Are the Four Remaining Telecoms Companies Committed to Bidding for Syria’s Third Mobile License?

 

March 28, 2011

Last February, Syria's deputy minister of telecommunications, Mohammed Al-Jallali affirmed that the minimum reserve price for the upcoming auction for Syria’s third mobile license would be set at $122 million (SYP5.6 billion). At the end of 2010, five telecoms companies, Etisalat (U.A.E.), France Telecom, Qtel (Qatar), Saudi Telecom Company and Turkcell (Turkey) pre-qualified for the license auction. Still last February, Turkcell declared that it was not interested anymore in bidding for the license. The reason for pulling out was linked to restrictions of the Syrian markets.  

At this stage of the process it’s not clear which of the four remaining companies will really fight hard to get the Syrian license in the next auction planned for next April 12.

It’s possible to assume that — given Etisalat’s failure to buy 46 percent of Kuwait’s Zain for $12 billion (DH44.07 billion) — the Emirati company will now probably focus its attention on the remaining regional but smaller opportunities such as Syria’s third mobile license and Iraq’s fourth mobile license. The adduced reasons for the failure were political unrest in Middle East and disagreement among the different shareholders. “The successful completion of the Zain deal would have given Etisalat control of a number of market-leading mobile operations in the Middle East, and positioned them as the leading pan-regional mobile operator in the region. Now, Etisalat’s international investments team will most likely focus its efforts on the remaining, smaller, opportunities in the region, such as Syria’s third mobile license and Iraq’s fourth mobile license,” said Matthew Reed, senior analyst with Informa Telecoms and Media, a research company. For Etisalat, the pursuit of international revenues is a priority because its domestic market is flat, if not declining, because of increased competition. Zain’s deal would have been perfect for Etisalat because it would have given the Emirati company direct access to several markets in the Middle Eastern region (Iraq, Kuwait, Bahrain Jordan). Now, Etisalat has no other possibility than going after regional telecom assets one by one. This new strategic posture could still be implemented, but, with no doubt, it will be costlier and it will require more time.   

If Qatar’s Qtel is still interested in some purchasing activity in Syria, some doubts were emerging. “… [The] process is not completely clear to us. And it’s quite hard to understand how much the license will cost. … Clearly we won’t do it if we’re not happy with the financials and we’ve pulled out of license bids before, principally in Egypt and Saudi because the economics were just wrong” says Qtel’s chief strategist officer, Jeremy Sell. Finally, on March 27 during the Annual General Meeting of Qatar Telecom, Qtel’s chairman, Sheikh Abdullah bin Mohamed bin Saud al-Thani confirmed that “our board has taken the decision to pursue the third license in Syria. We are going into Syria ... and we think it is an important country to be in.” In particular, asked about the possible difficulties of investing in Syria following the current political unrest, Sheikh Abdullah stated that he is absolutely not concerned by recent events.

S.T.C. Group’s most recent financial results showed an increasingly tough competition in relations to the Saudi domestic market. In Q4 2010, S.T.C. posted a 23 percent decline in net profit to SAR2.29 billion ($610.7 million) while S.T.C.’s operating profit increased 15 percent to SAR3.03 billion. S.T.C.’s full-year net income declined in 2010 by 13 percent to SAR9.4 billion. These results were in line with analysts’ expectations. S.T.C. said that in 2010 profits partially fell because of capital investments domestically and abroad like in Bahrain and Kuwait. S.T.C. purchased Bahrain’s third mobile license in March 2009 for around $240 million and launched its operations in March 2010, while in Kuwait, S.T.C. owns 26 percent of the third mobile operator Viva. “We already have a good traction on subscriber and revenue growth. Kuwait and Bahrain are similar stories, with steady growth and a good cost management approach, because they are both lean, small operations,” says Ghassan Hasbani, S.T.C.’s C.E.O. for international operations. It’s so quite possible that the third Syrian mobile license — pertaining to an almost untapped market — will be an attractive target for S.T.C., which is trying to implement an expansion on a regional dimension in order to increase its net profits.

