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AMERICAN UNIVERSITY OF BEIRUT
ICT SECTOR IN LEBANON: PRESENT STATUS AND THE NEED FOR REFORM
by
RICHARD JOHN DAGHER
A project submitted in partial fulfillment of the requirements
for the degree of Master of Engineering Management to the Engineering Management Program
of the Faculty of Engineering and Architecture at the American University of Beirut
Beirut, Lebanon May 2001
AMERICAN UNIVERSITY OF BEIRUT
ICT SECTOR IN LEBANON: PRESENT STATUS AND THE NEED FOR REFORM
by
RICHARD JOHN DAGHER
Approved by:
____________________________________________________________________ Dr. Toufic Mezher, Associate Professor First Reader Engineering Management ____________________________________________________________________ Dr. Hassan Ghaziri, Assistant Professor Second Reader Business
Date of project presentation: May 14, 2001
AMERICAN UNIVERSITY OF BEIRUT
PROJECT RELEASE FORM
I, Richard John Dagher
authorize the American University of Beirut to supply copies of my project to libraries and individuals upon request.
do not authorize the American University of Beirut to supply copies of my project to libraries and individuals for a period of two years starting with the date of the project defense
____________________ Signature
____________________ Date
v
ABSTRACT
AN ABSTRACT OF THE PROJECT OF
Richard John Dagher for Master of Engineering Management Major: Engineering Management Title: ICT Sector in Lebanon: Present Status and the Need for Reform
This study examines the current state of the Information and Communication Technology - ICT- sector in Lebanon. The study starts by examining the effect of the ICT sector on the global and Lebanese economy, proceeds to analyzing the present status of the different elements that shape or are a part of this sector, and ends by trying to come up with a vision on the need for overall reform of this vital sector. ICT sectors in global economies are experiencing extraordinary growth and are becoming a main driver for development in worldwide economies. There is a present need for a modern reformed ICT sector capable of providing the fuel than can drive the recovery of the Lebanese economy.
In studying the present state of the ICT sector in Lebanon the states of the different segments that shape this sector were examined. These include the states of: fixed-line telephony services, mobile communications services, the data Services comprised of: Internet services, ISDN services, VSAT satellite connection, public data leased-Line connectivity services, frame relay /X.25 data connectivity services, and wireless microwave connectivity services. It also examines the software development industry in Lebanon, the human resources in Lebanon and their Impact on the ICT sector, the Lebanese banking sector and the impact on the ICT sector, and finally eBusiness and the Lebanese legislative environment’s support for eCommerce. An analytical approach is followed in examining the opportunities, threats, weaknesses, and strengths of the different aspects that shape the ICT sector.
There is an urgent need for total reform of the ICT sector in Lebanon. The
study examines tracks that could be followed on the way to reforming the Lebanese ICT sector. These include the gradual liberalization of ICT services, privatization of public owned, operated, and controlled ICT services, effective regulation of all ICT activities and the adoption of several specific ICT stimulatory measures.
vi
CONTENTS
Page
ABSTRACT ….………………………………………………………..……….. v
LIST OF ILLUSTRATIONS ……………………………………………. x
LIST OF TABLES …………………………………………………………… xi Chapter
1. INTRODUCTORY EXECUTIVE SUMMARY......................... 1
2. ICT SECTOR: A GLOBAL AND LOCAL INTRODUCTORY PERSPECTIVE .................................................. 8
2.1. Information and Communication Technology- ICT: Scope and Definition ......................................................................................... 8
2.2. Growth and Importance of ICT in Global Economies ............................ 8
2.3. ICT in Lebanon: A Changing Paradigm and a Need for a Healthy and Reformed Sector .............................................................. 11
2.4. The Present State of the Lebanese ICT Sector and the Need for Reform ............................................................................................ 12
3. THE PRESENT STATE OF THE ICT SECTOR: STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS....................................................................... 14
3.1. State of Fixed-Line Telephony Services .............................................. 15
3.1.1. The Scope of the Rehabilitated Fixed-Line Network ............................................................................... 15
3.1.2. MPT-OGERO: Inefficiency, Overstaffing and Bureaucracy ......................................................................... 15
3.1.3. High Fixed-Line Voice Telephony Charges and Absence of Traffic-Generating Incentives........................... 16
vii
3.1.4. Revenues From The Fixed Line Telephony Network ............................................................................... 17
3.2. State of Mobile Communications in the Lebanese ICT Sector ............ 19
3.2.1. Segmentation and Size of Current Lebanese Mobile Communications Market ..................................................... 19
3.2.2. Mobile Phone Costs and Usage Levels in Lebanon ............ 20 3.2.3. The Dispute Between the Mobile Operators and the
Lebanese Government ......................................................... 20 3.2.4. Present Revenues from the GSM Services .......................... 21 3.2.5. Mobile Data Services: Emphasis on Present WAP
& GPRS Services................................................................. 22 3.2.5.1. A Bright Future for Mobile Data Services
Worldwide and in Lebanon ................................ 22 3.2.5.2. WAP Mobile Data Services in Lebanon............. 24 3.2.5.3. GPRS Mobile Data Services in Lebanon............ 24
3.3. State of Data Services in the Lebanese ICT Sector .............................. 25
3.3.1. Internet Services .................................................................. 25 3.3.1.1. Lebanese Internet Subscribers in a
Comparative Regional Perspective ..................... 25 3.3.1.2. Lebanon’s Low Dial-up Subscription
Costs and High Internet Proliferation Rates ................................................................... 27
3.3.1.3. Lebanon’s High Cost of Needed Bandwidth for Internet Services ......................... 28
3.3.1.4. Absence of Local ISPs Interconnection and Internet Operations Center ........................... 29
3.3.1.5. Lebanese ISPs and Web Hosting Services ......... 30 3.3.1.6. Means of Connecting to the Internet
Available in Lebanon.......................................... 30 3.3.1.6.1. Dial-up Internet Connection............... 31 3.3.1.6.2. Leased Line and Microwave
Connection ......................................... 31 3.3.1.6.3. Illegal Local Area Networks,
LAN, Cable Connection..................... 31 3.3.1.6.4. Downlink Satellite Internet
Service................................................ 32 3.3.1.6.5. Digital Subscriber Line –
xDSL- Connectivity ........................... 32 3.3.2. ISDN Connectivity Services ............................................... 33
3.3.2.1. Late Introduction of ISDN in Lebanon............... 34 3.3.2.2. Expected ISDN Costs in Lebanon...................... 34
3.3.3. VSAT Satellite Connectivity .............................................. 35 3.3.4. Public Leased-Line Connectivity Services.......................... 36 3.3.5. Frame Relay / X.25 Switched Data Connectivity
Services ................................................................................ 39 3.3.6. Wireless Microwave Connectivity Services ........................ 41
viii
3.4. State of Software Development in the Lebanese ICT Sector ............... 42
3.4.1. The Increase in Web-based Software Packages Development ........................................................................ 42
3.4.2. Lebanon’s Regional Web Development Industry and the ICT Sector ............................................................... 43
3.4.3. Software Copyright Protection and the Lebanese ICT Sector ........................................................................ 44
3.5. State of Human Resources and the Impact on the ICT Sector in Lebanon ............................................................................................ 45
3.5.1. Expertise of Lebanese ICT Professionals and the Challenge to Retain Them ................................................... 45
3.5.2. Education & Training Lebanese Human Resources for ICT Awareness............................................................... 46
3.5.3. The Role of the Public and Private Sector in Creating Social ICT Awareness........................................... 47
3.6. State of the Lebanese Banking Sector and the Effect on the ICT Sector ............................................................................................ 47
3.7. State of eBusiness and the role of the Evidential & Electronic Signature Laws in Stimulating eCommerce and Lebanon’s ICT Sector as a Whole .......................................................................... 49
4. REFORMING AND UNLEASHING THE ICT SECTOR IN LEBANON ......................................................... 51
4.1. The Need for Liberalization in the Lebanese ICT Sector ..................... 51
4.1.1. Global Trends in the Liberalization of ICT Sectors ............ 52 4.1.2. Benefits Of Liberalizing The Lebanese ICT Sector: ........... 54 4.1.3. Possible Effect of Liberalization and Increased
Competition on Lebanese ICT Costs ................................... 56 4.1.4. Competition Easier To Attain In ICT Sectors Than
Any Other Sectors................................................................ 57 4.1.5. Steps To Be Followed On The Road To
Liberalization Of The ICT Sector ........................................ 58 4.1.6. Sequence Of Gradual Liberalization That Could Be
Followed In Lebanon........................................................... 59 4.1.7. ICT Liberalization from an Arab Comparative
Perspective ........................................................................... 62
4.2. The Need for Privatization in the Lebanese ICT Sector ....................... 63
4.2.1. Global Trends in Privatization of ICT Sectors .................... 64 4.2.2. The Lebanese Government’s Vision on the
Privatization of the ICT Sector ............................................ 66 4.2.3. Alternative Strategies In Privatizing The Lebanese
Telecom Sector .................................................................... 67 4.2.3.1. Partial Or Complete Sale To A Strategic
ix
Investor. .............................................................. 67 4.2.3.2. Organizing An Initial Public Offering or
an IPO . ............................................................... 67 4.2.3.3. Combination Of A Sale To A Strategic
Investor Followed By An IPO. ........................... 68 4.2.4. Impact Of ICT Privatization On The Lebanese
Economy.............................................................................. 68 4.2.5. Sequence of Gradual Privatization to be Followed
in Lebanon ........................................................................... 70 4.2.6. Present Value Of The Telecom Sector To Be
Privatized ............................................................................. 72 4.2.7. ICT Privatization from an Arab Comparative
Perspective ........................................................................... 73
4.3. The Need for Effective Regulation of the Lebanese ICT Sector .................................................................................................... 73
4.3.1. Regulation or Deregulated Liberalization ........................... 74 4.3.2. Conditions for an Effective Lebanese ICT
Regulatory Authority ........................................................... 75 4.3.2.1. Financial Autonomy of the ICT
Regulatory Authority.......................................... 76 4.3.2.2. Administrative Autonomy of the ICT
Regulatory Authority.......................................... 76 4.3.2.3. Political Autonomy of the ICT
Regulatory Authority.......................................... 76 4.3.3. The Role of the Lebanese ICT Regulatory
Authority.............................................................................. 77 4.3.4. Regulatory Authorities from an Arab Comparative
Perspective ........................................................................... 79
4.4. Additional Recommendations on the Reform of the ICT Sector .................................................................................................... 80
5. CONCLUSION .......................................................................... 82
REFERENCES............................................................................... 84
x
ILLUSTRATIONS
Figure Page 1. Average Annual Global Economy Growth Rate vs. ICT Annual
Growth Rate for 1995-2000 Period ...................................................................... 9 2. Mobile versus Fixed-Line Growth in ICT (million users added
every year)............................................................................................................ 9 3. International Phone Calling Rates: OGERO Published Brochure ..................... 16 4. Contributions of the Ministry of Post & Telecom to the Lebanese
Treasury .............................................................................................................. 18 5. MPT’s Fixed & Mobile Revenues Compared to Customs and
Other Lebanese Treasury Revenues (2000 figures) ........................................... 18 6. % of Regular vs. Prepaid Card Mobile Phone Subscribers in
2001 .................................................................................................................... 19 7. Lebanon’s Two Mobile Operators’ Revenues for Year 2000 ............................ 22 8. Breakdown of the Lebanese & MENA Region Internet
Subscribers ......................................................................................................... 26 9. Number of Lebanese & Arab Internet Subscribers as % of
Population .......................................................................................................... 27 10. Level of Software Piracy Rates in Lebanon and the Region ............................. 45 11. Exponential Growth of US e-Commerce (B2C) Revenues in
billion$ ............................................................................................................... 49 12. Comparative Perspective of Market Development and
Liberalization in the Arab ICT Markets ............................................................ 63 13. Global Revenues from Privatization of the Different Sectors ........................... 64 14. Share of ICT Projects in the Volume Global Privatization................................. 65 15. ICT Projects with Private Investments .............................................................. 65
xi
TABLES
Table Page 1. Analog Leased Line Service Tariffs ................................................................... 38 2. Digital Leased Line Service Tariffs .................................................................... 39 3. Sodetel Frame Relay Switched Data Connectivity Tariff Plan
(February 2001 Figures)...................................................................................... 41 4. Effect of Telecom Privatization on Growth in Latin America ............................ 54 5. Roadmap of Recent and Expected Regional Telecom
Privatizations....................................................................................................... 73
1
1. CHAPTER 1
INTRODUCTORY EXECUTIVE SUMMARY
The objective of this study is to examine the current state of the Information
and Communication Technology - ICT- sector in Lebanon, and lay out the building
blocks for an efficient sector that will make Lebanese businesses competitive regionally,
kick-start Lebanon’s ailing and debt-ridden economy, encourage private investments
and create high-value added jobs that Lebanon needs. The study starts by examining the
effect of the ICT sector on the global and Lebanese economy, proceeds to analyzing the
present status of the different elements that shape, or are a part of, this sector, and ends
by trying to come up with a vision on the need for overall reform of this vital sector.
The ICT sector is one of the highest growing sectors in world economies. It is
one of the highest contributors to world GDP growths, job creation, and productivity
enhancement. Regaining Lebanon’s regional leadership position, which it enjoyed in the
late 60s early 70s, requires a modern reformed ICT sector capable of providing the fuel
than can drive the recovery of the Lebanese economy. ICT reform in Lebanon is much
needed at the least to enable Lebanon not to miss out the information age, and at the
best, to reduce the ever-increasing gap between the Lebanese and other developed
economies.
Studying the present state of the ICT sector in Lebanon requires examining the
states of the different segments that shape this sector. These include the states of: fixed-
line telephony services, mobile communications services, the data Services comprised
of: Internet services, ISDN services, VSAT satellite connectivity services, public data
1
2
leased-Line connectivity services, frame relay /X.25 data connectivity services, and
wireless microwave connectivity services. In studying the present state of the ICT
sector, the study also examines the software development industry in Lebanon, the
human resources in Lebanon and their Impact on the ICT sector, the Lebanese banking
sector and its impact on the ICT sector, and finally eBusiness and the Lebanese
legislative environment’s support for eCommerce.
The 1.1 million fixed-line network is maintained by the government-controlled
and owned OGERO, which suffers from great inefficiencies, overstaffing and
bureaucracy. The network has few value-added services and suffers from expensive
local and international calling rates. There is no preset policy by OGERO to provide
incentives for customer-generated increase in local and international calling traffic.
Instead, a relentless but ineffective war on VoIP and “callback” services is being fought.
MPT-OGERO is the second most important source of revenues for the treasury after
customs, forecasted to generate more than $600 million for 2001.
