April 2000

Mediterranean Countries Synthesis of Master Reports

Synoptic Tables - April 2000 (82 ko)

INTRODUCTION

The liberalisation process and the emergence of a multitude of new technologies should lead to a major transformation of the Mediterranean telecommunications landscape. Alternative infrastructure liberalisation will play a key role in the shaping of the future telecommunications industry. Newcomers will be able to compete with incumbent operators

As far as supply is concerned, the ability of alternative infrastructure owners to bring about the rapid modernisation of their networks and to propose a diversified provision of services will be an important condition of the development of the sector. The regulatory framework will play a key role in the development of the market. Closed markets and the slow development of the statutes of potential actors, who are for the most part nationalised companies, are the main barriers to the development of alternative networks in the Mediterranean area. As far as demand is concerned, new operators (such as mobile operators and ISPs), the principal potential users of alternative infrastructures, whose needs have not always been met, should see the development of competition in a very positive light.

Moreover, the liberalisation of alternative infrastructures should favour the development of the information society, given the multiple side-effects, in particular the more rapid expansion of new communication and information technologies.

It is clear that the alternative infrastructure market is significantly less developed in the Mediterranean area than Central and Eastern Europe. Furthermore, there are major differences in the level of development between the Mediterranean countries themselves.

The purpose of this document is to provide a broad perspective of the alternative networks in Mediterranean countries, with particular emphasis on the regulatory background and the positioning of incumbent or potential players.

This document is based on the contributions of the national contractors to the ESIS II project.

1. Definition

In this report, alternative networks are defined as those infrastructures owned and operated by public players (e.g. utility companies: electricity and gas suppliers, pipelines, highways, railways, …) or private companies (such as banks, …), that have the potential to be used for the construction of telecommunications networks and the provision of services.

Alternative networks were developed by companies for whom telecommunications are essential and whom, in general, public telecommunications networks were not able to provide with all the services they needed (performance, confidentiality, competitive tariffs, customised functionalities, …). They are usually reserved for the specific needs of their owners.

Today, telecommunications liberalisation in several countries (Israel, Turkey, Morocco), together with a growing demand for communications capacity could drive infrastructure owners to prepare an entry strategy into the telecoms market. They will then be able to make available a package of services, from rights of ways to the supply of additional capacity or that of services with greater added value.

2. The interaction between business and regulatory issues: the difficult emergence of alternative infrastructures

2.1 The regulatory background

2.1.1 The influence of the European regulation

The introduction of competition into a market previously dominated by one operator usually requires the implementation of a set of rules or regulations to promote newcomers and to prevent abuse by the dominant operator. The European Union is playing an important role in the introduction of competition within members States through the set of Directives it has adopted.

The adaptation and implementation of the European directives constitutes a major priority for Cyprus, Malta and Turkey that are candidates to integrate European Union. European legislation may also have a significant influence on countries that are entering into a deregulation process as Morocco.

Key elements in the EU-driven alternative infrastructures process are :

• An end to monopolies by a specific deadline,
• The establishment of a framework for a competitive market. In particular, the establishment of an adapted licensing regime
• The development of open access to networks, the requirement being that every telecommunications operator should be entitled to access infrastructures on a fair and equal basis, at a reasonable price.

2.1.2 National policies

The process of opening up alternative infrastructures is proceeding at very different paces, in the different countries. Indeed, political and regulatory policies are very different as well as degrees of developments .

• Israel has seen the greatest deregulation and alternative networks are liberalised since 1999.

• Cyprus, Malta and Turkey are official candidates to join the European Union and, with this in mind, will need to update their regulatory regimes to bring them into alignment with EU directives. Nevertheless, historical operators still have a monopoly on infrastructures and no future competitor has yet emerge.

• Morocco : the telecommunications law of 1997 set a detailed regulation for alternative networks and the emergence of new operators (the second mobile operator Medi Telecom, ISPs) could accelerate the formation of an alternative offer. Nevertheless, important barriers still exist both juridical (public status of potential actors, for the most part national utilities) and technical and strategical (for the potential players, the need to up-grade networks infrastructures and to elaborate development strategies).

