Politics hurts

With a relatively closed market, tight regulations and political volatility, Syria is a tough market for telecom operators. Milan Sallaba, partner, Oliver Wyman, tells CommsMEA where the country's potential lies.

Despite having a large young population and a relatively low mobile penetration rate, Syria remains a tough market for private telecom operators looking to enter the market.

And the situation has become more difficult in the past few years, partly owing to tightening US sanctions, which have been in place since 2004.

For the telecoms sector, the sanctions mean that operators have been forced to acquire telco equipment from alternative providers, including France and China.

It also makes it more difficult for the telecoms sector, and the country as a whole, to open its doors and become a fully liberalised and fluid market. "In brief, a lack of infrastructure, underdeveloped services, lack of competition, an overly government-controlled communication sector all contribute to hamper take up and growth, and do not reflect the underlying market potential," says Milan Sallaba, partner, Oliver Wyman.

He also cites political factors such as "partial international isolation, a controlled and closed economy, traditional dependence on oil in face of depleted oil resources going forward" as contributory elements to the plight of Syria's telecoms sector.

Other concerns hindering an effective communications industry is the highly dispersed population in relation to other countries in the region.

With only 51% of the population living in urban areas, compared to 80-90% in neighbouring countries, it is difficult to ensure coverage and be cost effective in rolling out new networks.

In addition, the country's dependency on oil remains a significant concern.

"Syria's economy has been heavily dependent on oil in the last decades; it is projected to become a net importer of oil in 2010, and will fully exhaust its reserves by 2030," explains Sallaba.

"Analysts believe Syria has a five-year window of opportunity to use oil revenues to finance sufficient economic diversification and growth."

The International Monetary Fund (IMF) ranks Syria 125th out of 131 countries for financial market sophistication, and 128th for prevalence of foreign ownership. But the government is starting to make the first overtures to change this.

"The Syrian government is planning to privatise several public companies within the next two or three years. It also recognises the need for a large degree of foreign direct investment (FDI); perhaps as much as US$3-4 billion per annum," Sallaba continues.

A national ICT strategy, drawn up in conjunction with the United Nations Development Programme (UNDP), is also being implemented to develop the ICT industry in Syria.

By 2013, country targets include a fixed-line penetration of 30%, mobile penetration of 30% and an internet penetration of 20%. In a country boasting almost 20 million people - 60% of which are under the age of 25 - this is a significant market to be involved in.

Over-regulation

While Syria's neighbour Jordan is home to one of the most liberal telecom markets in the Middle East, Syria is the polar opposite.

Indeed, the Syrian Telecommunications Establishment (STE), which is the sole provider of infrastructure and is responsible for all telecommunications in the country, has a strong hold on the industry.

"STE is effectively the operating arm of the Ministry of Telecoms and Technologies but has financial and administrative independence," says Sallaba. "There are plans to form a separate regulatory authority, the current status of which remains unclear.

Competition in telecoms ranges from monopoly in fixed, duopoly in mobile and partially open in internet. New competition is apparently ‘mandated' from agreements to come in by 2010 and a new mobile provider is expected in 2008-09," he adds.

In terms of mobile usage, which is widely considered the most dominant aspect of telecom services in the region, penetration remains low compared to its neighbours. But this means there is high potential.

There are around 6.7 million mobile subscribers, with mobile penetration increasing from 6% in 2003 to around 35% at the end of 2007.

Sallaba attributes this rise to declining connection costs, as well as a growing number of additional pay-as-you-talk offerings from 2005 onwards. According to him, ARPU has also slipped from US$41 in 2003 to about US$21 at the end of last year.