Last month, rumors surfaced about France Telecom’s concerns on the price and technical aspect of the license. In fact, some France Telecom executive told Reuters that the French company had still to decide whether bidding for the Syrian third license. “The process seems too fixated on the price of the license, when we also have strengths to bring in terms of technology and services” stated Elie Girard, France Telecom’s executive vice president of group strategy and development. In specific, Girard pointed out that France Telecom had concern in relations to the frequencies that would be offered through the auction. In reality, the frequencies being sold with April’s auction are in the lower band, while the current two mobile operators, Syriatel and M.T.N. Syria, have frequencies in the higher band. The winning bidder could be required to build a denser — and obviously more expensive — network in order to well utilize the lower band frequencies.   

April 12, 2011 is coming soon and the next two weeks will be a crucial moment in order to understand which companies are really committed to entering the Syrian mobile market. In the meanwhile, mobile users hope that the entrance of a third operator could really increase competition so that prices may be lowered. Facebook has already served as a tool for calling boycott campaigns against Syriatel and M.T.N. Syria, both accused of maintaining exorbitant rates for low-quality services in comparison to Syrian salaries (the daily wage is around $8).   

 

 

 

 

Syria: Facebook Is Again Directly Accessible Without Proxy Servers

February 20, 2011

On February 8, 2011 Syrian internet users affirmed that Facebook and YouTube were again available in Syria. The removal of the five-year ban looked like an appeasement measure aimed at relaxing the political and social environment in the country. Presumably, the government wanted (and still wants till today) to stave off the unrest emerged after the recent political events in Tunisia and Egypt.

At the beginning of February, President Bashar al-Assad openly said in an interview with the Wall Street Journal that he wanted to continue with the political reforms and that in 2011 he had the targets to initiate municipal elections, grant more power to N.G.O.s and pass a new media law.

The ban — related to Facebook, YouTube and other social networks — had been introduced three years ago (Facebook was blocked in November 2007) as a move to reduce hostile political activism in the country. Lifting the ban seems to be an important step toward a more democratic Syria, but — as human rights advocates pointed out — it will be important to closely monitor the events of the coming weeks. In fact, lifting the ban could now permit the Syrian government to better monitor people and political activities through social networks websites. Facebook, for instance, requires its users to disclose their real identities and not to use false or anonymous accounts.

Debbie Frost, a spokesperson for Facebook explained that Facebook was not thinking of modifying its terms of service in relation to those countries where users may be alarmed by revealing their real name for security reasons. Susannah Vila, with Movements.org, a non-profit organization devoted to supporting grassroots digital activists around the world, said that “while access to social media sites presents an opportunity for Syrians to better mobilize one another, it also makes it easier for the government to identify activists and quash protests”.  Recently, in relations to Sudan there was such a kind of worries.

In Tunisia, in December and January, protesters used the internet to gain support for their movement. They broadened the influence of their message and eventually they were successful in toppling Ben Ali’s government. Once the protests started in Egypt, some Syrian opposition groups created a Facebook page called "The Syrian Revolution 2011" (http://www.facebook.com/Syrian.Revolution) while at the same time they initiated a Twitter campaign whose target was to invite people to join together for the “Day of Rage” rallies against the President al-Assad in the first week of February (on February 20, 2011 the Facebook members of this group are 21,636).

In the last three years, Syrians have been successful in using Facebook and other banned websites thanks to proxy servers that were able to circumvent the Syrian government’s firewall. Proxy servers vehicle internet requests through servers located outside the country. In this way they bypass the government’s firewall and hide I.P. addresses. Now, Syrian netizens could be attracted by the possibility of accessing the internet through Syrian servers (and not proxy servers), which permit the government to easily monitor their online activities.

