In Limbo

Ongoing hitches with financing and security have left repairs to Iraq’s landline infrastructure up in the air, raising doubts over wireline networks’ likely contribution to improvements in the country’s telecoms services.

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By  Richard Agnew Published  November 28, 2004

|~|mast11.gif|~||~|After much of what remained of Iraq’s landline network was destroyed during the war in 2003, quickly establishing a working infrastructure was set out as an economic priority. The fixed network, it was predicted, would support basic phone services for Iraqi citizens, lay the basis for increased internet access and help push the country’s stagnant telecoms penetration up from its level of 3% in April last year. The US$1 billion-plus analysts reckoned would be necessary to achieve this had equipment suppliers clamouring to get a piece of the action, even before ‘major hostilities’ had come to an end. Optimists also predicted that pent-up demand would generate swift uptake from end-users, who had had to tolerate rationing of phone usage under the country’s previous government. Eighteen months later, much of Iraq’s fixed infrastructure looks, at best, just as bad as it did before the war. Repairs have been made to bombed-out exchanges belonging to fixed operator, Iraqi Telephone and Post Company (ITPC), but few initiatives to improve its core infrastructure or increase coverage have come to fruition. Contracts that were actually handed out or close to being awarded shortly after the end of hostilities have also been shelved, including the delivery of backbone equipment and a local cable manufacturing plant. A billing system that would allow ITPC to generate more cash from its existing user base is also yet to be installed. “These projects are still to be executed and have been delayed for many reasons,” says Dr. Qassim Hussain, director general of ITPC. “We hope the [fixed network] will be enhanced but this has been [put back]. I can’t explain why. Some [reasons] surround funds, some concern technical difficulties, and the security situation is also a factor. But we hope it will happen soon,” he adds. The obstacles that have contributed to the hold-up are numerous, and some are more difficult to pin down than others. For one, CommsMEA understands that a halt was recently placed on telecoms contracts, including ones already signed, while a probe takes place into alleged misappropriation of reconstruction funds during the period when the Coalition Provisional Authority (CPA) was in control. But with spending continuing apace in other areas, vendors have found that explanation hard to swallow. “If there was a true investigation, then it should have been across the board — all Ministries should have been stopped from spending additional money,” says one equipment supplier involved in the rehabilitation of ITPC’s network. Underlying the delay are also difficulties in transporting equipment and making financial transfers to pay for contracts and supplies. Investment from donor countries is also perceived to have fallen short of what was needed. According to reports earlier this year, the Iraqi Ministry of Communications had expected to receive US$1.2 billion in grants to revive ITPC’s network, but had only secured in the region of US$350 million. Various other figures have also been floated. The World Bank estimated that telecoms rebuilding would need over US$1 billion this year, and US$2.3 billion between 2005 and 2007. Shortly after the war, it was said that US$800 million had been allocated to telecoms reconstruction by the US, but a fraction of that has been spent on Iraq’s landline infrastructure so far. Equipment vendors waiting for decisions on contracts also say that funds supporting those projects have been diverted to other areas that have, understandably, more immediate importance. “Early on, it was expressed that there was a great likelihood that the availability of funding would outstrip the ability to spend it,” says Geoff Simmons, services marketing director of Marconi, which applied for tenders around a year ago that have yet to materialise. “However, the money that was spent in relation to the funds that were allocated is very small. [The US government] has taken a revised view of where the priorities are, and they are around security, oil and sanitation. Telecoms has not got a high priority at the moment. After the initial enthusiasm, very little has happened in the last twelve months,” he adds. As well as affecting the availability of investment, insecurity has also had a more direct impact on efforts to get ITPC’s network up and running. The country’s main international gateway was targeted in March 2004, when an improvised bomb exploded on the site and knocked out lines of communication between Iraq and abroad for twelve days. Looting of existing fibre and copper lines is also said to be rife, while at least one equipment supplier involved in the rebuilding process is believed to have pulled out of Baghdad after receiving death threats. “Security problems have got much more difficult and are slowing things down to a standstill. You can’t get contractors to go out and do the work at the moment, for very good reasons,” adds Simmons. Looking further down the line, there also seems to be resistance to plans to privatise ITPC, which were put forward after the war. This would have attracted new funds if investors could have been found, but also raised a question mark against ITPC’s 15,000-strong workforce. “[Privatisation is] still just a project. I am against this. Big [public] companies like [ITPC could] do a lot of things successfully,” says Dr. Hussain. The result of all this has been to raise doubts over several telecoms-related targets set out after the war. ITPC said earlier in 2004 that it was aiming to expand its subscriber base from one million to five million within the next five years. At the Madrid Donors’ forum on Iraq in November 2003, investment was also called for to push Iraq’s tele-density towards 10%, around 2.5 million people, by 2007. Currently, estimates place ITPC’s subscriber base at 1.2 million. Some progress has been made in restoring the pre-war state of ITPC’s infrastructure. Bechtel, the US engineering giant managing the overall reconstruction programme on behalf of the US Agency for International Development (USAid), recruited Lucent last year to bring thirteen damaged switches back into service in Baghdad, reactivating just over 250,000 subscriber lines that were knocked out during the conflict. Nortel Networks, Bechtel’s subcontractor for the restoration of the country’s fibre optic backbone, is also replacing existing