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Thursday, October 14, 1999 The Middle East: Calling Out The telecommunications market has become one of the Middle East's strongest foreign investment magnets. In a region that has an underdeveloped fixed-phone line system compared to developed nations, demand for mobile phones has been particularly large. Countries privatizing their phone companies, such as Saudi Arabia, Morocco and Egypt, are leading the way in this telecommunications expansion. While more and more inhabitants of the region today have access to phone lines, citizens in Syria, Algeria and Yemen continue to lag behind. The following briefing examines telecommunications development in various countries of the Middle East. Introduction Rapid telecommunications' development in various countries of the Middle East can be attributed to several factors: globalization trends, government privatization and growing demand for mobile phones (as well as other advanced services), sometimes by populations that have never even had regular phone service. In fact, the enormous popularity of cellular capabilities has positioned this industry as one of the greatest non-oil magnets for foreign direct investment and has also been a galvanizing force in regional stock exchanges. But while the greatest leap in demand has been for mobile phones, the bulk of money has been invested in fixed networks, which currently reach 10 to 20 percent of the region's population. For foreign companies, opportunities abound. Saudi Arabia Saudi Arabia is one country investing heavily in expanding and upgrading its telecommunications infrastructure. This process began a year ago with the establishment of the Saudi Telecommunications Company (STC) to lure foreign investors to help with expansion plans. STC is now developing a plan for next year to provide 2.2 million more lines, as well as to install fiber optic cables and microwave transmission. STC has recently installed 130,000 new telephone lines in Jeddah and intends to add 70,000 lines in A-Dawis, Dark Mecca and Al-Jahara Quarter. Saudi Arabia has at least one unique reason to strengthen its telecommunications infrastructure -- the annual Haj. In 1999, pilgrims made 7 million phone calls during this sacred event. Currently, the Kingdom posses 2.4 million fixed lines, 274 cellular satellites, 700,000 pagers and 6,000 data lines. As for the number of mobile phones, there are various estimates ranging from 200,000 to 600,000 subscribers.  Egypt Monumental changes are also underway in Egypt, where investor interest piqued with the prospect of a 10-20 percent sale of the state-owned Egypt Telecom and a further 30 percent planned. With 4 million landlines under its control, Egypt Telecom has a market value of $8.8 billion. The government has also recently granted two licenses to foreign companies for rights to operate 20,000 nationwide public payphones each for a 10-year period. France Telecom received one of these licenses in exchange for 66 percent of revenues, estimated at $590 million. The second license was awarded to Landis and Gyr of Switzerland. Similar to other parts of the region, mobile phone usage in Egypt is rising. By January 1999, six months after taking over the mobile network established by Telecom Egypt, Mobinil (France Telecom, Motorola and Orascom Technologies) nearly doubled the number of subscribers from 83,000 to 159,850. Analysts predict 320,000 subscribers by year's end. Competing with Mobinil is Misr-Fone. Established in November 1998, the company has 180,000 users according to June figures. Analysts expect this figure to climb to 300,000 by the beginning of 2000. In its first four months, the company subscribed 100,000 customers, one of the highest success rates of any new wireless telephone network. If estimates are correct, there is an extensive market in which the two companies can compete. Some assess the Egyptian market's total potential at 12 million cellphone subscribers, less than 20 percent of its population. Also, both Misr-Fone and Mobinil believe 6 million people are waiting for prices to drop before subscribing. Morocco Again, the same type of scenario is occurring in Morocco, where an impending partial sale of the state telephone company attracted eight bids from investment banks hoping for a slice of what is expected to be a $1 billion offering in early 2000. Mobile phone use in this kingdom is bursting. The number of users is expected to grow at an annual rate of 16 percent, from the current 15,000 users to 6 million by the end of 2014. In July, the government already awarded a $1.076 billion license to Medi Telecom-Telefonica of Spain to operate the country's new mobile telephone system. The size of contract is nearly double what the Egyptian government received for two licenses a year earlier, illustrating the mounting interest in mobile telephones. Lebanon Mobile telephones have been popular in this country, which is still rebuilding after years of civil war that has left many without phone service. As late as 1996, 14.93 out of every 100 people had phone lines; no public phones existed, and 200,000 Lebanese used mobile phones. Today, 580,000 citizens, roughly 15 percent of the population, have mobile phones and talk for an average of 750 minutes a month. This amounts to 620 minutes more than the global average. Syria Syrians are preparing to introduce cellular service, which has yet to occur due to security concerns. But the country is moving to expand fixed line service by awarding Siemens a $41 million contract to install 1.65 million new telephone lines. Even with the addition of these lines, the country would still lag behind the rest of the Arab world in its technological and telecommunication infrastructure. Palestinian Authority The Palestinians are trying to break away from dependence on the three Israeli cell phone companies. The Israelis, who have granted the Palestinians only a limited number of frequencies, generate $5 million in revenue from Palestinian customers. The Palestinian phone company, Paltel, has installed a cell phone system in Gaza and will soon do likewise in the West Bank. The Swedish-based Ericsson is working with them. Beyond trying to install cellular capabilities, the Palestinians are also working to improve their fixed line system. In 1998, they increased the number of telephone lines to 170,000 and refurbished a network that can accommodate 220,000 lines. Conclusions A telecommunication transformation is underway in the Middle East. The countries gaining the most from this change are those in which the governments are moving toward privatizing state-run telephone companies, such as Egypt and Morocco. Both of these nations have reaped the rewards, as they are also the leading Arab nations in attracting foreign investment. These countries will also likely be the first and best prepared to compete in the interrelated global business environment. Yet, there are still those Mideast countries resisting change, choosing not to privatize or allow the introduction of new services and the associated inflow of capital.

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