Download CONNEXUS

Competition in Telecommunications
and the Information-Based Economy
Kamal S. Shehadi, PhD
Managing Director
Planet Lebanon 2004
Opportunities in IT and Communications
Beirut
July 22, 2004
CONNEXUS
CONSULTING
The liberalization and privatization of telecoms are
key to the future of the Lebanese economy
Overwhelming evidence that competition in
telecommunications “works.” It leads to:
Lower prices and better quality of service
Higher levels of telecom penetration
Higher productivity in telecom and economy
Faster rates of technological innovation
More investments in the sector
There is not one single country in the world
that has maintained state monopoly over
telecom and succeeded in developing ICT
CONNEXUS
CONSULTING
In the past, governments have pursued a number of
objectives from liberalization and privatization
Improve
Performance of
Telecom Sector
Redistribute Wealth
and Enable
Economic Growth








Telecom
Liberalizatio
n
Strategic
Objectives
Sustain Country’s
Competitiveness


Comply With
International
Commitments


Develop Capital
Market
CONNEXUS
CONSULTING
Develop ICT sectors
Create new job opportunities in
telecom
Attract additional investments
Improve productivity of traditional
sectors
Catalyze the growth of information
economy
Improve integration of the economy
with ROW
Deliver on WTO, EU and other
commitments
Meet commitments to international
institutions (World Bank, IMF, etc.)

Allocate and use scarce resources
efficiently
Generate revenues from new
licenses
Raise taxes from new telcos


Widen share ownership in
List new telcos on stock exchange

Increase Treasury
Revenues
Improve financial performance of
incumbent
Increase penetration of services
Introduce new telecom services
Improve price/quality ratios

