Privitisation on hold again

No privatisation on the horizon for Lebanon’s troubled comms industry.

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By  Rhys Jones Published  January 16, 2005

Lebanon’s telecommunications sector is unlikely to be privatised this year, despite claims to the contrary from the country’s telecommunications minister, Jean-Louis Qordahi. Historically, politicians have been unable to agree on a privatisation plan with the country’s two cellular operators currently managing on behalf of the state. With debt now accounting for close to 190% of the country’s GDP and a US$35 billion public debt, analysts attribute Lebanon’s failure to privatise to personal disputes between former Prime Minister Rafik Hariri and current President Emile Lahoud. “The whole privatisation issue got caught up in the Hariri-Lahoud power struggle between 2002 and 2004 and even with that dying away I don’t see any real appetite for proper privatisation,” says Simon Williams, senior economist, Middle East and North Africa, Economist Intelligence Unit. With Hariri now out of the frame, there were fresh hopes that long-awaited reforms would impact the sector this year. These include aging plans to double the number of cell phone lines in Lebanon to nearly two million and to make use of an existing fibre-optic network that would finally bring high-speed Internet to Lebanon. “The telecoms sector in Lebanon is growing at a snail’s pace,” says Mohsen Malaki, senior program and consulting manager, IDC. “The country has the potential to grow in revenues and penetration for both mobile, and fixed line, but is being held back by government intervention,” he adds. After an acrimonious break-up with the private sector in 2001, the government now reaps around 25% of its total earnings from telecom — second only to revenue generated from the value-added tax. Much of this wealth was derived from the country’s two cellular networks, which brought in more than US$1.2 billion to state coffers from September 2002 to August 2004. However, analysts view this as a cash cow that could be just too hard to give up. “[State ownership] is a very attractive source of recurrent revenue and I can’t see the government giving up the additional revenue they would have to give up if they were to privatise at this juncture,” continues Williams. “At the moment I just don’t see [privatisation] happening ,” he adds. Last year Lebanon’s old cellular operators, Cellis and LibanCell, were replaced by two new companies, Alfa — a Saudi-German consortium mostly owned by Deutsche Telekom — and MTC Touch, part of Kuwait’s Mobile Telecommunications Company. The two new operators took over in June, agreeing to manage the networks on behalf of the government for under US$9 million per month, some 30% less than LibanCell and Cellis. In spite of this, both firms merely manage on behalf of the state and have no power to change mobile rates, and thus little incentive to compete. The fact that the state holds a firm grip over its exorbitant telecom tariffs, which continue to rank among the highest in the world, is the reason that a three-minute local call under the most common billing plan is charged at a rate of US$2. “Lebanon’s comms sector remains hindered by high cellular tariffs, when compared to other countries in the region,” says Sami Sunna, research manager, Arab Advisors Group. “Even if privatised networks would only provide a small fraction of the US$850 million the Telecommunication Ministry transferred to the Finance Ministry at the end of 2004,” he adds. Local consumers staged a series of strikes last year, shutting off their phones for a day in protest. However, some consider Lebanon’s telecommunications issues to be part of a bigger political problem. “The comms issue is almost of secondary importance,” says the EIU’s Williams. “We’re expecting no significant economic initiatives at all before the elections in May and I will be very surprised if whoever comes in really makes any proper progress either,” he concludes.

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