Cellis arbitration argument rumbles on

5 Jun 2006

In an argument stretching back to 2001, Lebanese mobile operator Cellis (previously France Télécom Mobile Liban, now managed by Germany’s DeTeCon under the Alfa brand) has announced that it still considers the government’s termination of its management contract illegal, threatening to take the case back to the International Court of Arbitration. The announcement suggests that the France Telecom-backed venture is still not prepared to surrender the last of its operational assets, including offices and equipment, to the Telecommunication Ministry until the arbitrators pass a verdict on its dispute with the state. Consultancy KPMG, which was appointed by the government to assess how much to compensate Cellis and fellow cellco LibanCell (now managed by MTC Touch Lebanon) for terminating their contracts, proposed that both companies receive USD341 million.

Alfa and MTC Touch Lebanon are Lebanon’s only mobile operators. Their previous management teams both signed build-transfer-operate (BTO) agreements to provide GSM-900 services with the government in 1994. In 2000 the two asked the government if they could pay USD1.35 billion each to convert their BTO contracts into full GSM licences, but the state rejected the offer, and in June 2001 accused them of violating the terms of their BTO agreements and terminated their contracts, revealing plans to resell the networks to two new licensees. The operators contested the decision, appealing to the International Chamber of Commerce in Paris, but in 2002 the new Telecommunications Act was passed, empowering the government to terminate the BTO agreements on 31 August 2002. The Act did, however, set out guidelines for the cellcos to be properly compensated for the premature end to their contracts, and they were offered compensation of USD178 million in return for handing over their network assets. They initially refused, but had agreed by the end of the year. The Network Custody and Operation Agreement of August 2002 granted them the right to carry on operating until the end of January 2003, though this was later extended until 30 June.

New management contracts were awarded in 2004, due to run out in 2008. According to spokespersons for Lebanon’s new telecoms watchdog the TRA, fixed line operator Liban Telecom (Ogero) will be granted an option to launch its own rival mobile network once it is privatised. At the end of 2005 there were over a million GSM subscribers in Lebanon, a cellular penetration of over 22%, with the battle for the market leader’s position a close-run thing between Alfa and MTC Touch. The government now plans to auction off both mobile operations. According to the pairs’ contracts, the Ministry must give the cellcos six months notice before revoking their management agreements.

Lebanon, Alfa (MIC 1)