“We are all using it (Facebook) anyway — so I don’t see what difference it makes,” said one Facebook member, Ahmad. Technically, the Syrian firewall is extremely omnipresent and it blocks, in addition to Facebook and Co., many other websites like Amazon, Blogspot and Israeli newspapers.

Facebook’s Debbie Frost said that Facebook always monitored some internet traffic from Syria, but honestly not the average number of internet users whom a country like Syria should have. Immediately after the lifting of the ban, Facebook did not notice a significant increase in its traffic in Syria. It’s true that for people it could take hours or also days before getting full internet access. On the other side, there is a very different representation of the current situation by YouTube. The graph below clearly shows that after February 8 and 9, 2011, Syria’s YouTube traffic spiked hugely passing from values between 0 and 3 to values between 20 and almost 100 (97.37 on February 14) . These values are units of Google’s scale, which runs from 0 to 100.

“This is great news” said Mazen Darwish, the president of the Syrian Center for Media and Freedom of Expression (a Syrian organization founded in December 2004 and since December 2007 affiliated with Reporters Without Borders). “After what happened on the 4^th and the 5^th the authorities now know that the Syrian people are not the enemy. We are not stupid and we know how to use these sites with intelligence …. This is not just about Facebook; this is about a change in the mentality that the population needs somehow to be controlled. Things are changing. I hope this is the first step in a broader reform program”, he added.

Lifting the ban in Syria was cheered in Washington, although there are still concerns related to the relevant restrictions on the freedom of speech and the freedom to assemble. Mr. Alec J. Ross, senior advisor for innovation to Secretary of State Hillary Clinton (Mr. Ross organized a delegation of American business I.C.T. leaders to Syria in June 2010. For more information about this event please see: BACCI, A., U.S. Trade Delegation to Syria, June 2010) openly declared that Syrian citizens should immediately understand the risks of using Facebook and the other websites as if they were in a country with no restrictions on the freedom of speech.     



 

The Regional Cable Network (R.C.N.), a Reliable and Powerful New Communications Infrastructure for the Middle East

January 22, 2011

Last December, a few days before Christmas, seven regional telecommunications operators announced their goal of building the longest fully redundant terrestrial communications infrastructure in the Middle East. This is the first time that a communications cable will be capable of covering the entire Persian Gulf region thanks to a single uniform infrastructure. Currently in the Middle East, the historic growth levels of the mobile markets are unlikely to continue so robustly, while instead there is a growing interest in relation to fixed line markets with specific attention given to optic fiber (fiber to the home, F.T.T.H.). This new fiber road could bring the F.T.T.H. to the Middle East, transforming internet access in the area and allowing Middle Eastern countries to communicate with the rest of the world with an enhanced speed and access — no more communications with inadequate infrastructures.

The Regional Cable Network (R.C.N.) — this is the name of this cable infrastructure — will run for 7,750 kilometers (round trip route). It will  from the city of Fujairah (U.A.E.), which is one of today’s busiest nodes for submarine and fiber cables, to Istanbul (Turkey), passing through Riyadh (Saudi Arabia), Amman (Jordan) and Tartus (Syria) before entering the Turkish territory. From Istanbul this cable will be extended also to Europe. In fact, there are already 15 available access points located along the Bulgarian and Greek borders with Turkey. This project will be a relevant entryway to the internet for approximately two billion people. The project will cost approximately $500 million.  

The R.C.N. cable will have a 12.8 terabit per second data carrying capacity and it should be operational by the second quarter of 2011. The basic idea for this project is that it will guarantee that every site along the cable path will always be accessible no matter whether a network’s service is intermittent or interrupted. Up to now, Middle East’s high-speed internet has been totally dependent on submarines cables, which are more expensive both for deployment and servicing. The R.C.N. infrastructure could be repaired in a few hours in the eventuality of a breakdown. Conversely, underwater cables normally take several days to be fixed.