• Egypt and Jordan are currently involved in restructuring programmes in their telecoms sectors, including planned privatisation of historic monopoly operators and modernisation programmes. Alternative networks are not allowed but current liberalisation operations (mobile, data and Internet sector for the provision of services) could accelerate the pace. Furthermore, both countries are engaged in privatisation programs of main State enterprises and potential players (one can see more details on the § Actors strategies). It is worth noting that in Egypt, a working group recently created by the Ministry of Telecommunications is suggesting a stronger private sector participation in the Egyptian industry.

• Lebanon and Palestine know an economic trend toward privatisation. Nevertheless, except the new expected legal framework dealing with privatisation, no regulatory developments regarding alternative networks are forecasted. In Lebanon, the privatisation draft law recommends the set up of a High Privatisation Council.

• In Algeria, Syria and Tunisia there is no legal framework dealing with alternative infrastructures and the telecoms sector remains rather closed to competition. However, a number of developments have taken place which have stimulated the Internet industry. In Syria, for example, a programme has been launched to construct an Internet backbone which should be completed by the end of 2000. Once in place, it is envisaged that a number of Internet service providers (ISPs) will be licensed to operate. Algeria has also opened up this particular part of the market. These elements could lead to changes. Furthermore, it is interesting to note that in Algeria an ordinance of 1995 stipulates the privatisation of public companies. Furthermore, a decree of March 1996 reinforces the above ordinance by the recommendation of the creation of an institution that will be in charge of the privatisation process. More recently, a privatisation program begun that concerns the following sectors : energy, banks and insurance, services and telecommunications. It is interesting to note that in June 1998, a law ended up the national monopoly that Air Algerie used to hold since its creation in 1963. In Tunisia, a privatisation programme has started concerning mainly cement factories, mechanical construction and the textile sector. The telecommunications sector is not yet concerned.

2.2 Attitude of incumbent operators towards alternative network providers

Incumbent operators benefit from major competitive advantages compared with the new players, especially as regards the range and quality of their networks and a direct link with users (local loop). They may use these advantages to try to slow down the deregulation process by erecting some barriers to entry.

A few tendencies observed in liberalised markets can be highlighted :

• The "refusal" to provide interconnection to their network. The regulations state that interconnection is obligatory. However, operators can impose high interconnection charges, or only provide a restricted service, preventing competitors from providing a high quality service, or delay the effective implementation of interconnection…
• The refusal to sell certain services to their competitors, such as leased lines,
• The use of dumping. Indeed, earnings from activities under monopoly can enable them to subsidise the provision of services under competition, such as Internet access or mobile services, which are then provided at very low rates.

On the other hand, incumbent operators are also expressing their fears. Because of their "public service mission" they have a lot of constraints that newcomers do not have. Indeed, incumbent operators may also be less competitive in certain markets than new players.

Among incumbent operators’ constraints can be cited the obligation to deliver public voice service throughout the territory at a moderate tariff within the framework of universal service provision. Usually, to meet this requirement, incumbent operators cross-subsidise international and long distance services (high tariff), and local services (low tariff). These tariff differences represent important entry opportunities for new players. Newcomers usually target profitable markets i.e. markets of companies with international communication needs. Because they do not have the same constraints as incumbent operators, they can provide international voice services with major tariff reductions.

That is why the new regulatory regimes must take into account the interests of all players: incumbent operators, newcomers and end-users.

2.3 A potentially important demand for alternative infrastructures … but the need for high quality services

Mobile operators, Internet access providers and large companies may represent an important demand for alternative networks. In fact, the introduction of competition should result in a number of important advantages for users: a reduction in network costs and greater independence in relation to incumbent operators.

Nevertheless, these players are waiting for high quality networks and services. It is clear from reading the national reports that the real development of an alternative infrastructures supply will necessitate considerable preliminary investment in order for networks to be upgraded. This, in addition to the need for a regulatory opening and public enterprises statutory changes. All of which means that the development of an alternative supply will take some time.

3. Overview of players and strategies

3.1 Overview of players

Main players as presented in the national reports are presented below : :

Israel : the advance of cable operators :

The telecommunications market is open since June 1999. Then an important number of alternative providers are to compete with operators. Cable TV operators are well positioned. The high level of cable TV penetration in Israël (90 % of households are connectable while 63 % of households have a cable TV subscription) set the cable TV networks in good position. Cable TV companies are yet testing IP telephony (that seems to be better to implement than voice over hybrid fiber coax networks) and high speed Internet provisioning.

