FIRST TELECOMMUNICATION REGULATORY MEETING FOR THE ARAB REGION

1. FIRST TELECOMMUNICATION REGULATORY MEETING FOR THE ARAB REGION CORPORATE NETWORKS AND OPENING OF FIXED SERVICES Mostafa TERRAB Lead Regulatory Specialist ALGIERS, April 19, 2003

2. OUTLINE • Why are competitive fixed-services and corporate networks important? • Regional telecom specificities • Options for improving fixed-services and corporate network provision

3. 4000 3000 2000 1000 Portugal Greece Jordan Egypt UAE Morocco Algeria 0 20 000 40 000 60 000 80 000 International Internet bandwidth (Mbit/s) International trade (USD millions) International trade is not supported by sufficient Internet connectivity Countries under study are underserved in the area of international connectivity Source: Telegeography, Packet Geography 2002, Analysys

4. TRADE ICT FINANCE Transport & Logistics ICT is a Key Trade Enabler B2B / E-Commerce / ERP Supply Chain Mgt EDI E-Finance Electronic Trading

5. The Textile Supply Chain

7. 70% Norway 2 y = 0.7x + 0.2x 60% Japan 2 R = 0.8 USA 50% UK 40% Portugal Internet penetration UAE Germany 30% Italy Egypt 20% Algeria Morocco Jordan Greece 10% 0% 0% 20% 40% 60% 80% Fixed line penetration Fixed Penetration is a Key Driver of Internet Usage Significance: VPN is main solution for SMEs Source: ITU, Analysys

9. The “I” Before the “E” But also the “R” before the “I”

10. Main lines Cellular Internet per 100 Subscribers Users per inhabitants per 100 10000 2000 inhabitants inhabitants Sub Saharan Africa 1.4 1.7 3 East Asia & Pacific 10.1 7 4 Latin America & 14.8 12.3 30 Caribbean Middle East & North 9.2 3 1 Africa 1995 Sub Saharan Africa 1.1 0.1 1 East Asia & Pacific 4.1 0.5 0 Latin America & 9.1 0.8 1 Caribbean Middle East & North 5.8 0.1 0 Africa Key Telecom Indicators

11. Number of Fixed Lines / Pop (source ITU)

12. Number of Mobile Lines / Pop (source ITU)

13. Mobile Overtaking Fixed Penetration 80% 60% 40% 20% 0% Algeria Egypt Jordan Morocco UAE Fixed penetration Mobile penetration Source: ATRN Database, ITU

14. Wireless Rural Access? Source: ITU

15. Strictly monopolistic markets are holding back development of the leased line market 60 50 Algeria 40 Egypt Jordan 30 Morocco 20 Spain Portugal 10 0 1995 1996 1997 1998 1999 2000 2001 Number of leased lines per 10 000 inhabitants (source: Analysys)

16. Companies interviewed (Analysys 2002) revealed service can be improved • Poor service quality: Lack of Service Level Agreements • Long lead times for corporate users: • Companies (that can afford it) often prefer to use their own private links (low degree of infrastructure sharing) Source: Analysys Interviews

17. Status of ISP market in different regions 100% 80% 60% 40% 20% 0% MENA Europe Americas Asia Pacific Rest of Africa Competition Monopoly MENA is lagging in the liberalization of ISP and leased lines markets Status of leased line market in different regions 100% 80% 60% 40% 20% 0% MENA Europe Americas Asia Pacific Rest of Africa Monopoly Competition Source: ITU World Telecommunication Regulatory Database 2000

19. Data and leased lines delivery by alternative operators is constrained • Provision of data services on top of infrastructure (mainly leased lines) supplied by incumbent operators, e.g. IP VPN • ISPs in national markets. Note that the regulatory treatment for international service provisioning varies by country • Mobile operators have the right to operate their own international gateway Source: ATRN Database, ITU 2001 regulatory surveys

20. Regional MENA Specificities • Fixed/mobile substitution for voice services • Mobile duopolies (more or less regulated) Low fixed penetration • Fixed monopolies • Untapped growth potential for data services and Internet • Challenge: approaches to foster a dynamic market for fixed services

21. Typical Country Situation

22. Licensing Approaches and Policy/Regulatory Tool-Box

23. Licensing Approaches • Long-Distance International  Local • Fixed  Mobile • Wire-line  Wireless (Cellular, WLL, VSAT) • National/Urban  Regional/Rural • Voice  Data • Individual Licenses  Class Licenses • Infrastructure  Services (Approach driven by technological trends and corporate strategies)

24. Infrastructure/Services Regulated Virtuous Circle • Infrastructure: • Natural Monopoly? • Oligopoly • Dominant • Operators Infrastructure Roll-Out Expanding Market and Reach of Services Investment Incentive=Revenue Growth Generated by Innovation In Services • Need Strong Regulation to strike balance between: • Carrot =Revenue Sharing = Incentive to expand network • Threat = Conditional right to infrastructure Services: -competition -value-added providers

25. Options for Opening Fixed Services • Top–Down: Second National Operator (SNO) • Attempts to re-create successes in mobile licensing • Unsuccessful in many instances (South Africa, Morocco,…) • Not adapted to current market conditions • Bottom–Up: Licensing strategies equivalent to incremental relaxation of regulatory constraints imposed on VAS providers (ISPs and Network Integrators) and on existing operators (Cellular, VSAT, GMPCS,…) • In-line with industry trends: growth driven by innovation in services; threshold return on infrastructure investment. • Requires strong regulatory intervention (interconnection, dominance)

26. Current Situation (in Most Countries) Right to Use Public Domain Infrastructure YES NO YES Services Open to Public NO

27. Options for Opening Fixed Services Right to Use Public Domain Infrastructure YES Conditional NO YES Services Open to Public ISPs Network Integrators Definition of “Public” and “closed” NO

28. Licensing / Regulatory Principles • Technological neutrality s.t. spectrum • Simplify Market Structure • Maximize regulatory readability • Avoid intractable regulatory complexity, given degree of tariff rebalancing and infrastructure roll-out imperative (squeeze; predation;…) • Best candidates are “local” candidates: • Know the market – Capacity to assess risk • Can leverage existing investments (e.g., GSM2; ISPs; INCUMBENT; Alternative Infrastructure) – risk management