faulty transmission equipment with new, higher-capacity infrastructure and software. This work will result in a complete upgrade of the transmission network which connects all major southern Iraqi cities between Baghdad and Umm Qasr. In addition, Globecomm Systems, the US-based satellite service provider, has installed a gateway for international traffic. Since its launch in February 2004, the provider is operating the facility on a minute-based contract with ITPC. Additional plans have also been made to continue this work. Lucent, for example, was handed a US$75 million contract in March by the US Department of Defense, which will encompass a diverse range of activities over the next five years. Among others, these involve enhancements to Iraq’s PSTN and postal IT and architecture; the construction of commercial TV and radio networks and an emergency 911 system; and the provision of training for ITPC. Currently, the vendor is working on a task order to deploy a terrestrial trunked radio (TETRA)-based first responder network (FRN) for the country’s emergency services, but it remains unclear whether any other projects have been started. “Lucent works to task orders from the Iraq Project and Contracting Office (PCO). To date, we are working on the FRN task order. Beyond that, we cannot comment,” says a spokesperson for the firm. Another area of ITPC’s network that has yet to move forward in post-war Iraq is billing, which would allow the operator to raise revenues and reduce its reliance on donations. A consortium of companies led by Dubai-based telecoms consultancy, Technology Partners, was awarded a US$10 million deal in early 2004 to implement a new system for ITPC, which would connect its 250 exchange sites and allow it to start charging for phone usage automatically. But this has also yet to progress, leaving the operator still reliant on its old system, developed in the 1980s. This has a capacity of 500,000 subscribers — only half of the ITPC’s user base — and involves physical records of individual subscribers’ usage being ferried manually between its exchanges and central office. “We view the billing system as a very critical element of the network reconstruction,” says Omar Barzanji, CEO of Technology Partners. “It dictates ITPC’s ability to collect revenue and manage its relationship with its customers. Not having a billing system can clearly cause many problems, including erroneous bills, not billing enough, not billing the right people and not being able to bill at the time when you need to. Billing and customer care is the core of any operation today and no operator can justify not spending any money on it,” he adds. The old system is also said to have given up the ghost last month. “The original system was damaged in the first Gulf War, then repaired, and having gone through the second Gulf War, was still chugging along,” says Barzanji. “However, it actually went down two weeks ago. ITPC issued one final bill and the whole thing went kaput. The last [quarterly] bill amounted to around 20 billion dinars (US$10 million). But had ITPC had a proper billing system, it is expected that revenue would have been between US$60 million and US$80 million for 2004,” he adds. A more positive effect of the delays has been to encourage ITPC to consider alternative technologies to fill the gap. The operator, for example, is showing interest in wireless technology that would prove cheaper to roll out than copper and allow it to extend the reach of its PSTN. “Wireless local loop (WLL) is going to be installed for the whole of Iraq,” says Dr. Hussain. “It would solve [installation] problems, especially in the suburbs. We are working to get it ready but still we haven’t got the possibility to execute it,” he adds. The country’s three mobile operators are also seen to have benefited from the situation, having fulfilled some of the demand for basic telephony since their licences were awarded in December 2003. As of the end of September, Atheer, which operates in the South of the country, said it had signed up over 140,000 subscribers. Iraqna, in the central region, reported last month that it had recruited 480,000. Asiacell, meanwhile, had signed up 280,000 users in the North by September. The rivalry between the operators is also expected to intensify as they start to take each other on in their respective geographical zones — the first concrete signs of which started to emerge last month. Having fulfilled twelve month coverage obligations imposed by its licence, Iraqna announced the launch of its service in the southern region of Iraq in November, and claimed to be close to launching services in the North as well. Atheer, meanwhile, says it is constructing a network in Baghdad and has signed contract extensions with Nokia and Motorola to triple its network capacity in Iraq to around one million subscribers. “We finished our one year plan about four months ahead of schedule and are constructing towers and a switch in Baghdad. We expect to launch within 20 to 30 days,” says Ali Al Dahwi, chief executive officer of Atheer. In addition, AsiaCell says that it is awaiting the go-ahead to expand outside its zone in the North. The GSM operators are not writing off the fixed network’s future role, however. “The fixed line network in the South is in a shambles,” says Al Dahwi. “But this is not affecting the mobile [sector totally] positively. When there is a good, strong fixed line network, the number of fixed to mobile and mobile to fixed calls increases. If the availability of fixed services was higher, we would have a much better situation. We would sell fewer mobiles but in the longer term the number of calls would be a lot higher,” he adds. With their contracts set to run out at the end of 2005, they are also keen to underplay any rivalry with the government-owned operator while accentuating their contribution to the reconstruction process. “We need a longer licence as we cannot make our money back in two or three years,” says Al Dahwi. “We want to comply with all regulations and we are buying a lot of our IT equipment from within Iraq. We are also trying to terminate our traffic with ITPC wherever possible,” he adds. The GSM operators will hope that efforts like these will secure their own positions in the country when a decision is made. But as with pretty much everything in Iraq at the moment, it’s impossible to see what will happen in twelve months time. “The [mobile licences] will be decided by the Iraqi government,” says Dr. Hussain. “It is not simple. They may continue, they may be stopped or they may work with other GSM companies. We don’t know,” he adds.||**||

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