Furthermore, a first licence for an alternative provider was allocated to the Israel Railways Company. Israel Railways implemented optic fibers and digital switches over 250 km from the North to the South. Israel Railways targets carrier’s carrier market. The company will offer capacity services to new telecommunications operators.

The Israel Electric Company and the new Cross Israel Road are other potential players.

Cyprus, Malta and Turkey : the perspective of EU integration / no yet a legal framework dealing with alternative infrastructures

Cyprus : the only organisation with an extensive alternative network is the Electricity Authority of Cyprus (EAC) which currently employs its own fiber-optic network for its proper needs. EAC is leading a main up-grade of its infrastructure but has no plan to enter the market as operator.

Malta : so far, no potential player expressed its intention to develop a telecommunications activity. A potential player is Melita Cable, which has a monopoly on cable TV. It could provide data services and Internet access. One of the most important development in 1999 was the partnership between an ISP and Melita Cable. ISPs have expressed their fears regarding the development of the monopoly Melita on the high speed Internet access market. New regulatory statements stipulate that Melita has to provide ISPs with a transparent interconnection offer to its network. One can outline the Malta Government Network (Magnet).

In Turkey, Turk Telekom has a monopoly on services and infrastructures (ISPs rely on Turk Telekom to provide Internet access) then, there is no real alternative network. The only one is Ulkanet, owned by academic and research institutions. It is based on Turk Telekom leased lines but operated by Ulakbim, a unit of the Scientific and Technical Research Council of Turkey. Ulkanet links 66 universities in Tukey, 4 in Northen Cyprus, militaries academies, the police academy, …. It is based on ATM and Frame Relay Technologies. It has two gateways to the Internet backbone of Turk Telekom and three gateways for international connectivity.

Morocco : an alternative infrastructures market in its infancy … the need for strong legal reforms

Morocco : the telecommunications law of 1997 proposes a detailed regulation for alternative networks. Nevertheless, the status of potential players (main State-owned utilities) has to evolve to enabling them to become telecommunications operators (e.g. account separation between entities, subsidiaries creation…). On the other end, the national report shows that a potential demand for alternative infrastructures exist. This demand originates from new operators (mobile and ISPs) but also from big companies that would appreciate to benefit from competition. present barriers are essentially juridical.

Main potential actors are : National Electric Office (ONE), National Railways (ONCF), National Society of Moroccan Motorways (ADM). The local participants are not numerous : Lydec and Redal are responsible for the water and electrical distribution in Casablanca and Rabat. It is clear that the alternative infrastructure market is in its infancy and a lot of efforts should be made to enable its development.

Egypt, Jordan, Lebanon and Palestine : involvement toward privatisation

As mentioned above alternative networks are not yet allowed in Egypt, the : Telecom Egypt still enjoys a monopoly on voice and data services. Nevertheless, a stronger private sector participation in the Egyptian industry is foreseen.

In Jordan, the public sector is set to shrink substantially over the next few years. The privatisation program has received a new boost with the creation of a dedicated council and secretariat, headed by the prime Minister. The Jordan Electricity Authority and the Jordan Telecommunications Company are already in the process of privatising. Other companies as Aqaba Railways, Royal Jordanian Airlines and Jordan Cement are expected to follow soon. Other key objectives include the privatisation of the power company. Since January 1^st 1999, the State-Owned National Electric Power Company (Nepco) has already been divided into 3 companies for generation, transmission and distribution. Bids for Jordan’s first major independant power producer (IPP) are due in May 2000 and most distribution is already handled by private companies.

In Lebanon it is worth mentioning the presence of an important actor, Sodetel, a company hold by the Lebanese State (50%), France Telecom (40%) and Telecom Italia (10%) announced the opening of a national data network Libanpac.