The two l994-licensed GSM mobile operators have more than 735,000
subscribers, 68% of them being prepaid-card subscribers. Lebanon has one of the
highest mobile usage rates in the world, and despite the common belief, has a relatively
expensive mobile telephony service. A dispute broke out between the operators and the
government whereby the government demanded that the two operators pay
compensation for alleged violations of the terms of their contracts. Efforts are being
carried by Hariri’s government to resolve the situation quickly, as the mobile sector
remains a very high source of revenue for the MPT generating more than $180 million
in 2000. In addition to mobile telephony basic service, value-added services such as
mobile data services (SMS, WAP, & GPRS) are being offered. Even though, the
70,000+ WAP enabled base is expected to grow quickly, WAP usage in Lebanon is
3
faced with several problems like the high per-minute-charge rates. This handicap will be
overcome with volume-used based tariff (vs. time-used) once newly launched GPRS is
fully available and adopted by subscribers.
Being one of the fastest growing data services in Lebanon, Internet usage is
available to more than 300,000 Lebanese users. Although Lebanon boasts relatively low
unlimited dial-up subscription rates and one of the highest Internet penetration rates in
the region especially after banks started bundling banking accounts with personal
computers and free Internet accounts, several problems still remain: Internet service
quality is poor; dial-up telephone costs are high thus offsetting the benefit of low
unlimited dial-up subscription costs; and the needed Internet bandwidth (speed) for
businesses remains high and insufficient. Although there are more than 20 ISPs in
Lebanon, there is no inter-ISP data backbone linking them and there is no centralized
network operations center supporting and regulating them. Moreover, ISPs plan little to
promote the already expensive web-hosting services on their networks.
The only available means of connecting to the Internet in Lebanon is through
dial-up , leased-line or microwave (mostly expensive corporate subscribers), and most
recently downlink satellite connections (coupled with uplink dial-up connections) or
illegal LAN cable Internet networks. Despite being well established in developed
countries and having started to appear in more than one Arab state, high-speed ISP-
provided xDSL Internet service is still nonexistent in Lebanon.
After long red-tape delays, ISDN service is another data service that is being
introduced by OGERO. Announced connection, subscription and usage rates are high if
compared to other ICT-developed countries.
VSAT satellite connectivity is also another data service that is picking up both
worldwide and, most recently, gradually appearing in Lebanon. Few competing
4
companies own the special license permits needed to import VSAT terminals, and the
required legal procedures for importing and the permissions to installing VSAT
terminals are very complex. These conditions are not favorable for a VSAT take-off.
Leased line connectivity data services between 2 sites are solely provided by
OGERO, and are divided into 2 types: Analog and Digital Leased Lines with more than
2000 links installed. Procedures for applying to a leased line in Lebanon are complex,
and once installed, the service is highly unreliable. Monthly costs for leased lines are
very expensive if compared to other countries. They are dependent on the geographical
location of the customer, the distance between the connected sites, and the subscription
speed needed (up to 2Mbps.)
Both local or international Frame Relay, and the older X.25 service, local and
international data connectivity services are solely offered by Sodetel, a private data and
Internet service provider that is 50% owned by the government. Tariffs are extremely
high and based on the bandwidth (speed) needed, amount and destination of data
exchanged.
Wireless microwave connectivity services are provided by mainly 2 licensed
operators. Offered speeds are 16Kbps to 2Mbps, setup and monthly rates are
disproportionately high, and service coverage is being rapidly extended.
Software development in Lebanon is rapidly picking up and Lebanon is
starting to play a major regional role in this industry. Lebanese web development
companies are leaders in the region. Web-based software packages, which mostly are
database, point of sale and accounting related, are increasing. The software piracy law,
which is very important for the development of a healthy software development
industry, is being gradually applied in Lebanon although more has to be done. There is a
need for a more serious approach by the government and a policy to reduce prices by
5
software companies.
Lebanon has a good base of ICT sector human resources although some lack
good management experience, and is facing a tough challenge to retain the base whose
individuals are leaving for higher salaries abroad. As for non-ICT sectors, human
resources need education and training in ICT awareness. This is a combined role for the
public and private sectors.
The banking sector in Lebanon, being financially strong and pressured by the
central bank to modernize its operations, is continually updating its ICT infrastructure.
Online banking, limited to executing basic transactions, is gradually flourishing. E-
nabling of banking sector by promoting legislation that protects and organizes eBanking
and requires banks to embark on an ICT overhaul of their traditional costly and
inefficient way of doing business is much needed.
As for eCommerce, it is slowly picking up in Lebanon, even though there are
several impediments on the way. Some of them are being dealt with, like the to-be-
ratified evidential and electronic signature laws, others remain to be solved like poor
legislation covering eActivity, low number of credit card users, complex import/export
procedures, high duties, and unreliably slow means for delivering goods.
Reforming the $1.5billion ICT sector of Lebanon could play a major role in
kick-starting Lebanon’s economy, help in retaining its highly educated human
resources, and reduce its total debt burden. This could take place along the following
tracks: gradual liberalization of ICT services; privatization of public-owned, operated,
or controlled ICT services; effective regulation of all ICT activities; and the adoption of
several specific ICT stimulatory measures.
There is a pressing need for liberalizing the Lebanese ICT sector, and freeing it
from regulatory and governmental restrictions to promote competition in the different
6
offered services. There are global forces behind the liberalization of the ICT sectors
worldwide which could bring some benefits to the Lebanese ICT sector like increased
competition, increased revenues, increased ICT penetration, and increased investments.
Some steps that Lebanon might follow to liberalize ICT include: immediate
liberalization of local and long distance telephony; issuing new long distance telephony
licenses; issuing VoIP telephony services; licensing new operators and service providers
for dual-band GSM, VSAT networks, and local/international data service providers;
liberalizing procedures pertaining to the installation of leased lines and ISPs; and
unbundling of the telephone local loop to separate customer telephone links (local loop)
from the backbone trunk between telephone central offices. The concept of liberalizing
the ICT sector has already started to evolve in several countries of the region.
The reform of the ICT sector calls for privatizing state-owned and controlled
ICT operators and service providers. The trend has already been well established
worldwide with ICT constituting a sizeable portion of global privatization. The
Lebanese government has already ratified a privatization law and is seeking the
consultancy of major players on the privatization issue like the World Bank and other
investment/consultancy groups. 3 alternatives are available for privatizing the ICT
sector and they include: partial or complete sale to a strategic investor; organizing an
IPO; or a combination of a sale to a strategic investor and an IPO. The impact of ICT
privatization on the Lebanon would be great. It would cause among many other things:
additional revenues from the initial sell-offs and subsequent taxation resulting from a
flourishing of the sector; increase in both local and foreign investments; and creation of
much needed jobs. A rapid sequence of ICT privatization is needed in Lebanon that
should take into account the fact that state-owned fixed-telephone network is decreasing
in value day by day. Examples of expected and most recent ICT privatizations are
7
numerous in the region.
There is also a need for effective regulation of the ICT sector that would
prevent the private sector from monopolizing ICT services, and preventing consumers
from benefiting from cost effective and high quality ICT services. The new draft
telecom law has already recognized the need for establishing an ICT regulatory
authority. However, for this authority to be as effective as possible, it should be run by a
professional team and have administrative, financial as well as political autonomy.
The role of the ICT regulatory authority should include: attributing new
operating ICT licenses; monitoring operators and sanctioning the abuse of market
dominant ones; protecting the market from anti-competitive behavior; managing and
allocating frequency spectrum and other scarce resources; settling disputes between ICT
players; and monitoring tariffs and insuring that they reasonably reflect costs. Several
countries in the region have already gone a long way in setting up ICT-related
regulatory authorities.
In addition to liberalization, privatization, and regulation of the ICT sector,
there are several important recommendations for reforming the ICT sector in Lebanon.
These include among many: establishing local ICT related statistics, reports and
studies; achieving freedom of information exchange; encouraging technology startups
and foreign ICT investments; initiating a serious eGovernment project; and streamlining
and facilitating customs procedures.
In Lebanon, there is a pressing need for a clear ICT policy and action plan that
would seriously help in developing and reforming this sector. A healthy and developed
ICT sector would seriously affect the state of all other sectors and help kick-start the
recovery of the Lebanese economy.
8
2. CHAPTER 2
ICT SECTOR: A GLOBAL AND LOCAL INTRODUCTORY
PERSPECTIVE 2.1. Information and Communication Technology- ICT: Scope and Definition
ICT stands for Information and Communication Technology and is defined in a
broad sense to include the infrastructure, systems, hardware, software, applications and
services pertaining to information and communication technologies.
2.2. Growth and Importance of ICT in Global Economies
Nobody forecasted the effect communication technology would have on our
global economies. As a Western Union internal memo in 1876 once read:
"This 'telephone' has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.” Nowadays, the ICT sector is one of the highest growing sectors worldwide.
According to a Booze Allen & Hamilton study, the global economy was growing at a
rate of 2.8% annually over the 1995-2000 years, whereas the global ICT market was
growing at a much higher rate of 6% annually. [34]
8
9
2.8%
6.0%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
Global Growth ICT Growth
Average Annual Growth (1995-2000)
Fig. 1. Average Annual Global Economy Growth Rate vs. ICT Annual Growth Rate for 1995-2000 Period [34]
Communications technologies, for example, aren’t what they used to be:
mostly limited to voice-related services. In the communications technologies alone,
voice-related traffic has been increasing at a constant rate over the 1990-2000 years;
whereas, data communications traffic has been increasing at an even more exponentially
increasing rate. Compared to fixed-line communications services, mobile
communication services are proliferating at an exponential rate [1]:
Fig. 2. Mobile versus Fixed-Line Growth in ICT (million users added every year
10
This clearly shows the fast pace at which the ICT sectors worldwide are
evolving. Furthermore, more than 18 million new users log on to the Internet every
month with the number of users totaling more than 200 million users in February 2001.
[1] , [2]
ICT has a very profound effect on productivity and employment in the global
economies. According to a World Employment Report published by the International
Labor Organization-ILO in January 2001, countries that have had the greatest growth in
‘total factor productivity’ in the 1990s are those where ICT has been used most widely
in the economy. The report was also highly optimistic on the chances for employment
growth in countries with strong ICT usage. Developing countries could attract as many
as 12 million jobs from the service sectors because of ICT innovations. Moreover,
information and communication technology jobs averaged more than $58,000 a year,
which is 85% higher than the average in the private sector. [3]
Moreover, 40% from the GDP annual growth figures in Europe and the US
were attributed to ICT-related growths. The average additional increase in the annual
growth of economies that have introduced liberalization to develop their ICT sectors
was 1-2%. Lebanon has an urgent need to kick-start its economy by reshaping its ICT
sector to fuel the growth of its economy.
Worldwide, the ICT sector is moving in the direction of convergence and
integration into every aspect of society. This trend is driving towards the convergence
of fixed and mobile, wire and wireless, voice and data. The industry model is moving in
the direction of “service providers” connected over an infrastructure based on a unified
Internet Protocol (IP) network capable of carrying voice, data, audio and video. We
cannot anymore distinguish between and segment these aspects of information and
communications technologies.
11
2.3. ICT in Lebanon: A Changing Paradigm and a Need for a Healthy and Reformed Sector
The regional leadership enjoyed by Lebanon in the late 60s and early 70s was
enabled through the availability of certain services and infrastructure. Beirut’s harbor
and airport, a solid banking sector, availability of many services as well as the freedom
of expression all contributed to position Beirut as the regional hub for business,
banking, media and press as well as tourism.
If we consider Lebanon’s case in today’s New World, there is a totally new
paradigm. The Internet age is driving a global economy based on electronic business
that requires speed, efficiency, transparency, availability and instant access to
information. The enablers for this New World’s economy are a solid modern
telecommunications infrastructure and a society based on Information and
Communications Technology- ICT. That is where Lebanon should focus its attention
and development on.
Lebanon has already lost its lead to several countries (Dubai, Jordan and
Egypt) in the region that have embarked on ICT. Moreover, the most recent 1998-2000
years witnessed stagnation, indecision as well as several strategic errors that prevented
and delayed development. The gap between Lebanon and the rest of the world is getting
wider by the minute and thus putting an even greater pressure to reshape our ICT sector:
to do it right and do it fast.
A healthy and powerful ICT sector in Lebanon contributes to the social and
economic development of a modern information-conscious Lebanese society. Access,
Pricing (Tariffs), quality and speed of data transmission will determine the wealth of
nations in the 21st century.
12
2.4. The Present State of the Lebanese ICT Sector and the Need for Reform
Locally, our Lebanese model is based on a monopoly by the MPT (.Ministry of
Post and Telecommunications) ministry on the fixed landlines that only carry voice as
well as international access. Two private operators, under BOT contracts, provide
mobile voice services. The mobile operators are not allowed to provide Internet access,
data services or international access. More than 20 Internet Service Providers (ISP)
deliver Internet access but are not allowed to offer voice services (VoIP - Voice over
IP.) The use of data IP internet networks to transport packet switched voice services
and which is much cheaper than traditional circuit switched voice services over
traditional voice networks.) or data services. Data services are provided by a handful of
companies who are not allowed to carry voice or Internet service. It is a very unhealthy
environment for ICT competition and true development. Such market segmentation is a
major handicap that is preventing Lebanon from riding the technology wave.
Consequently, this is delaying and hindering advances in eBusiness and eCommerce,
the future fuel than can drive the recovery of the Lebanese economy.
The reform of the ICT sector is vital for the development of emergent market
economies. ICT reform in Lebanon is much needed at the least to enable Lebanon not to
miss out on the information age, and at the best, to reduce the ever-increasing gap
between the Lebanese and other developed economies. Lebanon has been suffering
from a “brain drain” phenomenon for the past 10 years (1990’s) where young,
educated individuals are being forced to look for jobs in Europe, North America, or
even the Gulf with some of them immigrating and never returning back. Many of these
individuals have degrees that best suited to work in the ICT industry. Actually more
than one third of all newly graduated ICT specialized individuals, leave Lebanon and
seek employment abroad as soon as they graduate. Reforming the ICT sector in
13
Lebanon will help us retain such highly skilled individuals that are most needed to
revitalize this country’s economy.
