Winning the Peace

Telecoms firms and interest groups are already debating the potential post-war telecoms landscape in Iraq. CommsMEA takes a look at the opportunities that could emerge after the dust settles.

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By  Richard Agnew Published  May 4, 2003

Intoduction|~||~||~|Amidst the media scrutiny into the war in Iraq, plans for the telecoms side of the impending reconstruction effort have so far remained largely out of the spotlight.

Compared to the conflict itself and the pressing need for humanitarian aid, issues pertaining to the telecoms sector have understandably taken a back seat.

Unlike other areas, such as health and capital construction, the US Agency for International Development (USAid) is yet to publish a request for proposal (RFP) specifically focused on rebuilding Iraq’s networks. Equipment vendors have also been reluctant to be seen actively competing for work ‘before time’.

But the delay is not just about diplomacy and the media. Vendors are already pitching their wares and have been contributing to discussions within the US State Department’s ‘Future of Iraq Project’ about plans for telecoms networks since October last year. Talks over the validity of contracts awarded to firms before the war are also believed to be holding things back.

Vendors know the post-war market for telecoms equipment could be huge, if stability can be gained. The reconstruction of the country’s communications infrastructure is expected to provide some of the largest contracts in the Middle East over the next year. The International Telecommunications Union has predicted that rehabilitating Iraq’s fixed line network could require US$1 billion worth of investment over the next seven to ten years. Analyst house, Pyramid Research, also expects the effort to boost Iraq’s teledensity — which dropped from 5.6% to 3% between 1990 and 2001 — to require spending of US$700 million on the local loop in urban areas. On the mobile side, the lack of infrastructure could see similar levels of spending coming about.

Joseph Braude, Pyramid Research’s senior analyst, predicts spending on wireless networks of around US$33 million this year and US$36 million next, although he says his figures remain conservative because of the difficulties the new government will face, the debt situation and the pressing need for humanitarian aid. “In the south and centre [of Iraq] there is no commercial mobile network. In the north, there is a rudimentary mobile network based on digital trunking technology. There is competition and talk of establishing a GSM network there, but there is certainly nothing like that in the more populous regions of the country,” he says.
||**||Rebuilding Iraq|~||~||~|
While there is little economic or social data available, and a range of factors including the nature of the post-war regulatory framework could come into play, observers point to healthy returns in the Iraqi market for telecoms services. “It is really speculative right now because it depends on how the situation ends up,” says IDC Central Europe and Middle East senior telecoms analyst, Mohsen Malaki. “If it becomes stable... in the short term you could have huge demand from travellers and businessmen. In the long term, you could see tremendous growth from Iraq as well because you have the potential for very high income per capita and the population is also very thirsty for communications considering their fixed line [network] is very poor as well,” adds Malaki.

Braude says there was also “strong evidence of pent-up indigenous demand” for telecoms services in Iraq before the war. In wealthier sections of Baghdad and other cities, he says, people strengthened the reception of their cordless phones so they could have greater mobility. In 1998, the government was also forced to impose 8-to-10 hours per day rationing of phone usage to reduce demands on the network.

While pointing out that concrete predictions are difficult and that many other factors are involved, he adds: “When you have a Saudi population of 21 million, an Iraqi population of 24 million, all this suggests it could be only a few years before the Iraqi economy is as vast a consumer base for mobile networks as the Saudi economy.”
Investment from neighbouring countries, the US, its allies and the UN is expected to contribute to the huge overall price of reconstruction. Braude believes other possibilities include the settlement of Iraqi debt, freeing the country from OPEC limits on oil output, and grants from the IMF and non-governmental organisations.

As a result, the debate over the possible nature of the post-war telecoms scene has already started between the various interest groups.

The most visible so far has been an unseemly spat between those promoting the different mobile networking standards, CDMA and GSM. In March, Darrell Issa, a Californian Congressman, wrote to US defence secretary, Donald Rumsfeld, complaining that the “outdated” and “French” standard GSM was being contemplated as the potential basis for Iraqi infrastructure. In response, the GSM Association’s CEO, Rob Conway, stepped in, calling Issa’s intervention “misinformed” and “ill-timed.”

