Telecom Trouble: Arab Governments Have Been Delaying Announced Plans to Privatise State-Owned Telecom Operations, Hoping Global Equity Markets Will Rebound and Boost Prices for the Shares They Plan to Sell. but the Strategy Could Backfire, Leaving Arab Telecoms Financially and Technologically Bankrupt. (Communications)

Article excerpt

From Morocco to the Gulf, Arab telecom markets are in turmoil. Although most show promising growth, the pressure is on for governments to relinquish direct ownership of this sector. That pressure is both economic and political. Many cannot afford to undertake the massive investments needed to bring systems up to global standards. Equally important, virtually all governments in the region are compelled, under the terms of membership in the WTO, to increase private sector participation in the telecoms sector.

"The picture varies markedly between the Arab countries", noted Jawad Abbassi, president of Arab Advisors Group, a leading telecom consulting and research firm. "Morocco is the clear market leader in introducing liberalisation, followed by countries like Jordan, Egypt and Lebanon. The Gulf states are still monopoly countries with some level of competition in Kuwait (Internet and GSM) and Saudi Arabia (Internet)."

Abbassi points out that in general, countries facing economic hardships "have been the leaders in recognising the role of telecommunications liberalisation in attracting investments and upgrading their once-dilapidated communications infrastructure."

However, even financially strapped countries like Egypt have been reluctant to sell shares of their State-owned telecoms in today's depressed equity markets. The proposed sale of a 20% tranche of Egypt Telecom, initially proposed in 1996, would in today's markets yield less than half what was calculated three years ago.

Thus, while some of the resistance to sell can be explained as a matter of national pride, it has usually been backed by sound economics. With monopoly control of domestic markets, Arab telecoms have been cash cows for their respective governments.

Over the past decade, demand for increased and better service has pressed most governments to invest heavily in new phone lines and service-related infrastructure. But the high cost of land-line investment has caused many Arab governments to allow a kind of "back-door" privatisation, through the awarding of wireless licences to consortia of local and western investors. This was successfully achieved in Morocco and Egypt in the late 1990s, and is now being contemplated in Kuwait, Saudi Arabia, and most other Gulf states.

The policy has allowed service demand to be met, at the cost of eating into the revenue base of many of the State-owned telecoms.

Both State-owned and private wireless systems have boomed. According to a recent report by the Arab Advisors Group, Morocco, Egypt and Saudi Arabia are the largest Arab GSM (wireless) markets in terms of numbers of subscribers. The UAE, Kuwait and Bahrain are the most developed with the highest penetration rates. By year-end 2004, the total number of wireless lines may exceed land-lines in Egypt, Morocco, and the UAE.

The total number of GSM subscribers in 10 Arab countries monitored by the Arab Advisors Group exceeded 16.5 million by year-end 2001. In terms of numbers of subscribers, Morocco was the largest, followed by Egypt, Saudi Arabia, UAE, Kuwait, Jordan, Lebanon, Oman, Bahrain and Syria. However, market penetration rates were highest in the rich countries of the Gulf. The UAE, Bahrain and Kuwait showed country penetration rates ranging between 42% and 58% by year-end 2001.

Increased private sector participation--and increased competition--have been key to these increases, while also resulting in a sharp drop in service costs. In Kuwait, for example, the existing two GSM operators, MTC and Wataniya have slashed prices in a battle for market share. In the process, the total number of subscribers has grown from 335,000 in 1999 to 930,000 this year. Of that, 60% are with MTC, the remainder with Wataniya.

Analysts point out that this experience--similar to that of Morocco and Egypt (which also have competitive wireless markets)--demonstrates the practicality of allowing future fixed services competition. …