Telecoms & IT

Time For Change

IT Price Reforms

In Lebanon’s proclaimed “government of national interest,” there are a few more dynamic driving forces for reform than Minister of Telecommunications Boutros Harb. On March 31, 2014, Harb proposed an […]

In Lebanon’s proclaimed “government of national interest,” there are a few more dynamic driving forces for reform than Minister of Telecommunications Boutros Harb. On March 31, 2014, Harb proposed an ambitious and dynamic “100 Day Plan” to rapidly reform the Telecommunications sector during his three-month term appointment in office. “I knew my plan would not exceed a three month period because of political and cost reasons. Therefore, I introduced a plan of 100 days in order to achieve what I could in this period…I made a group of technicians and counselors, and we studied the problems that we are facing together,” Harb explained in an exclusive interview with TBY.

THE 100 DAY PLAN

Harb’s plan began with the slashing of fixed-line prices operated by OGERO for international calls and prepaid cards by up to 50%, a company that holds an absolute monopoly over fixed-line prices in Lebanon. The dramatic reforms are a much-needed attempt to reach out to low-income Lebanese citizens. For example, people using the cards will now pay LBP50 instead of LBP100 for every minute of call time from a landline, and LBP100 instead of LBP200 from a mobile line.

He has since had three proposals to cut the cost of landline subscriptions, pre- and post-paid mobile calls, and internet data plans approved in parliament. The Ministry of Telecommunications has acted pre-emptively to the annual renewal of contracts, in an unprecedented move not least for concerns over the effect this will have on state revenues. According to Business Monitor International, Touch and Alfa’s revenues accounted for $1.6 billion in 2013, of which $1.4 billion was paid to the state, accounting for 12% of the Lebanese treasury’s revenues. Harb disclosed that the Ministry had undertaken significant empirical studies of its own, which strongly indicate that the reduction in line costs will significantly boost line usage. “We have undertaken a conservative study, which stated that in three to six months, we may lose some of the revenues; however, after six months, we would resume gaining and having more revenue than we used to…Whenever you give people the possibility to speak at a lower price, they will speak more,” Harb said during his interview with TBY.

Harb has repeatedly issued warnings to the state affiliated companies Zain, ORASCOM Telecom, and OGERO that manage Lebanon’s two main mobile service and fixed-line services in Touch, Alfa, and OGERO, respectively. Most recently, on May 8, 2014, Harb requested that the companies significantly improve the quality of their services by May 12, 2014, or face a termination of their contracts.

After the minimum requirement rectification of interrupted services, and a consequent meeting on May 27, 2014, Harb summoned the Vice-President of Zain and operator of Telecommunications company Touch, Badr al-Kharafi, and General Manager of OGERO Dr. Abdel Monhem Youssef, where they reaffirmed their commitment to improving the quality and the non-interruption level of their services, but it may be too little, too late.

On May 24, 2014, Harb controversially unveiled Lebanon’s first unlimited broadband internet plan, which will cut prices and increase speeds on existing DSL services. Harb said the price of the new 2 Mbps, unlimited download plan would be LBP75,000. Previously, for LBP75,000, consumers could get a 2 Mbps plan with a 20 gigabyte data limit, paying LBP6,000 per additional gigabyte.

POWER SHIFT

All of these plans are in principal to support the much-delayed creation of a regulatory body and free up greater private sector competition in the telecommunications industry. “We agreed that the government would be permitted to have a steering committee to control the quality of the service, and at the same time start the hand over…We had a law in 2002 for creating a regulatory body and a Lebanese telecommunications company. Unfortunately, this has not been implemented by the Ministry,” Harb explained to TBY the Ministry’s attempts to implement a new regulatory body.

REAL IMPACT

For individuals in Lebanon seeking reliable and affordable internet services at home, these recent government reforms in DSL speed, along with the introduction of cheaper telecom plans, may unfortunately be a moot point. In May 2014 reacting to the Minister’s pricing and service reform package, Lebanese IT blogger (tagged Najib on the site BlogBaladi) commented, “While this is great news, there’s still a major problem for a lot of Lebanese outside Beirut as their phone lines don’t allow them to get more than a 1 Mbps connection and won’t be able to benefit from these speeds. I still have this issue at my parents’ house in Jounieh and I am not sure if they’re working on fixing it or not.” Clearly private users can see that there is still a lot of work to be done to bring IT delivery up to an acceptable standard in the country.

On the other hand, in Lebanon’s knowledge and IT industries there is some optimism that the recent lowering of internet and other telecoms costs by the government will relieve the financial stresses of operating, particularly for start-ups and SMEs that struggle under higher telecom prices. The government’s initiatives may even free up these companies’ resources to employ more staff or embark on expansion plans.

And it is not just immediate financial relief for the existing industry that concerns the IT sector. Encouraging the growth of the knowledge economy by attracting young Lebanese into the field and keeping them in-country is an imperative if IT service companies are going to compete regionally and internationally in the future. According to figures from the Investment Development Authority of Lebanon (IDAL), around 800 companies currently make up Lebanon’s IT sector and the sector as a whole contributes more than half of Lebanon’s total services exports. The software development subsector already employs around 5,000 specialists. When you couple this with the fact that the average wages for software engineers in Lebanon are 40% lower than in the GCC and more than 50% lower than in some developed countries, you can understand why the government and the sector are keen to capitalize on the industry’s advances so far and get more young Lebanese into the industry with the help of these price cuts and service improvements.

The remaining question is where does Lebanon stand today on the implementation of Law No.431? That law would allow for free competition among private telecom providers whilst they would still be under government regulation, bringing Lebanon into line with most of the developed world. TBY spoke to key players concerned with the IT sector recently, including Ziad Hayek, Secretary General of the Higher Council for Privatization in Lebanon, who is pushing for liberalization of the sector. He believes that the 2002 legislation is sound and notes that whilst there was a regulator, “…unfortunately the mandate ended and they have not appointed new people, however reinvigorating the regulatory authority is on the cards.” Rather an unsatisfactory status quo for the ICT industry, which Hayek firmly believes is being overtaxed hampering infrastructure investment and the development of the knowledge economy within the country.

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