By Josh Martin

Making a phone call in the Middle East may soon become a lot easier and cheaper. From Morocco to Oman, Arab governments are rushing to upgrade their countries' telecommunications networks. They are allowing local and international private companies to take over much of this sector, to finance and create the communications grids needed if those economies are to survive and compete in the rapidly emerging world of e-commerce.

It has not been an easy decision. In many Arab countries, state-owned telephone monopolies have been a major source of public sector income. In Saudi Arabia, telecoms are the government's second largest source of revenue. In Jordan, it is the third largest source of government income; the same has been true in Egypt.

State-owned systems in the Middle East are being forced to relinquish their monopolies

"It is a problem for governments and incumbent dominant telecoms in the Arab world," says Professor Erran Carmel of the American University's Kogod School of Business in Washington, DC.

State-owned systems in the Middle East are being forced to relinquish their monopolies because they have been unable to meet the telecom demands of an Internet-driven global economy. The number of phone lines per capita has lagged behind standards set in Europe and North America; only Kuwait, Bahrain, Qatar and the UAE have managed to get telephone penetration rates to exceed 20 per cent of households.

Money talks: it is estimated that Arab countries will need to invest between $30 and $50 billion each year over the next five years to bring their telecommunications systems up to global standards. Faced with these huge demands for capital, both to install conventional land lines and to create cellular, mobile and wireless systems, many state monopolies have been compelled to cede a significant role for cash - to technology-rich private sector consortia.

In the past 18 months, Egypt, Morocco, Lebanon and Saudi Arabia have all privatised or announced plans to privatise significant parts of their telecommunications sectors.

One result of this has been the creation of a competitive telecommunications market, where businesses and individuals can shop for the best rates and service, from two or more service providers.

Consider recent developments in Morocco, where two major mobile phone companies are now competing for customers. Last July, the government awarded a $1.1 billion global system for mobiles (GSM) contract to Medi Telecom, an international consortium led by Spain's Telefonica in partnership with Portugal Telecom, Morocco's BMCE Bank, and the Moroccan industrial group Afriquia.

So far, Arab businesses have lagged behind their more 'wired' western counterparts.

Although it will be seeking customers in a fast-growing market, Medi Telecom will face tough competition from the other GSM operator in Morocco, the state-owned Itissalat Al Maghrib (IAM), recently renamed Maroc Telecom.

This will not be a public-versus-private competition: Morocco's Prime Minister Abderrahmane El Youssoufi, who has called the telecoms sector "the driving force" of the country's economic growth, has made clear his government's intention to "liberalise" (read: privatise) the sector by 2002. It will be a profitable experience: although the government is expected to retain a 51 per cent stake in Maroc Telecom, its partial privatisation could put over $2.5 billion into the treasury.

Consumers have already benefited. In anticipation of increased private-sector competition, Maroc Telecom waged an aggressive marketing campaign in 1999, upgrading its services, issuing cheaper pre-paid phone cards, cutting connection and subscription rates, and reducing other tariffs by up to 50 per cent.

Privatisation of telecoms in the Middle East is directly linked to governments' understanding the profound and growing economic importance of the Internet. Consider this: the investment bank Goldman Sachs estimates that e-commerce will reach $1.5 trillion in the US alone by 2004, at which time global e-commerce will exceed $7.3 trillion. This emerging world of e-commerce requires adequate land-line, wireless or mobile phone systems to provide access to the Internet.

A recent survey of managers from the UAE's top 100 companies in finance, manufacturing, retail, telecommunications, and IT (information technology), found that while 88 per cent of companies surveyed had Internet access, only 60 per cent had set up their own websites, and only 14 per cent of these firms were involved in e-commerce.

The UAE has the best score so far. IT experts estimate that region-wide, less than one per cent of the 200 million Arab population is connected to the Internet, and only 10 per cent of those use e-commerce. More significantly, while 14 per cent of companies world-wide engage in some form of e-commerce, only four per cent of those in the Middle East do so.

That may change rapidly over the next three years, as telecom connection costs drop, and more companies see the benefits of e-commerce. An American research firm recently calculated that the regional IT sector is expanding at a 25 per cent annual rate.

Investment in IT products and services is expected to double over the next three years, exceeding $35 billion in 2002.

Development of the IT and telecoms sectors has created a huge market for multinational companies. Computer and software giants like Microsoft, Sun Computers, Samsung and Siemens are actively competing. Strategic alliances have been formed, with bids from France Telecom and Motorola, Vivendi and SBC Communications, and GTE and Bell Atlantic, vying for shares of telecoms markets.

Arab state-owned telecoms are being forced to relinquish their monopolies (luring capital to privatised entities), or survive by adopting better services and lower rate structures.

Some have not been moving fast enough. A growing number of Arab individuals and businesses have switched over to Internet telephony - using their computers to make overseas calls at a small fraction of their conventional local telecom company's long-distance rates.

IT companies in the Arab world have a commanding presence in their local stock markets

"Traditional phone rates from the Middle East are high," notes Larry Spear, co-founder of Go2Call.com, a US-based service company which lets Internet users go on-line, select the cheapest phone rates, and make calls from any point on the globe to any other point. "Arabs are a natural client base for us."

Spear reports that over 11 per cent of the company's customers reside in the Middle East, of which 21 per cent reside in the United Arab Emirates, 19 per cent in Saudi Arabia and 15 per cent in Lebanon.

If Arabs are using their Internet-linked computers to make calls, they are also starting to use their phones to link to the Internet. Rony Zarom, CEO of the Israeli telecom equipment firm Exalink, believes that wireless handsets will increasingly be used to make that link: "You're going to see a revolution in the number of users picking up their phones to surf the net."

As in London, New York, or Tokyo, telecoms and IT companies in the Arab world have a commanding presence in their local stock markets. No wonder: whether through satellite technology or land-based networks, the newly opened telecom sector in the Middle East is one of the fastest growing markets in the world. The question is, will it grow fast enough to ensure the Arab world access to - and a meaningful share of - the e-commerce global economy?

Copyright © IC Publications Limited 2001. All rights reserved. No part of this site may be reproduced or transmitted in any form by any means or used for any business purpose without the written consent of the publisher. Whilst every effort has been made to ensure that the information contained herein is as accurate as possible, the publisher cannot accept responsibility for any consequences arising from its use.

Back to the top
Contents