TALENT NEEDS TOOLS

Lebanon 2013 | ICT & MEDIA | REVIEW: ICT

IT development in Lebanon is disadvantaged, both domestically and abroad, due to the government's hand in setting prices and cueing technological development.

In a country of some 4.5 million people, IT is a leading industry that has continuously expanded only to be held back. Telecoms revenue, at 12% of state revenue, is among the largest sources of government income. From 2010 to 2011, mobile subscribers in Lebanon experienced the third-largest rise in user numbers—19.27%—in the MENA region.

PRIVATE INTENTIONS

Back in late 2003, the Lebanese government announced its readiness to privatize its two mobile networks, Lebanese LibanCell and the French Telecom subsidiary Cellis. If achieved, the government would then attempt to privatize its own fixed-line operator Ogero Telecom. This announcement came at a time when the government was hoping to turn the tide on its $30-billion public debt, with plans to auction off two, 20-year GSM concessions worth $3-billion. Fast-forward one decade later, and neither the privatization of the ICT sector nor the sell-off of its fixed networks have reached fruition.

By the end of 2002, Cellis and LibanCell had nearly 400,000 subscribers each and a combined public penetration rate of 21.4%, already above the country's fixed-line penetration rate of 19.8%. Today, Lebanon's mobile services are state-owned but privately managed by Egypt's Global Telecom (formerly known as Orascom Telecom) as the Alfa network, and Kuwait-based Zain as the Touch network. In 2012, mobile penetration reached 91%, although still behind other countries in the Middle East.

Mobile service revenues are directly funneled to the state. In turn, the state provides operators a fixed $4 million per month, regardless of the amount of money the two companies generate. According to Business Monitor International, Touch and Alfa's revenues in 2011 totaled some $1.6 billion, of which $1.4 billion was paid to the state. This pegs the telecoms sector as the second-largest supplier after taxes to the Lebanese treasury. It also has presented itself as a counterproductive set-up.

FLAWS & ALL

With fixed revenues each month, Touch and Alfa harbor little incentive to innovate their products beyond what the government asks, and don't face enough competition to rush to provide affordable and quality services. This has led to questionable practices fuelled by political motives and the lack of an effective independent regulatory body, ultimately marginalizing private sector players and warding off foreign investment.

While the Telecommunications Regulatory Authority (TRA) is meant to overlook the ICT sector, its ability to implement reform is hampered by government inaction. Imad Hoballah, chairman and CEO of the TRA, told TBY of the organization's limitations, “It has been stripped of many of its powers and independence. If I were an investor, I would definitely want to know the policy that the sector has, what kind of environment and regulatory framework I was working in, and how predictable the policy and regulatory framework really were." These answers are not so concrete in Lebanon.

In 2011, the CEO of internet service provider Cedarcom, Imad Tarabay, rallied to stop the issue of 3G in Lebanon. He expressed his concerns after Alfa and Touch became 3G internet suppliers, arguing that such a move would garner revenue for the government at the expense of small private players. As the network is owned by the government, Alfa and Touch do not require a license and can avoid steep fees placed on data transfer rates of 1 MB per second, which were $1,350 at the time. This way, the companies could offer customers prices with which no other private firm could compete.

However, despite their edge in the market, in 2011, Alfa and Touch charged customers some of the highest rates in the world. The TRA exposed the country's 3G mobile services to be the highest in the Arab region, with prices 23% to 25% higher than the average. In April 2013, the companies finally announced their aim to reduce 3G service rates. Also in early 2013, the two operators launched 4G services.

REFORMS FALL SHORT

Meanwhile, state-owned fixed-line company Ogero has a reign of its own in the sector. With its hands on vital infrastructure and a monopoly over the bandwidth in the country, Ogero charges some of the highest prices in the MENA region for its services, with ASDL only offered for the first time in April 2007.

In early 2013, caretaker Minister of Telecommunication Nicolas Sehnaoui accused Ogero of crowding out Alfa and Touch from Lebanon's bandwidth, a measure that has forced the government to lose some $500,000 per month on account of the mobile companies having to purchase their bandwidth from abroad.

Ogero's leash on the sector has led to slow-growing ADSL services. As of 2011, the country enjoyed the highest fixed-line penetration rate in the region of 21.6%, with 220,000 broadband subscribers. However, fixed-line growth went from 18.63% in 2010 to 2.52% in 2011, knocking Lebanon's rate from its first-place position in the region down to 10th place.

The government has been trying to reverse this trend. In September 2011, it granted internet service providers access to the India-Middle East-Western Europe (I-ME-WE) submarine cable, introducing increased global internet capacity. The move reduced DSL bandwidth costs by 80%, raised the speed of broadband four to eight times, and amplified download limits.

Ogero followed this with new, upgraded internet packages. In early 2011, Bahrain's national telecoms regulator had determined Lebanon to have the highest prices for broadband in the Middle East for low-speed, high-usage services. After the reforms, a TRA report illustrated Lebanon's ADSL prices for low-data, 2-GB-per-month-usage customers came in 23% lower than the average price in the Arab world and met the average for high-usage customers.

Developments in both mobile and fixed-line services have been positive, but not sufficient to make Lebanon a regional leader. The state's involvement still lingers. Such a context has private players knocking on the government's door for more leeway to do what they do best—compete.

PRIVATIZATION OR PARALYZATION

Privatization has been on the backburner for over a decade. Rony Kadoum, CEO of Pesco Telecom, told TBY, “This state of limbo has a very negative impact on business because long-term visibility of 10-15 years is needed in order to be able to invest in the telecoms sector, due to high capital expenditures."

However, state-controlled networks have left the telecoms sector insecure and fickle. Alfa and Touch are muddled in contract delays. Zain is predicting that the contracts will continue to be rolled over until Lebanon's Prime Minister designate, Tammam Salam, is able to form a government. Meanwhile, the interim government is avoiding any commitment to long-term contracts for the current network management companies.

Users thus continue to deal with sub-par networks and services and still relatively high prices meaning they are gearing their attention away from texts and calls toward internet applications that offer free messaging and voice. This effect was almost immediately felt by the Telecoms Ministry, which saw its contribution to the national treasury fall 14.35%—from nearly $600 million to $510 million—in the first five months of 2013 on the same period in 2012.

Along with 3G and 4G services being offered, mobile subscriptions are predicted to hit 4.4 million by the end of 2013 and have a penetration rate of more than 100%. The amount of 3G users is expected to have risen by 50% on the 1.1 million in 2012. Alfa and Touch are catering packages to make up for the changing usage preferences of users. But without deeper reform to incite competition and further access to international markets, the Lebanese ICT sector will remain talent rich, but tools poor.