With technology already outstripping the ability of governments to control and expand their level of investment in a state of the art telecommunications infrastructure, there is a real danger the Middle East region could be left behind in the information economy of the new millennium. Julian Taylor reports from Dubai.

The Middle East represents a lucrative market for the telecommunications industry. But despite decades of state development the region still requires massive investment to upgrade and expand its telecom capacity. According to estimates nearly $8 billion worth of investment in the sector is needed annually between now and the early years of the 21st century.

Telecommunication lies at the heart of rapid changes taking place in the Middle East. Massive developments in the Information Technology (IT) sector have resulted in parallel progress for telecommunications. Industry experts believe that about $35 billion will be invested in the Middle East telecom and IT sectors over the next three years.

Middle East demand for services, such as video-conferencing, real-time data transmission, multi-media applications, e-mail, remote computing, file transfer and conferencing as well as voice on the Internet, is increasing.

Faced by the realities of globalisation most operators in the region, who until recently behaved as monopolists, are rethinking their strategies. Realising the benefits of competition, such as better quality, faster response to customers and lower prices, they are reversing the trend by opening up their economies and changing their regulatory frameworks.

There are, however, other forces moving countries of the Middle East towards a more competitive telecommunications environment. One of them is the 1997 World Trade Organisation (WTO) Agreement on Telecommunications. Experts believe that close to 90 per cent of global telecom revenues will be opened to competition as a result.

With technology already outstripping the ability of governments to control communications and to expand their level of investment in a state telecom infrastructure there is a danger that, a few years from now, the Middle East region may be left behind in the information economy of the new millennium.

Fearing that this may happen sooner than expected, some countries of the Middle East are already making their moves towards relaxing monopoly provision of telecommunications services.

Egypt is currently in the process of deregulating its telecommunications sector to end the state monopoly and to improve customer service.

In March 1998 a draft law was passed by the parliament to turn the national telecommunications authority, Telecom Egypt, into a joint-stock company, the Egyptian Telecommunications Company, as a prelude to privatisation.

Today various sectors of telecommunications provision in Egypt are being opened to private involvement, although security concerns and lack of expertise are still giving cause for concern in some quarters.

Following in Lebanon's footsteps Egypt has allowed competition between mobile phone operators. The country's first GSM system, which was set up in 1996, was offered up for privatisation 12 months later as part of an ongoing project to expand capacity to 300,000 subscribers by 1999.

With only about 90,000 cellular subscribers out of a population of 62 million, and with approximately 1.7 million people waiting to sign up for landline service, there is obviously a healthy demand. With this extensive market in mind Egypt has made plans for two more GSM system networks. The Vodafone/AirTouch group, now known as Click GSM, won the tender for the second license. The $516 million deal, announced in March 1998, marked a further step towards full privatisation of Egypt's telecommunications network.

Several other important contracts are also underway. In November 1998 Lucent Technologies was awarded a contract by Telecom Egypt to expand its nationwide network by an additional 700,000 lines. The agreement is an extension of the contract signed in November 1997 between Lucent and Telecom Egypt for its 'Golden Pyramid' project. Under the terms of that deal, Lucent was chosen to deploy switching and wireless access technologies and provide project management expertise.

The Egyptian experience has provided food for thought for other countries planning to introduce competition. The most striking parallel is in Morocco, which has plans for a private GSM mobile phone network worth $500 million, as part of its ongoing liberalisation of the sector.

Of Morocco's 28 million citizens around 80,000 are now GSM subscribers and there are fewer than five telephone lines per 100 inhabitants. Under the government's privatisation plans, however, a new license should boost that figure by an additional 200,000 by the year 2000. With growth rates over the last couple of years averaging 73 per cent the Moroccan cellular market is believed to be the fastest growing on the African continent after South Africa.

In March 1998 Tunisia started operating a newly acquired cellular phone network designed to cover the country's main urban areas. The network has an initial capacity of 30,000 lines, which could be expanded to 200,000 lines by 2000. It was established by France's Alcatel at a cost of $19.5 million.

Alcatel was also awarded the $5.2 million contract to expand Yemen's telephone system. According to the terms of the deal Alcatel will install about 59,000 new telephone lines throughout the country over a period of eight months. On completion, Yemen's 17.5 million population will have more than 472,000 telephone lines.

At present the six Gulf Co-operation Council (GCC) countries lead the Arab world in virtually every area of telecommunications. But falling oil revenues and changes in global trade are forcing these same states to accelerate reforms in their telecommunications systems, analysts project the GCC's infrastructural requirements between now and the year 2001 at more than $10 billion a year.

At present Saudi Arabia, one of the biggest and wealthiest GCC countries, is installing 1.5 million extra fixed lines and some 530,000 Global Standard Mobile (GSM) lines. The kingdom's next expansion will involve between 200,000 and 700,000 fixed lines and up to one million more GSM lines. A third expansion, scheduled for early in the next decade, may involve installation of up to another four million fixed lines.

Despite falling oil revenues, the GCC region has been earmarked by several important telecom manufacturers as a growth market. In fact most of these manufacturers are already busy carrying out new projects in the region.

In 1998 a $38 million contract for the expansion of the GSM network in Kuwait was awarded to Motorola. Last March, Ericsson released details of its $69 million deal to build the fibre optic network connecting Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE. During the same period Bahrain Telecommunications Company (Batelco) signed a GSM roaming agreement with American Personal Communications (APC), and in May Alcatel won a $26 million contract to carry out expansion work on Abu Dhabi's GSM network. In September Ericsson also entered into a deal with the Emirates Telecommunications Corp. (Etisalat) for the sale and distribution of an advanced communication system in the UAE.

The Middle East region is at a critical juncture in the evolution of its telecommunication systems. As markets open up and benefits become increasingly obvious governments are becoming ever more aware that without efficient communications they will not be able to survive the fierce competition that is developing.