Playing Catch Up

Syria’s government has come up with a plan to accelerate the development of the country’s fixed, mobile and internet services. But it remains to be seen what impact the proposal will have in the short-to-medium term

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By  Richard Agnew Published  July 4, 2004

|~|liberalisation3.gif|~||~|Syria’s telecoms sector is lagging behind other countries in the region, with internet, mobile and fixed penetration remaining at low levels. But the country is now taking steps to catch up. Earlier this year, the Ministry of Telecommunications and Technologies (MTT) announced a strategy to develop the country’s information and communication technology (ICT) sector, devised over twelve months by a National Task Force and outside consultants. The plan includes a number of strategic proposals, which would help the sector reach certain targets over a ten year period. Based on the conclusions of the United Nations Economic and Social Commission for Western Asia’s (UN ESCWA) Arab Human Development Report 2003, the idea is to reorganise the Syrian Telecommunications Establishment (STE), the country’s national operator, and create an independent regulatory authority to oversee the sector, outside of governmental influence. Some US$8 billion is also to be ploughed into the development of the country’s telecoms infrastructure, by both public and private players. According to Dr. Mohamed Bachir Mounajed, Minister of Communications, STE’s monopoly will be broken up and the operator split into units overseeing policy, operations and regulation. “One company should not monopolise operation of the network. That doesn’t mean that we are going to privatise the telecoms sector, but we should provide a structure that would allow many identities, institutions companies and services to operate,” he says, in Biz Forum’s latest Syria Report. In parallel, ongoing efforts are being made to modernise the country’s fixed networks and improve tele-density. In 2002, STE had deployed just over 2 million lines, but the operator has set out plans to add another 1.65 million by the end of this year. As far as the internet is concerned, uptake currently stands at less than 1%. A long running project, however, is being run by STE to build a public data network which could support up to 24 internet service providers (ISPs). A programme is also being put in place to roll out tele-centres in rural areas, with support from the UN Development Programme (UNDP), giving web access to towns where infrastructure is scarce. The programme hopes to use a franchise model to attract private investment, and will pilot wireless internet technology until terrestrial networks become more widely available. Syria’s two mobile players, meanwhile, are also making large strides in raising uptake. Syriatel, which currently holds 54% market share to Spacetel Syria’s 46%, recently emerged from a long-running internal management struggle. The dispute, casting a shadow over Syria’s attractiveness to outside investors, ended with Egypt-based operator, Orascom Telecom, disposing of its stake in Syriatel after falling out with local shareholder, Drex Technologies. Subsequently, however, the operator has built up its subscriber base to around 750,000 and has renewed investments in improving its performance. For example, Syriatel has announced that it intends to streamline its business processes through the implementation of Oracle’s E-Business Suite, which will improve its decision-making and allow it to gain enhanced control of its financial processes. The move will see the company’s key financial data available from one location, benefiting its customer and partner-facing departments. “Our objective is to enhance competitive advantage,” says Nader Kalai, Syriatel’s chief executive officer. “All of our financial information will be consolidated and available in real time, which makes us a more efficient, productive and knowledge-based organisation,” he adds. The introduction of pre-paid services by both operators last year has had a larger impact on the market, however. According to Arab Advisors Group, the move was largely responsible for a rise in cellular penetration in 2003 from 2.3% to 6.6%. Further increases are expected. Spacetel Syria, for example, is looking to raise its subscriber base from 650,000 — 230,000 of which are now pre-paid users — to 1.5 million by the end of 2005. “The future subscriber base will be pre-paid,” says Ismail Jaroudi, deputy general director of Spacetel Syria. “Our projection is that we will have between 870,000 and 900,000 subscribers by the end of this year. The entry fee for pre-paid services is low, around US$38, there’s less commitment and it’s more easy to use,” he adds. While the mobile networks faced criticism for limited coverage and bottlenecks early on, the operators blame the 16-month wait they faced before their build, operate, transfer (BOT) licences were approved by parliament in 2002. This forced them to limit their exposure to risk. According to Jaroudi, network quality has also improved over the past year. In addition, Spacetel has set out a network expansion plan which would relieve congestion in urban areas over the next few months. “Last year, we had certain concerns and problems but most of them have been treated. The plan is to expand the radio network from 700 sites to approximately 950 by the end of this year. The plan concentrates on meeting [demand] where there is congestion first, rather than exploring new areas,” he adds. The main bottlenecks Syria’s telecoms sector faces, however, are at a wider level. Relations between Syria and the U.S. have been poor in recent years. This culminated in Washington passing a range of sanctions against the country in late 2003, which among other things will force operators to seek licences to import equipment wholly or partly manufactured in the US. Spacetel, for example, is already seeking approval to import equipment which would allow it to roll out MMS in early 2005. Internal bureaucracy also continues to be a hindrance when it comes to rolling out networks, the mobile operators say. “It’s getting more and more difficult [to find sites],” says Jaroudi. “In the beginning, we had many candidates to pick from. But now, the choices are becoming minimal, and the rate of [rejections] is getting bigger. At the same time, bureaucracy is increasing and the authorities are requesting more and more approvals,” he adds. For consumers, the structure of the two operators’ licences has been a point of contention. Under the BOT contracts, pricing of mobile subscriptions and tariffs is set by the two operators and STE, and is therefore identical on both networks. There are also suggestions that an additional player in the mobile sector could help accelerate uptake, although Spacetel and Syriatel retain exclusivity through their BOT contracts until mid-2008 and the government’s publicly-announced liberalisation plans focus elsewhere. “The two operators have had steady growth, but penetration remains at about 6% in a market of about 20 million people,” says Enrico Leonardi of Ericsson Syria. “There is [room] for a third or even a fourth mobile operator, but it wouldn’t be easy to bring one in without negotiating with the [incumbents],” he adds. Instead, the operators have set their sights on possible privatisation of the mobile networks when their BOT contracts come to an end. It remains unclear, however, what will happen when that takes place in 2008. “The [networks] will be returned to the government unless there is a major change,” says Jaroudi. “But I believe that privatisation should happen. I can’t say whether the government has the same opinion, but the BOT contracts are a halfway [house] to privatisation, and that would be good for the sector,” he adds. In the meantime, the operators say that efforts to ease the cumbersome regulatory environment in Syria would help them extend access and develop the sector as a whole. The question is how quickly the government can put its proposals into practice. “It’s just a plan at the moment. The Ministry has said that it will introduce a regulator and re-organise the sector, but it could take three or four years. The regulator has to be established and STE divided into constituent parts,” says Serene Zawaydeh, senior research analyst, Arab Advisors. But the operators’ claim is that there could be advantages, whatever pace the government sets. “More steps should be taken to attract investors,” says Jaroudi. “But [as] a non-Syrian investor, we’re happy. If you look at the investment atmosphere, there are some parameters that should be changed. But you need to take time and not make mistakes that others have committed,” he adds. ||**||

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