14
3. CHAPTER 3
THE PRESENT STATE OF THE ICT SECTOR: STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS
To study the present state of the ICT sector in Lebanon, the states of the
different segments that shape this sector should be examined. These include the states
of:
• Fixed-Line Telephony Services
• Mobile Communications Services
• The Data Services which include:
- Internet Services
- ISDN ServicesV
- VSAT Satellite Connection
- Public Data Leased-Line Connectivity Services
- Frame Relay / X.25 Data Connectivity Services
- Wireless Microwave Connectivity Services
• Software Development Industry in Lebanon
• Human Resources in Lebanon and their Impact on the ICT sector
• The Lebanese Banking Sector and the Impact on the ICT sector
• eBusiness and the Lebanese Legislative Environment’s Support for
eCommerce
14
15
3.1. State of Fixed-Line Telephony Services 3.1.1. The Scope of the Rehabilitated Fixed-Line Network
The fixed-line network is a major segment of the ICT sector in Lebanon. The
network was heavily damaged during the 1975-1990 war. By 1993, and as a result of
almost two decades of civil war, the Lebanese fixed line phone network had only
200,000 operational phone lines out of a total capacity of 525,000. During the
subsequent post-war governments, the whole network was rehabilitated. The first phase
of the PSTN (Public Switched Telephone Network) rehabilitation was finished in 1997.
At the beginning months of 2001, there was a total of 1,100,000 fixed telephone lines
installed with only 735,000 fixed lines sold.
3.1.2. MPT-OGERO: Inefficiency, Overstaffing and Bureaucracy
The fixed-line network is maintained by OGERO, a government-owned and
separately run body. OGERO suffers from inefficiencies, overstaffing and bureaucracy:
It operates with high overhead costs. It also has an unusually high number of
employees. The total number of employees of OGERO/MPT at the beginning of 2001
was 2900 employees out of whom 65% belonged to OGERO and the rest being MPT
civil servants. However, the quality of OGERO’s employees is acceptable as there are
400 employees that are holders of reputable university degrees and some of them have
even worked for international ICT companies. Procedures, processes, developments,
and decisions are affected by an antiquated and highly bureaucratic system of
operations. The new network had full capabilities for supporting the STAR (value-
added services) and ISDN services from the very beginning; however, there were delays
in introducing these services to the public. The network also suffers from expensive
international phone calling rates that impede the development of the ICT sector in
16
general.[11]
3.1.3. High Fixed-Line Voice Telephony Charges and Absence of Traffic-Generating Incentives
Perhaps the most pressing handicap of the Lebanese fixed-line telephony
network is the high cost of local and international voice telephony charges. Although
several bold steps have been taken to lower international calling charges in November
2000, international calling charges remain high compared to developed countries.
Fig. 3. International Phone Calling Rates: OGERO Published Brochure (Nov 2000)
There are no incentives given by OGERO to subscribers in order to increase
international traffic through subscriber-generated increase in outgoing traffic and thus
decrease international costs. International tariff is relatively expensive, international line
setup charges are very high, and setting up an international line requires inexplicably
complex application and bank guarantee requirements. Cheaper international voice-
over-IP services are not offered by OGERO. Instead, international calls market is
17
plagued by incoming callback traffic and Internet-driven voice-over-IP illegal services
that deprive OGERO from the outgoing fixed-line traffic charges, and forces it into a
relentless but highly ineffective war against illegal international callback calling
services providing individuals. [4]
In addition to international calling, incentives by OGERO to increase local
telephony traffic are also insufficient. Although OGERO has long been applying double
rates for nighttime and daytime calls in order to increase local traffic between 9:00PM
and 7:00AM, additional effort should be made to provide incentives for increasing
subscriber-generated local telephony traffic.
This could be through the introduction of preferential rates depending on the
nature of the number being called (emergency, directory services, TV shows,
entertainment services via telephone similar to the current GSM 4-digit number
services) ; the time of call (nighttime, lunch time, holiday greetings season etc.), the
nature of the call (voice, ISP data, checking voicemail etc..), and the geographical area
within which the called number falls into. It may introduce very low rates for calls made
within a certain geographical area, to a certain ISP dial-up number, or within a certain
time of the day.
3.1.4. Revenues From The Fixed Line Telephony Network
The fixed-line network generates much of the government’s annual revenues.
Although the Lebanese government’s total investment in the 1,200,000 fixed line
network was a little less than $1 billion dollar but the revenues it has generated from it,
and still does, are much more than the initial investment. The MPT has contributed to
the state treasury around $277 million in 1999, $432.5 million in 2000 and is expected
to top $600 in 2001 which is very high compared to the total government investments
18
already made in the telecom sector. [5]
277
432.5
600
$0
$100
$200
$300
$400
$500
$600
1999 2000 2001 forecast
MPT Revenues in
Millions of $
Fig. 4. Contributions of the Ministry of Post & Telecom to the Lebanese Treasury [5]
In the year 2000, the MPT was the biggest contributor to the Lebanese treasury
after customs and duties and will probably become the largest in 2001.
MPT's Fixed & Mobile Revenues as % of Total Lebanese Treasury Revenues
19%
20%61%
Telecom (Mobile &Fixed)
Customs
Others
Fig. 5 MPT’s Fixed & Mobile Revenues Compared to Customs and Other Lebanese Treasury Revenues (2000 figures)
19
3.2. State of Mobile Communications in the Lebanese ICT Sector 3.2.1. Segmentation and Size of Current Lebanese Mobile Communications Market
There are 2 mobile GSM operators in Lebanon, FTML-Cellis and Libancell,
under BOT contracts with the Lebanese government. In beginning of the 1990s, the
government, sensitive to the importance of a reliable telecommunications network in
Lebanon’s post-war reconstruction efforts, decided to award two GSM concessions to
private companies by means of build-operate-transfer (BOT) contracts, to satisfy the
demand for phone services while the fixed line network was being overhauled.
According to the contracts awarded in 1994, the Lebanese MPT only sets the
connection fees, monthly subscription fees and airtime rates. The operators are free to
set the rates for all other value-added services, which are subject to competitive
pressures. The mobile operators are not allowed to provide Internet access, data services
or international access on their own.
At the beginning of 2001, there was a total of 730,000 mobile phone
subscribers: 235,000 of them being regular subscribers and the rest being prepaid card
subscribers.
Regular Vs. Prepaid Mobile Subscribers (2001 figures)
Prepaid Card Mobile
Subscribers68%
Regular Line Mobile
Subscribers32%
Fig. 6% of Regular vs. Prepaid Card Mobile Phone Subscribers in 2001
20
3.2.2. Mobile Phone Costs and Usage Levels in Lebanon
The average return per user (ARPU) for both mobile operators, which is
calculated from all subscription and usage fees, is $115 for regular subscribers and $55
for prepaid card subscribers. Lebanese mobile callers average 450 minutes of mobile
calls total duration per month, which is 3 times the average in France. This is a
significant drop from the 1998 figures when the usage per subscriber averaged 750
minutes. This high usage rate placed Lebanon just behind Singapore, Hong Kong and
Ireland in mobile phone usage. The drop in usage levels from 750 to 450 minutes is due
to the increased per minute costs on the consumer since 1998 [6]
The mobile phone service in Lebanon, and contrary to the general belief, is not
that cheap if we compare it to some European countries and even to some Arab
countries like the UAE. This is especially true if we consider the total costs associated
with basic and additional services, subscription fees, municipal 10% tax, on top of the
cost of voice call usage.
3.2.3. The Dispute Between the Mobile Operators and the Lebanese Government
During Mr. Isaam Naaman’s (former Minister of Post and
Telecommunications) term in office, a dispute broke out between the Lebanese
government and the 2 operators. The government threatened to cancel the 10-year BOT
contracts, and demanded that the two operators pay compensation for the alleged
violations of the terms of their contracts like failing to pay the government transmission
fees, to implement promises to increase the government’s share of revenues, pay past
debts and allow the admission of a third cellular operator. After failing to find a
solution, the 2 parties resorted to international arbitration. If during the Hariri
government, the dispute is left without an amicable settlement, the arbitration process
21
could take up to 2-3 years to be resolved. According to the current minister of
telecommunications, Mr. Jean Louise Kordahi, the dispute at present with the mobile
operators is centered around 4 issues:
Conflicting interpretations of the number of subscribers, whether regular or
prepaid, the mobile operators are each allowed to have as stipulated by the initial
contracts. This pertains to prepaid cards and whether the operators have the right to
increase their individual 125,000 quotas of regular subscribers by adding more prepaid
card subscribers
• Minimum signal and service coverage requirements as stipulated by the
initial contracts
• Costly Microwave Links between the different base stations and the
inability of the government to provide interference free 900Mhz spectrum
• The extent of the value-added services that can be offered by the mobile
operators and the share of the government from their revenues. This prompted the
government to demand that the mobile operators pay each $300 million in back taxes.
There is a strong present need to solve the issue as soon as possible due to the
negative effects it has on the overall investment environment and the ICT sector in
Lebanon.
3.2.4. Present Revenues from the GSM Services
The 2 mobile operators have long been and still are huge sources of revenues
for the Lebanese government. The total revenues for both mobile operators for the year
2000 were $325 Million dollars of which $180 million were to the benefit of the mobile
operators and the remaining were to the government’s benefit.
22
Year 2000 Revenues from Mobile Operators in Million$
180
145
Mobile Revenues to Government
Mobile Revenues to Operators
Fig. 7. Lebanon’s Two Mobile Operators’ Revenues for Year 2000
These revenues are mainly from 4 sources:
• The international voice calls traffic which according to the initial contracts
has to be routed through the MPT
• The $0.06 per minute fee added by the government in 2000 to increase
government revenues. This decision was made after the initial contract with the 2
operators and without consulting with the mobile operators
• The municipal 10% tax on all mobile phone bills
• Government’s share from the total GSM operator revenues which amounts
to 20% of revenues as stipulated by the initial contracts
3.2.5. Mobile Data Services: Emphasis on Present WAP & GPRS Services 3.2.5.1. A Bright Future for Mobile Data Services Worldwide and in Lebanon
There is a healthy competitive and liberal environment associated with value
added services in general and data services in particular, as opposed to basic mobile
telephony services heavily regularized by the government, where GSM contracts
23
stipulate specific tariffs and quotas.
The 2 Lebanese mobile operators did not wait for the arrival of WAP to
provide mobile information services. These providers have long delivered news, stock
quotes, advertising, and other information on mobile phones using Short Messaging
Service (SMS), an integral part of GSM standards. Today, Wireless Application
Protocol (WAP) has become the standard for mobile information delivery on existing
legacy (2G) GSM and the newer GPRS-enabled (2.5G) GSM networks, enabling users
to provide mobile telephony and information services, such as advertising, mobile
banking, mobile shopping and online payment. WAP or Wireless Application Protocol,
is a mobile standard designed to optimize web content on mobile devices such as
Mobile phones, PDAs, and pagers. It enables WAP-enabled phones to access web
content whether written in HTML or WML.
It is expected that the number of mobile wireless service worldwide users will
exceed the number of land-based Internet service users in the next 4 years. The number
of worldwide WAP enabled phones is forecasted to be 500 million in 2001 and is
expected to grow to 900 million phones in 2004. Given the 735,000 mobile lines used in
Lebanon and assuming that at least 50% of these mobile phone customers will become
WAP users, the mobile eCommerce (m-commerce) potential client base will reach a
comfortable 325,000 customers within three years considering that the number of
mobile phone users does not increase. This will surpass the number of Internet service
subscribers that have currently reached 100,000 since its inception in 1995. The
technology and user interaction in WAP differs greatly from the Internet. Any person
with a mobile phone that supports WAP could be a WAP user, given minimal active
user interaction when it comes to information receiving. For instance, any user with a
WAP-enabled phone can passively receive advertisements on his or her phone, in
24
addition to news, weather and stock market quotes, and also receive coupons-by-phone
for later redemption towards goods or services. [7] [8]
3.2.5.2. WAP Mobile Data Services in Lebanon
The launching of WAP in the 4th quarter of 2000 enables the 2 operators to
provide richer and more sophisticated applications. There are several WAP portals in
Lebanon like www.mobilenow.com and www.plugged.com.lb . Although not too many
mobiles in Lebanon support WAP at present, the numbers are rising and WAP
definitely has a very promising future in Lebanon. It is estimated that approximately
70,000 WAP-enabled mobile phones exist in the Lebanese market today and that all
mobile phones will migrate to being WAP-enabled within three years. This is because,
on average, Lebanese replace their mobile phones every three years.
The current problem with mobile data services (whether GSM subscription
used to access the internet or to access WAP services) in Lebanon is the low connection
speed and the high airtime fees charged. The high fees problem is especially true when
WAP services are accessed by traditional WAP-enabled non-GPRS-enabled phones .
WAP services accessed through these phones will only really take off if they are
charged on a reduced air-time tariff basis or a flat monthly rate.
3.2.5.3. GPRS Mobile Data Services in Lebanon
GPRS- or General Packet Radio Switching- is a transition data service between
the existing slow 2nd generation GSM and the upcoming 3rd generation high speed
services 3G. It is sometimes referred to as 2.5G GSM. GPRS requires a partial upgrade
of the existing GSM infrastructure in Lebanon.
On April 18, 2001, FTML-Cellis pioneered and launched the first GPRS
25
service in Lebanon at Telecom Middle East 2001 at competitively low rates of $5 a
month for unlimited WAP access over GPRS and an additional $17 for unlimited
Internet access over GPRS. Libancell is expected to launch GPRS sometime in the 3rd
quarter of 2001.
The arrival of GPRS will initiate a quantum leap for mobile data services in
general, and WAP services in particular which are charged by airtime usage when
accessed through non-GPRS-enabled phones. However, GPRS will be faced by some
problems like the few number of GPRS-enabled phones in the market (estimated 1000
Ericsson GPRS-enabled phones in Lebanon at the end of April 2001) and the fact that
only big mobile phone manufacturers actually manufacture GPRS-enabled phones.
3.3. State of Data Services in the Lebanese ICT Sector
For the purpose of this research report, the discussion of Data Services in the
Lebanese ICT sector will be confined to the following services:
• Internet Services
• ISDN Connectivity Services
• VSAT Satellite Connectivity Services
• Public Leased-Line Connectivity Services
• Frame Relay/ X.25 Switched Data Connectivity Services
• Wireless Microwave Connectivity Services
3.3.1. Internet Services 3.3.1.1. Lebanese Internet Subscribers in a Comparative Regional Perspective
There are no definite estimates on the number of Internet subscribers in
26
Lebanon; however, the available estimated numbers are close to each other. Estimates
indicate that there are around 75,000 registered Internet subscribers with ISP’s.
However, there are around 300,000 that have access to and are users of Internet services
in Lebanon. In 1998, Lebanon had close to 40% of all Internet traffic in the Arab world
with more than 20 ISP’s. [6], [9]
Breakdown of MENA Region Internet Users (2000 f igures)
UAE22%
Egypt22%
Saudi Arabia15%
Lebanon15%
Other26%
Fig. 8. Breakdown of the Number of Lebanese & MENA Region Internet Subscribers [43]
27
0
50
100
150
200
UA
E
Le
ba
no
n
Qa
tar
Ba
hra
in
Ku
wa
it
Om
an
Jo
rda
n
Sa
ud
i Ara
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Tu
nisia
Eg
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Mo
roc
co
Lib
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Sy
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Su
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Internet Users per 1000 of Population (2000 figures)
Internet Users per 1000
Fig. 9. Number of Lebanese & Arab Internet Subscribers as % of Population [43]
The number of Internet service providers (ISP), which is more than 20 ISPs, is
considered very high for a country the size of Lebanon. This is a necessary condition for
a healthy ICT sector in Lebanon; however, the cost and the quality of the Internet
service is a handicap in Lebanon.
