Iraq's regulatory woes

Healthy competition is helping develop Iraq’s telecoms sector, but a regulatory vacuum is leading to doubts about the market’s potential.

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By  Roger Field Published  November 4, 2008

Healthy competition is helping develop Iraq’s telecoms sector, but a regulatory vacuum is leading to doubts about the market’s potential.

For most telecom professionals, Iraq holds huge potential for growth. With a population of some 28 million people and relatively low mobile and fixed-line penetration rates - about 53% and 5.2% respectively in 2007, according to Arab Advisors - Iraq is rightly viewed as a market with huge growth potential.

Iraq is also home to the world's second biggest proven oil reserves after Saudi Arabia, according to the US Energy Information Administration, and this is likely to help fund big infrastructure projects in the coming years as the political and security situation in the country improves.

It is not at all unheard of in the Middle East to see the government control the international gateways. It is a lucrative business, of course, and some governments still appear hesitant to let go in that area. - Milan Sallaba.

After the fall of Iraq's Baathist regime in 2003, the country had just one state-run landline operation, and no mobile services.

Five years on, Iraq is more competitive market than most of its Southern neighbours.The country has five cell phone operators including Asiacell, Zain Iraq and Korek Telecom. The fixed-line sector is also increasingly competitive, with IPTC (Iraq Post and Telecom Corporation), the country's legacy copper network, competing with fixed-wireless networks Kalimat Telecom and Itisaluna Abr Al Iraq.

But despite strong, growing demand for fixed and mobile voice and data services, the market has its share of challenges for both private and state-run operators.

And the main bugbear for the operators at present is the poor state of telecoms regulation in the country.

Indeed, Iraq's telecoms regulator, known as the CMC (Communications and Media Commission), has been without a director since about April 2008, when the previous head, Dr Siyamend Othman, completed his term in office.

With the CMC languishing, regulatory decisions are now being made by the Iraqi government's Ministry of Communications [MOC]. The situation is far from ideal, as the Ministry also oversees IPTC and SCIS, a state-owned company that provides internet services, and so lacks the impartiality and independence required by a regulator.

The situation is a major concern for Iraq's operators, most of which were partly attracted to the country because they were impressed with its independent regulator. But since the demise of the organisation, operators are becoming increasingly frustrated with a lack of information and clarity about new regulations. They are also concerned about whether past regulatory decisions made by the CMC will be overturned.

This has resulted in what many operators refer to as a "regulatory vacuum". The subject dominated October's Iraq Telecoms conference in London, which attracted key representatives from all of Iraq's operators, as well as vendors and regulatory and government officials.

"With respect to the Iraq telecom market, there is a huge potential but the main problem we are facing is a vacuum in the Iraqi telecom regulatory board," says Wilson Varghese, CEO of Kalimat Telecom.

"At the moment the regulator doesn't have a head to lead it. Ever since Dr Siyamend completed his term of office, he has not been replaced and it is basically handled by the Ministry of Communications, which is not really fair.

"Almost all the operators bid for their licence and took the licence because it was an independent body doing the regulation in Iraq. And now since that is not there, everyone is facing a problem.

"We have been asking why this is happening and explaining that we need a regulatory head as soon as possible. They [MOC] are working on it but so far they have not given us the assurance that they will be doing it, and they haven't given us any timetable," he adds.

Varghese is concerned that key points on Kalimat's licence, which the company acquired back in 2006, including provision for its own international gateway and to lay fibre, may be taken away from the company.

This level of doubt means that Kalimat and its rivals face a tough choice between investing in infrastructure and then possibly being told they have no permission for it, or delaying plans at significant cost and risk.

"What you have on the licence has to be guarded by the regulator," Varghese says. "At the same time, the regulator is the one to mediate between the operators and to formulate structures for interconnection and other issues between the operators and government," he adds.

Dr. Nasi Abachi, Kalimat's chief technical officer, is also familiar with the headaches caused by a lack of regulation. He points to high interconnection fees as one of the main problems. "If you don't have interconnection with other large operators with reasonable fees, you have a big problem.

"If there is no regulatory body to make sure that the interconnection is cost-based, rather than market-based, it causes problems, because when a new WLL [wireless local loop) operator goes to a large existing operator controlling the interconnection, they are usually asked to pay very high interconnection fees," he adds.

"This has the effect of making the new players pass on prices to their subscribers that are very high and uncompetitive, and this stifles competition and can impede the progress of the new players very much. We are hoping to have a better regulatory environment in future," Abachi says.

"This is something we would like to see improve in Iraq. The regulatory atmosphere now is very vague. "The CMC, the main regulatory body has had no CEO or director and thus there is no leadership. Even the government does not seem to be decided whether to keep this body or not."

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