Rising above the challenge of limited infrastructure, Lebanon’s ICT sector has maintained a solid growth rate and is gifted with a skilled workforce, dynamic software industry, and competitive internet service providers. While mobile- and fixed-line telephony still face infrastructure challenges, mobile penetration rates have seen a sharp increase over recent years to reach 68% at end-2010. High usage rates also lend the possibility of lower charges should the long-discussed privatization of the industry ever come to fruition. The sector overall has seen annual growth rates of between 13% and 15%, with private sector turnover estimated at $400 million, and revenues generated for the public purse at $1.2 billion.
While the fixed-line market remains a monopoly in Lebanon, with Organisme de Gestion et d’Exploitation de l’ex-société Radio-Orient (OGERO) the sole provider, mobile telephony is a two-horse race. The sector is maintained in a quasi-state manner, with the government issuing licenses for a duo of companies to operate the state-owned network. Zain is the leading operator in Lebanon with a 53% market share, while Alfa, managed by leading private telecoms firm Orascom Telecom Holding, occupies 47% of the sector.
Lebanon was ranked 100th among 222 countries at end-2010 in terms of fixed broadband penetration according to the International Telecommunication Union (ITU), and its 4.73 subscriptions per 100 people is below the global average of 10.2. Wireless broadband is more popular amongst businesses than fixed-line connections, and Cedarcom, having only come to the wireless broadband internet market in 2004, has already begun to dominate the sector with its wireless broadband data offers. A solution to the country’s infamously lackluster internet speed is also taking shape in the form of a decree passed in August 2011. The minimum speed will be set as 1 MB per second, while prices will also be lowered.
The software and hardware sectors in Lebanon are also attractive due to the country’s skilled and multilingual workforce, and they have become major exporters to regional and Western markets.
While the mobile telephony penetration rate stood at below 40% before 2008, it has now reached 68%, according to the ITU and Byblos Bank research. Growth is attributable to price structure reforms introduced in 2009, which saw a 30% reduction applied to both post- and pre-paid offers. The Ministry of Telecommunications’ decision to also re-invest in the sector has had an impact, as the network infrastructure remains in public hands. The current 68% rate is still far below regional figures, however, with 14 countries in the MENA region boasting higher results.
Zain, formerly known as MTC Group, began life in Kuwait and has expanded rapidly throughout the region since 2003. It leads the sector and has attained a 53% market share since winning a government tender to operate one of the country’s two existing mobile networks in 2004. Orascom Telecom Holding, which took over the management of the other network, Alfa, in 2009, has increased its share of the market from 40% to 47%, attracting 60% of new subscribers in 2010. Competition between the two remains limited, however, due to the networks remaining public. Limited competition lies in offerings and packages, with general services almost identical. Usage rates are high, however, with a 399-minute per month average, compared to 142 minutes in Jordan, and 125 minutes in Egypt. Telecom revenues remain the government’s second source of revenue following VAT, and that bodes well for sell-off revenue should the lingering subject of privatization ever be addressed.
Modernization remains the goal of the sector, with the introduction of 3.5G sought to ease regional connectivity. “Introducing 3.5G will open this door, through facilitating starting new businesses in Lebanon and encouraging international and regional organizations to establish their head or regional offices in Beirut,” Marwan Hayek, Chairman and CEO of Alfa, told TBY in an interview.
OGERO is the sole fixed-line operator in Lebanon and is 100% owned by the government, acting under the Ministry of Telecommunication’s supervision. Its role includes the operations, maintenance, sales, marketing, billing, and management of the fixed-line network across the country and focuses on national and international telephone and data services by providing individual and corporate services. Based on Synchronous Digital Hierarchy (SDH) technology, the fiber optics network is 1,800 kilometers long, covers 95% of Lebanon’s territory, and provides services to around 700,000 subscribers, or approximately 17% of the population. International coverage for multiple services is provided through sub-marine optical cables, as well as satellite. The sector has also been boosted by Ministry efforts to increase both fixed and mobile network penetration. All fixed lines became international in 2007, call rates, including international call rates, were reduced, and billing became a monthly rather than quarterly affair.
Increasing by 11%, internet penetration was slightly below 40% in 2010. According to figures from the Telecommunications Regulatory Authority of Lebanon (TRA), most businesses used wireless and DSL connections predominantly, at 39% and 30%, respectively. The penetration rate is expected to get a boost following a decree issued on August 23, 2011. The decree sets the minimum speed to 1 MB per second and decreases costs, thus challenging the two main issues that have dogged the sector in the past. There are currently 15 licensed ISPs in Lebanon: Cyberia, IDM, Fiberlink Networks, Sodetel Internet, Terranet, Trinec, Netlink, Farahnet, Virtual ISP, Lebanon OnLine, Moscanet, Comnet ISP, Pros-services, Broadband Plus, and Keblon. The Ministry of Telecommunications provided wireless licenses in 1997, and there are currently four licensed providers: Cedarcom, GDS, Pesco, and Cable One. Cedarcom is the largest in the sector having entered the market in 2004. Cedarcom is currently working on building a new network, and $15 million worth of investment is planned. “We had a very clear-cut strategy, and we executed it with passion and excellence. We invested in the right technology at the right time,” Imad Tarabay, Chairman and CEO of Cedar Group told TBY. Further investment will be incentivized in the eyes of the government after a World Bank report assessed that a 10% increase in broadband infrastructure could result in a 1.2-1.5% increase in GDP, with the capital expenditure required less than the possible return in one year. “The potential is huge,” says Tarabay of Cedarcom. “Leapfrogging from the slowest broadband country to a top-10 country can happen in less than a year.”
A skilled workforce is also contributing to the development of the Lebanese hardware and software sector. Software development has shown a steady CAGR of 11%, and expertise is focused on banking, retail, education, and trade. It remains a highly export-orientated sector, with 75% of all software receipts coming from regional and Western markets. Hardware represents 51% of total ICT exports, and also around 52% of imports. The sector has also attracted a significant foreign investor base with many international firms basing regional operations in the country, including Microsoft, Ericsson, Cisco Systems, Computer Associates, and French firms Soft Solutions, SAB Méditerranée, and UNILOG.
E-banking remains in its infancy, though most major banks have invested significantly in this side of the business, especially to support the many expatriate Lebanese with accounts. E-payment systems are dominated by commercial banks offering internet banking services including e-transfers and sweeps, as well as internet-based credit cards. E-commerce firms are showing signs of flourishing, and 70% of their activity is export-orientated.
Although bandwidth has long acted as a constraint on Lebanon’s ICT sector, it has not held it back from developing into a regional leader. Once network speeds begin to rise, it is anticipated that more businesses will begin to see the possibilities that Lebanon offers as a base for regional and international operations.
© The Business Year