July 2000

Mediterranean Countries Synthesis of the Update Memos

Synoptic Tables - July 2000

I. 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. Today, alternative infrastructures remain rather closed in most of the Mediterranean countries.

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 liberalisation of alternative infrastructures should favour the development of the information society, given the multiple side-effects : the development and diversification of the offer, the quality increase of networks, the prices decrease, etc.

The purpose of this document is to provide a synthesis of developments that took place between April and July 2000 in the field of alternative infrastructures.

This document is based on the contributions of the national contractors to the ESIS II project. For more information, please see national reports or the master synthesis.

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.

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

2. The regulatory background

2.1 The influence of 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.

2.2 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 markets degrees of developments .

Israel : a market totally liberalised

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

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

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.

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

In 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, Jordan, Lebanon and Palestine : involvement toward privatisation

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. 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. The vote of the Privatisation Law in Lebanon is an important event (cf below). The situation is evolving in a very slower pace in Palestine

Algeria, Syria and Tunisia: telecommunications markets are very closed and no alternative operators can be identified

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.

3. 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.

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

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.

4. New developments between April and July 2000

The national reports show that a large number of events took place between April and July 2000 in several countries including Turkey (vote on new telecommunications law, issuing of a new mobile license, development of cable operators…) and the Lebanon (vote on new privatisation law, national operator becoming part of the SkyBridge satellite consortium…). In Malta, the cable operator Melita Cable is continuing to upgrade its network with a view to preparing itself for entry into the telecoms market as soon as it is opened up to competition., when it should become a major competitor to the historic operator. In Morocco, several legal measures dealing with alternative networks development will be addressed in the coming months.

In most of the other countries, the national reports note the lack of any substantive changes.

The table below summarises the types of developments which have taken place in Mediterranean countries in the field of alternative infrastructures during the last three months.

Last developments (April – July 2000) in the field of alternative infrastructures in Mediterranean countries

Key to graph

Below we summarise the new developments that have taken place within the past three months in each country.

Israel: a new player, Ofek Technology, has entered the market as a competitive operator.

Israel is further ahead in its programme of liberalisation of the telecoms market. Competition has been allowed since June 1999 and a large number of providers now operate in the market. Amongst these the cable operators have enormous potential, due to the already very high levels of penetration of cable across the country: 90% of households are connectable and 63% of them already have a cable TV subscription. It is likely that the cable operators will establish a strong position in the markets for high-speed Internet access and cable telephony.

Important recent developments include the approval by the Ministry of Communications in early June 2000 of a wireless trial in the town of Ariel, run by Ofek Technology (part of the Eurocom Group). The trial is part of Ofek’s strategy to implement a widespread telephony and high-speed Internet network across Israel.

Amongst the major utility companies who already are or might get involved in the telecoms market, the Israel Railways Company have yet to be awarded a telecommunications operator licence, while the Israel Electric Company and the new Cross Israel Road are other potential players.

Cyprus and Malta: proclaimed liberalisation of the market in view of the expected future integration within the European Union, however very limited actual existence of real alternative infrastructure providers.

In Cyprus, currently the Cyprus Telecommunications Authority is the sole provider of telecommunications networks and services. Nevertheless, the prospect of integration into the European Union will speed up the liberalisation of the market and the development of a regulatory framework for alternative infrastructures. The only organisation with an extensive alternative network is the Electricity Authority of Cyprus (EAC) which currently uses its own fibre-optic network for its internal needs. EAC is driving through a major upgrade of its infrastructure, but has no real plan to enter the market as an operator.

In Malta, as mentioned in the previous report, the monopoly cable TV operator, Melita Cable, has big ambitions in the telecommunications sector. In May 2000, Melita Cable’s chairman stated the company was continuing to upgrade its cable infrastructure to provide a range of telecoms services including Internet access and data services. So far, no other utility company has expressed its intention to develop a telecoms business. It is also worth remembering that there are several ISPs in Malta. According to recent regulatory statements, Melita has to offer ISPs a transparent interconnection to its network. It is also worth mentioning the Malta Government Network (Magnet).

Turkey: continued liberalisation of the market in line with European Union directives.

In Turkey, there have been a lot of changes during the last quarter. The new telecommunications law has been enacted and an independent regulatory authority has been established. This authority is responsible for planning the liberalisation of the telecoms sector in accordance with European Union directives, and in particular the privatisation of 20% of Turk Telekom’s shares and the end of its monopoly by the end of 2003. The national report outlines the development of cable operators wishing to provide high-speed Internet access (for example Kablonet operates a cable network in several cities including Istanbul, Ankara and Izmir). Last but not least, a third GSM license has been granted to the Telecom Italia-Isbank consortium. A fourth GSM license is due to be issued in 2000/2001.