For a period of time, Lebanese ISPs were offering Syrian residents access to
the Internet through the Lebanese telephone system. As one of the first countries in the
Middle East to establish online presence and resulting knowledge, Lebanese ICT
companies have become exporters of ISP setup expertise, particularly in Saudi Arabia
and Egypt.
3.3.1.2. Lebanon’s Low Dial-up Subscription Costs and High Internet Proliferation Rates
In 1999, Lebanese ISPs engaged in a price war, cutting rates to win more
28
subscribers and launching new services to boost market share. This cyber war forced
some ISPs to close and others to merge to ensure quality of service and cheaper rates.
Although ISPs make a smaller profit margin per subscriber, the increased number of
users can help offset the loss through advertising revenue.
Moreover, collaboration between banks and computer hardware companies to
provide Lebanese users with low fee Internet access and payment plans for the purchase
of PC hardware is helping promote Internet use in Lebanon. 1999’s subsequent
launchings of banking packages that included free Internet accounts and personal
computers, paid for through several installments, led to a sudden increase in the number
of Internet users in Lebanon. [10]
It is worth noting that another challenge will arise from the increase in
subscribers due to the increase in cyber-traffic that requires higher investments in
hardware, bandwidth (speed) and personnel. Although all operating ISPs in Lebanon
charge adequate fees to consumers that are comparable to their United States
counterparts, the quality of service may not always be the same.
The ISP business in Lebanon is still lucrative and turning high profits for some
of them. Regardless, given the size of the Lebanese market, some ISPs have expanded
their operations regionally and teamed up with international giants. The best example on
this would be Lynx ISP that was partially acquired by the worldwide ISP PSInet in 1999
(now bought back by its Lebanese share holders under the name FiberLinks.)
3.3.1.3. Lebanon’s High Cost of Needed Bandwidth for Internet Services
Today, even though it is possible to get unlimited dial-up access for as low as
US$10 per month, the cost of telephone use charged by the MPT is very high. At
US$1.60 per hour, the local phone rate, some Internet users, and especially small
29
businesses, can pay as high as a US$500 monthly access fee for telephone connection
alone to access the Internet. [8]
As for higher speeds, businesses resort to expensive microwave connections to
acquire similar high-speeds, or alternatively, and if they are close to an ISP, a leased
line service is available, resort to permanent but equivalently costly leased line
connections . This is due to the absence of a cable network, which can reach data
transfer speeds more than 45 times what the best dial-up connection can provide. The
price of microwave modems remains exorbitantly high and has discouraged potential
subscribers from enlisting. Clients must have a receiver/transmitter, leased by an ISP for
around $600 per month before they can make the great leap forward in speed for a
further $1,000 per month. The price differential is huge compared to the price of a cable
modem connection in the United States & Canada that ranges from $30 to $100 per
month, and in France from $60 to $150. The cost of a leased line internet connection,
which may be an alternative for businesses, amounts to over $1000 per month,
depending on the bandwidth requested.[8]
3.3.1.4. Absence of Local ISPs Interconnection and Internet Operations Center
ISPs in Lebanon do not have local interconnection between them. In order to
access a web site hosted on another’s ISP network, one has to go through the US or
Europe backbone network and return back to Lebanon. In addition, some ISPs do not
have redundancy on their network; in case of network disruption on one path, no
alternative path exists to sustain traffic. This makes local networks unsuitable for
critical applications, such as online banking, online brokerage or video conferencing.
Interconnection between ISPs and the redundancy factor must be addressed before any
serious mission-critical ICT services may be considered.
30
Another critical factor is the creation of a network operations center to
coordinate Internet traffic and avoid bottlenecks. Once the technical infrastructure is
realized, the logistics in businesses using these services will require coordination. This
national network operations center would make sure that redundancy, interconnectivity
and reliability in Lebanon’s data networks are covered. Lack of reliable and efficient
communication infrastructure and lack of fast Internet access to individual consumers
are two major problems of Internet infrastructure in Lebanon.
3.3.1.5. Lebanese ISPs and Web Hosting Services
ISPs in Lebanon charge very high prices for hosting services on their web sites.
Some ISPs charge up to three times as much as one would pay in the United States for
hosting services and still do not provide the same services in terms of functionality or
bandwidth. Therefore, numerous Lebanese sites prefer to be hosted in the United States.
Other companies prefer to pay more for the personalized service they are getting which
is not available outside Lebanon
While hosting services are more lucrative in North America and Europe than
Internet connection provision, ISPs in Lebanon generally overlook the importance of
hosting services. They plan very little major promotions for hosting services and seldom
provide special offers.
3.3.1.6. Means of Connecting to the Internet Available in Lebanon
The only available means in Lebanon to connect to the Internet is through the
local ISPs by means of a dial-up , leased-line, microwave and most recently, LAN cable
and downlink satellite connection. xDSL cable connectivity to the customer premises is
not present as an operator-provided service in Lebanon, although some customers use a
31
pair of xDSL NTU’s when using an analog leased line between their premises and the
nearest central office (A pair of NTUs is needed to connect between the subscriber and
the nearest central office.)
3.3.1.6.1. Dial-up Internet Connection
This service was introduced when the ISPs started operating in Lebanon in
1995. The Internet subscriber dials a telephone number and ‘logs on’ to the internet.
There are an estimated 75,000 dial-up Internet subscriptions in Lebanon.
3.3.1.6.2. Leased Line and Microwave Connection
This is done by means of subscribing with an ISP for a 16, 32, 64, 128, 256, or
512Kbps permanent Internet connection. Most of these subscribers are corporate
subscribers (not individuals) that require permanent and fast Internet service. Depending
on the location of the subscriber and proximity to the ISP, and the availability of service
connection nodes, leased line or Microwave connection is used. However, in both
alternatives the costs are exuberantly high. For example, a 64Kbps connection costs
between $1000 to $3000 per month.
3.3.1.6.3. Illegal Local Area Networks, LAN, Cable Connection
At the beginning of 2000, small companies and sometimes individuals started
to introduce cable connections to the Internet through residential building
interconnected local area networks- LANs. However, the government did not approve
their operation due to the lack of regulations and licensing procedures from the MPT
for companies willing to provide cable access to the Internet. These small cable
operators are still operating illegally and are very common, especially in urban areas,
32
providing 24-hour Internet service for a $25-$50 flat low monthly fee. Although there is
no guaranteed quality of service, QoS, and speed of connection; this Internet service,
where available, is cheaper and sometimes faster than the ordinary dial-up connection.
3.3.1.6.4. Downlink Satellite Internet Service
During the 3rd quarter of 2000, satellite downlink services that should be
coupled with dial-up uplink connections were introduced to the market. They consist of
a satellite receiver antenna and a computer card installed in the subscriber PCs and
provide download speeds 10-40 times faster than the traditional dial-up speeds.
However, this setup should be coupled with an ordinary dial-up subscription access to
allow for outgoing (uplink) data to pass through. Although, uplink/downlink satellite
Internet services are recently being introduced in the world, import of this equipment
that does not need an uplink dialup internet subscription is prohibited by the Lebanese
laws. This is a major impediment to the development of the ICT sector I Lebanon and to
the introduction of faster and cheaper Internet access services for both ISPs and
consumers/businesses.
3.3.1.6.5. Digital Subscriber Line – xDSL- Connectivity
Digital Subscriber Loop (xDSL) connectivity option is not present in Lebanon,
although it has been introduced in Europe, North America and even in some Arab states
like Jordan. DSL is a family of technologies generically referred to as DSL, or xDSL,
and is capable of transforming ordinary phone lines (also known as "twisted copper
pairs") into high-speed digital lines, capable of supporting fast Internet access. ADSL
(Asymmetric Digital Subscriber Line), HDSL (High data rate Digital Subscriber Line)
and most recently VDSL (Very high data rate Digital Subscriber Line) are all variants of
33
xDSL. xDSL can support connection speeds of up to 2Mbps on the existing telephone
lines. The same telephone line can be used for simultaneous voice communication and
Internet access. Neither of these services is present in Lebanon as an operator-provided
service, where subscribers can choose between traditional dial-up internet service and
DSL higher speed service by installing a DSL modem (NTU) at his premises and
dialing another modem at the operator premises. The introduction of DSL service in
Lebanon will not require major modernization of the existing infrastructure. [11]
By the end of 2000, there were more than 5 million xDSL users worldwide. In
January 2001, Jordan Telecom introduced Asynchronous Data Subscriber Line (ADSL),
which offers download speeds of either 512 or 1,024 kilobits per second, to three
districts in Amman. In March 2001, Bahrain BATELCO introduced ADSL service for
its customers for a flat monthly rate of BD40 ($106). Lebanon should speed up the
introduction of affordable high bandwidth xDSL connectivity if it is to seriously think
of developing its ICT sector. [2],[12], &[13]
3.3.2. ISDN Connectivity Services
In addition to Internet services, the discussion of Data Services in the Lebanese
ICT sector also includes ISDN services which could also be considered categorized
under both voice and data services. Integrated Services Digital Network (ISDN) is a
network based on the existing digital PSTN which provides digital links to customers
and end to end digital connectivity between them at higher than analog dial-up speeds
ranging between 64Kbps and 2Mbps. An ISDN subscription can have both a voice-
dedicated number with special ISDN telephones and a data-dedicated number that can
be used for fax, Internet, video conferencing or private data connections
34
3.3.2.1. Late Introduction of ISDN in Lebanon
Successive governments have promised to introduce ISDN (Integrated Services
Digital Network.) ISDN allows Lebanese business and residential users to achieve data
transfer rates of up to 64 kilobits per second , which is between three and five times
faster than what Lebanese Internet dial-up users are used to. ISDN services have been
introduced in the 2nd quarter of 2001 when OGERO added 6,000 ISDN lines to its fixed
line network. Although the new post war network was initially capable of providing
ISDN services, billing, red-tape and technical issues prevented OGERO from
commercially launching the service earlier.
However, some experts argue that while any telecom upgrade is better than
none, the government’s late introduction of ISDN has been too little, too late and too
expensive to turn Lebanon into the regional ICT hub the government dreams of. But
ISDN is still generations behind current technologies and is considered outdated across
the developed world. ISDN would have been a good service to have back in 1995, but
does not provide the bandwidth that international companies now need in Lebanon.
3.3.2.2. Expected ISDN Costs in Lebanon
ISDN tariff, as disclosed by OGERO when it announced the expected
launching of the service, is expensive compared to our neighboring countries.
• The connection charge of a new ISDN line is $550, while converting an
existing phone line to ISDN costs $283.
• Residential users will also pay a deposit of some $340 and businesses one
of $541.
• In addition to these one-time charges, the quarterly subscription fee is $110
35
for residential and $130 for corporate users.
• Finally, subscribers pay normal local per-minute call charges of LL35
($0.023) peak rate and LL17 ($0.011) off-peak. [13]
These charges when added up together make ISDN in Lebanon very expensive.
The connection fee alone is 10 times more expensive than the $54.46 fee charged by
Etisalat in the United Arab Emirates, where the quarterly subscription fee is just over
$27. And per-minute local call rates in the UAE are also about 50 percent cheaper than
in Lebanon. [14]
Connection costs and deposit aside, a company using ISDN services and
spending about five hours a day, 20 days a month online in Lebanon would pay about
$181 a month including subscription and assuming peak call rates. A company doing
the same in UAE would pay $87.
3.3.3. VSAT Satellite Connectivity
In addition to Internet and ISDN services, the discussion of Data Services in
the Lebanese ICT sector also includes VSAT Satellite Connectivity services.
When one wants to study the state of a modern ICT sector, one has to touch
upon the state of the emerging VSAT technology in the sector (VSAT stands for Very
Small Aperture Terminal which is a digital satellite data network with small antenna
diameter.) VSATs are now composed of low-cost satellite terminals of small antenna
sizes due to the advancement of satellite technology. This type of satellite service is
used to connect geographically-dispersed corporate branch sites with each others and
with other services like the Internet. This provides low cost and secure private networks
for medium to large businesses and especially multinationals. Although VSAT satellite
connectivity has become the solution to bandwidth hungry applications and is becoming
36
very common in corporate networks around the world, the introduction and availability
of this kind of service is still limited in Lebanon.
Applying for a license to import and install VSAT links in Lebanon is a very
difficult and limited issue due to the laws that do not differentiate between the
procedures and regulations governing the new small transmit/receive VSAT satellite
terminals and the traditional huge antenna television transmit/receive satellite stations
for TV stations. To apply for a license to install a private VSAT terminal, one has to
apply for a traditional ‘satellite earth station’ license with a valid reason, and political
backing if possible. Even the right to import such transmitting/receiving equipment is
limited to a handful of local companies who possess limited scope licenses for the
import and installation of ‘SAT earth stations’.
Liberalizing the VSAT licensing procedures and opening the sector to
competition is very crucial to the development of the ICT sector in Lebanon. Lebanon
cannot ignore the fact that some multinationals (like banks and financial institutions)
insist on having their own private, secure and high-bandwidth corporate networks. For
example, it took a local ICT services company 6 months to finalize import procedures
and licensing needed to install one small VSAT terminal at ABN-AMRO Bank’s main
branch in Achrafieh. The VSAT terminal was intended to connect the bank with its own
worldwide private network and to provide means for it to log in to its main branch in the
Netherlands.
3.3.4. Public Leased-Line Connectivity Services
In addition to Internet, ISDN and VSAT services, the discussion of Data
Services in the Lebanese ICT sector also includes Public Leased-Line Connectivity
Services that are offered to provide connectivity between 2 locations in Lebanon.
37
Leased lines services between 2 locations to provide ICT services is solely
provided by OGERO. The procedure for applying for a leased line connection is very
tedious and often takes several months between the date of request submission, and the
date of actual connection.
Leased line services according to OGERO’s classification are divided into 2
categories: Analog Leased Line Services and Digital Leased Line Services. Both
involve a twisted pair telephone copper cable connection between the customer
premises and the nearest MPT central office. In the Analog leased lines, connectivity
between the central office nearest to the first customer site, and the central office nearest
to the second customer site is done through existing multi-pair copper lines which were
used in the pre-war era to link central offices together before they were replaced by a
fiber optic ring across all MPTs central offices. Whereas in the Digital leased lines case,
connectivity is through the newly installed fiber optic backbone multiplexing between
central offices, although the connectivity between the central offices and the 2 ends of
the customer sites is still through ordinary telephone-grade copper lines.
