The Big Leap

The liberalisation of Oman’s telecoms market has been held up by the off-colour investment climate. Now, the government is set to launch a scaled-down plan for the privatisation of monopoly operator Omantel.

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By  Richard Agnew Published  June 30, 2003

Introduction|~||~||~|Oman’s government has been handed a difficult choice. While its World Trade Organisation (WTO) commitments and will to modernise compel it to reform its telecoms sector, the mixed fortunes of other countries’s liberalisation plans have convinced it to hold back.

Now, however, it is set to seek a compromise. While the original plan was to have 49% of monopoly operator Omantel sold off — 40% to strategic global investors and 9% to local firms — only 30% of the operator will now be made available. And instead of aiming to attract international investment, that 30% will now be offered to the Omani public, corporate customers of Omantel, and other local investors.

“In the past the plan was to have more [of Omantel] privatised, but the government has decided, due to problems with the telecoms market, to change its policy,” says His Excellency Mohammed Ali Al-Wohaibi, executive president of Omantel.

Despite the delays and changes, things now appear to be moving forward. With regard to the actual process of privatisation, some progress is expected over the coming weeks. The government is currently setting up terms of reference for the move and is running a tender to appoint a legal advisor to oversee the transition. The new regulatory body in Oman, the Telecoms Regulatory Authority (TRA), will also issue an operating licence to Omantel “anytime now”, says Al-Wohaibi.

With the target for privatisation set for December this year or 1st January 2004, Omantel has accelerated its own preparations for change. Plans are being put in place to divide the business into distinct entities focused on different market sectors, while on the technology side, Omantel has earmarked around US$650million over the next five years to further its lead over any incoming rivals as well as to attract more investment.

Much of the focus of this programme will be on mobile infrastructure, where competition is expected to be brought into the market first. As with the paths to liberalisation chosen by the majority of other markets in the region, the mobile sector is expected to be foremost on the TRA’s ‘To Do’ list.

“The exact date will be determined by the TRA... but we understand that the mobile [sector] will be in the first phase,” says Al-Wohaibi. He expects the tender for a mobile licence to be issued this year, and the new competitor to be ready for operation in or after the first quarter of 2004.

Accordingly, Omantel’s three existing mobile equipment suppliers — Ericsson, Siemens and Motorola — will shortly be handed projects totalling around US$120million to push its infrastructure into remote regions and improve its ability to route traffic.

“The mobile market is probably where we will experience the most competition... so we are expanding all three networks to increase coverage and capacity on the switching side,” says Al-Wohaibi.

||**||Network Expansion|~||~||~|

The terms of Ericsson’s project are currently being prepared by Oman’s Tender Board, while contracts for the other two vendors are currently being negotiated, he adds.

The expansion, Al-Wohaibi hopes, will increase its coverage and address the difficulties Omantel has cited with rolling out infrastructure in the country. Another incentive is that Omantel will also be responsible for routing the new entrant’s traffic outside urban areas if the TRA offers national roaming on the incumbent’s network.

“The [mobile] penetration rate in Oman is not on the high side, so there is plenty of room for a new operator,” Al-Wohaibi concedes. “But one thing that is characteristic of Oman is the geography and terrain. I think introducing the infrastructure is going to be difficult for the [new operator]. I assume that they would focus on the more profitable areas, but that again depends on the scope of the licence and what type of regulation the TRA puts forward,” he argues.

The infrastructure upgrades will also support the planned launch of GPRS and MMS by Omantel before the end of this year. The new services will be presented along with the re-naming of its mobile business, which is set to be separated off as part of the restructuring.

Time remains a critical factor, however. “We will issue new services, re-brand the mobile arm, re-design the nework, increase capacity, and look at value-added services. [But] we have to do all this before the end of this year. In terms of GPRS, the project is currently with the Tender Board, and we will have GPRS before the end of this year,” Al-Wohaibi adds.

Elsewhere, Omantel’s legal exclusivity in all other areas of telecoms service provision will have expired by the end of this year. However, Al-Wohaibi says competition will be introduced more gradually than in mobile.

“For the internet, there is plenty of room [for competition]. There is not that high a penetration. However, my understanding is that [the internet sector] will not be in the first phase of the opening of competition,” he says.

And while Al-Wohaibi believes several areas could be opened up eventually, including transmission, long distance telephony, international connections and value added services, he does not see competition coming into the fixed telephony sector at all. “There is not a big enough market for it. But on all the other services, there is plenty of room,” he adds.

As a result, Omantel is running various projects to increase its fixed network coverage and efficiency, despite the greater urgency facing its the mobile division.

“We are trying to position ourselves to introduce new services, capture market share before competition, and we will try to be a carrier of the other networks... around the country because we own the infrastructure. So we do not really look at competition as a threat, it’s more of an opportunity to modernise,” claims Al-Wohaibi.

“We [are currently completing] a disaster recovery project, where we are creating a replica of our internet backbone to be able to provide services in the case of any disaster,” Al-Wohaibi explains.

