Cellular services set tone




Mobile phones expansion seen as a stop-gap until landlines are modernised

By Mark Huband in Cairo

Financial Times, 26 March 1998

Following the February 1997 World Trade Organisation agreement in which 69 countries agreed to open their telecommunications sectors to foreign service providers, Middle East and North African countries have sought ways to attract foreign investors and upgrade their often dilapidated systems.

Expansion of the sector, both in infrastructure and new services, is regarded by regional governments and foreign investors as the key to successful exploitation of the business. To date the greatest success has been the establishment and rapid expansion of cellular telephone services in many countries. Relatively low tariff cellular systems have greatly expanded telephone use despite limited areas of coverage, while plans are being drawn up for the formidable task of improving and expanding land-based networks. Significant sales of the core telecommunications service has been confined to two countries in the region – Kuwait and Jordan. Keen to expand its services and streamline operations, 40 per cent of Jordan Telecommunications Company (JTC) will be offered for sale by mid-1998, the first such sale in the region.

JTC intends to triple the number of lines to 1m, and the failure to satisfy demand for fixed lines has led to soaring demand for cellular access. Jordan Mobile Telephone Services Fastlink (JMTS) service now has around 50,000 subscribers, six-times more than had been anticipated when JMTS established its partnership with Motorola of the US. A second cellular system is to be licensed, and the private sector already operates Ermes, a radio message paging system.

The Kuwait Investment Authority expects to privatise the country’s entire telephone system by year-end. Morocco will also begin privatising its telephone network this year.

Changing attitudes towards the growth potential offered through liberalisation has brought the Saudi Arabian telecoms sector a step closer to the private sector. The network has been redesignated as a joint stock company, the Saudi Telecommunications Company (STC), allowing it to be restructured along more commercial lines. STC has inherited all the functions formerly carried out by the state, as well as being legally bound to operate the company commercially and charged with installing 1.5m new digital lines over two years.

Competition in the cellular telephone sector has come to be regarded by governments as a convenient stop-gap while the more delicate task of modernising the fixed networks is undertaken. Nowhere is this more true than in Lebanon, where foreign operators hold equity stakes in the rival cellular companies which have 180,000 subscribers and are the mainstay of a telecommunications system ravaged by years of civil war.

Morocco’s only state-run cellular system, owned and operated by the Ittisalat al-Maghrib national telephone company, serves 70,000 subscribers, but is to be expanded to reach 100,000 lines by the end of 1998. However, it is also to face new competition when a second, private-sector system is licensed as part of the slow but ongoing process of economic liberalisation. Meanwhile, Ittisalat al-Maghrib is also to be part-privatised.

Assessment of the extent private sector activity can be extended within the Egyptian system has seen the creation of partnerships between the state and private sector.

First came the state-owned Egyptian Telecommunications Company (ETC – formerly Arento and since December 1997 renamed Telecom Egypt) which issued two licences to establish and operate nationwide public payphone systems of 20,000 lines, each to be established within five years.

Strong foreign interest in the contracts has been matched by a realisation within government that the sector is a potential gold mine for the state. France Telecom, which won the first contract, will pay the government 66 per cent of revenues, estimated at around $ 590m during the 10-year period of the contract. Landis and Gyr of Switzerland will operate the second system, also over 10 years.

Alcatel of France installed a 70,000 subscriber GSM cellular telephone system in late 1996 on behalf of Telecom Egypt. The current system now has 80,000 subscribers. Thirty per cent of the operating company, called Egyptian Mobile Telephone Services Company, was sold in January this year and a further 25 per cent will soon be sold to a private sector investor, who will manage the company. Telecom Egypt’s stake will eventually be reduced to 3 per cent.

Fierce competition for a second, majority private sector-owned cellphone network has exposed the extent of foreign interest in what is regarded as a market offering enormous potential, due to large areas of the country awaiting connection. The new operator will be contractually bound to cover 85 per cent of the country within five years of the 15-year licence being awarded.

Telecom Egypt has simultaneously sought a private sector role in its bid to achieve a 50 per cent increase in the number of fixed telephone lines to 10m by 2002.

In December 1997 Telecom Egypt was itself corporatised under legislation that will allow its assets to be assessed and a proportion of its shares eventually to be sold. Meanwhile, management changes have introduced a more professional style in line with moves reflected elsewhere in the public sector within companies earmarked for sale.

Contracts for the improvement of services in specific areas of the country have been awarded, with a view to an upgrade. NEC of Japan is installing 81,000 lines in upper Egypt, and is expected to install digital public switching systems on the Red Sea and Mediterranean coasts.

Foreign companies have also teamed up with local partners to establish satellite communications and region-wide wireless loop systems. This is part of the easing of restrictions in a sector that until very recently was viewed by the government essentially as an area of national security rather than a business.

Attractive offers from the private sector market leaders of western Europe and the US have allowed states to envisage major upgrading of infrastructure, ultimately with a view to expanding private sector investment.

The Syrian Telecommunications Establishment (STE) secured 50 per cent of the $200m cost of nationwide improvements to its service from Gulf states. Five separate upgrading schemes have now been approved, tripling the number of lines to 3m. The improvements will include the introduction of the Synchronous Digital Hierarchy (SDH) system between major cities, improved rural transmission and relay systems, as well as digital fibre optic cabling and radio links.

© Financial Times