CONNEXUS C O N S U L T I N G Competition in Telecommunications and the Information-Based Economy Kamal S. Shehadi, PhD Managing Director Planet Lebanon

CONNEXUSC O N S U L T I N G

Competition in Telecommunications and the Information-Based Economy

Kamal S. Shehadi, PhDManaging Director

Planet Lebanon 2004Opportunities in IT and Communications

BeirutJuly 22, 2004


Overwhelming evidence that competition in telecommunications “works.” It leads to:

Lower prices and better quality of service

Higher levels of telecom penetration

Higher productivity in telecom and economy

Faster rates of technological innovation

More investments in the sector

There is not one single country in the world that has maintained state monopoly over telecom and succeeded in developing ICT

The liberalization and privatization of telecoms are key to the future of the Lebanese economy


In the past, governments have pursued a number of objectives from liberalization and privatization

Telecom Liberalizatio

nStrategic

Objectives

Telecom Liberalizatio

nStrategic

Objectives

Redistribute Wealth and Enable Economic

Growth

Redistribute Wealth and Enable Economic

Growth

Sustain Country’s Competitiveness

Sustain Country’s Competitiveness

Comply With International

Commitments

Comply With International

Commitments

Develop Capital MarketDevelop Capital Market

Increase Treasury Revenues

Increase Treasury Revenues

Improve Performance of Telecom Sector

Improve Performance of Telecom Sector

Improve financial performance of incumbent

Increase penetration of services Introduce new telecom services Improve price/quality ratios

Develop ICT sectors Create new job opportunities in

telecom Attract additional investments

Improve productivity of traditional sectors

Catalyze the growth of information economy

Improve integration of the economy with ROW

Deliver on WTO, EU and other commitments

Meet commitments to international institutions (World Bank, IMF, etc.)

Allocate and use scarce resources efficiently

Generate revenues from new licenses

Raise taxes from new telcos

Widen share ownership in List new telcos on stock exchange


Key legislation needs to be in place to enable the development of e-

business, e-government, and other information-based businesses

Key legislation needs to be in place to enable the development of e-

business, e-government, and other information-based businessesLegislationLegislation

Educational system graduating computer literate students Educational system graduating skilled programmers, certified

engineers, and other IT skills

Educational system graduating computer literate students Educational system graduating skilled programmers, certified

engineers, and other IT skillsEducationEducation

Financing for ICT initiatives needs to be available ITC-industrial support mechanisms

Financing for ICT initiatives needs to be available ITC-industrial support mechanisms

Venture CapitalVenture Capital

State of the art infrastructure: wireless and wireline Wide reach and access of large population

State of the art infrastructure: wireless and wireline Wide reach and access of large population

InfrastructureInfrastructure

Competitive PricesCompetitive Prices Price of telecom services competitive with rest of the world Price of services reflective of market conditions

Price of telecom services competitive with rest of the world Price of services reflective of market conditions

Requirements of Information-Based Economy

To leap-frog into the information-based economy, a number of requirements have to be in place

11

22

33

44

55


The mobile penetration rate in Lebanon is among the lowest in the region due to lack of competition and bad regulation

99%

94%

79%

69%

68%

47%

41%

33%

21%

81%

I taly

Spain

UAE

Germany

Bahrain

France

Qatar

Canada

Saudia Arabia

Lebanon

Mobile Penetration (in % of Total Population)2003

Source: Informa, ITU, Arab Advisors


Lebanon’s mobile postpaid connection fee is among the highest when compared to other international operators

100

75

69

62

57

34

27

27

24

24

23

13

0 20 40 60 80 100 120

Cellis

Libancell

Qtel

Vodafone

MTC

Etisalat

STC

T-Mobile

Mobinil

Telefonica

Telnor

Batelco

SFR

Mobile Post Paid Connection Fee Benchmarking Against Selected Regional and International Operators (2004) (US$)

Free!

