Arab Telecoms: Monopolies Challenged

By Martin, Josh | The Middle East, May 2000 | Go to article overview

Arab Telecoms: Monopolies Challenged


Martin, Josh, The Middle East


Throughout the Arab world, state telecom monopolies are being challenged, both by advocates of privatisation, and by consumers who are turning to new forms of communication, including mobile phone systems and Internet telephony. The challenge is urgent; telecoms are vital for survival in the modern global economy.

Making a phone call in the Middle East may soon become a lot easier and cheaper. From Morocco to Oman, Arab governments are rushing to upgrade their countries' telecommunications networks. They are allowing local and international private companies to take over much of this sector, to finance and create the communications grids needed if those economies are to survive and compete in the rapidly emerging world of e-commerce.

It has not been an easy decision. In many Arab countries, state-owned telephone monopolies have been a major source of public sector income. In Saudi Arabia, telecoms are the government's second largest source of revenue. In Jordan, it is the third largest source of government income; the same has been true in Egypt.

"It is a problem for governments and incumbent dominant telecoms in the Arab world," says Professor Erran Carmel of the American University's Kogod School of Business in Washington, DC.

State-owned systems in the Middle East are being forced to relinquish their monopolies because they have been unable to meet the telecom demands of an Internet-driven global economy. The number of phone lines per capita has lagged behind standards set in Europe and North America; only Kuwait, Bahrain, Qatar and the UAE have managed to get telephone penetration rates to exceed 20 per cent of households.

Money talks: it is estimated that Arab countries will need to invest between $30 and $50 billion each year over the next five years to bring their telecommunications systems up to global standards. Faced with these huge demands for capital, both to install conventional land lines and to create cellular, mobile and wireless systems, many state monopolies have been compelled to cede a significant role for cash -- to technology-rich private sector consortia.

In the past 18 months, Egypt, Morocco, Lebanon and Saudi Arabia have all privatised or announced plans to privatise significant parts of their telecommunications sectors.

One result of this has been the creation of a competitive telecommunications market, where businesses and individuals can shop for the best rates and service, from two or more service providers.

Consider recent developments in Morocco, where two major mobile phone companies are now competing for customers. Last July, the government awarded a $1.1 billion global system for mobiles (GSM) contract to Medi Telecom, an international consortium led by Spain's Telefonica in partnership with Portugal Telecom, Morocco's BMCE Bank, and the Moroccan industrial group Afriquia.

Although it will be seeking customers in a fast-growing market, Medi Telecom will face tough competition from the other GSM operator in Morocco, the state-owned Itissalat Al Maghrib (IAM), recently renamed Maroc Telecom.

This will not be a public-versus-private competition: Morocco's Prime Minister Abderrahmane El Youssoufi, who has called the telecoms sector "the driving force" of the country's economic growth, has made clear his government's intention to "liberalise" (read: privatise) the sector by 2002. It will be a profitable experience: although the government is expected to retain a 51 per cent stake in Maroc Telecom, its partial privatisation could put over $2.5 billion into the treasury.

Consumers have already benefited. In anticipation of increased private-sector competition, Maroc Telecom waged an aggressive marketing campaign in 1999, upgrading its services, issuing cheaper pre-paid phone cards, cutting connection and subscription rates, and reducing other tariffs by up to 50 per cent.

Privatisation of telecoms in the Middle East is directly linked to governments' understanding the profound and growing economic importance of the Internet.

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