In the Digital Leased lines service, which is more expensive than the Analog
Leased lines service, speeds up to 2 Mbps are offered between sites. This is determined
by how much of a bandwidth the customer pays for and on the distance between the
customer to-be-connected-sites and the nearest central offices. This, however, does not
depend on the total actual distance between the customer sites. As for the Analog
Leased Line service, and depending on the type of connection equipment (NTU or
xDSL modems) installed at the customer and central office sites and depending on the
distance involved, common speeds of 33.6, 64, & 128Kbps are available although
2Mbps is possible for distances less than 2-3Km between sites. The customer in the
Analog case does not pay for a certain bandwidth, as he will only pay a flat monthly fee
38
depending on the areas the 2 customer sites are located in. The actual area codes and the
central offices the 2 areas belong to, affect the monthly cost of an Analog leased line
connection.
Digital Leased lines although being much more expensive than Analog Leased
lines, remain the preferred choice for Lebanese businesses requiring more reliability,
relatively higher QoS for running mission critical applications such as banks and
financial institutions. The tariff for analog leased lines is as follows (March 2001
figures):
Table 1. Analog Leased Line Service Tariffs (May 2001) Type of Fee for Analog Leased Line Service Tariff in L.L.
Initial Connection 1,000,000
Monthly for the same area code 100,000
Monthly for the same area code yet a different exchange 300,000
Monthly from one area to another 600,000
As for Digital Leased Line service, the tariff policy is as follows:
39
Table 2. Digital Leased Line Service Tariffs (May 2001)
Speed Connection
& Activation
Monthly Fee
(L.L)
Per km.
(L.L)
64 kb/sec within the same exchange 2,000,000 500,000 8,000
64 kb/sec between 2 exchanges 2,000,000 1,000,000 8,000
128 kb/sec within the same exchange 3,000,000 800,000 16,000
128 kb/sec between 2 exchanges 3,000,000 1,600,000 16,000
256 kb/sec within the same exchange 4,000,000 915,000 32,000
256 kb/sec between 2 exchanges 4,000,000 1,830,000 32,000
512 kb/sec within the same exchange 6,000,000 1,075,000 64,000
512 kb/sec between 2 exchanges 6,000,000 2,150,000 64,000
1,024 kb/sec within the same exchange 9,600,000 1,395,000 80,000
1,024 kb/sec between 2 exchanges 9,600,000 2,790,000 80,000
2 Mb/sec within the sam e exchange 9,600,000 2,000,000 80,000
2 Mb/sec between 2 exchanges 9,600,000 4,000,000 80,000
Although, there are around 2000 installed Analog and Digital Leased lines in
Lebanon, most of them suffer from reliability problems. The average number of annual
faults per 100 lines has decreased from 90 to about 30 at the end of 1999. The average is
still high if we compare it to the European average of less than 20 faults per year. [11],
[4]
3.3.5. Frame Relay / X.25 Switched Data Connectivity Services
In addition to Internet, ISDN, VSAT and Public Leased-Line Connectivity
Services, the discussion of Data Services in the Lebanese ICT sector also includes
Frame Relay / X.25 Switched Data Connectivity Services that provide both local and
international data inter-connectivity.
An important aspect of any study of the state of ICT services in any country is
40
the availability and cost of switched packet data services connectivity like Frame Relay
and X.25. Frame relay is a packet switched data service providing for the
interconnection of Local Area Networks and access to host computers at higher speeds
(up to 2 Mbps) than those provided by X.25 which is the older and more widely
available, low speed, packet switched data service, operating at lower speeds.) Sodetel,
a data and Internet service provider privately run and partly owned by the Lebanese
government, has been providing X.25 services for several years and Frame Relay
services since December 1999. In 1991, Sodetel set up Libanpac, the sole national fixed-line
packet-switching data network legally authorized by the Lebanese state. An upgrade of the
Libanpac network to a newer generation Frame Relay protocol took place and the service
commenced in December 1999. The Lebanese MPT owns 50 per cent of SODETEL’s
shares, France Telecom/France Cable and Radio own 40 per cent, whilst the remaining
10 per cent is in the hands of Telecom Italia.
Most of Sodetel’s packet switching subscribers are banks and financial
institutions that need reliable low bandwidth applications, mostly for X.25 connected
Cash Machines. The drawback is that Sodetel charges are per data traffic volume and
not bandwidth; moreover, the services are very expensive if compared to what is offered
in the West where high data-volume-independent bandwidth is provided.[15]
For example, Sodetel charges for a 64Kbps bandwidth Frame Relay local
connection between 2 ends $2.30 per Kilo Byte of data exchanged in addition to a high
fixed connection fee of $450.00 per end! For Frame Relay connection with other
international destinations, the tariffs are the following:
41
Table 3. Sodetel Frame Relay Switched Data Connectivity Tariff Plan (Feb 2001) Frame Relay Routed Data Exchanged Between Lebanon and the Following Destinations:
Tariff in USD per 64 Kilo Bytes of Data Exchanged
Arab Countries $7.20 European Destinations $8.64 Other Destinations $17.28
3.3.6. Wireless Microwave Connectivity Services
In addition to Internet, ISDN, VSAT, Public Leased-Line Connectivity and
Frame Relay / X.25 Switched Data Connectivity Services, the discussion of Data
Services in the Lebanese ICT sector finally includes Wireless Microwave Connectivity
Services.
Because fixed leased lines connectivity in most of the outer Beirut areas is not
readily available and because this service is sometimes unreliable with down times and
problems taking several days to be resolved by OGERO’s maintenance teams, Lebanese
businesses have resorted to wireless microwave interconnectivity between their sites
when needed. Sometimes this is done as a redundancy procedure in parallel with fixed
leased lines interconnectivity.
There are few companies in Lebanon licensed to provide Microwave data
services; however, today, there are 2 operating private companies, PESCO TELECOM
SAL (part of Debbaneh Group), & GLOBALCOM SAL (part of Mr. Ralph Audi’s
Olivetti group), with a third one soon to enter the market, Vega Systems SAL.( part of Dr
Nizar Dalloul’s Vega Group) The 2 operating companies are providing microwave
connections between their sites and to some of the local internet service providers over
their own microwave network spread over Lebanon (connectivity in the South is less
developed over these networks.) A customer, for example, having a branch office in
Baalbeck would lease a microwave terminal at his branch office with its antenna
42
pointing to the Microwave operator’s nearest access node. His other branch would also
be similarly connected to the Microwave operator’s network in another region of
Lebanon. The data exchanged will be routed over the microwave operator’s national
network.
Available offered microwave connectivity speeds are 16, 32, 64, 128, 512, 1 &
2Mbps; however, the costs are excruciatingly high! For example, 64Kbps between 2
sites is in the range of $600.00. 64Kbps connection to an ISP for internet connectivity is
in the range of $1500.00 to $3000.00 depending on committed information rate- CIR- or
guaranteed minimum bandwidth.
3.4. State of Software Development in the Lebanese ICT Sector
To examine the state of the ICT sector in Lebanon, one must touch upon the
software development aspect of ICT and especially the software industry that is geared
towards the Internet and which is an important driver of the ICT boom around the
world. Lebanese software development companies are aware of the growing need to
create and develop software products that facilitate Lebanon’s participation in the ICT
revolution.
3.4.1. The Increase in Web-based Software Packages Development
Some software development companies are migrating their existing
applications to web-based applications. By doing so, their clients also migrate to the
new connected platform, increasing Lebanese e-awareness and traffic on the Internet.
For example, one accounting software production house that produces an accounting
and stock software called DOLPHIN, is migrating its applications to the web and
providing clients with 24-hour access to information and services. The migration of
43
software houses from standard applications development to web site and web
application development enables them to reach wider markets. Previously, those
software houses specialized in database development, point of sale and accounting
applications. Migration to Internet development extends their markets to reach most of
the middle and large businesses operating in the region. These software production
houses are positioning themselves to be identified by large corporations in the hope of
getting bought out or partnering in the region. The benefits of such relationships are
tremendous for small to medium enterprises, in terms of product and market expansion,
as well as continuous human resource training.
Other newcomers, inspired with fresh concepts, are creating web-based
applications only, such as Internet malls, auction sites and pure content sites. One can
clearly observe that these sites duplicate or adapt what has already succeeded in
developed countries. Localizing or adapting successful ideas in the West to our region is
a good strategy to launch into the ICT revolution and especially into eCommerce.
Usually, duplication helps local companies engage in reverse engineering. This
engineering process helps Lebanon understand successful products better in order to
create better products of our own. A side benefit to this process is polishing the
expertise of our local know-how by creating superior and trained personnel.
3.4.2. Lebanon’s Regional Web Development Industry and the ICT Sector
Lebanese web companies are the leaders of web development in the Middle
East. Like their ISP counterparts, web design houses have polished their expertise,
being newcomers in the region, to export their skills to the surrounding countries. They
were instrumental in helping companies in Syria, Egypt and the Kingdom of Saudi
Arabia set up their services, for example. Some of these small companies with limited
44
resources have succeeded in attracting external funds to expand regionally and to the
European continent.
When a Lebanese company sets up a corporate web sites, this automatically
entails the expanding of its ICT infrastructure and thus triggers the development of the
whole Lebanese ICT sector.
3.4.3. Software Copyright Protection and the Lebanese ICT Sector
A key condition for the development of a healthy software development
industry in Lebanon is the copyright law. It would promote the local software industry
and help in stimulating the whole of ICT related activity. Lebanon is a member of the
World Intellectual Property Organization (WIPO) and it is making an effort to enforce
Intellectual Property Protection in conformity with WTO and WIPO agreements. The
Lebanese Copyright Law of 3 May 1999 updated the national protection of copyright
and neighboring rights to new technologies and encompasses technological change and
new areas of interest and concern. It essentially recognized software as a copyright-
protected work. Although Lebanon is trying its best to crack down on software piracy,
much remains to be done if we compare it to what is happening in the region.
The graph ahead shows the effect of the introduction of effective anti-piracy
legislation on lowering the software piracy rates and spurring the growth of an effective
ICT sector in the countries involved. Countries that have low software piracy rates are
usually those with a healthy ICT sector like Israel, UAE, and hopefully Lebanon soon.
45
30%
40%
50%
60%
70%
80%
90%
100%
1994 1995 1996 1997 1998 1999 2000
LebanonUAE
Saudi Arabia
CyprusTurkey
Jordan
QatarBahrain
Israel
UAE Piracy Law Enacted
Lebanon Copyright Law Enacted
Fig. 10. Level of Software Piracy Rates in Lebanon and the Region [43]
It is worth stressing that local and international software should reconsider
their pricing policies to help the government cracking down on pirated software and
encourage businesses and individuals to buy licensed software. If these software
companies do not reconsider their pricing policies, a copyright law would have a
negative effect on the development of the Lebanese ICT sector.
3.5. State of Human Resources and the Impact on the ICT Sector in Lebanon 3.5.1. Expertise of Lebanese ICT Professionals and the Challenge to Retain Them
Even though Lebanon has a good base of information technology (IT)
specialists, the field still needs enhancement. While IT specialists are technically very
46
good, they lack management expertise, particularly for large-scale software
development projects. This management expertise is necessary to execute quality
projects on time and within allocated budget.
Besides planning concerns, keeping talented recruits on board for the long term
is a challenge. Due to the difficult economic situation in Lebanon, many skilled people
are leaving for better opportunities. IT professionals, in particular, are in high demand in
the United States and Europe. For example, the average annual salary for a
programming professional in the United States is around $72,000. The same
programmer seldom exceeds $24,000 per year in Lebanon. To retain professionals,
companies must pay higher wages and provide long-term benefits, such as continuous
training and challenging projects.
3.5.2. Education & Training Lebanese Human Resources for ICT Awareness
Today the major impediment in the way of development of a powerful ICT
sector in Lebanon is the lack of computer literacy and Internet awareness. This is
especially evident with the senior management of Lebanese companies who did not
have a chance to exercise structured continuing education. Unless a major effort is
undertaken to educate upper managers on the benefits information and communication
technology tools can bring to their companies, ICT progress will be delayed.
While the government has introduced computer literacy courses in its new
school curriculum, it is lacking a clear plan to integrate and involve the educational
sector in popularizing the Internet. The new curriculum integrates computer education
into it, but schools still lack the appropriate hardware to implement this curriculum.
Efforts are under way to secure a minimum of computers in public schools in Lebanon.
One problem the ICT sector faces in Lebanon is the lack of proliferation of
47
computers in Lebanon. Many small businesses and households neither own nor think it
is necessary to purchase a computer system. Computers were expensive in Lebanon
compared to the US and Europe before the customs duties on computers and
telecommunications fees dropped. Never the less, the government should put a target to
increase the number of computer users to help create an acceptable ‘ICT ready’ society.
It is suggested that the Lebanese government implement a national plan to
decrease the digital divide between the “know” and “know-not’s.” By establishing
training centers to educate government employees on information technology, the
government will encourage the private sector to do so. It is suggested that training
should not only cover simple applications, but also introduce the basics of computer
systems and help in changing attitudes towards computers to enable adult learners
pursue life-long learning.
3.5.3. The Role of the Public and Private Sector in Creating Social ICT Awareness
It is expected from the public sector to engage in creating public awareness
regarding ICT services and perceived benefits, but it is also as important to see private
institutions, businesses, and nonprofit organizations sponsor events and large-scale
exhibitions to promote ICT. It is worth noting that the private sector has been active in
playing its part of creating awareness in our society for business reasons. Perhaps the
proof for that would be the numerous conferences (some of them regional), seminars,
and workshops that have taken place in Beirut over the 9 month period it took me to
prepare this Project.
3.6. State of the Lebanese Banking Sector and the Effect on the ICT Sector
The banking sector in Lebanon, being the most financially strong sector, has
48
invested the most in information and communication technology. The central bank of
Lebanon has issued a decree (decree # 1810, March 30 2000) stipulating that all banks
should be connected to and always online with their branches by March 2002.