Source: Tarifica, ITU, Operators


The monthly charges for mobile postpaid lines are also among the highest - and they don’t include any “free” minutes

25

25

16

16

14

14

12

12

11

8

0 5 10 15 20 25 30

Cellis

Libancell

Batelco

STC

MTC

Q-Tel

Meditel

Maroc Telecom

Mobinil

Etisalat

Mobile Post Paid Monthly Charges Benchmarking Against Selected Regional Operators (2004) (US$)



The cost of a postpaid minute in Lebanon is among the highest in the region and is due to the high excise tax imposed by the Government

14

14

14

13

13

13

13

10

10

8

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Omantel

Meditel

Maroc Telecom

STC (AlJAWAL)

MTC

Cellis

Libancell

Mobinil

Batelco

Etisalat

Mobile Postpaid Peak Minute Rate Benchmarking Against Select Middle Eastern Operators (2004) (US$ cents per peak minute)

The 6 cents tax makes up 46% of the minute rate

6 cents tax

6 cents tax



The price of a prepaid minute is higher than the rest of the region, with one company billing by 40 second intervals, thereby making prices less transparent

47

44

38

36

32

24

20

15

7

0 10 20 30 40 50

Libancell (Premiere +)

Libancell (Premiere)

Libancell (Premiere)

Cellis - Clic

STC (Al J awal)

Mobinil

Q-Tel

Batelco

Etisalat

Mobile Prepaid Peak Minute Rate Benchmarking Against Select Middle Eastern Operators(2004) (US$ per peak minute)



In addition, prepaid packages on offer have a validity period of 60 days, much less than what is available in other countries

Source: Arab Advisors Group, from Operators

60

36060

18030

60

120120

240180

360

180 5

3

0

100

200

300

400

500

600

Morocco Bahrain UAE Tunisia Egypt Jordan Lebanon

Maximum validity period Maximum grace period

Prepaid Validity Periods


On the fixed network side, Lebanon is at par with the penetration rates of selected regional and international operators

145%

114%

113%

110%

105%

85%

80%

86%

69%

Qatar

Spain

Bahrain

Germay

France

UAE

Italy

Lebanon

Saudia Arabia

Fixed Line Penetration (in % of Households)

Source: Informa, ITU, Arab Advisors


Despite the 35% reduction in per-minute tariffs for international telephony, connection and per-minute tariffs remain relatively high

1.43

1.85

2

1.1

0 0.5 1 1.5 2 2.5

UAE

J ordan

Lebanon

Morocco

Tariff in US$/ 3 minute call to NYC, average of peak and off-peak rates



41

37

25

12

12

11

10

7

6

6

6

3.2

2.5

2.4

2.3

1.5

0 5 10 15 20 25 30 35 40 45

Devlp'd

UAE

Bahrain

Lebanon

Qatar

Kuwait

World

Oman

KSA

Jordan

Tunisia

Palestine

Egypt

Morocco

All Arab

Other

Internet penetration in Lebanon compares favorably to the region, but the “digital divide” with developed countries is readily apparent

Source: ITU

Internet Users per 100 Inhabitants (2003)


Source: Telecommunications Operators

For Lebanon, the ISDN BRI Monthly subscription rate used is the average of residential and business rates

55

422

550

9

21

40

0 100 200 300 400 500 600

United ArabEmirates

Jordan

Lebanon

Installation Monthly subscription

Lebanon has only recently introduced ISDN technology, but it is overpriced and has long been overtaken by more advanced technology such as ADSL

ISDN Tariffs


International connectivity is prohibitively expensive and detrimental to the development of an information-based economy

Source: Teligen 2003 and Tarifica 2004

54400

31422

25305

22667

18631

16520

15512

13685

12140

11827

11408

8398

6197

5705

4591

3970

3176

0 10000 20000 30000 40000 50000 60000

Kuwait Oman

Lebanon KSA

Spain Austria

Portugal France

I taly Greece

Belgium Netherlands

Luxembourg SwedenI reland Finland

Denmark

2MB/s International Half-Circuit Rental Prices to Nearby Countries (US$)