In Palestine, a policy targets the encouragement of involvement of private sector in telecommunications. Guillat, an Israeli company offers satellite connectivity between customers and ISPs

Tunisia ; strong presence of governmental networks

There is no legal framework enabling the commercial exploitation of alternative networks. Then, no organisation was found to have developed a strategy. It is worth noting several governmental initiatives regarding Internet’s promotion that should help the development of alternative ISPs. There are also a lot of governmental networks : the National Health Network (RNS) connects over 64 hospital, and provides in particular Internet access. In the field of Agriculture, the National Agricultural Network (Agrinet) connects agricultural institutions and dedicated centers throughout the country. In the field of Education, 2 national networks have been set up, the national University Network (RNU) connecting 87 universities, Edunet network provides connectivity to secondary and technical schools. In the field of science and technology, the national Research and technology Network was set up in 1993 and connects research centers.

Algeria and Syria : currently no alternative operators identified

In Syria : the telecommunications sector remains under the monopoly of the state-owned operator and there is no current developments plans. Nevertheless, the future licensing of competitive ISPs during the last quarter of 2000, once the Internet backbone is implemented, could induce some changes.

In Algeria, opportunities would be provided by the existence of several ISPs. No potential actor has yet expressed its willingness to enter the telecommunications market.

The table below provides an overview of actors positioning

Table 3 : Main Alternative Actors

3.2 Strategies

In the future, when Mediterranean markets are liberalised, alternative operators strategies will mainly look like strategies observed on liberalised markets. Main elements shaping their orientations being their core competencies, the financial ressources and the constraints on the telecommunications business. Strategies will mainly be built around two major elements :

3.2.1 Alliances strategies

The production and sell of telecommunications networks and services imply the possession of specific expertises and a lot of financial ressources. Alternative infrastructures owners usually do not have the whole set of necessary competencies. Agreements between actors are truly regarded as vital to develop an activity.

Each category of actors have specific ressources :

• A first category of actors have right of ways they can provide other actors with. Municipalities are included in this category. Right of ways are very valuable because they may give access to the local loop
• A second category of actors have networks infrastructures. Infrastructures may include only technical sites and tubes where operators install cables, they may include also fiber optic. Fiber optic may be sold whether "dark", or "activated". Actors are utilities, railways that have long distance infrastructures, and metro owners that have local infrastructures,
• A third category of actors includes cable-operators. Cable–operators have the main advantage to have local loop infrastructures and to be in direct relationship with customers. Cable networks offer important opportunities : up-graded networks enable the provision of high bandwitch Internet access as well as basic voice services. Cable operators are positioned on growing markets, they should be key actors in the future,
• A fourth category of actors includes national and international operators. In a partnership, they bring their technical and marketing know-how. Very large investments that would necessitate the creation of a totally new network explain that new operators associate with infrastructures owners. The opening of alternative infrastructures facilitate the establishment of new operators and stop a potential non profitable duplication of infrastructures. International operators bring in particular their global interconnections facilities,
• A fifth category of actors includes financial such as banks (bringing their funds and financial know-how to the projects), or main commercial partners as main retailers groups, … (bringing their funds, their networks of shops and an important potential of customers). For these actors, participation or diversification in a growing market (e.g. telecommunications) is part of a large strategy.

Partnerships between actors will be vital to assembly the whole competencies needed to produce telecommunications services.

3.2.2 Products strategies

Products strategies highly both depend on alternative infrastructures owners core know-how and demand of end-users.

As far as supply is concerned, the provision of rights of ways (basically offered by municipalities or highways) only is very different from the provision of a customised telecommunications services which include important value added level. Alternative actors have to arbitrate between the costs and opportunities of developing new activities and the potential benefits.

As far as demand is concerned, both residential and companies end-users now want sophisticated services and diversified applications based on always up-dated technologies.

We think that today product positioning can be realised at different levels that include a growing part of value added :

• Right of ways and dark fiber : it is the basic offer that Municipalities and alternative infrastructures owners can consider. It is a basic carriers to carrier offer,
• Leased lines and bandwitch : this can be considered as the first step towards "service providing". This positioning enables operators to target carriers market and big accounts real time applications and dedicated networks between several locations,
• Global communications services and outsourcing : alternative operators aims at becoming full telecommunications operators. Important investments and competencies are needed to develop such an activity, the latter corresponding to an important demand from companies.