No change has taken place regarding alternative networks in Syria. All important sectors such as telecommunications, electricity, water, television, and railways are still state-owned, and public institutions, each in its domain of expertise, have monopoly over their services. Furthermore, the new government has stressed that the existing public sector establishments will be strengthened and given the means to improve their services with no intention to privatise them.

Some public and semi-public companies, such as the oil and electricity companies, have the potential to become telecommunications operators if the regulations are modified. But the declared intention of the government to strengthen the public establishments and to keep their sectoral public monopolies slashes all hopes for a liberalisation or even creation of competition in the telecommunication services market in the near future.

There is, however, a plan to allow private Internet Service Providers to get licences from the Syrian Telecommunications Establishment (STE) and to provide services for Internet users after establishment of the national Internet backbone, probably during the first half of 2001.

1.1 Background

Major sectors of the Syrian economy, including heavy industry, banking, insurance, and utilities remain firmly in the public sector. Other sectors, including food processing, pharmaceuticals, and transportation, have recently been opened to the private sector. Still other sectors, such as retail sales and agricultural production, are never nationalised. The Ministry of Industry is responsible for both the public and private sector industries. Through regional Chambers of Industry, 20 000 private sector companies are currently regulated.

Until recently, the government pursued policies aimed at expanding the public sector, with tight controls on private sector activity. All large industry, including the banking and insurance sectors, was nationalised in the 1960s. Arab aid from the "boom years" of the 1970s was used to expand the state's industrial base with the creation of hundreds of public enterprises. Beginning in 1989, the government started to implement some economic reforms. It passed a new investment law in May 1991 (Investment Law #10), and has gradually lengthened the list of goods that the private sector can either produce or import to include goods produced by the public sector. However, the public sector is still expanding, and the government continues to control all "strategic" sectors such as oil, electricity, banking and chemicals as well as some of the textile and food processing industries.

Numerous restrictive government policies still create several business constraints. All major private investment projects must for instance be licensed. A cumbersome multiple exchange rate system remains in place, despite incremental efforts to move the "neighbouring country rate" towards the "free market rate". Tariffs remain relatively high. Import restrictions remain numerous despite an increase in the types of goods the private sector can import. Real interest rates are negative and the private sector has very limited access to capital. Bank loans require collateral as well as a third-party sponsor.

However, in June 1991, as part of its overall reform program to encourage the private sector, the government passed a new investment law --"Law Number 10"-- to promote investment in all sectors of the economy. The new law offers the same incentives to local and foreign investors. Specifically, companies that receive licenses under the new law are accorded duty free privileges for the import of capital goods and materials necessary for a project, including vehicles, and a tax holiday for the first five years of operation. Companies that export over 50 percent of their products enjoy a seven-year tax holiday.

Prospects for Syrian private sector investment and imports continue to improve slowly, spurred by economic reforms. Liberalisation actions over recent years permit private exporters to retain foreign exchange export earnings to finance permitted imports.

1.2 Regulation of telecommunications and alternative networks

Telecommunications has always been a state monopoly in Syria. Prior to the creation of Syrian Telecommunications Establishment (STE) as a separate telecommunications entity, there was the Public Establishment of Post and Communications (PEPC) that handled matters related to all form of communications. Presidential Decrees 1935 and 1936 dated 10/7/1975 separated the postal services from the telecommunications services by creating two establishments and cancelling the PEPC.

The first one gives STE the monopoly for all forms of wired and wireless communications, including conventional voice telephony lines, submarine lines and satellite communications. Thus, STE is the only institution that can build and operate telecommunications infrastructures. It can, however, delegate the operation of certain facilities to private (national or international companies) under contract. It can also enter into joint ventures with national or international companies on a revenue sharing basis. STE represents Syria in all regional and international federations and signs agreements related to telecommunications.

Earlier this year, two private companies (InvestCom and SyriaTel) that were licensed by STE to establish and operate the first GSM pilot project in Syria with a capacity of 60,000 lines, have started service. The relatively high subscription rates kept the GSM telephony out of reach of ordinary users. But business people who are in dire need for mobile telephony have acquired a large number of lines. After 10 months, about 27,500 lines have been acquired out of the 60,000 available lines.

The coverage of the GSM service is still very limited in space, and quality depends on the area in which communications are carried out. The two companies operating the service (InvestCom and SyriaTel) have expanded their services to Lattakia and have widened the area of coverage to include a corridor between Damascus and Aleppo with the city of Homs. Roaming between the two companies has also become functional.

As for the Internet, STE, which started as the sole Internet Service Provider, has increased its Internet capacity and opened the door for new subscribers who should be public or private establishments or businesses and some professionals (e.g., medical doctors and lawyers). It has reached the maximum number of lines for the current system, which is 5000, and no more increase in capacity is currently envisaged.

The Syrian Computer Society obtained a special licence to start an ISP for its membership and university professors. The number of subscribers is about 2500, but is expected to reach 5000 once the implementation of the national Internet backbone is completed. This is the first private ISP to operate in the country.

Very recently, a decision has been taken by the government to establish a consortium of public and private companies to build and operate the Internet backbone network in the country. This is an important change from the monopolistic policy that have been followed so far and an indication that more liberalisation of this market may be envisaged. Consequently, a call for tender has been launched on 20 November 2000 seeking partners for the consortium. The backbone will provide 50000 access points for the country by the end of 2001 and should reach 200000 access points by the year of 2005.

1.3 Regulation and status of public utilities and public organisations regarding a potential entry in the alternative networks industry

Currently all public utilities have state monopoly and do consider any changes leading to competition. All their strategies for the future are still based on a lasting monopoly. Whenever there is a possibility for outside competition (e.g., in telecommunications, using new services or technologies) they make use of the existing laws to penalise the promoters or users of such services and/or technologies instead of trying to compete by reducing prices and/or providing needed or better services.

Consequently, although the potential of an alternative networks industry exists theoretically, it is not currently exploited nor even envisaged by public utilities and public organisations in Syria. Their logic is that any change would come slowly and in stages, giving time for planning and adaptation.

1.4 The actors and their strategies

Potential alternative network actors in Syria are oil companies as well as power generation, transmission and distribution public establishments. Currently, they have no strategy for entering the telecommunications market since the law does not permit such entry and change is not forthcoming as stated by the new government in its numerous declarations and reports.