Lebanon has one of the lowest international connectivity ratios in the region

Comparison of International Trade versus International Internet Bandwidth

Source: Telegeography & GDF WDI

Spain

Italy

Portugal

Greece

Saudi Arabia

Lebanon

Jordan

Egypt

Tunisia

Morocco

Algeria

618

617

351

114

15

3

15

4

4

5

3International InternetBandwidth per cap in bit/s


Full Competition

500,000

1,740,000

800,000

13.8

43.5

20.3

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

1998 2003 2008

0

5

10

15

20

25

30

35

40

45

50

Penetration

Source: Connexus Consulting

Government-Owned Duopoly

500,000

1,000,000

800,000

13.8

28.6

20.3

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

1998 2003 2008

Subscribers

0

5

10

15

20

25

30

35

40

45

Were Lebanon to open telecommunications to the private sector for competition, mobile penetration will double in five years …


… the number of internet hosts will increase by a factor of ten …

Potential Impact of Different Liberalization Scenarios on the Spread of the InternetPredicted internet hosts per 10,000 people

Source: World Bank

0

2

4

6

8

10

12

14

16

18

20

MENA Restricted MarketAccess

Moderate MarketOpenness

Full Market Openess


… expenditure on telecommunications (as a percentage of GDP) – net of taxes – will almost double …

Potential Impact of Different Liberalization Scenarios on Expenditures on TelecommunicationsPredicted Telecommunications Revenues in % of GDP

Source: World Bank

0

0.5

1

1.5

2

2.5

MENA Restricted MarketAccess


Full MarketOpeness


… investment in the telecom sector will increase fourfold and add another US$ 150 million/year of investments …

Projected Investment in Telecommunications (US$ Millions)

Source: Connexus Analysis

50

100

200

Restricted MarketAccess


Full Market Openess


Finally, competition in telecommunications will allow Lebanon to become a hub for ICT and create thousands of high value-added jobs

Direct Opportunities from a Better Data Telecommunication Sector

Software development:

Designing, coding, testing and

implementing software for

several industries

High-end remote processing and

knowledge management:

Database management, data

mining/ warehousing, GIS, content creation

Low-end remote processing/tele-

working:Key punching, data

entry

Consultancy Services:

Training and seconding of IT

personnel

Voice Center Operations:

Technical assistance centers

for service companies

Data Telecommunications


The liberalization and privatization of telecom in Lebanon is a daunting challenge, but the roadmap is clear and simple

The Government of Lebanon (GOL) needs to adopt a clear policy to liberalize telecom and open it to competition

Policymakers should cease to look at telecommunications as a cash cow, whether for the treasury or for their cronies

The Government of Lebanon (GOL) needs to adopt a clear policy to liberalize telecom and open it to competition

Policymakers should cease to look at telecommunications as a cash cow, whether for the treasury or for their cronies

PolicyPolicy

GOL must implement Law 431/2002, which calls for the establishment of an independent regulatory authority

Appointment to the authority must be on the basis of merit and not on the basis of allegiance

GOL must implement Law 431/2002, which calls for the establishment of an independent regulatory authority

Appointment to the authority must be on the basis of merit and not on the basis of allegiance

GOL must begin the process of privatizing the two mobile operators and the fixed network immediately, bringing a strategic investor for each

A certain percentage of shares must be listed on the stock exchange

GOL must begin the process of privatizing the two mobile operators and the fixed network immediately, bringing a strategic investor for each

A certain percentage of shares must be listed on the stock exchange

The regulatory authority, once appointed, must issue new licenses to establish alternative networks to carry data, voice, and media, both domestically and internationally

The regulatory authority, once appointed, must issue new licenses to establish alternative networks to carry data, voice, and media, both domestically and internationally

IndependentRegulatory Authority

IndependentRegulatory Authority

PrivatizationPrivatization

New LicensesNew Licenses

Documents

CONNEXUS C O N S U L T I N G Competition in Telecommunications and the Information-Based Economy Kamal S. Shehadi, PhD Managing Director Planet Lebanon