Lebanon: vote on the privatisation law will set in motion major changes to the telecoms sector

The Lebanon has seen several important developments during the last three months. A legal framework for privatisation has been agreed (please see the national report for more information). This should favour the development of alternative telecommunications operators in the medium term. Overall, there is a trend towards greater liberalisation. Indeed, the two GSM operators who signed ‘Build-Operate-Transfer’ (BOT) type agreements with the government in 1994 have asked for these contracts to be transformed into GSM operator licences. Each one has put forward proposals for a 20-year licence at a cost of $1.35 million.

Another important event is the potential participation of the Lebanon as an equity partner and service provider in the SkyBridge satellite consortium (although the Lebanese government has not yet signed a memorandum of understanding with SkyBridge). The worldwide SkyBridge consortium is a Low Earth Orbit (LEO) satellite system, lead by Alcatel, dedicated to providing high bandwidth communications (high bandwidth Internet access) as well as traditional telephony services. As an access system, SkyBridge will complement and extend terrestrial networks, and provide broadband access even in the most remote areas. The system could be launched in 2002. This should open up the potential for important opportunities for telecoms developments in developing countries. It is also worth noting that a major player, Sodetel – owned jointly by the Lebanese state (50%), France Telecom (40%) and Telecom Italia (10%) – has announced the opening of a national data network, called Libanpac.

Morocco: forthcoming development of a regulatory framework for alternative infrastructures.

In Morocco, as mentioned above, a lot of developments are currently needed to enable the potential emergence of major public utility companies as new actors. The required changes are largely of a regulatory nature, as it will be essential to modify the status of state-owned utilities to enable them to become telecoms operators (for instance, to introduce separation of customer accounts between different business entities, create discrete telecoms subsidiaries and so on). Over and above this, there is only a very small number of potential sector players (such as motorway operators) who have their own telecoms infrastructures capable of hosting interconnections with operators, and an even smaller number who have actually started to develop their strategies for entry into the telecoms market. The main companies seeking to enter the competitive arena are, naturally, Medi Telecom the second GSM operator, and ISPs.

Egypt: development currently under way of a new telecommunications law which will suggest a much greater involvement from the private sector.

In Egypt, as mentioned above, alternative networks are not yet allowed and Telecom Egypt still enjoys a monopoly on basic telephony and leased lines services. Nevertheless, the government is putting in place a policy of opening up the sector to private investment and deregulation, in order to help speed up modernisation. Some parts of the industry have already been opened up: mobile services, pay-phones, pre-paid international call cards and Internet services. There have been no important changes during the last three months, but work on major developments has continued. In particular, a working group set up by the Ministry of Telecommunications and Information is working on the definition of a new telecommunications law, which would recommend greater private sector involvement in the Egyptian industry.

Jordan: some months after France Telecom took an equity stake in Jordan Telecom, the programme to reform the major public utilities companies continues.

In Jordan, although the national report shows that there were no major developments in the past three months, significant changes have been under way for several months (see the previous national report and summary). For example, France Telecom had already acquired 40% of Jordanian Telecom in a deal valued at $508 million. This is part of an extended privatisation programme launched by the government with the aim of facilitating foreign investment and speeding up economic development. The Jordan Electricity Authority is in the process of being privatised and other companies including Aqaba Railways, Royal Jordanian Airlines, Jordan Cement and the National Electric Power Company (Nepco) are expected to follow soon.

Algeria, Palestine, Syria and Tunisia: the markets remain closed to alternative infrastructures.

In Algeria, the telecommunications market remains closed to competition, with the notable exception of the Internet access market, which has being open since 1998. There were no significant events during the last three months. However, it is worth noting that Algerian Radio is planning to develop and revamp its equipment and infrastructures.

The national report for Palestine indicates that there were no significant changes during the last three months. Nevertheless, one can remember that the previous national report indicated that the government wanted to encourage greater involvement of private companies in telecommunications. Amongst the alternative players, Israeli company Guillat is offering satellite connectivity between customers and ISPs.

In Syria, as mentioned in the previous summary, the telecoms sector remains under the monopoly of the state-owned operator. Nevertheless, it is planned to issue licences to ISPs during the last quarter of 2000, once the Internet backbone has been implemented.

The national report for Tunisia shows that there have been no changes during the last three months. It is interesting to reiterate that the telecommunications market is virtually closed and there are no plans to introduce laws permitting alternative commercial networks. Nevertheless, there are several governmental initiatives aimed at promoting the Internet which should help the development of alternative ISPs. There are also a large number of government networks: the National Health Network (RNS) connects over 64 hospitals and, in particular, provides Internet access. In agriculture, the National Agricultural Network (Agrinet) connects agricultural institutions and dedicated centres throughout the country. In education, two national networks have been set up: the national university network (RNU) connects 87 universities, while the Edunet network provides connectivity to secondary and technical schools. In science and technology, the national research and technology network was set up in 1993 and connects research centres. (For more details, please see the previous national master report and summary).

The table below provides an overview of actors positioning

Main Alternative Actors

Synoptic Tables - July 2000