"Upfront license fees" for GSM not advisable: AAG

A new research report from the Arab Advisors Group examines the award of the second GSM license in Tunisia to Orascom Telecom and the possible consequence of paying exhorbitant license fees upfront for GSM licenses.

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By  Vijaya George Published  March 27, 2002

After much delay, Tunisia is finally reported to have awarded the tender for a second GSM license to Orascom Telecom which bid US$454 million for the license. The new license gives Orascom Telecom an envied presence in Tunisia after it secured one in Algeria last year.

“Orascom Telecom’s consortium has, by acquiring the Tunisia GSM license, managed to increase Orascom Telecom’s GSM licenses in the Middle East and Africa to 21,” stated Hala Baqain, Arab Advisors Analyst. “Naturally, with Orascom Telecom slated to sell its controlling stake in Telecel (the pan-African GSM operator) it stands to shed nine of its sub-Saharan African licenses and to remain with 12 GSM operations.”

North African GSM licenses have been selling at very high prices. In 1998, Egypt sold each of its two GSM licenses at more than US$0.5 billion followed by Morocco, which sold its second GSM license at close to US$1.1 billion and Algeria, which sold a second GSM license for US$737 million in 2001. Tunisia’s license sale confirms the trend. License terms differed substantially in each of these countries. For example, the Egyptian government collects hefty annual license fees on each subscriber from the two operators while the governments of Morocco, Algeria and Tunisia collect their license fees upfront.

However, AAG believes that the emphasis on “upfront license fees” may not carry optimal results for the Arab communications markets and consumers as hefty license fees are financed by loans that operators will have to pay back. License fees come from consumers, who pay higher rates than the global average. Moreover, operators burdened from the start by license fee loans, may be less inclined to invest heavily in their infrastructure and quality of coverage.

“Licenses that include revenue sharing over the license duration, as well as quality and coverage conditions, may be much better than licenses that are designed to maximise an upfront license fee at all costs,” stated Baqain. “The lifetime value (total cumulative value) of the Egyptian licenses — measured by total government collections over the license duration — will end up being the highest amongst the licenses examined even though it had the lowest per capita upfront license fee.”

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