According to a Central Banks’s IT Manager’s, Ali Nahle, speech at the Internet
Opportunities Conference at the Termium 2000, this is to be followed by the
interconnection of the different banks with the central bank of Lebanon- BDL- central
office . This has obliged all banks to update their old Electronic and Data Processing -
EDP- department philosophy into a modern Information Technology department
philosophy. These banks have started by setting up local area communication networks
–LANs- in their individual branches followed by implementing wide area networks –
WANs- connecting all their branches together and able to handle all the ICT services
needed. This awakening of the banking sector has greatly boosted the ICT sector in
Lebanon over the past 2 years. [10]
As for online banking, it has a very promising future in Lebanon. Some banks
like Audi and Credit Libanaise have started their own online banking ventures,
providing a great added-value service for Lebanese expatriates, in particular, those who
live abroad and want to keep their money in Lebanese banks. Using these services,
people will be able to control their bank accounts by executing basic transactions. When
we mention basic transactions we really mean basic ones excluding transfers from one
party to another and payment of invoices other than telephone, electricity and mobile
phone bills. This is due to the absence of the necessary regulation that handles
electronic money transfers. E-nabling of banking sector by promoting legislation that
protects and organizes eBanking and requires banks to embark on an ICT overhaul of
their traditional way of doing business. Banks should realize the benefits associated
with promoting electronic transactions. Electronic transactions cost few cents instead of
49
the $2 a traditional transaction costs in Lebanon, which is also much higher than the
$1.05 a traditional transaction costs in the States. If the banking sector really embarks
on e-nabling their operation, the ICT sector as a whole in Lebanon will be the first to
benefit due to the huge financial power the banking sector has in Lebanon. [10]
There is an ongoing growing competition between banks, which is forcing
retention of existing customers, and attraction of new customers. In order to survive,
bankers have to adopt a totally new business approach and to come up with innovative
and cost effective solutions to expand their customer base. This can be easily done if
these banks rely more on ICT services.
3.7. State of eBusiness and the role of the Evidential & Electronic Signature Laws in Stimulating eCommerce and Lebanon’s ICT Sector as a Whole
Electronically facilitated business, or what is know by eBusiness or
eCommerce, is booming world wide and Lebanon should consider riding this wave as
soon as possible. The figure below best summarizes the exponential growth of
eBusiness or eCommerce worldwide (US example).
Fig. 11. Exponential Growth of US e-Commerce (B2C) Revenues in billion$ [1]
50
Recognizing electronic documents and electronic signatures as equivalent to
the traditional paper based ones is very crucial for the development of a more ICT
conscious and eBusiness-driven society. Draft legislation related to the Evidential Law
in Lebanon was submitted to the Council of Ministers on 12 July 2000. It amends some
of the articles related to evidence in legal proceedings in the Lebanese Code of Civil
Procedure. It recognizes electronic documents as equivalent to those in handwritten
form and accepts them as evidence in legal proceedings. It also recognizes electronic
signatures. This will really trigger what is referred to as eBusiness or eCommerce in
Lebanon. A similar law has been passed in the United States effective March 2001.[17]
Furthermore, a committee reporting to the government that deals with
information security, including representatives from governmental agencies, banks,
ISPs, and major eCommerce players, should be established. This committee would be
responsible for evaluating existing online security systems and online security
legislation, proposing new laws, and introducing new security systems to the market.
ICT-unfriendly legislation, like for example requiring any institution that wants to
practice eCommerce to inform the Central Bank of its operations, should be updated
and modernized to help promote ICT service related activity in Lebanon. This will
surely help in developing eBusiness, be it eCommerce or eBanking, that will lead in the
end to the development of a powerful Lebanese ICT sector. [10]
There are many other obstacles in the way of a real eCommerce evolving in
Lebanon like, for example, poor legislation covering eActivity, low number of credit
card users, complex import/export procedures, high duties, and unreliably slow means
to deliver goods.
51
4. CHAPTER 4
REFORMING AND UNLEASHING THE ICT SECTOR IN LEBANON
Lebanon’s economy is suffering from near-zero growth and a huge debt
burden. At the beginning of 2001, the total debt was over 150% of total GDP. Growth
steadily decreased from its spectacular highs in the mid-nineties to near-zero levels in
2000.
The size of Lebanon’s ICT sector is estimated to be around 1.5 billion US
dollars. Reforming the ICT sector of Lebanon could play a major role in kick-starting
Lebanon’s economy, help in retaining its highly educated human resources, and reduce
its total debt burden. [16]
In the ICT sectors of the world economies, there are global reform trends
taking place that Lebanon could try to follow. Reforming the Lebanese ICT sector could
take place along the following tracks :
• Gradual liberalization of ICT environment
• Privatization of public owned, operated, and controlled ICT services
• Effective regulation of all ICT activities
• Adoption of several ICT specific stimulatory measures
4.1. The Need for Liberalization in the Lebanese ICT Sector
Liberalization of the ICT environment in effect means freeing this sector from
all the governmental and regulatory restrictions that hinder competition and
51
52
development and opening the sector to full-fledged and healthy competition.
Small and medium enterprises in all the industries can better compete
internationally if the ICT sector in their home country becomes highly efficient. When
the general secretary of the International Telecommunications Union -ITU, Roberto
Montes de Souza, addressed regional ICT experts at a Beirut ESCWA seminar in April
2000, he warned that monopoly-like powers of a single operator undermine competition
and distort the market: [24]
The process of liberalizing the ICT sectors is a hot topic today and has already
started in most of the developed countries. There are even some Arab countries who
have realized the importance of liberalizing their ICT sectors and are already underway
through the process. [30]
Quick steps should be taken to allow Lebanese companies in the ICT sector
position themselves in becoming service providers capable, independently or jointly, of
providing end-to-end services and solutions without any regulatory obstacles. This can
only be done through total liberalization of the Lebanese ICT sector.
4.1.1. Global Trends in the Liberalization of ICT Sectors
With globalization intensifying in the late 1990s, world markets came to dictate
telecommunications liberalization. The alternative, it seemed, was to miss the
information age. The World Trade Organization –WTO- cautioned developing nations
that monopoly telecommunication operators not allowing competition have limited
opportunities and lower revenues. Tourism, financial and business services,
eCommerce, computer and software companies all benefit greatly from the service
improvements and rate reductions of a successfully liberalized ICT sector.
Liberalizing the telecom sectors is one of the requirements put forth by the
53
WTO’s Fourth Protocol for its members. As of February 1998, governments
representing 82% of global ICT market have liberalized in the context of WTO’s fourth
protocol. As of February 2001, 80 countries have liberalized their ICT sector and now
constitute 90% of the global ICT market. Lebanon should follow suite with the
liberalization process in partial fulfillment of the conditions set forth for countries
wanting to join the WTO. (The WTO’s 4rth protocol is the Global Agreement on Trade
in Basic Telecommunications Services and it came into force in February 1998. The
agreement provides a framework for the gradual liberalization of market access and also
establishes a framework of basic regulatory principles such as measures to prevent anti-
competitive behaviors and non-discriminatory and timely provision of interconnection
and cost-oriented rates. [34], [39]
Perhaps one of the most compelling examples of the impact of liberalization on
ICT traffic growth is Chili. It had an average annual increase of 20.5% in the number of
telephone lines during the period between 1989-1994 which is double the South
American average during the same period. This was due to a systematic liberalization
policy conducted by the government over that period. The World Bank table
summarizes the numbers below [34]:
54
Table 4. Effect of Telecom Privatization on Growth in Latin America
South American Country
Annual Increase in Number of Tel Lines (1984-89)
Annual Increase in Number of Tel Lines (1989-94)
Telecom Sector Situation
Brazil, Columbia, Uruguay, Ecuador, Peru
7.0% Around 7.8% State Monopoly
Argentina, Mexico, Venezuela
6.7% Around 11.3% Private Monopoly
Chili 6.6% 20.5% Private and Liberalized Market
4.1.2. Benefits Of Liberalizing The Lebanese ICT Sector:
Some might wonder why governments in general and the Lebanese
government in particular, should relinquish control over such a highly vital and
profitable sector which was always compared to being a cash cow for state revenues.
The answer to that is: Governments and incumbent state-owned operators cannot handle
the broad diversity of ICT services and they cannot keep up with the rapid growth and
speed with which the technology of ICT services is moving with. To continue their
existing monopoly, means sacrificing more would-be revenues, quality of service, and
customer satisfaction. Liberalization and opening the door to competition is the ONLY
preliminary step available to stimulate the ICT sector.
The positive aspects of liberalizing the Lebanese ICT sector on the medium &
long term would be:
• Increased competition between the different ICT players which will almost
inevitably result in:
- Improved Quality of Service –QoS- in the different ICT services
of which the consumer in the end will benefit from the most.
- Lower competitive prices for both consumers and businesses alike
55
- Introduction of new state-of-the-art technology to the country by
the different new ICT players which will try to compete between each other by
introducing newer state-of-the-art services.
• Increased revenues both for:
- The Lebanese government due to additional taxation revenues
resulting from newly increased economic activity that may flourish due to a
stronger ICT sector. These increases would compensate for the loss in revenues
experienced by the government due to liberalization within probably the next
2-3 years.[34]
- and the different ICT service providers and operators due to the
traffic growth on ICT networks resulting from decreased pricing.
• Increased ICT penetration in the Lebanese society as a whole that will
bring it closer to becoming an information-conscious society. With cheap and available
connectivity for everybody to use, the ICT sector will definitely flourish.
• Increased investments undertaken by new operators especially in the field
of new ICT infrastructure. These investment opportunities are much needed by the
recession and debt stricken Lebanese economy
A very important factor to observe in a small country like Lebanon is the
ability to compete on a regional level. With the current drive for globalization, striking
the right balance between creating enough local competition through liberalization
while maintaining service providers of a size big enough to survive “across borders”
competition becomes a prime concern.
56
4.1.3. Possible Effect of Liberalization and Increased Competition on Lebanese ICT Costs
Lebanon suffers from the high costs associated with some of the ICT services.
Liberalizing the ICT sector and unleashing competition could trigger a series of cost
reductions which could summarized in the following:
• Further reductions in small-user Internet connection costs which could be
reflected in decrease in the cost of data dialup calls. This could be achieved by either
reduced per minute charges for data calls to ISPs, or a monthly charge bundled with the
ISP Internet access fee.
• Reductions in the cost of local leased lines. For example, a 2Mbps digital
leased line connection between a branch of a company in Beirut and another in Saida
currently costs around 7,200,000LBP in monthly expenses in addition to 9,600,000LBP
setup fees. With a healthy competitive environment, costs could be driven much lower.
• Reductions or total abolition of fixed costs (License fees and other
operating charges) that could render many services non-competitive. Higher revenues
for the government or regulatory authority could still be achieved through revenue
sharing or progressive taxation.
• Reductions in the cost of international data links. For example, a 2MB half
circuit international link currently costs an excruciating $26,359.00 monthly cost!
Opening the ICT sector to competition will definitely reduce international connectivity
costs especially with the introduction of VSAT links and other alternatives.
• Providing of low cost, high bandwidth connectivity for Internet service
providers (2Mbps E1 links, fiber links, etc.) Currently ISP’s rely on bunches of
individual analogue phone lines to provide costly connectivity to the telephone dial-up
and leased-line infrastructure. Liberalization and opening the sector to competition will
57
surely lead to a decrease in the costs associated with ISP’s and which is the primary
cause of why high bandwidth Internet connectivity is still very costly in Lebanon.[17]
• Introduction of low cost permanent high bandwidth Internet access to
homes, offices, and schools, etc. Increased competition may lead to the introduction of
low cost alternatives that include cable connections, xDSL, etc. providing high
bandwidth permanent Internet connectivity at affordable rates. For example, Jordan has
introduced during the last quarter of 2000, ADSL connectivity of either 512 or 1024
kbps to subscribers. [18][19]
• Lower international voice call costs due to increased competition and
innovative solutions.
4.1.4. Competition Easier To Attain In ICT Sectors Than Any Other Sectors
Competition is easier to achieve through liberalization in the ICT sector than in
other sectors of the economy due to the nature of ICT technology. This is because
technology has reduced the technical ICT market-entry barrier. High technology is
readily available for anybody to use it and compete in the ICT sector, provided one has
the right ICT tools.
The simplest example on the above would be mobile telephony which has been
introduced to compete with fixed line telephony, long monopolized by governments all
over the world. According to the European Commission, mobile telephony in Europe,
due to liberalization and a healthy competitive environment, has become a highly
competitive service. There is a total of 52 mobile telephony operators competing in
Europe. This is with an average of 3 to 4 operators in each of the European countries
excluding Ireland and Luxembourg, which only have 2 operators each. Moreover, there
58
is for example a total of 85, 61, 117, & 170 communications technology licensed
operators in France, Germany, Sweden and the UK respectively and this is in addition
to incumbent telecom operators in these countries.[34] , [20]
4.1.5. Steps To Be Followed On The Road To Liberalization Of The ICT Sector
There are several steps to be taken on the road to liberalizing the ICT sector in
Lebanon. These include:
• Adopting a clear policy and a strategic vision for liberalization.
• Laying the framework for modern ICT-conscious legislation and abolishing
old anti-liberal legislation. As an example, one might consider abolishing the newly
required MPT permits needed to import telecommunication related equipment which
usually require 2 to 7 days to be obtained before equipment can be cleared at the
port/airport.
One might also consider the modification of the existing decree # 377 dated
15/9/89 pertaining to wireless stations and satellite dishes. This serves as the clearest
example on how Lebanese legislation should be modernized.[ 21] This can be
summarized by:
- Deleting Article 3, paragraph 3: (Wireless stations require ministry
of defense and ministry of Interior approvals).
- Deleting article 46: (Collection of L.L. 1,235,000 in fees on
receiving satellite dishes).
- Deleting article 50 section 3, sub section 1, paragraph 2 & 3:
(Payment of 5% and 10% of the monthly fee for international leased lines).
- Deleting article 50, section 3, sub section 2: (Additional 10% on
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monthly fees for international leased lines in cases of indirect connection to
destination).
• Establishing a new legal framework for the ICT sector through a modern
ICT law that promotes healthy competition (the proposed Telecom Law) [22]
• Licensing new operators for new state-of-the-art services
• Establishing an ICT regulator to promote competition and eliminate anti-
competitive practices. This involves regularizing all telecom licenses whether it be for
the incumbent fixed-line operator, mobile operators or new entrants
• Converting BOT contracts with the 2 GSM operators into licenses under a
new legal regime and awarding a 3rd GSM license to the state-owned incumbent
(whether it be OGERO or Liban Telecom) It is worth noting that the 3rd operator need
not invest heavily in totally independent and nation-wide-coverage GSM infrastructure
incurring unjustifiable costs that would render its services uncompetitive. Instead, the
3rd operator would setup its own network in cities and other heavily populated areas and
provide roaming services in other low-density areas through agreements with the other
2 operators. [23]
4.1.6. Sequence Of Gradual Liberalization That Could Be Followed In Lebanon
Some measures that could be adopted to liberalize the ICT sector and unleash
competition in Lebanon are:
• Immediate liberalization of local and long distance telephony services. This
will create healthy competition between the different mobile and fixed-line operators.
Providing Equal Access services to the customer is very important. Equal Access
means-the ability of a customer connected to one operator to choose to have their long-
60
distance and international calls carried by that operator or by another operator, with no
extra processes or procedures required if they choose that other operator rather than the
operator to whom they are connected to.
