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Telecommunications in Lebanon- So close Yet so far           Date: 2010-11-01

Article prepared by Hadi Melki and Crissy Mona Solh and published in Financier Worldwide- Global Reference Guide: technology, Media & Telecoms 2010

 

The challenges facing the Lebanese telecommunications sector are considerable. However, potential opportunities for investors and operators in the country are significant, as the sector reforms and improvements made in other countries have yet to be implemented in Lebanon.

 

 This article analyses the major challenges facing the sector, highlighting what must be done to turn investment from vision to reality.

 

 In April 2010, Kamal Shehadi, Chairman of the Telecommunications Regulatory Authority (TRA), resigned. The TRA was only established in 2007, five years after legislation was passed requiring its establishment; an indication of the difficulties in reaching political consensus in the sector. This resignation occurred while the fifth TRA member had yet to be appointed by the Council of Ministers. His resignation represents a step back in the efforts to have a fully operating telecommunications regulatory authority to help design and implement telecommunications policy. 

  

A key driver behind the need for a comprehensive telecommunications policy has been the stated desire by many in government to privatise the sector. In January 2010, the Minister of Finance declared privatisation would not take place in 2010, but might occur in 2011. The Minister of Telecommunications then declared that while not opposed to privatisation, he was concerned with the way privatisation was contemplated by certain government administrations. These mixed signals are another example of the lack of political consensus in the sector.

 

Complicated relations in the regulatory sphere are another cause of delay and disagreement. In June 1994 the Government of Lebanon, following an international public auction, signed two Build Operate Transfer (BOT) contracts with France Telecom and Telecom Finland to develop the mobile telephony sector. The BOT contracts were then prematurely terminated by the Government which acquired the two mobile businesses in August 2002.  The Higher Council for Privatisation then took the lead with the first aborted mobile licensing process in 2003, but in June 2004 the Minister of Telecommunications awarded two management agreements for the two mobile networks transferred to the Government in 2002.  When these agreements expired, two new agreements were signed in January 2009 between the Minister of Telecommunications and Orascom Telecom Holding S.A.E. and Mobile Telecommunications Company KSC.

 

Interestingly, the Ministry of Telecommunications’ Policy Paper stipulates the privatisation and licensing of mobile services in Lebanon will be managed by the Minister of Telecommunications assisted by the Higher Council for Privatization and the TRA. However, the track record shows a lack of clarity and certainty as to the coordination of telecommunication policy which has left Lebanon behind in an area it once led.

 

In 1994, Lebanon was one of the first countries in the region to introduce mobile telephony. Fifteen years later, it is yet to implement 3G technology and is still functioning with an outdated PSTN network and an internet bandwidth of 2.3 megabits per second. The Minister of Telecommunications announced recently the allocation of US$165m for telecommunications infrastructure development - a positive step towards reform. This would allow Lebanon to land the submarine cable I-ME-WE 3 raising the internet bandwidth to 30 gigabits per second and to backhaul the internet traffic over a 4000-5000km national fibre optic backbone network expected to cover the majority of Lebanon. An encouraging yet shy initial step to propel Lebanon towards its goal of becoming a regional business and telecommunications hub.

 

The US$165m allocation constitutes 13% of the $1.3 bn dollar tax revenue generated in 2009 from the telecommunications sector. Protective of the revenues it is generating from the sector, the government is torn by competing interests and consequently, is not focused solely on the development of telecommunications infrastructure. The capital investment needs are daunting, and both the I-ME-WE 3 landing and national fibre optic network deployment are unlikely to match the state of the art technology already implemented in the region such as Next Generation Network, 3G, 4G, Triple play, FTTX and the like. Lebanon’s legal, economic, cultural, social and human capital qualify it to play the role of a regional business and telecommunications hub. However, its telecommunications infrastructure, extremely high prices, poor quality service and ridiculously low internet bandwidth disqualify it from doing so. When asked why Lebanon was not considered as the location for their regional headquarters, many global firms operating regionally echoed these shortcomings.

 

Telecommunications is not a luxury, but a major component of a healthy economy and the government should quickly find the necessary means to raise the telecommunications sector from ‘cash cow’ status to the role of national economic booster. Meanwhile, investors and operators are advised to keep an eye on Lebanese telecommunications developments in order to be able to step in at the right moment.

 

Hadi Melki is a partner and Head of the Telecommunications Practice, and Crissy Mona Solh is an associate of El-Khoury & Partners (Legal Counsel), a law firm associated with Squire, Sanders & Dempsey LLP.

 

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