To leap-frog into the information-based economy, a
number of requirements have to be in place
Requirements of Information-Based Economy
1
Legislation
 Key legislation needs to be in place to enable the development of ebusiness, e-government, and other information-based businesses
Education
 Educational system graduating computer literate students
 Educational system graduating skilled programmers, certified
engineers, and other IT skills
2
3
Venture Capital
 Financing for ICT initiatives needs to be available
 ITC-industrial support mechanisms
4
Infrastructure
 State of the art infrastructure: wireless and wireline
 Wide reach and access of large population
5
Competitive Prices
 Price of telecom services competitive with rest of the world
 Price of services reflective of market conditions
CONNEXUS
CONSULTING
The mobile penetration rate in Lebanon is among the
lowest in the region due to lack of competition and
bad regulation
Mobile Penetration (in % of Total Population)
2003
Lebanon
21%
Saudia Arabia
Canada
Qatar
33%
41%
47%
France
68%
Bahrain
69%
Germany
UAE
Spain
Italy
79%
81%
94%
99%
Source: Informa, ITU, Arab Advisors
CONNEXUS
CONSULTING
Lebanon’s mobile postpaid connection fee is among
the highest when compared to other international
operators
Mobile Post Paid Connection Fee Benchmarking Against Selected Regional and
International Operators (2004) (US$)
100
Cellis
75
Libancell
69
Qtel
62
Vodafone
57
MTC
34
Etisalat
STC
27
T-Mobile
27
Mobinil
24
Telefonica
24
Telnor
23
13
Batelco
Free!
SFR
0
Source: Tarifica, ITU, Operators
20
40
60
CONNEXUS
CONSULTING
80
100
120
The monthly charges for mobile postpaid lines are
also among the highest - and they don’t include any
“free” minutes
Mobile Post Paid Monthly Charges Benchmarking Against Selected
Regional Operators (2004) (US$)
Cellis
25
Libancell
25
Batelco
16
STC
16
MTC
14
Q-Tel
14
Meditel
12
Maroc Telecom
12
11
Mobinil
8
Etisalat
0
Source: Tarifica, ITU, Operators
5
10
15
CONNEXUS
CONSULTING
20
25
30
The cost of a postpaid minute in Lebanon is among
the highest in the region and is due to the high
excise tax imposed by the Government
Mobile Postpaid Peak Minute Rate Benchmarking Against Select Middle Eastern
Operators (2004) (US$ cents per peak minute)
Omantel
14
Meditel
14
Maroc Telecom
14
STC (AlJAWAL)
13
MTC
13
Cellis
Libancell
6 cents tax
13
6 cents tax
13
Mobinil
10
Batelco
10
Etisalat
8
0
1
Source: Tarifica, ITU, Operators
2
3
4
5
6
7
8
9 10 11 12 13 14 15
CONNEXUS
CONSULTING
The 6 cents tax
makes up 46%
of the minute
rate
The price of a prepaid minute is higher than the rest
of the region, with one company billing by 40 second
intervals, thereby making prices less transparent
Mobile Prepaid Peak Minute Rate Benchmarking Against Select Middle Eastern
Operators(2004) (US$ per peak minute)
Libancell (Premiere +)
47
Libancell (Premiere)
44
Libancell (Premiere)
38
Cellis - Clic
36
STC (Al Jawal)
32
Mobinil
24
Q-Tel
20
Batelco
15
Etisalat
7
0
Source: Tarifica, ITU, Operators
10
20
CONNEXUS
CONSULTING
30
40
50
In addition, prepaid packages on offer have a validity
period of 60 days, much less than what is available in
other countries
600
Prepaid Validity Periods
500
400
60
360
300
180
200
100
30
360
60
3
120
120
240
180
180
5
60
0
Morocco
Bahrain
UAE
Tunisia
Maximum validity period
Egypt
Jordan
Lebanon
Maximum grace period
Source: Arab Advisors Group, from Operators
CONNEXUS
CONSULTING
On the fixed network side, Lebanon is at par with the
penetration rates of selected regional and
international operators
Fixed Line Penetration (in % of Households)
Saudia Arabia
Lebanon
69%
80%
Italy
85%
UAE
86%
France
Germay
105%
110%
Bahrain
113%
Spain
114%
Qatar
145%
Source: Informa, ITU, Arab Advisors
CONNEXUS
CONSULTING
Despite the 35% reduction in per-minute tariffs for
international telephony, connection and per-minute
tariffs remain relatively high
Tariff in US$/ 3 minute call to NYC, average of peak and off-peak rates
Morocco
1.1
Lebanon
2
Jordan
1.85
UAE
1.43
0
0.5
1
Source: Tarifica, ITU, Operators
CONNEXUS
CONSULTING
1.5
2
2.5
Internet penetration in Lebanon compares
favorably to the region, but the “digital divide” with
developed countries is readily apparent
Internet Users per 100 Inhabitants (2003)
1.5
Other
All Arab
2.3
Morocco
2.4
Egypt
2.5
3.2
Palestine
Tunisia
6
Jordan
6
KSA
6
7
Oman
10
World
11
Kuwait
Qatar
12
Lebanon
12
25
Bahrain
37
UAE
41
Devlp'd
0
5
10
15
20
25
CONNEXUS
Source: ITU
CONSULTING
30
35
40
45
Lebanon has only recently introduced ISDN
technology, but it is overpriced and has long been
