Outline

1. Challenges and Opportunities for Telecommunications Reforms in the MNA CountriesTrade and Knowledge Economy: Focus on MNA CountriesSamia Melhem

2. Outline • Status of telecom reforms in MENA countries: mobile duopoly The need for a second phase of telecom reforms in MENA countries: the competitiveness agenda A possible way forward: organic growth of the access and production of information and knowledge services

3. Mobile networks are rapidly overtaking fixed networks for the provision of access to voice services

4. Table 2.2: Overview of telecommunications sector liberalization status in selected MNA countries Liberalization Algeria Egypt Jordan Morocco Tunisia UAE Fixed telephony No No No No No No Mobile telephony Yes (2001) Yes (1998) Yes (2000) Yes (1999) Yes (2002) No Number of mobile operators 3 2 2 2 2 1 Leased lines No Partial No No No No Data and VAS No Yes Yes Yes Yes No ISPs Yes Yes Yes Yes Yes No Number of ISPs (Main) 15 11 8-25 20 2 (+5 regional) 1 VSAT Yes Yes No Yes Yes No Number of VSAT operators 3 2 N/A 3 2 N/A Overview of telecommunications sector liberalization status in selected MNA countries

5. MNA countries are lacking the international connectivity to realize their economic ambitions

6. Data suggests that fixed line penetration is the key driver of Internet usage

7. Low fixed line penetration has inhibited Internet use

8. Limited liberalization of ISPs in the MNA region may also explain the low level of Internet penetration

9. Lack of competition in the provision of leased lines is inhibiting the development of the leased line market

10. Garment Factories Tunisia Morocco USA Europe Egypt Syria Egypt USA Europe Raw Material Fiber Brand Companies Apparel Textile Companies Spinning Weaving Knitting Marketing & Distribution Department Stores / Outlets Contractors Raw Material Synthetic Fiber Trading Companies Overseas Buying Offices Germany The Textile Supply Chain

11. Challenges • First phase of reforms took place is specific circumstances: maturity of GSM technology and “friendly” capital markets. • Second phase of reforms will have to focus on fixed and data services to address the competitiveness gap. Data and corporate services remain largely untapped. • These reforms (licensing strategies and regulations) will have to be designed in a way that takes into account local specificities and new technological and business conditions in the IT sector (convergence, innovation in services, riskmanagement). Attempts to re-create past successes have failed (SNO licenses).

12. Licensing Approaches • Mobile agenda: GSM3 (2G? 3G?) • Fixed agenda: • SNO? Focus on voice or data? • WLL? Nationwide or local WLL licenses? • Unlicensed spectrum (WiFi) policy—interaction with WLL • Rural licenses? Regional licenses? • International gateways; international licenses

13. International Experience • No single model for introducing competition • Licensing strategies are built on various distinctions and concepts (Fixed/Mobile; LDI/local; Basic services/Enhanced services;…) • The requirement to provide competitive services to the business community (corporate networks) has been a major driver of reforms (exceptions: MNA and AFR) • Objective was to introduce innovation and competition in services without “destabilizing” incumbent

14. A Global Telecoms Crisis Last Mile includes: Verizon, BSC, US West/Qwest, Bellsouth, Comcast, AT&T Broadband, Cox, Cablevision, Adelphia, Charter, Rhythms Netconnections, Covad, Northpoint. Access includes: AOL, Earthlink, MSN. Carriers includes: Qwest, AT&T Business, Sprint FON, Level 3, Worldcom, Cable & Wireless, Global Crossing, Genuity.

15. With Significant Impact on Traditional LDC Telecoms Investors

16. Network operators Service providers Nature of competition Oligopolistic Close to “perfect competition” (multiplicity of market players) Capital requirements Large infrastructure investment required Low startup costs required Barriers to entry High Low Business drivers Economies of scale Innovation and Customer orientation Business model Return on investment logic Long-term vision Product diversification and diffusion logic Short-term vision Investor classes Institutional investors and bank consortia Venture capital and private equity firms Distinctions between data network infrastructure and service providers: new business model; value in service innovation Source: Analysys

17. A Dynamic Growth Cycle: Investment in Infrastructure and Innovation

18. Table 2.2: Overview of telecommunications sector liberalization status in selected MNA countries Right to Build Infrastructure on the Public Domain YES NO LICENCE DECLARATION/FREE Network operators Incumbent Mobile Operators (if they have right to own infrastructure) YES Value Added Services Providers ISPs… Services Open to the Public Private Networks (“on premises”) Alternative Infrastructure Owner Independent Networks NO AUTHORIZATION FREE/DECLARATION Corporate Network Provision in Selected MNA countries