Despite the ill-feeling, Braude sees this as a “non-issue.” With the GSM Association recently claiming that Iraq is one of only seven countries not yet to have adopted its standard, some have contended that a CDMA deployment is unlikely as it would affect users’ ability to roam internationally. But even if the argument is secondary, it does point to the political pressures many feel will come to bear on the process of rebuilding Iraq’s networks.
||**||Vendors|~||~||~|
Historically, firms from China, Turkey and France have been able to gain traction in the market, but many projects stalled for political reasons. According to Braude, China’s Huawei Technologies secured a US$28 million deal to supply base stations in 2001, but pulled out after the US objected when it emerged China was providing equipment that could be used for both civilian and military purposes.

Some projects have also been run through the United Nations’ (UN) oil for food programme, such as the rebuilding of telecoms relay towers and the installation of microwave networks to improve communications between cities. Iraq’s PSTN was also being rebuilt through the Turkish backbone in late 2002.

Alcatel has also been heavily involved in the market since it was contracted to build a network in Iraq in the 1980’s. It subsequently gained work from the UN to provide telecoms services after the first Gulf war, and began work in 2001 on three contracts worth US$80 million to supply an international telephone exchange and microwave network linking Baghdad with the central provinces and south of the country.

But US leadership in the post-war rebuilding campaign is expected to see companies such as Motorola and Lucent gain a foothold. Observers point to the US$4.5bn deal handed to Lucent after the first Gulf War to overhaul the Saudi Arabian fixed network — seen as part of the US’ ‘Gulf War dividend’ — as an indication of where the contracts could end up, despite the unpopularity of the firm’s subsequent exit from the Middle East.

“There tends to be a geo-political consideration in contracting in the Middle East,” Braude says. “A change of government in Iraq would substantially alter vendor market dynamics. If there’s a pro-American government in Iraq, Motorola and Lucent will be in a position to compete with the traditional stalwarts of Iraq telecoms. A new government more favourably disposed to the United States and its allies would likely favour US vendors, possibly at the expense of China’s Huawei, France’s Alcatel and Germany’s Siemens,” he adds.

The stand-off is believed to have contributed to the delay in USAid’s invitations for telecoms firms to tender. “Part of the reason for the delay is that there are still outstanding issues waiting to be resolved about whether [those] contracts are still valid,” Braude says.
||**||The future|~||~||~|
According to a spokesperson for Lucent, the company is “offering advice” to different US agencies on reconstruction. However, he wouldn’t offer a likely timescale for the request for proposal to be published. “You have to remember sanctions are still in place, so any discussions will have to wait until the situation is stabilised,” he argues.

A spokesperson for Alcatel also says it is too early to tell how the situation will end up. “For the near future, it looks like the Americans are there, but beyond that it’s difficult to see what will happen,” he says.

Other firms, however, are pursuing various routes that may or may not see them gain a foothold in the market. Ericsson is believed to be involved in Iraq via its Response Programme, through which it cooperates with the Red Cross and the UN’s various relief organisations. Also known to be working with the Red Cross to provide coverage is satellite operator, Thuraya. The company is readying its commercial plans as well, however. The vendor has signed agreements with two of its service providers to target oil, construction and other workers with pre-paid services. The vendor is also planning to roll out call centres and payphones in Iraq, according to a spokesperson, and is handling around 100,000 minutes of Iraqi call traffic per day. “We have several international service providers.
Using our pre-paid service, a lot of people [in Iraq] are buying from them [the service providers,]” says a spokesperson for Thuraya.
MTC-Vodafone, the Kuwaiti mobile operator, also plans to target the new market. In early March, it began readying equipment, portable stations, generators and a 248-foot radio tower to help transmit calls into southern Iraq. Although the company has not yet gained clearance, the move is “about to happen”, says MTC director general Dr. Saad Al Barrak.

With so many variables however, it remains to be seen what the post-war scene will deliver. The best case scenario for MTC and the like would be a revived Iraqi economy, resulting in a rippling effect into the rest of the Middle Eastern market, although that could be years away. “It all depends on the demand from consumers, which is largely based on the revitalisation of the Iraqi economy,” contends Braude.

There is room for optimism, however. “If you have a regime that is forgiven of debt, that is permitted to spend oil revenue on its own infrastructure, you have a vast mobile market for consumer networks. Iraq has the second largest proven oil reserves in the world. Saudi Arabia is the first. Iraq, however, stands to have a far more diversified economy in the short term and a distribution wealth that could be more equitable,” he says.
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