Some might say that Lebanon is too small for several fixed-line operators to
compete using their own infrastructure, which would then require massive investment
with few economies of scale. This does not mean that the market is too small for fixed-
line competition. New-fixed-line companies would not have to invest in their own
infrastructure. They would pay to use the existing network owned and operated by
MPT/OGERO (or Liban Telecom) then sell the connection to the customer.[40], [23]
• Licensing new long distance telephony operators that will make prices
more competitive. It will also spur the introduction of prepaid card long distance
telephony calling and the introduction of voice over IP services which, although being
of an inferior voice quality, are at a fraction of the cost of ordinary fixed line long
distance telephony.
• Licensing Voice-over-IP long-distance telephony service providers whom
are currently banned by the Lebanese government. Voice over IP is achieved through
the use of data IP internet networks to transport packet switched voice services and
which is much cheaper than traditional circuit switched voice services over traditional
voice networks. According to the ITU’s VoIP Geneva Conference that took place in
March 2001, Voice over IP (VoIP) routed telephone call services are booming around
the world. They have risen from a mere 0% in 1997 to 3% of total voice traffic by 2000.
It is expected that they will rise to over 40% by 2004. The Lebanese ICT sector should
be the first to ride this wave and be liberal enough to accept fair competition in
providing these VoIP services. [17]
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• Licensing new operators for providing dual-band GSM (both the old lower
and the newer high bands), which could greatly increase the quality and capacity of
existing GSM networks. FTML and Libancell currently operate on the lower band GSM
frequency. The government could also try licensing new UMTS services through
auctioning processes similar to those that took place in Europe during 2000. UMTS, or
Universal Mobile Telecommunications System , is sometimes called 3rd generation
mobile communications system and it promises to provide an enhanced range of
multimedia services (e.g. video, high speed internet access). However, it ,may also be
better to wait for the worldwide prices for such licenses to go up again after their recent
drop following the German and English auctions the raised billions of US dollars.
• Licensing new operators for the installation of VSAT networks providing
international connectivity for medium to large businesses and especially multinationals
through satellite networks. Regulations related to applying for licenses to install VSAT
and wireless terminals should be simplified and modernized to support the worldwide
boom in satellite-based and wireless services. Bandwidth-hungry services and
especially Internet services are becoming more feasible over the increasingly cheaper
satellite links. Ignoring this and putting restrictions on attaining such connections will
be very harmful for the ICT sector.
• Liberalizing regulations pertaining to the establishment of data services
providers. This will significantly lower costs associated with obtaining data services in
areas where there are poor or minimal infrastructure. (e.g. Frame Relay & IP service
providers over microwave, cable, wireless LAN’s etc.)
• Liberalizing regulations and red tape pertaining to the application for and
installation of digital and analog leased lines. For example, CISCO’s Beirut office had
62
to wait for 6 months to get an international leased line connection to its Zurich
offices.[24]
• Liberalizing the complicated regulation related to the application for setting
up Internet Service Providers and providing Internet services.
• Possible Unbundling of the local loop. The local loop is the access network
connection between the customers premises and the local PSTN exchange, usually a
loop comprised by two copper wires. This is opposed to the backbone trunk that links
the PSTN central offices together. By unbundling of the local loop, operators other than
OGERO (or Liban Telecom) will be able to ‘own’ OGERO’s access network
connection between the customers’ premises and the local telephone exchange, (usually
a loop comprising of two copper wires.) The Lebanese customer would then be able to
freely choose another supplier to provide service, and would cease to have a contract
with the MPT/OGERO.
4.1.7. ICT Liberalization from an Arab Comparative Perspective
Some Arab countries have already liberalized their ICT sectors though up to
varying degrees. The figure below summarizes a comparative representation on the
correlation between ICT market development and deregulation (liberalization) of the
different Arab economies:
63
Fig. 12. Comparative Perspective of Market Development and Liberalization in the Arab ICT Markets [25]
From the above graph, one notices that Lebanon stands well in comparison
with the region that is characterized by monopolized, regulated markets.
4.2. The Need for Privatization in the Lebanese ICT Sector
Another aspect of the reform of the ICT sector in Lebanon is the privatization
of state owned and controlled ICT services. Privatization is the transfer of property and
control of the Lebanese ICT services from the public to the private sector is worth
noting that not all Lebanese ICT services need privatization, as some of them are
already owned, controlled and operated by the private sector. The most pressing issue
will be the privatization of the state-owned and controlled Ministry of Post and
Telecom-MPT, and OGERO.
Privatization of the Lebanese ICT sector is realized in the context of
liberalization and deregulation of the traditional government monopolies in the sector,
especially with regard to MPT/OGERO’s scope of operation and privileges. In practical
terms, this usually requires the privatizing Lebanese government to relinquish the
64
position of operator, create a comprehensive regulatory framework and redefine its role
into one of impartial supervisor and guarantor of competition.
4.2.1. Global Trends in Privatization of ICT Sectors
Privatizing ICT sectors has been a tool of free-market advocates ever since
British Telecom became the world's first public telecommunications utility to be
privatized, under the Thatcher administration in 1984. The operator awakened from
sleepy monopolist to reinvent itself as a communications-industry leader. Other
developed countries followed the British example, sending global communications costs
down and operator profits up.[24]
Privatization is booming all over the world. Global revenues form privatization
have been steadily increasing for the past 10 years. The table below summarizes the
situation:
0
50
100
150200
Billion US$
90 91 92 93 94 95 96 97 98 99 00
Year
Global Revenues from Privatization (Billion US$)
Fig. 13. Global Revenues from Privatization of the Different Sectors [30]
65
The sector mostly affected by the global privatization wave over the past 6
years has been the ICT sector.
1999-2000 Share of Telecom Projects in Volume of Global Privatizations
Others47%
Telecom53%
TelecomsOthers
Fig. 14. Share of ICT Projects in the Volume Global Privatization [34]
ICT privatizations are not limited to one part of the world. The participation of
the private sector in ICT is a global phenomenon.
ICT Projects with Private Investments 1992-2000 in Billion US$
Middle East & North Africa
1%East Asia &
Pacific20%
Sub-Saharean Africa3%
Latin America & Carribean
52%
Europe & Central Asia
15%
South Asia9%
Fig. 15. ICT Projects with Private Investments [34]
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4.2.2. The Lebanese Government’s Vision on the Privatization of the ICT Sector
The Lebanese government has already initiated a privatization program after
recently ratifying a privatization law and seeking the consultancy with major players on
the issue like the World Bank and other investment groups. This program covers the
major public utilities (EDL- Electricité de Liban, MEA- Middle East Arilines, and the
water utilities) in addition to the telecom sector embodied by MPT/OGERO. This
program is motivated primarily by the Lebanese government’s desire to improve the
efficiency of the companies and assets involved, to reduce operating losses, and to
utilize the anticipated proceeds from privatization to reduce the national debt. The
Lebanese government has set a target of US$5 billion in the different privatization
proceeds over a five-year period.(2000-2005.)[26]
A Privatization Law was approved by the Parliament in June 2000 and, in the
same month, the Council of Ministers approved a Privatization Strategy. The Law,
which was pushed for by the World Bank, establishes a ministerial level privatization
committee to implement the privatization program. This is to be followed by
establishing a small technical secretariat to assist the ministerial committee with
management of the privatization program and to initiate the privatization process. The
technical secretariat for the privatization program is logically expected to handle project
administration and coordination for the project as a whole as it will play the central role
in managing the privatization program on behalf of the Government's ministerial
privatization council. The Privatization Law empowers the ministerial privatization
council to contract local and international consultants to assist in designing and carrying
out the privatization program and specific privatization transactions.[26]
The government has also initiated a World Bank project study to assist in the
privatization program. The objectives of the project would be three-fold [26] :
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• To assist the Government in launching its privatization program
• To help implement the privatization of MEA as its first major transaction
• To help prepare for the privatization of MPT/OGERO
4.2.3. Alternative Strategies In Privatizing The Lebanese Telecom Sector
In ICT sectors, being different from other public owned sectors like utilities,
few effective strategies may possibly be followed for ICT privatization. The different
alternatives in Lebanon could be:
4.2.3.1. Partial Or Complete Sale To A Strategic Investor.
This involves the sale of a significant share (more than 30%) of the telecom
entity to an international experienced strategic investor. It also involves the transfer of
control and management of the entity to this strategic investor and benefiting from its
know-how in running such ICT entities. This way, the value of the remaining state-
owned shares improves significantly due to better operation and more than compensates
the government for the sale.
4.2.3.2. Organizing An Initial Public Offering or an IPO .
Another viable option would be organizing an initial public offering (IPO.)
This will significantly raise capital needed for new ICT related investments and
eventually transfer some or all of the property to the private sector. This is done by
listing the new entity on the Beirut Stock Exchange to develop capital markets.
In order for an IPO option to be successful, the Lebanese stock market should
be well-developed, well-regulated and most of all, of sufficient liquidity levels. This is
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currently not the case with the Beirut Stock Exchange. In addition to this, the telecom
operator should be efficient, having a good management and a proven track record of
financial performance. If these conditions are not met, the whole IPO could turn into a
flop. This strategy has been mostly adopted in Western Europe and East Asia. [27]
4.2.3.3. Combination Of A Sale To A Strategic Investor Followed By An IPO.
Another viable option, which is in fact a combination of the other two and is
better most of the time than taking either options individually, would be transferring
control & management to this strategic investor and thus benefiting from the ICT
specific technological and managerial advantage. A large part (25-30%) of the
ownership could be sold to the strategic investor to be followed by selling shares to the
public through an IPO 12-18 months later after everything has matured for a good sell-
off. The IPO could serve for raising the needed capital for further investments and
upgrading the operations and technology used. [28] , [29]
All the above strategies can combine allocating shares to management and/or
employees at preferential conditions as compensation packages or preferably as
incentives.
4.2.4. Impact Of ICT Privatization On The Lebanese Economy
The impact of ICT privatization on the Lebanese economy would be great. The
following consequences would be most felt:
• Generate revenue for the Lebanese government from the initial one-off sale
of the ICT state owned/controlled service providers and operators and the subsequent
governmental taxation on the increased activity. In fact, after privatization, revenues
stand to increase in direct ways due to higher usage and higher traffic and in indirect
69
ways due to new services and business opportunities that will create new revenue
streams that are currently non-existent. This is specially needed by Lebanon to combat
its heavy debt burden.[30]
In fact, Deloitte & Touche, after conducting a study on the privatization of
Lebanon’s Telecom sector and the liberalization of the ICT sector as a whole, predicted
huge gains from the process and came up with the following figures [31]:
- The revenues expected from privatizing the telecom sector in
Lebanon would be $1821 million for the first year 2001, $375 million in
yearly revenues, and $50 million in increased taxation due to increased ICT
activity.[31]
- If the privatization process were coupled with a structured
liberalization program paving the way for healthy competition in the sector,
the benefits would be augmented even more. According to the study, Lebanon
could expect to earn an extra $2005 million for the first 2001 year, an extra
$300 million in yearly revenues, and an extra $60 million in increased
taxation.
Other studies suggested similarly optimistic numbers. Economists circulated a
figure of $8-9 billion in revenue to be expected from three initial privatization
measures: conversion of existing BOT contracts for the Cellis and LibanCell networks
into full licenses ($2.7 billion); sale of a third GSM license to a new operator ($1.5
billion); and sale of the landline network ($4-$5 billion). A further revenue boost would
follow from the sale of dual band 2nd generation and UMTS 'third-generation GSM '
licenses, either to the mobile network operators or to other international companies.[32]
Another example on the revenue benefits resulting from privatization comes
from an Arab Advisors Group report published in January 2001. (Arab Advisors Group
70
is a Jordan-based research group that is involved in ICT research studies and
consultancy for the region.) This report states that mobile telephony services
liberalization and subsequent privatization & sale of licenses has generated up till
January 2001 more than $4 billion dollars. [33]
Other consequences of ICT privatization in Lebanon would be:
• Increasing both local and foreign private investment due to the
attractiveness and high return of ICT-related projects. Local investment will be diverted
from high-return treasury bills deposits in Lebanese banks to high return “new
economy” type of ICT-related projects. Moreover, foreign investment, which is much
needed by the Lebanese economy, will be also attracted. This will definitely put
Lebanon on the international investment radar screen.
• Stimulating growth of the whole of the ICT sector and create new and
much needed IT-related job opportunities. The job-creating benefit is what Lebanon
needs most after recent statistics showed that most Lebanese graduates having IT-
related majors are leaving Lebanon for Europe and North America. The introduction of
the two private mobile operators in Lebanon, for instance, created 6000 jobs related to
the mobile industry in Lebanon. It is estimated that the deregulation of telecom industry
could create up to 10 times this number of jobs.
• Achieving consumer satisfaction due to the improvement in the quality
(QoS) of ICT services, the wider choice between service providers and the lower
subscription and usage prices associated with the different ICT services.
4.2.5. Sequence of Gradual Privatization to be Followed in Lebanon
There are several recommendations that could be followed in transforming the
71
state-owned and run services of the ICT sector into a world class, highly productive,
and private-sector run sector.
The first step that should be immediately taken on the road to privatization is
the creation of a new shareholding company by combining the different state-controlled
telecom entities MPT and OGERO. This share holding company (referred to by the
name Liban Telecom in the recent Telecom Law proposed in March 2001) should have
a modern administrative framework headed by professional management and
technically competent teams. It should have managerial flexibility that would allow it to
recruit and retain competent employees.
The second step would be establishing a regulatory framework by setting up an
autonomous and competent regulatory authority. This body will insure that a healthy
privatization process is achieved that will insure the monopoly of the public sector is
not transferred into a monopoly of the private sector.
The third step would be starting the privatization process by selling the first
tranche of shares of Liban Telecom to a strategic investor that will offer the needed
managerial and technological leverage for such a highly changing and progressing
environment associated with ICT services.
The fourth step would be developing the Beirut Stock Exchange and the legal
legislative environment in order to prepare for a successful and possible initial public
offering of Liban Telecom stocks.
The last phase would be raising up the capital needed for new investments to
be made by Liban Telecom in new ICT services and expansion of its existing
infrastructure. This can only be done by selling part of the remaining shares to the
Lebanese public, employees of the ICT operators, and to foreign investors through
subsequent public offerings.
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All the above steps should be accompanied by overall legal and fiscal reforms
of the Lebanese economy. [34]
4.2.6. Present Value Of The Telecom Sector To Be Privatized
In Lebanon, it is very difficult to exactly determine how much its 1.2 million
fixed-line telephony network is worth today. Even if we resort to benchmarking with
other countries to try to compare the values other telecoms were sold for to the private
sector in other countries.
