Friday, November 19, 2010

Six Telecoms Companies Go at War for Syria’s Third Mobile License

November 19, 2010

As it was easily understandable given the appeal of the Syrian mobile market, six telecom companies have submitted bids for the third mobile communications license (it has a 20-year validity) in Syria. Regional and international operators are vying for this third mobile license that should increase the level of competition in the mobile market, which is expected to double in size by 2014. Moreover, the government has specified that once this license will be awarded, there won’t be any new licenses for the next three years.    

“There is heightened interest for the third operator. Syria remains a market operating under its true potential because the two operators are in a comfortable duopoly. With three operators, we will see penetration rates exceeding 100 per cent in the next four years and effectively doubling the market” said Jawad Abassi, the founder of the Arab Advisors Group, a consultancy.

The companies that presented their proposals in this pre-qualifying stage are Etisalat (U.A.E.), S.T.C. (Saudi Arabia), Qtel (Qatar), Turkcell (Turkey), France Telecom and Tamco (Iran). Kuwait’s Zain previously had expressed a strong interest in this bidding, but in the end it did not submit any tender. Zain’s reason for not tendering is linked to the fact that Etisalat is currently acquiring 46 percent of Zain for around $11.7 billion and Etisalat itself proposed its candidature for the third Syrian mobile license. Etisalat is aggressively expanding out of the U.A.E. and has activities through joint-ventures or real subsidiaries in 17 countries apart from the Emirates. With no doubt, Syria could be an interesting choice for the Emirati company.

France Telecom (F.T.) is the only one firm not belonging to the MENA region (in reality also Turkey’s Turkcell does not belong to the World Bank’s definition of MENA region, but following other classifications also Turkey belongs to the so-called extended MENA region). F.T. is already operating in the MENA region thanks to its 71.25 percent ownership of Egypt’s first mobile operator Mobinil. In the last months, there have been rumors that other European companies have been attracted by an expansion in Syria, but, in the end, France Telecom is the only European telecoms operator actively searching for opportunities in the Middle East and North Africa.

Notwithstanding the close political relations between Syria and Iran, Iran’s state-owned Tamin Telecom Company (Tamco) seems to be the competitor with fewer chances to get the license. In fact, already the pre-qualification criteria appear to be a difficult hurdle to overcome for this quite new Iranian company. According to its website, Tamco was established three years ago and it is currently operating only in one country: Iran. Recently, this year, Tamco has won the third mobile license awarded in Iran. Tamco belongs to Shams Tamin High Tech Investment Company, one of the ten holdings of Iran’s Social Security Investment Company (S.S.I.C.), which is the company that manages pension funds in Iran. Not being successful in raising financing resources — given the international sanctions applied to Iran — could be another big difficulty for Tamco.  

Some telecoms executives evaluate that competition for the third Syrian license will be fierce because the bidders constitute an interesting group of companies mixing both relevant economic resources, like Saudi Telecom, Qtel and Etisalat (their respective governments have important equity stakes in the companies and all the three companies have already implemented an expansion strategy in the MENA region) and significant knowledge of MENA’s telecoms markets, like France Telecom and Turkcell. In particular, Turkcell — the leading operator in Turkey — has already quite good an understanding of the Syrian telecoms, given its attempt to purchase Syriatel in December 2007. 

The current six bids will be assessed by a joint committee formed by Syria’s Ministry of Communications and Technology (MOCT) and by Germany’s Detecon, an advisory consultancy. By the end of December 2010, this joint committee has to evaluate the applications of the six candidates and decide which companies are allowed to the second phase of the competition. The decision will be taken according to the following pre-qualification criteria:

A) Having operated a network with at least 1.5million subscribers in at least two countries for a minimum of three years by the end of August 2010;

B) Having started at least one network and having operated it for 12 months by the end of August 2010.  

With the second phase, bidders will be requested to submit technical and investment proposals. The technical and investment proposal will be opened by mid-March 2011. At that point, the companies that will score at least 70 percent of the available points during the second phase will be admitted to the one-day auction in April 2011. Bids may be improved during the development of the procedure. 

The MOCT has now specified that the Syrian Telecommunications Establishment (S.T.E.) will own a 20 percent stake in the new company that the winner will set up. In addition to this, the winner will mandatorily pay 25 percent of its gross revenue to the Syrian government and an additional 0.5 percent that will be used to pay for the costs of the soon-to-be-established regulatory authority. 

Some sources inside the telecoms sector in Syria point out that it is quite possible that the winner will be the company offering the highest sum. Minister of Communications and Technology Imad Sabouni said that the reference price for the license is around S£25bn (US$500m), reported the Syrian newspaper Al Watan.