Wednesday, September 29, 2010

Syria’s Third Mobile License


  
September 29, 2010
 
On Thursday September 23, 2010, the Syrian government finally decided to tender a third mobile operator license. The aim of the Syrian government is to attract not only Syrian investors, but also international telecom companies that could desire to invest in an untapped market. The Syrian Arab News Agency (SANA) reports that this move will be done according to the following specific conditions:

 
  1. Deadline for prequalification documents on November 14, 2010.
  2. The tender will be made through a three-phase process including initial rehabilitation, investment & technical rehabilitation and the financial auction.
  3. The government has decided to convert the Build-Operate-Transfer (BOT) contracts of the two current operators into licenses. The unique condition is that the two operators pay their financial obligations to the public Treasury. One option would be for the two incumbents to pay an amount equivalent to that of the winning bid related to the third mobile license. Another option would be to convert the BOT contracts into 20-year licenses. This could be done through the payment of $537 million for each license. The two companies will have also to pay 25 percent of their annual revenues to the Syrian government (under the BOT contracts they are currently paying 50 percent of the revenues).
  4. Applicants need to have at least three years of working experience in operating a mobile license and it is mandatory for them to by now operate in at least two countries with 1.5 million customers in each of them.
  5. One bidder could include more than one operator, but the Syrian state-owned telecom company will always control a 20 percent stake in the company that will be awarded the license.

 
Syria’s Ministry of Telecommunications used the services of Detecon, a German consultancy, in order to organize the terms of reference for the new license and establish the procedure so as to implement the conversion of the BOT contracts into fully fledged contracts.
 

According to Minister of Telecommunications Imad Sabouni, the licensing process will be completed in the next five to seven months. In relation to the current two Syrian mobile operators, Syriatel and M.T.N., the minister also pointed out that following Detecon’s research activity, the state would get better returns through the sale of licenses and the implementation of a new revenue-sharing arrangement than what it previously obtained from the two companies. But an analysis by The Syria Report, an on-line economic newsletter, has calculated that with the BOT contracts the government would receive 40 billion Syrian pounds every year (assuming to maintain the 2009 revenue levels), while with new system the government would receive only 22.5 billion Syrian pounds. It is true that revenues could be increased if reduced mobile prices convince more people to use mobile services  in this way expanding the market. It is esteemed that there are in Syria at least 4 million of untapped potential new subscribers.
 
Rumors say that there are at least three international companies interested in bidding for the third license: Saudi Arabia's Saudi Telecom (S.T.C.), Emirates Telecommunications Corp (Etisalat) and Turkey’s Turkcell (In the past Turkcell had been reported to consider a bid to acquire Syriatel). During the summer it seemed that also Kuwait’s Zain was interested in tapping some opportunities in Syria. "Zain is waiting for Syria's government, which announced the opening of a bid for a third operating telecom ... to issue the terms and conditions required for applying and attaining the license," Kuwaiti newspaper al-Rai said quoting some sources. But then, at the beginning of September, Zain dropped its expansion plan in Syria and it is not interested anymore in bidding for the third mobile license. The basic idea is that the company should not enter new markets that could have some risks. In fact, winning a new license in Syria would surely burden Zain’s balance sheet with relevant losses for at least the initial three years of the operational activity in the country. In addition to this, today Etisalat has made a $10.5 billion (or $12 billion according to different sources) offer to buy a large stake in Zain trying to create the biggest telecom operator in the Middle East. Obviously, this could not be the right moment for Zain to compete for a Syrian license also because Etisalat will surely try to win the license. Also Egypt’s Orascom Telecom normally would show some interest in such an opportunity, but it could be discouraged by its past experiences in Syria. In fact, Orascom was the original partner of Ramy Makhlouf, who is the principal owner of Syriatel (Mr. Makhlouf is a cousin of the Syrian president Bashar al-Assad and he is currently under specific U.S. sanctions). This relationship started in 2001, but by 2003 it was over with a lot of resentment.
 
Syria’s telecoms market is quite promising. According to the International Telecommunication Union (I.T.U.) Syria has a very low mobile penetration with 44 users per 100 inhabitants. Syria lags behind its regional peers except for Sudan, Lebanon and Yemen (at this regard it should be understood that in Lebanon many mobile-phone users subscribe mobile contracts with networks in third countries rather than paying exorbitant fees to the state-owned service). Out of a population of around 20 million Syrians and 3 million expatriates, Syria has 10.4 million of subscribers, including pre-paid cards, according to the Ministry of Telecommunications. In other words, the market is not saturated. In the past, in other MENA countries, some new mobile entrants struggled a lot because the markets were much more mature. But in Syria, adding a third operator could boost the level of competition bringing an improved quality with reduced prices. In general, when there are two companies that control the whole market they tend not to be very much quality-driven. Already, many local news sites enthusiastically welcomed the possibility of having a third mobile operator that could introduce to Syria those packages and special deals that are widely common in the Persian Gulf and that are much better than the current available options provided by both Syriatel and M.T.N.
 
The opening of the Syrian telecoms market thanks to the new law governing the telecommunications industry (Law No. 18 of 2010) and now the issuing a third mobile license are two other important steps in order to attract foreign investments and develop the private sector. At this regard, there are some speculations that both the incumbents and the new licensee could decide to offer some shares to the public and in this way collect economic resources to cover the costs of the fees.
 
 
 
 
  

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