Path to privatisation

Lebanon’s telecoms sector remains hamstrung by state ownership, but holds huge potential

Tags: Oliver Wyman Group
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Path to privatisation Mark Kremers says operators need more control over pricing.
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By  Roger Field Published  July 12, 2010

But even without taking the full leap to privatisation, Kremers thinks that the Ministry of Telecommunications and the TRA could start implementing certain changes that could have significant benefits for the sector and end users.

“As industry observers we say try to forget thinking about only the long term. There are also things that you can do in the short term that are probably less difficult to agree on that could set some changes in motion,” he says.

Key problems

To clarify his views, Kremers first explains the main faults he sees with the way the mobile operators are controlled. And among the main faults is the lack of freedom the telcos have to compete on price, a cumbersome approval process for implementing any new initiatives, and a lack of rewards aimed at encouraging improved quality of service.”

“There are very few levers that they can use to compete and on top of that, pricing is fully regulated and is equal between the operators,” Kremers says.

“You basically take the key competitive lever away from the operators and as a result we see very low penetration and fairly low quality of service levels and all the things that you don’t want to see.”

And on the subject of approval processes, Kremers says that the operators must navigate a “painstakingly long process” to get formal approvals for the changes they are allowed to implement.

Given the extent of these restrictions, Kremers is adamant that while full liberalisation should be the objective, much can still be achieved by making a number of smaller changes to the way Alfa and MTC Touch are allowed to operate.

He adds that the operators would benefit if they had more freedom on pricing and were also rewarded financially for fulfilling certain KPIs.

Furthermore, while the price reduction in mobile tariffs that was implemented about two years ago led to a huge increase in mobile penetration, there remains room to reduce prices further, Kremers says. Further price reductions would also be most likely compensated for with increased consumption.

“We feel that there is still a lot more elasticity in the market if you drop that price further,” Kremers says. “Lebanon has been notably the most expensive country in the world for mobile tariffs. It has done something about it but it is still far beyond everything else we see in the region.

“We would very much like to see a balanced approach where little steps are taken to create momentum while they [the government] are building out a broader platform of consensus to finally set course on a liberalisation path for the industry, which ultimately is the only way to get out of the current situation,” he says.

“It is good for everyone if they install a bit more competition and give a bit more freedom on the commercial side, so pricing regulation should be less strict and probably less painful to go through in terms of proposals.”

Kremers adds that if Lebanon were able to “pick up the pace” and begin implementing changes that inject more competition into the market, and also overcome political obstacles to agree on a path to liberalisation, much could be achieved.

This is not only important for the sake of the telecom sector itself, but also for the wider benefits that a healthy telecom market has on the rest of society.

Indeed, a liberalised telecom sector could lead to improved services, a boost in employment, improvements in education, as well as a general boost in the competitiveness of the country, Kremers says.

“The country would get an overall boost and would attract more FDI. It will also grow several sectors that are heavily reliant on a better telecom infrastructure,” he adds.

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