Marwan "Merv" Hamadeh: Laughing all the way to the Bank!
LATEST BRIEFING From Oxford Business Group:
16 April 2007
Despite the ongoing political deadlock, Lebanon's government is determined to
push ahead with the sale of two mobile phone network operating licences and the launch of a third operator by the end of the year.
Marwan Hamadeh, Lebanon's Telecommunications Minister, said he was
confident that the sale of the two licences would be completed within the next
eight months. Addressing a communications conference in Dubai on April 11, the minister said the overhaul of the mobile phone industry ahead of the
privatisation was going well and the newly created Telecommunications Regulatory Authority (TRA) was putting in place the necessary arrangements for the sales.
"Investments banks JP Morgan and Citibank have made great progress in
their evaluation and reorganisation of the cellular sectors in Lebanon and the
government hopes to launch the tender for the sale of the two licenses this
summer," said Hamadeh.
Detecon, a joint venture between Deutsche Telekom and Saudi Arabia's Fal Holdings, and the Kuwait-based Mobile Telecom Company operate Lebanon's two existing mobile phone networks Alfa and MTC Touch Lebanon.
Between them they have just over 1m subscribers, around 25% of the population. Both operate under four-year contracts to the government, rather than owning the licences outright, with revenue going to the state and fees, worth about $4m a month, going to the two companies.
However, all this will change when and if the government can privatise the two licences and create the third operator, which will come under the yet-to-be established state firm LibanTelecom, which will be responsible for fixed line telephony as well as the third mobile network.
Under government plans, 40% of LibanTelecom will be sold to the private sector immediately, with the option to put the remaining shares up for sale within two years. At present, state-owned Ogero Telecom has the monopoly on land line telephony, but this will be passed over to LibanTelecom when Ogero is merged with two other state agencies.
Lebanon hopes to raise $5bn- $6bn from the sale of the two existing licences and generate more revenue from the partial privatisation of LibanTelecom. All of the earnings from the sales are to be used to reduce Lebanon's $41bn public debt.
However, there may be some static on the line before the licences are
sold. One of the stumbling blocks to the government's plans is that the
privatisations will need the approval of the national parliament, which
parliamentary speaker Nabih Berri refuses to convene.
The privatisation of Lebanon's mobile phone sector was one of the reforms the government pledged itself to ahead of the January Paris III donor's conference. Though long planned, the sell-off has been stalled by a combination of factors, including opposition within the parliament and from President Emile Lahoud, concerns over the privatisation of profitable state assets and delays in establishing the TRA, which was approved by the parliament in 2002 but started functioning only three months ago.
On April 11, Finance Minister Jihad Azour said there was the risk that Lebanon could miss out on the current investment boom in the Middle East if the reforms, such as those needed for the telecoms privatisation, were not enacted.
"The government continued to push for reforms although the parliament is not convening to discuss and approve the reform measures," Azour said during a meeting of Arab finance ministers in Beirut.
Though a number of overseas corporations have expressed interest in investing in the Lebanese mobile phone sector, the price being sought by the government and the need for a massive injection of funds to upgrade the network's 1990s
infrastructure, which like many communications networks took a beating in last
summer's conflict with Israel, could put potential buyers off.
So too might a glance at history. The original two operators of Lebanon's existing networks, Cellis and Libancell, had their contracts to operate the networks cancelled in 2004 after years of disputes with the state over the terms of their agreements and the amounts due to the Treasury.
Another factor is that Lebanon is quite a small market, with a population of just 4m and at present one of the lowest penetration rates in the region and some of the highest prices. Any future operator will have to invest heavily in technology while at the same time consider cutting costs to the consumer in order to improve services and increase the client base.
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