Scheduled for completion by the end of September 2003, the US$11million deal will see equipment vendor NCR implementing a storage area network (SAN) in Omantel’s data centre, while redundant servers will be deployed at a mirror site and real time back-up provided to ensure that data is constantly available.

The project will also address the availability of the telco’s core IP network, which Omantel says will be launched soon and will facilitate the availability of next generation networks such as GPRS and 3G, and services such as videoconferencing and voice over IP (VoIP).

At the same time, the upgrade will see additional points of presence (PoPs) rolled out across the Sultanate to address the inefficiency inherent in routing internet users from outside Muscat through the capital.

“That costs us a lot in terms of transmission overheads, and also introduces some delay on interconnection. Through the regional POPs, people will be able to log onto the internet from wherever they are, and they will be carried to an internet service provider (ISP) here [in Muscat],” says Al-Wohaibi.

Elsewhere, the operator recently recruited equipment provider Huawei to introduce DWDM into its transmission network. The project, costing around US$17million, is expected to be completed by the end of next year, and to expand Omantel’s transmission network to consist of four Metro and national rings covering the whole country.

“This will provide 10Gbits/s of capacity to [allow us] to accommodate our needs and position ourselves to be able to provide network infrastructure to the new competitors,” says Al-Wohaibi.

This move will also support the operator’s push into more remote regions. “Omantel will invest heavily in its telecoms market [going forward],” says Wang Jia Ding, UAE director of Huawei. “This investment is needed due to the large geographical coverage in Oman,” he adds.

Omantel is also looking to diversify its supply of international internet bandwidth, after being adversely affected by the impact of the recent Algerian earthquake on the systems of capacity providers Flag and Sea-We-Me 3. The disaster cut the two providers’ high-capacity cables that run under the Mediterranean and link Europe to the Middle East. “We have learned from what happened in Algeria.

That both Flag and Sea-We-Me 3 were cut down at the same time was not predictable. [But] now we are looking to go through Europe and Asia [for international capacity],” he says.

||**||The Challenges|~||~||~|

Several challenges remain for Omantel, however, not least the impending overhaul of its entire business structure to suit a more cut-throat environment. The first phase of the restructuring will see the operator split into three parts — a holding company and two wholly-owned subsidiaries, Omantel Fixed and Omantel Mobile.

“We expect the whole project to take up to two years, but the first phase will happen before the end of the year. We are also preparing service level agreements (SLAs) between Omantel Fixed and Omantel Mobile, in order to be transparent,” Al-Wohaibi says.

Statements have also been made recently by Omani officials indicating that a distinct division for the datacomms market will be set up in due course.

However, Omantel will have to manage the separation of its business with care. “This approach may well enhance the strategic and operational flexibility and accountability of each of the business lines,” says Karim Sabbagh, vice president of consultancy Booz Allen Hamilton.

“[But] the challenge under this scenario is to... define how, operationally, Omantel can continue to offer integrated services. Also the management will need to assess how such a scenario will position the company vis-a-vis the TRA,” he warns.

The operator also faces the daunting challenge of migrating its workforce from a public service mindset to a more market-driven mentality. “While you can set up a new structure in a day or two, to make it work, to make it function, that will take time,” admits Al Wohaibi. “Probably the most difficult thing is to create a new culture. We understand that this is a transitionary phase and we have to teach [everybody] new skills,” he adds.

Externally, analysts also believe that the Telecommunications Act which was brought in by the government last year may need updating, if a solid competitive environment is to be created.

“While the Act has laid the foundation for liberalisation, further regulatory additions and articulations through secondary legislations will be required in the medium term,” says Dr. Kamal Shehadi, president of Connexus Consulting.

Although Al-Wohaibi says the operator will contribute to a universal service fund to increase the availability of fixed telephony services, once it its privatised, the TRA’s role in promoting universal service is one area that could be strengthened, says Shehadi. Others include its activities in price regulation and the provision of new licences.

“The TRA’s mandate in price regulation may be limited, as defined in the Act, and may not afford it the flexibility to accompany the liberalisation of the sector. The TRA is expected to prepare a draft decree that lays out the principles of price regulation,” Shehadi adds.

There is optimism, however, that Oman could offer significant opportunities to investors, if the liberalisation programme stays on track.

“The Omani authorities have deployed considerable efforts in recent years to scale-up the role of the private sector, increase domestic and foreign investments and augment employment opportunities for nationals outside government institutions,” says Sabbagh. “The overall environment is offering much improved incentives for economic development, and hence take-up in telecoms services,” he adds.

And if things go according to plan, Omantel itself could eventually join in the race for a region-wide presence — and experience the flipside of the challenges it now faces from the competition in its own market.

“This year, the whole company is focused on the re-organisation and re-positioning, but in the long term we have set aside a budget for expanding overseas. We believe that in the coming years, the regional player will have an advantage, so we will have to start looking outside Oman,” adds Al-Wohaibi.
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