connexus c o n s u l t i n g competition in telecommunications and the information-based economy...
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CONNEXUSC O N S U L T I N G
Competition in Telecommunications and the Information-Based Economy
Kamal S. Shehadi, PhDManaging Director
Planet Lebanon 2004Opportunities in IT and Communications
BeirutJuly 22, 2004
CONNEXUSC O N S U L T I N G
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
The liberalization and privatization of telecoms are key to the future of the Lebanese economy
CONNEXUSC O N S U L T I N G
In the past, governments have pursued a number of objectives from liberalization and privatization
Telecom Liberalizatio
nStrategic
Objectives
Telecom Liberalizatio
nStrategic
Objectives
Redistribute Wealth and Enable Economic
Growth
Redistribute Wealth and Enable Economic
Growth
Sustain Country’s Competitiveness
Sustain Country’s Competitiveness
Comply With International
Commitments
Comply With International
Commitments
Develop Capital MarketDevelop Capital Market
Increase Treasury Revenues
Increase Treasury Revenues
Improve Performance of Telecom Sector
Improve Performance of Telecom Sector
Improve financial performance of incumbent
Increase penetration of services Introduce new telecom services Improve price/quality ratios
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
CONNEXUSC O N S U L T I N G
Key legislation needs to be in place to enable the development of e-
business, e-government, and other information-based businesses
Key legislation needs to be in place to enable the development of e-
business, e-government, and other information-based businessesLegislationLegislation
Educational system graduating computer literate students Educational system graduating skilled programmers, certified
engineers, and other IT skills
Educational system graduating computer literate students Educational system graduating skilled programmers, certified
engineers, and other IT skillsEducationEducation
Financing for ICT initiatives needs to be available ITC-industrial support mechanisms
Financing for ICT initiatives needs to be available ITC-industrial support mechanisms
Venture CapitalVenture Capital
State of the art infrastructure: wireless and wireline Wide reach and access of large population
State of the art infrastructure: wireless and wireline Wide reach and access of large population
InfrastructureInfrastructure
Competitive PricesCompetitive Prices Price of telecom services competitive with rest of the world Price of services reflective of market conditions
Price of telecom services competitive with rest of the world Price of services reflective of market conditions
Requirements of Information-Based Economy
To leap-frog into the information-based economy, a number of requirements have to be in place
11
22
33
44
55
CONNEXUSC O N S U L T I N G
The mobile penetration rate in Lebanon is among the lowest in the region due to lack of competition and bad regulation
99%
94%
79%
69%
68%
47%
41%
33%
21%
81%
I taly
Spain
UAE
Germany
Bahrain
France
Qatar
Canada
Saudia Arabia
Lebanon
Mobile Penetration (in % of Total Population)2003
Source: Informa, ITU, Arab Advisors
CONNEXUSC O N S U L T I N G
Lebanon’s mobile postpaid connection fee is among the highest when compared to other international operators
100
75
69
62
57
34
27
27
24
24
23
13
0 20 40 60 80 100 120
Cellis
Libancell
Qtel
Vodafone
MTC
Etisalat
STC
T-Mobile
Mobinil
Telefonica
Telnor
Batelco
SFR
Mobile Post Paid Connection Fee Benchmarking Against Selected Regional and International Operators (2004) (US$)
Free!
Source: Tarifica, ITU, Operators
CONNEXUSC O N S U L T I N G
The monthly charges for mobile postpaid lines are also among the highest - and they don’t include any “free” minutes
25
25
16
16
14
14
12
12
11
8
0 5 10 15 20 25 30
Cellis
Libancell
Batelco
STC
MTC
Q-Tel
Meditel
Maroc Telecom
Mobinil
Etisalat
Mobile Post Paid Monthly Charges Benchmarking Against Selected Regional Operators (2004) (US$)
Source: Tarifica, ITU, Operators
CONNEXUSC O N S U L T I N G
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
14
14
14
13
13
13
13
10
10
8
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Omantel
Meditel
Maroc Telecom
STC (AlJAWAL)
MTC
Cellis
Libancell
Mobinil
Batelco
Etisalat
Mobile Postpaid Peak Minute Rate Benchmarking Against Select Middle Eastern Operators (2004) (US$ cents per peak minute)
The 6 cents tax makes up 46% of the minute rate
6 cents tax
6 cents tax
Source: Tarifica, ITU, Operators
CONNEXUSC O N S U L T I N G
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
47
44
38
36
32
24
20
15
7
0 10 20 30 40 50
Libancell (Premiere +)
Libancell (Premiere)
Libancell (Premiere)
Cellis - Clic
STC (Al J awal)
Mobinil
Q-Tel
Batelco
Etisalat
Mobile Prepaid Peak Minute Rate Benchmarking Against Select Middle Eastern Operators(2004) (US$ per peak minute)
Source: Tarifica, ITU, Operators
CONNEXUSC O N S U L T I N G
In addition, prepaid packages on offer have a validity period of 60 days, much less than what is available in other countries
Source: Arab Advisors Group, from Operators
60
36060
18030
60
120120
240180
360
180 5
3
0
100
200
300
400
500
600
Morocco Bahrain UAE Tunisia Egypt Jordan Lebanon
Maximum validity period Maximum grace period
Prepaid Validity Periods
CONNEXUSC O N S U L T I N G