The telecoms operators that during a ceremony held in Ankara (Turkey) signed for the R.C.N. project are: Etisalat (U.A.E.), Mobily (Saudi Arabia), Jordan Telecom/Orange (Jordan), Mada and Zain’s partnership (Jordan), the Syrian Telecommunications Establishment (S.T.E., Syria), and a Turkcell’s subsidiary, Superonline (Turkey). During this ceremony, Ali Amiri, the consortium chairman and Etisalat’s carrier & wholesale executive vice president said that the R.C.N. cable would be an unrivalled infrastructure with reference to speed, quality, upgrading possibilities, redundancy and reliability and he underlined that, given the increased demand for intercontinental connectivity in the Middle East, the region’s governments were committed to encouraging investments in the I.C.T. sector as a tool for improving their economies. Moreover, “operators are deploying Next-Generation Networks (N.G.N.s) for both fixed-line and wireless environments, which in turn allow an increasing volume of services to be provided to always more and more consumers. These factors, as well as the growing technical literacy of the local population and availability of rich local content, are all driving the demand for ever more capacity. Etisalat is delighted to partner with six of the region’s leading operators in a project that will enhance the lives and increase the reach of over two billion people”, affirmed Ali Amiri.

The country that could benefit the most from this new I.C.T. infrastructure is Jordan. Apart from the increased competition of its internet access and prices reduction, the cable should allow Jordan to attract many investments in its I.C.T. sector. In fact, although only 10 percent of the cable will run through the Jordanian territory, two points really push Jordan to become a regional hub for the I.C.T. sector. First, the Jordanian part of the cable is exactly in the middle of the infrastructure and secondly, it will give Jordan more I.C.T. capacity and redundancy. “The project is a strategic step as it will help make Jordan an I.C.T. hub exporting new developed internet content and becoming an incubator for new I.T. companies interested into value added services. Global I.C.T. companies will be encouraged to open their regional offices in Jordan as the new cables increases Jordan’s capacity and redundancy” said Abdul Malek Al Jaber, the C.E.O of Zain Jordan. At the same time, Marwan Juma, the I.C.T. minister, pointed out that the cable project would increase Jordan’s I.C.T. capacities four times as much, so that his country would have the opportunity to be the Middle Eastern regional center for mega-I.C.T. companies.

The R.C.N. cable is competing against another Middle Eastern new fiber-optic project: the JADI Link. This network will be connecting Jeddah (Saudi Arabia), Amman (Jordan), Damascus (Syria) and Istanbul (Turkey). The JADI Project is the result of the collaboration among Turk Telecom (Turkey), Saudi Telecom Company (S.T.C., Saudi Arabia), Jordan Telecom (Jordan) and the Syrian Telecommunications Establishment (Syria). The JADI Link is a totally terrestrial alternative to the Mediterranean and Red Sea corridors. According to the signed agreement the four involved telecommunications operators will deploy the required physical connections among their national fiber-optic networks and in addition to this, they will be implementing a 200 Gbps capacity expansion to their network systems  so that the JADI Link could be operational. 

 

 

 

Third Mobile License: Syria Shortlists Five Companies but Disappointment Looms Out

 

December 20, 2010

Of the six firms that had submitted applications to compete for Syria’s third mobile license only five qualified for the second phase of the process. According to the list of the prequalified candidates, which was published on November 29, 2010 (the day when the pre-qualification phase was terminated) these companies are: Saudi Telecom Company, Etisalat (from the U.A.E.), Qtel (from Qatar), France Telecom and Turkcell. With the second phase, the offers proposed by the five mentioned companies will be evaluated and only the selected candidates will participate in the third phase, which is the real auction. According to the terms of the tender, the auction for the license will be held on April 12, 2011.  

