The Way Ahead

Liberalisation of the telecoms sector in the Middle East is now firmly on the agenda. Karim Sabbagh, vice president of consultancy Booz Allen Hamilton, talks to CommsMEA about the models that are being adopted as different regional markets are opened up.

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By  Richard Agnew Published  June 3, 2003

Introduction|~||~||~|Liberalisation of the telecoms sector in the Middle East is now firmly on the agenda. Karim Sabbagh, vice president of consultancy Booz Allen Hamilton, talks to CommsMEA about the models that are being adopted as different regional markets are opened up.

CommsMEA: What are you general thoughts on the progress that has been made so far with deregulation?
Karim Sabbagh: Over much of the last decade, we have experienced a very static telecoms sector in the Gulf and the rest of the Middle East. But over the past two to three years, a number of things have developed which in our view augur more rapid developments. For example, in 2001 and 2002, Bahrain, Saudi Arabia and Oman have passed new telecommunications laws and moved quickly to translate this law into something more operational. This certainly sets the stage for more action in these markets and to create peer pressure on other markets, like the UAE, Qatar and Kuwait.
I’m [trying to] convey that there is not a single approach to liberalisation… not that [some markets] have an adequate agenda and [some] markets don’t. Markets can be opened up very early in the process. [Others] may focus on getting the performance of the incumbent up to a level where the market is satisfied, and then once that happens, once the incumbent has a viable business model and is independent financially from the government, [they] open up the sector. You could argue Bahrain is one of these cases, and Saudi Arabia another.

CMEA: What’s being planned in Oman?
KS: In Oman, the thinking has moved from “let’s go out and try and find a strategic partner”, which would be part of the Omantel operation, to “let’s [go] on our own and partially privatise.” That partial privatisation could either be through institutional investors — typically you could have pension funds or large institutions in Oman — or you could have a partial initial public offering (IPO). The Saudi experience has demonstrated that this is perfectly do-able [and that] there is significant liquidity in the region nowadays. Their commitment is to start this programme in 2003. We could envisage a partial privatisation in 2004.
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CMEA: Is The UAE is an example of the ‘late model’ then?
KS: Yes. The UAE has worked hard on improving the incumbent operator’s performance. Both in the UAE and in Bahrain, you could argue the incumbent operates at world class standards. The most likely scenario is that the UAE will look at where competition will add most value to the sector and the economy, and the most likely answer is going to be in the data sector. That segment could start being opened up to competition, and later on down the road you could see the deregulation of long distance [lines], be [they] national or international.

CMEA: What types of companies are interested in setting up new carriers?
KS: What we are seeing more and more is a model where international operators are coming in with their experience, bringing that experience under an operating agreement and working with regional investors, who are more accustomed, let’s say, to the risk level that is associated with this part of the world. We’ve seen this with the MTC-Vodafone alliance in Kuwait, and I think we will see this model more and more for the next three to five years. It’s a perfectly viable model, because as I said earlier there is the liquidity in this part of the world. The same formula can apply to the privatisation of incumbent operators.

CMEA: What role should regulators play in insuring against the failure of carriers?
KS: The national regulatory authorities will have an increasing responsibility for demonstrating the viability of each situation. You could argue that it’s not their role, market forces should decide who should sink and who should swim… and I wouldn’t disagree with that. But at the same time you need to recognise that these markets do not have the commercial, corporate or capital market maturity and the failure of a carrier will not serve [anyone’s] interests. As a result, it’s in everyone’s interests for the regulator to be very demanding in that area, require economic due digilience of the carriers, or when looking at the business cases [of carriers] as a sector is opened up, [assess] the number of licences and [whether] they will be viable.

CMEA: What significant developments do you see happening this year?
KS: The initial stages of opening up the Omani mobile licence is a possibility. VSAT [very small aperture terminal] and data licences in Saudi Arabia are also on the agenda. I’m not aware of any specific agenda from Bahrain regarding the data sector, they want to focus primarily on mobile, but it is not unlikely that the data sector will be next in Bahrain. What will also be interesting is to observe what the UAE and Qatar do in this context. In the best case [scenario], what these two markets could do is develop an agenda [for deregulation]. So, maybe we could see a starting point this year. For North Africa, the most interesting development will be whether Telecom Egypt enacts its mobile licence or not.
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