On the fixed network side, Lebanon is at par with the penetration rates of selected regional and international operators
145%
114%
113%
110%
105%
85%
80%
86%
69%
Qatar
Spain
Bahrain
Germay
France
UAE
Italy
Lebanon
Saudia Arabia
Fixed Line Penetration (in % of Households)
Source: Informa, ITU, Arab Advisors
CONNEXUSC O N S U L T I N G
Despite the 35% reduction in per-minute tariffs for international telephony, connection and per-minute tariffs remain relatively high
1.43
1.85
2
1.1
0 0.5 1 1.5 2 2.5
UAE
J ordan
Lebanon
Morocco
Tariff in US$/ 3 minute call to NYC, average of peak and off-peak rates
Source: Tarifica, ITU, Operators
CONNEXUSC O N S U L T I N G
41
37
25
12
12
11
10
7
6
6
6
3.2
2.5
2.4
2.3
1.5
0 5 10 15 20 25 30 35 40 45
Devlp'd
UAE
Bahrain
Lebanon
Qatar
Kuwait
World
Oman
KSA
Jordan
Tunisia
Palestine
Egypt
Morocco
All Arab
Other
Internet penetration in Lebanon compares favorably to the region, but the “digital divide” with developed countries is readily apparent
Source: ITU
Internet Users per 100 Inhabitants (2003)
CONNEXUSC O N S U L T I N G
Source: Telecommunications Operators
For Lebanon, the ISDN BRI Monthly subscription rate used is the average of residential and business rates
55
422
550
9
21
40
0 100 200 300 400 500 600
United ArabEmirates
Jordan
Lebanon
Installation Monthly subscription
Lebanon has only recently introduced ISDN technology, but it is overpriced and has long been overtaken by more advanced technology such as ADSL
ISDN Tariffs
CONNEXUSC O N S U L T I N G
International connectivity is prohibitively expensive and detrimental to the development of an information-based economy
Source: Teligen 2003 and Tarifica 2004
54400
31422
25305
22667
18631
16520
15512
13685
12140
11827
11408
8398
6197
5705
4591
3970
3176
0 10000 20000 30000 40000 50000 60000
Kuwait Oman
Lebanon KSA
Spain Austria
Portugal France
I taly Greece
Belgium Netherlands
Luxembourg SwedenI reland Finland
Denmark
2MB/s International Half-Circuit Rental Prices to Nearby Countries (US$)
CONNEXUSC O N S U L T I N G
Lebanon has one of the lowest international connectivity ratios in the region
Comparison of International Trade versus International Internet Bandwidth
Source: Telegeography & GDF WDI
Spain
Italy
Portugal
Greece
Saudi Arabia
Lebanon
Jordan
Egypt
Tunisia
Morocco
Algeria
618
617
351
114
15
3
15
4
4
5
3International InternetBandwidth per cap in bit/s
CONNEXUSC O N S U L T I N G
Full Competition
500,000
1,740,000
800,000
13.8
43.5
20.3
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
1998 2003 2008
0
5
10
15
20
25
30
35
40
45
50
Penetration
Source: Connexus Consulting
Government-Owned Duopoly
500,000
1,000,000
800,000
13.8
28.6
20.3
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
1998 2003 2008
Subscribers
0
5
10
15
20
25
30
35
40
45
Were Lebanon to open telecommunications to the private sector for competition, mobile penetration will double in five years …
CONNEXUSC O N S U L T I N G
… the number of internet hosts will increase by a factor of ten …
Potential Impact of Different Liberalization Scenarios on the Spread of the InternetPredicted internet hosts per 10,000 people
Source: World Bank
0
2
4
6
8
10
12
14
16
18
20
MENA Restricted MarketAccess
Moderate MarketOpenness
Full Market Openess
CONNEXUSC O N S U L T I N G
… expenditure on telecommunications (as a percentage of GDP) – net of taxes – will almost double …
Potential Impact of Different Liberalization Scenarios on Expenditures on TelecommunicationsPredicted Telecommunications Revenues in % of GDP
Source: World Bank
0
0.5
1
1.5
2
2.5
MENA Restricted MarketAccess
Moderate MarketOpenness
Full MarketOpeness
CONNEXUSC O N S U L T I N G
… investment in the telecom sector will increase fourfold and add another US$ 150 million/year of investments …
Projected Investment in Telecommunications (US$ Millions)
Source: Connexus Analysis
50
100
200
Restricted MarketAccess
Moderate MarketOpenness
Full Market Openess
CONNEXUSC O N S U L T I N G
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
High-end remote processing and
knowledge management:
Database management, data
mining/ warehousing, GIS, content creation
Low-end remote processing/tele-
working:Key punching, data
entry
Consultancy Services:
Training and seconding of IT
personnel
Voice Center Operations:
Technical assistance centers
for service companies
Data Telecommunications
CONNEXUSC O N S U L T I N G
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
Policymakers should cease to look at telecommunications as a cash cow, whether for the treasury or for their cronies
The Government of Lebanon (GOL) needs to adopt a clear policy to liberalize telecom and open it to competition
Policymakers should cease to look at telecommunications as a cash cow, whether for the treasury or for their cronies
PolicyPolicy
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 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
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
The regulatory authority, once appointed, must issue new licenses to establish alternative networks to carry data, voice, and media, both domestically and internationally
The regulatory authority, once appointed, must issue new licenses to establish alternative networks to carry data, voice, and media, both domestically and internationally
IndependentRegulatory Authority
IndependentRegulatory Authority
PrivatizationPrivatization
New LicensesNew Licenses