19. Private network Morocco Tunisia Jordan Right to develop a private network Company and its subsidiaries. Company and its subsidiaries. Company and its subsidiaries. (Group of companies) Geographical domain No limits. Public domain can be used, including spectrum. No data. No limitations. Public domain can be used, including spectrum, but an agreement with telecommunications operators needed. Right to install private networks (Maroc Telecom). Sotetel, other network installers. Jordan Telecom only. Interconnection to PSTN Not allowed. No data. Allowed. Retail rates apply. Interconnection regulation discipline only relationship among public operators. Leased line regulation Some regulations on QoS and maximum delivery time. Lack of enforcement. Cost-oriented tariffs. Detailed regulation on the provision of leased lines. Detailed regulation on the provision of leased lines, with TRC approval of tariffs and procedures. Wholesale prices. However, persistence of long delivery time. The provision of private data networks in selected MNA countries

20. SERVICE PROVISION SERVICES PROVIDERS REWARDS STREAM Multiplicity of Competitors Inadequate Revenue Sharing schemes = Lack of Incentives for Investment in Infrastructure Limited Infrastructure Roll Out = Limited Reach to Customers BLOCKED INFRASTUCTURE PROVIDERS REWARDS STREAM INFRASTRUCTURE BACKBONE Oligopolistic Competition Blocked Growth Cycle

21. Table 2.2: Overview of telecommunications sector liberalization status in selected MNA countries No infrastructure sharing High cost of leased local, national and international lines for service provider Take-up of broadband slow and expensive Chicken and egg issue: Impact on content Corporate Network Provision in MNA: Mostly provided by incumbent

22. Competition increases takeup of basic ICT services New ICTs go hand in hand with competition Percentage of countries worldwide allowing competition, for selected ICT services, 2002 Source: ITU World Telecommunication Regulatory Database.

23. Cable modem - Countries where incumbent telecommunication carrier owns cable network or share of cable network 2.5 DSL - Countries where incumbent telecommunication carrier owns cable network or share of cable network Cross ownership and broadband penetration, subscribers per 100 inhabitants 2.0 DSL - Countries where incumbent telecommunication carrier does not own cable Cable modem - Countries where telecommunication carrier does not own cable 1.5 … and slow to grow Cross ownership economies are late to launch… 1.0 0.5 0 1999 2000 2001 .. in particular, cross-ownership between the incumbent and broadband providers appears to hurt broadband penetration • Countries where incumbent telecommunication operators have stakes in companies offering competing broadband services have significantly reduced levels of broadband penetration. Source: Reproduced from OECD, Broadband Access for Business, 2002.

24. New entrant Incumbent How does competition occur ? Competitors buy some services from the incumbent IP Transit Internet IP Router Wireless Access(LMDS, Microwave, WiFi etc.) ISP server SDHADM SDHADM SDHADM SDHADM SDHADM IP Router IP Router SDHADM SDHADM Fixed Access(leased line, fiber etc.) End-user computers

25. Common access technology alternatives

26. What are useful indicators ? • Retail prices (lagging indicator: low price usually indicates competition, high take-up, and good regulation) • % population taking service • $/Mbps • Cost of monthly broadband cost/monthly income • Broadband cots/GDP/bit/sec (alternative)

27. Broadband: Demand is growing strongly in the developed world... (Source: Analysys)

28. Opportunity : Creation of new markets for providers (attached is subscribers total numbers) • Japan  9,228,000USA  8,243,000China  7,817,000South Korea  7,069,000Germany  4,252,000France  2,429,000Taiwan  2,374,000Canada  2,027,000Italy  1,672,000Spain  1,433,000UK  1,414,000Brazil  837,000Belgium 706,000Hong Kong  660,000Netherlands  643,000Sweden  508,000Denmark  416,000Switzerland  383,000Israel  358,000Australia  333,000 • (Source: Point Topic/DSL Prime)

29. Even if the price of broadband is quite similar in many countries,income disparities are as wide as ever Source: ITU Internet Reports – Birth of Broadband (Sep 2003) - only selective countries shown, based on lowest broadband price offering

30. Market Player Chessboard

31. Towards a Dynamic Growth Cycle: a win-win game

32. Policy Recommendations • Giving service providers a “telecom” status • Extending rights of service providers (conditional bypass + sharing) • Alternative infrastructure holders (second mobile + utilities) • “Flexible” closed user groups

33. Regulatory Recommendations • Revenue sharing regulatory levers—wholesale regime • Access regulatory levers—Rewarding infrastructure deployment

34. SERVICE PROVISION SERVICES PROVIDERS REWARDS STREAM Multiplicity of Competitors Services providers seize licenses’ opportunities INFRASTUCTURE PROVIDERS REWARDS STREAM Roll-out obligations in license conditions Internalizing distortions into licenses (international) INFRASTRUCTURE BACKBONE Oligopolistic Competition Licensing Recommendations: Priming the Pump Tailor opportunities to: local players, regional operators, private equity players