Iraq.

Despite these gains, further improvement of backhaul is a priority, according to Motaz. “It’s needed today to take some of the load from the microwave backhaul but it’s also needed even more in the next couple of years to cater for the future technologies from FTTH and onwards,” he says.

Saadi says that some operators are building their own backbone networks, although such an endeavour is costly in terms of time and money. But for Varghese, the connectivity provided by ITPC through its fibre network and microwave links comes with its own issues.

“You won’t find rates like ITPC’s anywhere in the world,” says Varghese. “They don’t have the concept that this is a service for the development of the country. We can set up our own links, but in some areas it will not be economically viable, so we start with IPTC’s microwave.

“We have calculated that if you pay for six months you better buy your own microwave link. Normally, for similar infrastructure, cost is amortised over 10 to 15 years. But I think IPTC does it for six months,” he says.

A desire for increased access to the internet is illustrated by the fact that Kalimat’s most lucrative customers are data users, with average revenues per user of around $80 for data users, compared to voice revenue of approximately $12.

Further growth is also expected in mobile, with Arab Advisors suggesting penetration levels of 74-75% by the end of 2010. But those involved in the telecom sector in Iraq warn that any deterioration in the security situation could hinder progress. And with proposed elections looming in January, the security situation will be severely tested in the coming months.

Unlicenced ISPs

“We have a lot of unlicenced teleports and VSat links in Iraq,” says Kalimat CEO Wilson Varghese. “These are an issue of national security, because most of the broadcast and uplinks of Al Qaeda and associated groups happen in Iraq; you cannot have your own VSat terminal in other countries, but in Iraq it is open.”

Varghese estimates that there are about 10,000 unlicenced Vsat operators, and he wants to see the government clamp down on them.

“They corrupt the bandwidth and pollute the frequencies in the area using unlicenced frequencies. They are not sharing with the government a percentage of their revenue, and the government is not supporting us by removing these unlicenced operators,” he says.