* Tender to run two mobile operators expected in mid-April
* Private investment would be encouraged in some areas
* Could boost economy, make Lebanon regional data hub
* But government reluctant to cede control of industry
* Dispute over elections could delay part of plan
By Matt Smith
DUBAI, March 20 Lebanon is embarking on an
ambitious plan to bolster its telecommunications industry with a
tender to run its two state-owned mobile telephone operators.
But as with many of the country's economic plans, politics and
entrenched financial interests may get in the way.
The country wants to become a digital hub for the Middle
East, selling excess bandwidth to other countries. It hopes a
dynamic telecommunications sector will spur growth in other
industries such as education, health and finance.
Given Lebanon's large number of entrepreneurial businessmen,
and its history as a cultural cross-roads for the region, the
idea makes sense. But progress is likely to be limited by
divisions among the country's many political factions and the
government's reliance on telecommunications as a revenue source.
"Lebanon is well placed with its geographic location and an
educated and multilingual population," said Kenechi Okeleke, an
analyst at Business Monitor International in London.
"But the government's strict control over the sector makes
it really difficult for private sector firms to enter, which
will continue to hold back the market."
Lebanon's telecommunications sector is largely in state
hands, with the fixed network maintained by government-owned
Ogero Telecom while the two mobile operators, Touch and Alfa,
are owned by the state but currently managed by Kuwait's Zain
and Egypt's OTMT. The government sets prices
for all operators. Touch is the market leader, with a 53 percent
share of Lebanon's mobile phone subscribers.
Zain took control of Touch in 2004 and OTMT of Alfa in 2009,
and their management contracts have repeatedly been renewed
since then, usually on an annual basis. Both were due to expire
on Jan. 31 this year, but have been extended until June 30 to
give time for a tender for new five-year contracts.
Bidding will open in mid-April, said Karim Kobeissi, a
senior advisor to Lebanon's Ministry of Telecommunications.
"Some international companies have made enquiries, but
nothing is concrete yet," he told Reuters, declining to reveal
the contract terms because the tender document had not yet been
Although Zain and OTMT have expressed interest in continuing
to operate Touch and Alfa, the tender could replace them if
there is competition from experienced international
telecommunications operators, such as those in the Gulf.
But regardless of the result of the tender, the structure of
Lebanon's telecommunications market may continue to hinder
growth. Sydney-based consultants BuddeComm said that because
operators must obtain state approval for pricing and product
launches, they have little incentive to expand networks
efficiently, "resulting in suboptimum network design and poor
quality of service".
Mobile phone subscriber numbers nearly tripled between 2008
and 2012 as prices fell; revenue per user dropped 42 percent
over the same period. But mobile phone penetration in Lebanon
was still only 91 percent of the population in 2012, lagging
much of the Middle East, where rates in some countries are above
100 percent as customers own multiple accounts.
The government slashed broadband Internet subscription fees
by more than three-quarters in 2011, but they remain above
"Lebanon trails behind other countries in the region in
almost all aspects of broadband networks and services,"
BuddeComm wrote in a report. "There have been many complaints
that Lebanon's poor broadband services negatively impact
economic development, leading to the loss of jobs overseas."
CIVIL WAR LEGACY
The state's desire to keep control of the telecommunications
infrastructure may in part be a legacy of Lebanon's 1975-1990
civil war; sectarian political parties are determined to prevent
parts of it from falling under their enemies' influence, in a
nation where political and business interests are often blurred.
The government's tender to manage the mobile operators is
being issued after proposals to privatise them early last decade
failed to go ahead. A plan to sell off the fixed network also
"Lebanon is still a frontier market," said Okeleke at
Business Monitor International. "There is hardly any country
that has maintained a high level of state control over the
telecom sector that has been as competitive or innovative as
more liberalised markets."
The government's Telecommunications Regulatory Authority
(TRA), launched in 2007, aims to change that. "The TRA would
like the private sector to be involved as much as possible in
the market itself," said Imad Hoballah, acting TRA chief
But the TRA's powers have been trimmed by the Shura Council,
a government legal body, and the state's dependence on
telecommunications revenues means outright sales of large equity
stakes in operators may not be feasible for many more years.
Touch and Alfa had combined revenue for 2011 of $1.6
billion, of which $1.4 billion went to the government, Business
Monitor International estimates - making telecommunications the
second-largest contributor to state coffers, after taxes on
goods and services.
Under the reform plan, the two mobile firms would keep
separate networks but a state-owned company could be created to
own the operators' transmitter tower assets; the government
might then sell a separate contract to run this.
Meanwhile, telecommunications services - loosely defined as
anything that entails interaction with end-users - and so-called
"intelligent" infrastructure, which Hoballah described as
switches, antennas and routers that transmit information, would
be opened to private investment.
The TRA has also recommended that the government legalise
Internet-based phone services known as Voice over IP (VoIP),
which analysts say is a prerequisite to become an international
To accomodate a bigger telecommunications industry, Lebanon
this month signed an agreement with Cyprus to boost its
international interconnectivity, currently among the lowest in
the region, via submarine cables. This deal will increase
Lebanon's capacity to send data to Europe five-fold by the end
of the second quarter, Hobollah estimated.
A blueprint for integrating the telecommunications sector
with other industries still needs approval by the Council of
Ministers, however, and Hoballah said this had been delayed by
issues surrounding Lebanon's electoral law.
He declined to elaborate, but political parties have so far
been unable to agree on the terms of parliamentary elections due
this summer, disputing how constituencies should be divided and
the extent of proportional representation in the vote.
This stand-off, along with political tensions over the civil
war in neighbouring Syria, has paralysed government
decision-making and could delay the elections.
Kobeissi insisted the mobile tender would go ahead
regardless of the elections, while some other telecommunications
reforms could if necessary be implemented by his ministry
without the Council's go-ahead.
"It will create a lot of jobs, increase GDP and government
revenue," he said. "It will create investment opportunities and
revenues for the private sector."