Mobile privatisation finally gathers momentum

29 Sep 2003

The Lebanese government has said that it will begin the long-awaited privatisation of the country’s two mobile telephone networks on 1 October and hopes to complete the process within four months. The authorities want to realise around USD3 billion from auctioning the two 20-year GSM concessions, which will be used to chip away at the country’s staggering USD30 billion debt pile. If the sale proves a success the government has said it will then look at privatising the country’s fixed line operator Ogero, followed by companies in the utility sector.

Lebanon’s two operators, France Télécom Mobile Liban (Cellis) and LibanCell, currently offer services under build-transfer-operate (BTO) agreements which were signed with the government in 1995 and which were scheduled to run for ten years. However, the BTO agreements did not run their full course. In June 2001, following a year of dispute, the government accused the cellcos of violating the terms of their BTO agreements and consequently terminated their contracts with the intention of reselling the networks to two GSM licensees. The operators contested the decision, appealing to the International Chamber of Commerce in Paris for assistance. After another year of conflict and discussion parliament passed the 2002 Telecommunications Act which enabled the government to terminate the BTO agreements on 31 August 2002; the Act set out guidelines for the cellcos to be compensated for the premature end to their contracts.

The state had previously refused a request from the operators to pay USD1.35 billion each to convert their BTO contracts to formal 20-year licences but at this stage confirmed that they would be permitted to join the licensing contest once it opened. The pair were offered compensation of USD178 million in return for handing over control of their networks but initially refused; by the end of 2002 though the cellcos finally agreed to turn their networks over to the state. The Network Custody and Operation Agreement of August 2002 granted the cellcos the right to carry on operating their networks until the end of January 2003; on 24 January the agreement was extended until 30 June and have since been further extended to the end of January 2004, by which time it is hoped the networks will have new owners.

While mobile telephony has proved popular in Lebanon the BTO system and the conflict between the government and the operators have severely hampered growth in recent years. Under the scheme there are only limited telephone numbers assigned to the mobile sector, meaning that the operators have been unable to satisfy increasing demand. By the end of 2002 there were 766,000 mobile subscribers in Lebanon, which equated to a respectable penetration rate of 20.8% but was only a marginal increase on the 764,377 customers recorded a year earlier. The market is evenly split between the two operators; at the end of 2002 LibanCell had 380,000 subscribers whilst Cellis had 386,000. Pre-paid customers dominate, accounting for 70% of the sector.

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