 

The Syrian Ministry of Communications and Technology (MOCT) explained that only Iran’s Tamco was not admitted to the second phase. The evaluation committee (formed jointly by the MOCT and Germany’s advisory consultancy Detecon) did not accept Tamco’s proposal because of the company's inadequacy in meeting the tendering standards. Also before this pronunciation it was quite evident that Tamco was not capable of reaching the two main pre-qualification criteria (having operated a network with at least 1.5 million subscribers in at least two countries for a minimum of three years by the end of August 2010 and having started at least one network and operating it for 12 months by the end of August 2010). Etisalat and Turkcell have now the best chances of gaining the contest according to David Leach, a global telecoms analyst with TeleGeography, a research company. 

 

One week after the end of the pre-qualification phase, on December 8 2010, the MOCT organized a Pre-Application Conference at the Four Seasons Hotel in Damascus with all the involved parties: the five prequalified candidates, members of the MOCT among them Minister of Communications and Technology Imad Sabouni) and members of Detecon (this is the German consultancy advising the MOCT on how to award the license). The basic idea behind the decision to call up this conference was to implement an efficient coordination between the MOCT and the five candidate companies in order to have a high level of transparency in the process. Moreover, the MOCT wanted to have an information exchange with the five companies about the tendering process, the Syrian telecoms market and the opportunities for the third license operator. The second phase (Qualification Phase) started immediately after the end of the conference with the launch of the Request for Proposals (R.F.P.s).

 

The intentions for convening the conference were undoubtedly positive, but then the results were partly messed up. In fact, the executives of the five telecoms operators strongly contested the necessity of providing to the Syrian government revenue projections for their prospective businesses.  The third license will be auctioned so this request seemed very invasive as for the companies’ business strategy. Another pressing point for the contenders was the inevitability of regulating roaming agreements with Syriatel and M.T.N. Syria, the current two mobile operators already working in the country. It’s important that the new entrant does not face any disadvantages against both Syriatel and M.T.N. With reference to this last point, Mr. Sabouni expressed MOCT's intention of absolutely avoiding advantages and disadvantages, but rather of having a level playing field. Still during the conference, Mr. Sabouni was remembered about the need to comply with the Arab League boycott rules against Israel. With no doubt the vagueness and unclear applicability of the boycott rules play against a transparent and clear utilization of the third mobile license.

 

Vagueness about certain crucial clauses is inacceptable by modern business-oriented telecoms operators. Especially this time, with five foreign competing companies (none of the competing companies is Syrian), business pros and cons should be easily calculated. It’s still a very clear memory that nine years ago when the first two licenses (in reality BOT agreements) were awarded, later many irregularity surfaced (Egypt’s Orascom retired the investment in Syriatel just after two years in 2003). When two independent public figures criticized those irregularities, they were sent to prison for a total of twelve years. This time clarity is a must. Apart from this, good news for the telecoms sector is that, according to  the daily al-Watan, Mr. Sabouni announced that, by the end of December 2010 or at the latest at the beginning of 2011, the Syrian telecommunications authority would  be established.

 

 

 

 

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.

 

 

S.T.C.’s Interest for Syria’s Third Mobile License

 

October 31, 2010
 

Last week state-owned Saudi Telecom Company (S.T.C.), the largest listed telecom operator in the Middle East, showed a great interest in bidding for a mobile license in the Syrian Arab Republic. In September, Syria tendered to sell a third mobile license. The deadline to submit pre-qualification applications will expire on November 14, 2010.

Given a very low rate of mobile penetration (44 users per 100 inhabitants) and promising growth chances, Syria is an attractive market. Out of a population of around 20 million Syrians and 3 million expatriates, Syria has 10.4 million of subscribers, comprising pre-paid cards, reports the Telecom Ministry. These numbers well explain that the market is absolutely not saturated. Currently in Syria there are two mobile operators Syriatel (55 percent of the market) and South Africa’s M.T.N. (45 percent of the market).