For example, in Estonia, the telecom sector was privatized and sold for a value
equivalent to $245 per fixed-telephone line. However; if we examine the Peru case, we
notice that the telecom sector was privatized and sold for a much higher value of $9,201
per fixed-telephone line. It all depends on how the sale was made, what was being
offered and sold, and what were the economic, local and international conditions that
governed the sale. [34]
The value of the fixed-telephone network in Lebanon depends on the legal and
regulatory framework, market conditions, operating company performance, etc. One
thing is known for sure however: The value of our fixed-line network is depreciating
more and more, day by day, because the network is getting older and older. The more
Lebanon delays plans to partially or totally privatize the telecom network, the lower the
revenues from the sell off will be due to the network becoming obsolete. For example,
Honduras’s government valuation for HonduTel, its public telephone network, has
decreased over the time from $600-900 million in 1998, to $400-500million in 1999, to
a mere $300 million in 2000! However, the Lebanese ICT privatization process should
not be hurried without a careful plan. Otherwise, Lebanon will be able to pay part of its
huge debt at first when it performs the sell-off, but then realize it has sold the cash cow
73
that was generating most of its treasury revenues. [26] , [35] , [36]
4.2.7. ICT Privatization from an Arab Comparative Perspective
Privatization of the ICT sector is already underway in the world in general and
the regional countries in particular. Below is a summary of the situation:
Table 5. Roadmap of Recent Regional Telecom Privatizations [25], [39], [37]& [16] Operator Date Method of Privatization Advisor
Jordan’s JTC 1999 49% of shares sold JP Morgan Maroc Telecom Dec 2000 35% Strategic Sales to Vivendi
Group, to be followed by an IPO JP Morgan, Banque Centrale Populaire
Telecom Egypt Expected Q2 2001
Unclear whether 20% IPO or Strategic Sale followed by IPO
ABN AMRO Rothschild, Commercial International Bank (Egypt) and KPMG
Turk Telecom 2001? 29% Strategic Sale, then 5% IPO Merrill Lynch and ABN AMRO Rothschild
Saudi Telecom 2002? Strategic Sale JP Morgan, Booz Allen & Hamilton, Clifford Chance and PricewaterhouseCoopers
Oman Tel 2001/2? Strategic Sale then IPO Merrill Lynch Algérie Telecom 2001/2? Partial sale to strategic investor n/a Tunisie Telecom 2001 ? Partial sale to strategic investor n/a Israel Bezeq 1997 24% Strategic Sale, 25% IPO to
Israeli public, 51% government n/a
Lebanon should follow suite in privatizing its state owned and controlled ICT
services as soon as possible.
4.3. The Need for Effective Regulation of the Lebanese ICT Sector
Public monopoly on ICT services has proved to be a failure. Privatization has
proved a viable alternative provided it does not transfer the monopoly from the public to
the private sector. Here comes the need for unleashing the ICT sector and de-regulating
it but with a carefully studied plan and a healthy regulatory framework that prevents the
private sector from abusing its role. Lebanon has already had a successful experience
with regulatory bodies for a booming sector like, for example, the successful Banking
74
Control Commission for the regulation of the banking sector.[38]
Setting up ICT regulatory authorities has become an increasingly popular tool
of ICT reform worldwide. In 1990 there were 12 ICT Regulators worldwide, most of
them being either ministries or other political authorities. In the beginning of 2000,
there were 96 ICT regulators in contrast! In 1990 most of these regulators were
technology neutral whereas in 2000 most of them became ICT technology specific and
specialized. [39]
4.3.1. Regulation or Deregulated Liberalization
One should recognize that regulation has a price. Regulation is a policy that
should not be overused. Over-regulation distorts markets, therefore hampering the
development of effective competition, and disadvantages consumers by stifling the
industry’s incentives to invest and innovate. Lebanon should establish an ICT
Regulatory Authority which will therefore regulate only where competition is not yet
effective or where competition alone does not sufficiently protect consumers’ interests.
As Michael Powell, Chairman of the Federal Communications Commission, the US’s
regulatory authority, has put it [39]:
“Deregulation is what promotes competition. A deregulated environment is what encourages new entry.” Where appropriate the ICT Regulatory Authority will seek to involve the ICT
operators in regulation through self-regulatory and co-regulatory initiatives. This
regulatory body will be similar in function to the US’s regulatory body FCC (Federal
Communications Commission which is the US regulatory body set up in 1934 to
regulate all inter-state and foreign communications by wire, radio, television and radio),
and Britain’s OFTEL (Office of Telecommunications.) [40]
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A both regulated and liberal policy towards ICT is the right approach to
developing and reforming the Lebanese ICT sector. It will insure both the presence of a
healthy ICT competitive environment and the absence of dominant operators and
service providers controlling the market.
4.3.2. Conditions for an Effective Lebanese ICT Regulatory Authority
One good thing about the recently proposed Telecom Law currently being
studied and amended by the government and the Lebanese parliament, is recognizing
the establishment of a telecom regulatory authority. However, for this body to be as
effective as possible in achieving its role, the Lebanese ICT Regulatory Authority has to
be at equal distances from all the ICT operators in the market, and especially the
Lebanese government-owned operators.
It has to be legally independent or, if only autonomous, has to be attached to
the highest political executive office to secure backing of its delicate operations in a
country plagued by political interventions. It has to have flexible staffing rules and
procedures to hire and retain qualified staff which is very important in a complex
industry such as the ICT industry.
The Regulatory Authority should also be audited by an independent auditor
according to international accounting standards. Moreover, the ICT Regulatory
Authority should have transparent procedures and effective communication between
itself and the industry players building alliances both locally (academia, media, etc.) and
internationally (other regulators, ITU, international organizations.) It should have sound
regulatory practices consistent with international regulatory norms.[39]
Finally, this Regulatory Authority should have administrative, financial as well
as political autonomy. This autonomy, however, does not mean that it should not be
76
under scrutiny and accountable for its actions and decisions.
4.3.2.1. Financial Autonomy of the ICT Regulatory Authority
The financial autonomy of the Regulatory Authority is affected by whether [34]:
• The authority collects revenues from the ICT operators and providers
• The Lebanese government allocates a budget to support this authority
• The authority generates revenues from auctions and radio frequency
spectrum allocations
• The authority generates some revenues from sanctions it may impose on
noncompliant operators
To be as effective as possible and financially autonomous, the Lebanese
Regulatory Authority should be able to generate its own income through one or a
combination of the above.
4.3.2.2. Administrative Autonomy of the ICT Regulatory Authority
The administrative autonomy of the Regulatory Authority is achieved when it’s
role is independent from the role of government ministries and bodies whose role
should be limited to laying the ground for an effective telecom policy, handling
international issues that may be too critical for the Regulatory Authority to handle, and
defining the different licensing and frequency spectrum allocation policies for ICT
operators without intervening in the actual licensing processes. The Regulatory
Authority should be separately administered and run by a technically competent
management team. [22]
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4.3.2.3. Political Autonomy of the ICT Regulatory Authority
The ICT regulatory authority should retain political autonomy especially in a
country such as Lebanon that is used to political interventions in all sectors of the
economy. Retaining, for example, the right to issue all ICT related licenses instead of
letting the political bodies do so, is very crucial for a healthy competitive ICT
environment. Sometimes privatization may transfer a state-owned and controlled
monopoly into a private monopoly bringing little improvement in service, quality, and
price similar to what happened in Mexico when it privatized its telecom sector in
1989.[23]
4.3.3. The Role of the Lebanese ICT Regulatory Authority
The ICT Regulatory Authority’s goal is to obtain the best deal for the
consumer in terms of quality, choice and value for money. As OFTEL, UK’s regulatory
authority, puts it:
The goal is underpinned by four objectives, which are directed towards specific
market outcomes [40]:
• Effective competition aiming to benefit consumers
• Well informed ICT consumers
• Adequately protected ICT consumers
• Prevention of significant anti-competitive ICT-related practices
The role of the Regulatory Authority which will try to achieve effective some
regulation of ICT competition could involve the following:
• Attributing new operating licenses for ICT operators. This is a very
important role that the authority should not be stripped off in Lebanon and not to be
78
granted to ministerial or parliamentary political bodies. Establishing a licensing regime
that is transparent, non-discriminatory, and competitive.
• Monitoring operators and sanctioning the abuse of dominate positions.
This can be done by:
- Obligating operators with dominant market positions to offer
interconnection to their networks at all technically-feasible points in a timely
and nondiscriminatory fashion. A dominant operator is one which is able to
act independently of its competitors and customers in terms of pricing or
output decisions.
- Requiring dominant operators to offer a “virtual interconnection”
to their networks and services if physical interconnection is not technically
possible.[34]
- Requiring that all agreements for interconnection are transparent
and non-discriminatory, and monitoring these agreements. For example,
OGERO (or Liban Telecom) cannot respond to applications for leased line
installations by an Internet Service Provider and delay applications by other
ISP’s.
- Protecting the market from anti-competitive behavior like
establishing market controlling cartels, using predatory pricing to kill
competition and other anticompetitive behavior. Predatory behavior is reported
when a firm deliberately sacrificing short-run profits in order to weaken
competitors or drive them out of the market. Thus enabling it to earn monopoly
rents in the longer term by sustaining prices (and therefore profits) at a level
higher than would otherwise obtain in a competitive market. In addition to this,
this point involves providing a framework for penalties and sanctioning. It also
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includes differentiating between civil and criminal issues
• Manage and allocate radio frequency spectrum and other scarce resources
like numbering plans (the scheme for the allocation and re-allocation of numbers, codes
and prefixes) , infrastructure sharing, and universal access (the obligation which insures
that operators provide services and access to their networks or services for any party
that needs it in a transparent, competitive, and non-discriminatory manner.)
Competitiveness in the new licensing regime is achieved through arranging auctions for
scarce resources such as frequency spectrum.
• Settle disputes that may arise between ICT operators and service providers
and handling conflicts between them that could be harmful to the growth of the ICT
sector. The best example on that would be the current dispute between the Lebanese
government and the 2 mobile operators.
• Monitor (but not set) ICT service providers tariffs and pricing policies to
insure that they reasonably reflect costs and tackling ICT services consumer protection
concerns
4.3.4. Regulatory Authorities from an Arab Comparative Perspective
Some of the Arab countries have already established or at least recognized the
need for establishing regulatory bodies for their ICT sectors. Jordan has already
established the TRC regulatory committee in 1995. TRC’s scope of powers include:
Licensing, Interconnection, Universal service, and Frequency management.
Development of TRC is part of Jordan’s reforming of the ICT sector policy; however,
there are still key issues to be addressed like the financial independence of TRC, which
is currently a sources of revenue for the treasury. [41]
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Morocco has followed suite in 1996/97 with Law 24-96 and established the
ANRT regulatory body. The ANRT attached to PM’s office but is both financially and
administratively autonomous. The scope of powers of ANRT according to article 29 of
24-96 is: Preparing studies and regulations, preparing licenses and organizing auctions,
handling interconnection issues, tariff setting only for universal service issues, R&D,
and finally frequency management. [42]
Egypt has also recognized the need for an ICT regulatory body in its Law
19/1998 which it called it the Regulatory Unit –RU- at the Ministry of
Communications. The law defined organization and scope of powers of RU which is
separate but not autonomous. Its role as stipulated by the law is promoting private
investments in “open and fair” competition. RU’s scope of powers includes: Frequency
management, reviewing public sector investment plans, universal service, licensing of
operators, reviewing of tariffs (which are set by the minister), spectrum allocation fees,
and finally handling consumer complaints. RU is expected to be operational end of
2001. [39]
Recently Mauritania established its TRA authority in 2000. Algeria’s
regulatory authority was approved by law in 2000 and is expected to be established in
2001. Oman is expected to establish regulatory authorities on their road to privatization.
Lebanon has also recognized the need for establishing a Telecom Regulatory Authority
in its draft telecom law that is being studied at the parliament.[39]
4.4. Additional Recommendations on the Reform of the ICT Sector
Finally, there are some general recommendations that could also help in the
stimulation of the ICT sector in Lebanon and not related to neither liberalization nor
privatization nor regulation already discussed in the previous sections. They are:
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• Establishing local statistics reports based on precise data collection and
making it readily available to Lebanese media, researchers, academics, and businesses
alike.
• Achieving freedom of information exchange. In the Internet age where
information is only a click away, Lebanon needs to cancel censorship and restrictions
on the import and export of software, media, etc.
• Introducing Information Technology training and education into all
educational curriculums. The Lebanese society needs to be more information and
communication technologies aware, and what better place to start than the educational
sector itself.
• Encouraging technology start-ups through facilitating financing,
preferential taxation, simplified labor laws and social security procedures.[29]
• Encouraging foreign ICT investments and capital markets: Internet city,
technology parks and free zones, venture capital, incubator programs...
• Initiating a serious eGovernment project. Administrative reform is a
prerequisite to economic recovery and aiming for eServices at the government level is
the best driver to streamline procedures and reduce corruption.[9]
• Streamline and facilitate customs procedures to help ICT activity which
requires speed, flexibility and predictability in importing hardware and software.
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5. CHAPTER 5
CONCLUSION
The aim of this study was to highlight the current state of the ICT sector in
Lebanon, and lay out the building blocks for an efficient sector that will make Lebanese
businesses competitive regionally, trigger the development of the “new economy”, and
encourage private investment and the creation of high-value added jobs.
In Lebanon, there is a need for a modern Telecom-Policy and a new Telecom-
Law to be endorsed by the government as soon as possible and whose components
should be:
• Defining the role of the Ministry of Post and Telecommunication MPT and
allowing for its downsizing
• Authorizing the establishment of a new entity or corporation (Liban
Telecom) and establishing a framework for privatization
• Setting and promoting a competitive environment through liberalizing
procedures and regulations related to ICT sector
• Establishing an independent Regulatory Authority and defining its role
• Allowing regularization of all currently illegal but already established and
operating ICT service providers and operators [29]
Mr. Jean-Louise Kordahi, the minister of post and telecommunications, has
already submitted a draft telecom law to the government which is being studied (April-
May 2001) by an 8-member ministerial committee.
It is worth noting that, when ICT is to be studied, one should note that the true
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value from ICT does not derive from the technology itself only, but also from its usage.
The effective ICT adoption in a society is a paradigm shift, which occurs over the long-
term and touches almost every inch of society. The inclusion of ICT in any society, and
especially the Lebanese society, is not an action item that is ever completed, but rather a
never-ending cycle of learning, using, automating, and producing, and more learning,
using, etc... [43]
As Al Gore has in 1999 once said:
“We should not view Information Technology as an end in itself, but as a tool that we can use to create economic opportunity, improve quality of life, and advance our most basic values”
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