overtaken by more advanced technology such as ADSL
ISDN Tariffs
40
Lebanon
550
21
Jordan
422
9
United Arab
Emirates
55
0
100
200
Installation
300
400
500
Monthly subscription
Source: Telecommunications Operators
For Lebanon, the ISDN BRI Monthly subscription rate used is the average of residential and business rates
CONNEXUS
CONSULTING
600
International connectivity is prohibitively
expensive and detrimental to the development of
an information-based economy
2MB/s International Half-Circuit Rental Prices to Nearby Countries
(US$)
Denmark
Finland
Ireland
Sweden
Luxembourg
Netherlands
Belgium
Greece
Italy
France
Portugal
Austria
Spain
KSA
Lebanon
Oman
Kuwait
3176
3970
4591
5705
6197
8398
11408
11827
12140
13685
15512
16520
18631
22667
25305
31422
54400
0
10000
Source: Teligen 2003 and Tarifica 2004
20000
30000
CONNEXUS
CONSULTING
40000
50000
60000
Lebanon has one of the lowest international
connectivity ratios in the region
Comparison of International Trade versus International Internet Bandwidth
3
International Internet
Bandwidth per cap in bit/s
5
4
4
15
3
15
114
351
Algeria
Morocco
Tunisia
Egypt
Jordan
Lebanon
Saudi Arabia
Greece
Portugal
617
Italy
618
Spain
Source: Telegeography & GDF WDI
CONNEXUS
CONSULTING
Were Lebanon to open telecommunications to the
private sector for competition, mobile penetration
will double in five years …
Full Competition
1,800,000
45
2,000,000
1,600,000
40
1,800,000
1,400,000
35
1,600,000
30
1,400,000
35
1,200,000
30
1,000,000
1,200,000
28.6
1,000,000
800,000
600,000
800,000
500,000
13.8
25
20
20.3
15
1,000,000
800,000
600,000
1,740,000
43.5
800,000
500,000
13.8
50
45
40
25
20
20.3
15
400,000
10
400,000
200,000
5
200,000
5
0
0
0
0
1998
2003
2008
1998
Source: Connexus Consulting
CONNEXUS
CONSULTING
10
2003
2008
Penetration
Subscribers
Government-Owned Duopoly
… the number of internet hosts will increase by a
factor of ten …
Potential Impact of Different Liberalization Scenarios on the Spread of the Internet
Predicted internet hosts per 10,000 people
20
18
16
14
12
10
8
6
4
2
0
MENA
Source: World Bank
Restricted Market
Access
Moderate Market
Openness
CONNEXUS
CONSULTING
Full Market Openess
… expenditure on telecommunications (as a
percentage of GDP) – net of taxes – will almost
double …
Potential Impact of Different Liberalization Scenarios on Expenditures on Telecommunications
Predicted Telecommunications Revenues in % of GDP
2.5
2
1.5
1
0.5
0
MENA
Restricted Market Moderate Market
Access
Openness
Source: World Bank
CONNEXUS
CONSULTING
Full Market
Openess
… investment in the telecom sector will increase
fourfold and add another US$ 150 million/year of
investments …
Projected Investment in Telecommunications (US$ Millions)
200
100
50
Restricted Market
Access
Moderate Market
Openness
Source: Connexus Analysis
CONNEXUS
CONSULTING
Full Market Openess
Finally, competition in telecommunications will
allow Lebanon to become a hub for ICT and create
thousands of high value-added jobs
Direct Opportunities from a Better Data Telecommunication Sector
Software
development:
Designing, coding,
testing and
implementing
software for
several industries
Consultancy
Services:
Training and
seconding of IT
personnel
Data
Telecommunications
Voice Center
Operations:
Technical
assistance centers
for service
companies
CONNEXUS
CONSULTING
High-end remote
processing and
knowledge
management:
Database
management, data
mining/
warehousing, GIS,
content creation
Low-end remote
processing/teleworking:
Key punching, data
entry
The liberalization and privatization of telecom in
Lebanon is a daunting challenge, but the roadmap is
clear and simple
 The Government of Lebanon (GOL) needs to adopt a clear policy to
liberalize telecom and open it to competition
Policy
Independent
Regulatory
Authority
Privatization
 Policymakers should cease to look at telecommunications as a cash
cow, whether for the treasury or for their cronies
 GOL must implement Law 431/2002, which calls for the
establishment of an independent regulatory authority
 Appointment to the authority must be on the basis of merit and not
on the basis of allegiance
 GOL must begin the process of privatizing the two mobile operators
and the fixed network immediately, bringing a strategic investor for
each
 A certain percentage of shares must be listed on the stock exchange
New Licenses
 The regulatory authority, once appointed, must issue new licenses to
establish alternative networks to carry data, voice, and media, both
domestically and internationally
CONNEXUS
CONSULTING