In the last four years telecoms deals in the Persian Gulf alone have been worth $33 billion. Once U.A.E.’s Etisalat acquires 46 percent of Zain (one Kuwait operator) for around $11.7 billion, Etisalat will be forced to sell Zain’s 25 percent stake in the subsidiary Zain Saudi Arabia, which is currently competing again Etisalat’s Mobily in the Saudi Arabian telecoms markets with reference to both 2G and 3G services. In fact, the Saudi I.T.C. regulator (Communications and Information Technology Commission, C.I.T.C.) could never accept to have two out of three mobile licenses controlled by the same operator (Etisalat). But apart from the Etisalat’s bid for Zain and the subsequent sale of Zain Saudi Arabia, from now on, according to many bankers and analysts, the telecommunications industry in the Gulf should develop a more designed and structured growth. This trend, which is also a necessity, comes out of scarce acquisition targets and increased competition in all of the Middle Eastern domestic markets, with declining ARPU (average revenue per user).

So, Syria’s license for sale is a very first-class target in a region where presently the only other attracting opportunities (obviously, excluding the Etisalat’s bid for Kuwait’s Zain and the Zain Saudi Arabia’s sale) could be Lebanon’s long-delayed privatization plans. In fact, many other players in the region are government-controlled companies and it is quite possible that at least in the medium term none of these will be sold or will change its proprietary assets.

On October 25, 2010, S.T.C. submitted its expression of interest to bid for the Syrian license through a letter sent to the Syrian Ministry of Communications and Technology (MOCT). S.T.C. is facing a strong and increasing competition in its own domestic market, which  is split among three mobile operators: S.T.C., Mobily (U.A.E.’s Etisalat) and Zain Saudi Arabia (Kuwait’s Zain). According to Ghassan Hasbani, S.T.C.’s chief executive officer (C.E.O.) of international operations, there are important and potential synergies between Saudi Arabia’s telecoms sector and the Syrian one. S.T.C. is an integrated telecom operator and is providing fixed line, mobile and internet services. Aside from Saudi Arabia, S.T.C. has already operations in Bahrain, India, Indonesia, Kuwait, Malaysia, South Africa and Turkey.

Recently this month, S.T.C. declared that its third-quarter net profits had soared 38 percent to a value of almost $900 million, from $640 million in the second quarter of 2010. This result was mainly due to the one-time gain linked to S.T.C.’s boosted earnings in India. In fact, S.T.C. affirmed that this positive boost in its profits was related to a 5 percent increase in its operating income and to a $200 million one-time gain, connected to S.T.C.’s share in the proceeds from Aircel India (S.T.C.’s unit in India), which sold some assets.

With no doubt, Syria’s mobile market is quite appealing and for this reason some interest for this third mobile license has come also from U.A.E.’s Etisalat, Kuwait’s Zain, Qatar’s Qtel, Russia’s M.T.S. and Turkey’s Turkcell. In addition to these companies, also Vodafone and France Telecom could be interested, although they do not possess any competitive edge over the other companies.

 

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.

 

See also: BACCI, A., When a New Licensing Regime for Mobile Operators in Syria?

 

 

 

  

The New Syrian Telecommunications Law

 

 

August 27, 2010

 

On June 9, 2010, Law 18/2010, which reorganizes Syria's telecommunications sector, was enacted by presidential decree and then published on the Syrian Official Gazette on June 23.

 

Thanks to this law, a newly established institution, the Telecoms Supervisory Authority (T.S.A.) will be constituted as the telecoms sector’s regulatory body. Before this reorganization, the regulatory power pertained to the Syrian Telecommunications Establishment (S.T.E.), which at the same time was allowed to run the country’s landline network. Under the new framework, the S.T.E. will be replaced by a new institution, the Syrian Telecommunications Company (S.T.C.), which will continue to operate as the landline monopolist company. The S.T.C. will be required to abide by the Company Law and the government (the Syrian Treasury) will be its unique stakeholder (100 percent ownership).

