Uncertain outlook

The challenges facing Iraq’s mobile phone operators show that investors in the country need to be patient.

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By  David Ingham Published  November 9, 2003

Mobile telephone networks will soon spring to life in Iraq, but questions are already being asked about the networks’ potential to generate returns for investors. IDC, the global research firm, says that security concerns, instability and economic unpredictably could all scupper growth in the short to medium term. The operators awarded mobile licences in October also admit that the need to take security measures could significantly increase their costs.

“The high level of risk and potential market stagnation, and worse yet, sabotage of infrastructure investments, could have a drastic effect on return on investment (ROI),” says Mohsen Malaki, senior analyst at IDC’s regional telecomms group. “The likely evolution of the security situation in Iraq is the central assumption that should drive any scenario analysis of this market.”

IDC has looked at post-conflict and post-Communist countries to construct ‘optimistic’, ‘base-case’, and ‘pessimistic’ predictions for the uptake of services. IDC’s ‘optimistic’ scenario suggests that the number of fixed and mobile phone connections will reach 3.07 million by the end of 2005 and 5.41 million by the end of 2008. That translates into a population penetration rate of 11% in 2005, and 17.8% in 2008, rates comparable with Morocco or Algeria, rather than the lucrative markets of the Gulf.

Aware that Iraq is a low income country, MTC is pledging to provide basic services at very low rates. “We have an average target price of 10 cents per minute, which is the lowest pre-paid tariff in the whole world,” says Dr Saad Al Barrak, director general of MTC, part of the AtheerTel consortium that won the license for the Southern region.

At the same time, however, Al Barrak acknowledges that protecting employees and infrastructure could add significantly to the cost of building and operating the networks. “You’re talking 30-40% extra cost just to provide security,” he says. Asked who will provide security, he insists things aren’t as bad as the media is making out, before going on to say that: “The police force is being slowly rebuilt, plus we will depend on security contracts with private services.”

David Murray, CEO of Wataniya Telecom, part of the Asia Cell consortium that will operate in the North, is more optimistic, but still cautious. “You have to look at the security of your people and your installations,” says Murray. “But we really wanted the North because our evaluation was that with the difficulties Iraq faces today, it’s probably one of the most stable areas and the security in the Kurdish areas is the best of the lot.”

The operators seem to be aware of the issues they will face in Iraq, but what IDC’s analysis goes to show is that doing business in Iraq will be challenging and that investors need to be in for the long term.

One problem Iraq’s mobile industry won’t face is incompatibility between networks. It had been feared that the US government would try to push CDMA, rather than GSM, as the technology of choice for the networks. All the winning consortia, however, use GSM technology, which is the technology used in the Middle East and Europe.

Each of the three operators, Asia Cell, Orascom Iraq in the Central region and AtheerTel, has to roll out services within their coverage area according to a clearly outlined timeframe. Should they meet those targets, they then have the right to roll out services nationwide.

Meanwhile, the first of the contracts for the new networks has been awarded. Motorola has landed a core infrastructure deal worth up to $40 million from Orascom Telecom Iraq Corporation.

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