 

The Ministry of Communications and Technology will appoint the T.S.A. members and the authority will start implementing the new regulatory functions at the beginning of 2011. The T.S.A. will have the power to grant new licenses, including: license fees; revenue sharing models; and the methodologies for selecting the operators (tender or other procedures) of the different sub-sectors (landline, mobile, radio waves, etc.). When granting new licenses, the T.S.A. will mandatorily consider the positions of companies already operating (having currently infrastructure and employees) in Syria as telecom operators.

 

The importance of this law is linked to the fact that the S.T.E. is one of Syria’s most profitable state-owned companies. In fact, it is the second largest contributor to the Syrian Treasury after the Syrian Petroleum Company. In 2009, the S.T.E. had revenues of 73.1 billion Syrian pounds (with an 18 percent increase). The current two Syrian mobile operators, Syriatel and M.T.N., in 2009 enjoyed total revenues of $ 1.02 billion and $829.8 million respectively. Since mid-2009, the S.T.E. has gotten 50 percent of the annual revenues of Syriatel and M.T.N. according to the terms of the build-operate-transfer (BOT) contracts under which the two companies are allowed to operate in Syria.

 

The two companies strongly complain that BOT contracts impede them to well invest in new expensive infrastructure, which eventually after some years will be handed over to the government. In addition to this, BOT contracts have always blocked the possibility of listing both Syriatel and M.T.N. Syria on the Damascus Securities Exchange. The reason is that this kind of contracts does not permit to evaluate the assets of the involved companies. Splitting the old S.T.E. into two different bodies — the T.S.A. (the new telecoms regulatory body) and the S.T.C. (the new landline monopolist company) — should permit to reform more easily the telecoms sector.

 

In particular, the T.S.A. — not being involved in the telecoms market as an operator and not receiving direct economic resources from Syriatel and M.T.N. as it used to happen with the S.T.E. — should be capable of modernizing the sector through an increase in the level of competition in this way protecting the rights of consumers. This could be achieved by transforming Syria's BTO contracts into classic licenses and introducing a third mobile license. For example, it is important to remember that the Syrian mobile market is not a saturated market. According to the Ministry of Telecommunications, out of a population of around 20 million Syrians and more than 3 million expatriates, Syria has 10.4 million of mobile subscribers, including pre-paid cards. It is esteemed that there are in Syria at least four million of untapped potential new subscribers. But with the current scarce competition (high mobile prices coupled with bad services) it is difficult to initiate these four million people to the mobile market.

 

The new law should be a sort of innovative model in order to limit government participation in relevant Syrian industrial sectors. In other words, in Syria from now on, it should be implemented a process oriented toward an increased role played by the private sector in industries previously 100 percent controlled by the state. Probably, the government will continue to have a controlling position, but the management should be linked more consistently to the private sector.

 

For more information please see: BACCI, A., When a New Licensing Regime for Mobile Operators in Syria?, June 2010  

 

 

 

 

U.S. Trade Delegation to Syria

June 20, 2010

A high-level diplomatic and trade delegation, including U.S. officials and executives of U.S. I.C.T. companies, was dispatched last week to Syria for a four-day visit. Officially, the mission had the target to understand the potential Syrian hi-tech demand and to discuss future cooperation projects between the U.S. and Syria. All the involved I.C.T. companies are at the moment subject to the U.S. sanctions versus Syria. Officially, on the State Department’s side there was the idea of testing the willingness of President Bashar al-Assad of Syria to find ways to improve the level of information technology in Syria and to expand Syria’s economic ties in general. Unofficially, this mission was to be considered as one of the latest attempts by the Obama administration to derail the strategic alliance between Syria and Iran. The State Department would like to help Syria establish a more democratic environment and the U.S. has still plans to send back a U.S. ambassador to Damascus (Washington pulled back its ambassador from Syria in 2005).

This mission was quite controversial and on Monday, June 14, before the departure of the delegation, some lawmakers and Syrian human rights activists criticized the necessity of dispatching a U.S. delegation to Syria. If, on the one hand, in the last months, many U.S. officials   — among them some U.S. senators — have visited Syria with the goal of discussing bilateral and regional affairs, on the other hand, in May 2010, the U.S. renewed for one additional year its sanctions versus Syria, which is still accused of supporting terrorists groups (recently there were U.S. allegations that Syria one more time transferred missiles to Hezbollah, although both Syria and Hezbollah denied the U.S. allegations) and of trying to obtain weapons of mass destruction (Damascus is still refusing to cooperate with the U.N. investigators looking into Syria’s possible development of weapons of mass destruction). Syria is considered to belong to the category of rogue states and to be a sponsor of terrorist activities. Many of these lawmakers and activists pointed out that Syria had never responded to all of the policy requests made by Washington since the policy shift that the Obama administration implemented last year in order to engage in a better way Syria and to disentangle it from Iran’s sphere of influence.

“Apparently, some in the U.S. State Department, still to this day, remain committed to pursuing Assad to peel him away from Iran” said Mr. Farid Ghadry, the head of Syria's Reform Party, which opposes the regime. But what really scares many activists is that the Syrian government could use the new technologies in order to crush in an improved manner its political opponents and increase its grip on civil society. Secretary of State Hillary Clinton considers the spread of information technology as a tool of paramount importance in order to improve global development of democracy and civil society, but nowadays in Syria the spread of these technologies could really have the opposite results. Watchdog Freedom House ranks Syria as one of the most repressive regimes in the world. Leading Republican senators are threatening to block the White House nominee for the ambassador post in Syria, Robert Ford, until there is a clear picture of the relationships between Syria and Hezbollah.

Syria has been experiencing some U.S. sanctions since 2004. The most important sanctions are laid down in the Syria Accountability Act (S.A.A.) of 2003. This act bans the exports of the majority of goods that contain more than 10 percent of U.S.-manufactured component parts to Damascus. Moreover, the U.S. Patriot Act was enacted in 2006 explicitly against the Commercial Bank of Syria. Lastly, there are the Executive Orders of the U.S. president. These orders aim at blocking some Syrian citizens and entities from entering the U.S.

In the last months, the U.S. administration has started to ease the exports of certain types of telecommunications equipment and anti-filtering software that before were banned from being exported to countries such as China, Iran and Sudan. The basic idea was that these instruments rather than working for the public good would be instruments of oppression in the hands of authoritarian governments. As a matter of fact, while the overall structure of the U.S. sanctions toward Iran impedes the sale of all high-tech equipment and parts, at the same time some waivers could be decided by the White House. A good example could be last-year sale of spare airplane parts to Syria’s national carrier thanks to the facilitator role played by U.S. officials.

Last week the State Department sent top diplomats to Syria. In fact, the head of the delegation was Alec Ross, who is the senior advisor for innovation of Secretary of State Hillary Clinton. Apart from U.S. officials, the delegation included executives of Dell, Cisco, VerySign, Microsoft, Simon Tech and Fraser. The executives on Tuesday met with Deputy Prime Minister for Economic Affairs Abdullah al-Dardari, who strongly encouraged the U.S. companies to invest in Syria and to reap many benefits from these investments. According to SANA, the Syrian News Arab Agency, which belongs to the government, the delegation also met with Minister of Higher Education Ghayath Barak to discuss about how to develop cooperation with reference to education and training. Mr. Barakat said that the government aimed to introduce informatics in state jobs (in the future, the International Computer Driving License (I.C.D.L.), will be a must for all work applicants). During the meeting with the minister of high education, the deans of the informatics faculties in Syria openly expressed the point that their institutions had to improve their technological infrastructure and to have better trained personnel. The involved companies discussed about the possibility of setting up authorized centers in the territory of the Syrian Arab Republic. All this said, before any real commitment, it should be well analyzed for the mentioned U.S. companies where stands the balance between the economic profit of working in Syria and the negative collateral reputational damages.