February 2001

Mediterranean Countries Synthesis of Master Reports

Synoptic Tables - January 2001  

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.

Today, telecommunications liberalisation in several countries, together with a growing demand for communications capacity emanating from ISPs, mobile operators, etc. could drive infrastructure owners to prepare an entry strategy into the telecom market. The real development of an alternative infrastructures supply will necessitate considerable preliminary investment in order networks to be upgraded. This, in addition to the need for a regulatory opening.

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.

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.

Our definition of alternative networks also includes telecommunications infrastructures operated by new entrants in competition with incumbent operators such as cable networks, new wire line and wireless networks.

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.

2.1 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.

2.2 Countries regulatory situations

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.

In Cyprus, the current law on telecommunications was enacted in 1954. Internet access (5 Internet access providers) and data services are opened to competition. A new telecommunications law is to be elaborated. There is currently no legal framework dealing with alternative infrastructures.

In Malta, the government’s plan to liberalise the telecommunications sector has been approved in July 2000 : it forecasts the full liberalisation on January 2003 the 1^st, while Internet services provisioning is yet liberalised. Today, Melita Cable, the monopoly cable TV operator has said it had big ambitions in the telecommunications field. No other alternative operator is yet declared.

In Turkey, several developments took place:

• in early 2000, Turkey enacted a new law on telecommunications preparing the liberalisation of the market. The main axes of the new regulation are the following: end of Turk Telekom monopoly by the end of 2003, partial privatisation of Turk Telekom : 33.5% of capital could be privatised in the first half of 2001, creation of an independent regulatory body, (creation realised in the last months),

• liberalisation of certain services : VSAT, data, VPN,

• authorisation of the provisioning of Internet through cable networks

• issue of the third GSM licence to Isbank – Telecom Italia consortium

• publication of the call for tender for the fourth GSM licence

• publication of a bill on digital TV in 2000

Today, the provisioning of data and Internet access services is opened (80 ISPs). Alternative infrastructure supply should organise itself in the future.

• Morocco, the telecommunications law of 1997 has oriented the sector towards liberalisation. A lot of developments have taken place during the last years :

• Attribution of a second GSM licence to Medi Telecom, the Telefonica / Portugal Telecom consortium in August 1999. Medi Telecom launched the GSM network in March 2000

• Issue of 3 VSAT licenses

• The government sold 35% of Maroc Telecom to Vivendi Universal for an amount of 23.3 billion dirhams, about 2.3 billion euros, the total privatisation of Maroc Telecom should be completed in 2002.

The alternative networks market is in its infancy. Nevertheless, the liberalisation of the telecommunications should lead to the development of alternative networks. Yet, the emergence of new operators (the second mobile operator Medi Telecom, ISPs) has created an undeniable concern for an alternative offer. Important barriers still exist both juridical (public status of potential actors when they are State-owned utilities), and strategic (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 privatisation of historic monopoly operators, modernisation programmes, competition in mobile sector (2 operators in each country), and Internet.

In Jordan, 40% of the Jordan Telecommunications Company (the national operator) were sold to a consortium led by France Telecom and the Arab Bank for 508 $ M in 2000. Jordan will liberalise voice telephony services by December 31 2004.

In Egypt, Egypt Telecom enjoys a monopoly on voice telephony and data transmission services.

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. In Jordan, governmental bodies and companies are allowed to build and operate telecommunications networks intended for in-house use.

• Lebanon and Palestine incumbent operators are on monopoly but mobile sector is liberalised (Lebanon). Alternative networks for the provision of voice telecommunications services to the public are not allowed. Nevertheless, there is currently a trend toward the opening seeking to stimulate private investment.

In Palestine, for instance, a law on the encouragement of investment was enacted in 1998 to provide a comprehensive framework of guarantees, incentives and benefits to investors.

In Lebanon, a law on privatisation has been adopted in 2000. It could concern the telecommunications operator. No other regulatory development is expected shortly.

• In Algeria, Syria and Tunisia the telecommunications sector remains rather closed to competition, incumbent operators have the monopoly on services. Alternative infrastructures are not allowed.

However, a number of developments have taken place in the recent months.

In Algeria, the vote of a new law on telecommunications on August 2000, which includes the willingness to open the sector to private investment represents a major change.

In Syria, for example, a programme has been launched to construct an Internet backbone which should be completed by the end of 2000. The government has decided to create a consortium composed of private and national organisations. This consortium will have in charge the construction and the operation of the backbone (see more details below).

OVERVIEW OF STATUS OF HISTORIC OPERATORS AND REGULATORY AUTHORITIES IN THE MEDITERRANEAN COUNTRIES

3.1 Actors

Main potential alternative infrastructures providers quoted in national reports are presented below : 

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 Israel (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 : 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 announced in 2000 its intention to enter the telecommunications market. It is leading a main up-grade of its infrastructure. In possession of a national network, this actor may could be an important competitor.

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, 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 Northern 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. Main public utilities, potential suppliers of alternative infrastructures are State-owned. No one announced any plan targeting the development on the telecommunications sector.

Several actors have alternative infrastructures. They can be classified as being either national or local. Main potential national actors are : National Electric Office (ONE), National Railways (ONCF), National Society of Moroccan Motorways (ADM).

There are few local players, for instance Lydec and Redal which are responsible for the water and electrical distribution in Casablanca and Rabat. At present, they do not have telecommunications networks.

The national actors have not announced yet any plan of development on the telecommunications sector.

As mentioned above alternative networks are not yet allowed in Egypt, 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, their is no alternative infrastructure offer currently. The involvement toward opening and privatisation is leading important transformations, the first steps towards a potential future alternative offer. Indeed, the national report indicates 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. In 2000, the Jordan Telecommunications Company has been partially privatised (40 % acquired by France Telecom). The Jordan Electricity Authority is in the process of privatising. Other companies as Aqaba Railways, Royal Jordanian Airlines and Jordan Cement could follow. 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.

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%) that announced the opening of a national data network Libanpac. Currently, there is no sign of alternative infrastructures development.

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

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 hospitals, 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.

In Syria : the telecommunications sector remains under the monopoly of the state-owned operator STE. Alternative networks are not allowed. Important developments have taken place in the end of 2000 : the decision by the government to establish a consortium of public and private companies to build and operate the national Internet backbone. This is an important change from the monopolistic current policy and an indication that more liberalisation may be envisaged.

In Algeria, in order to promote the development of a competitive telecommunications sector, the core of the reforms constituted by the law of August 2000, deals with the development of a national modern network. The national report outlines that important reforms have been taken to open the sector to private investment.

The table below provides an overview of the roles being played by the various actors in the region:

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 resources and the constraints on the telecommunications business. Israel has yet known several developments in that way : the Railways are now a carrier’s carrier operator.

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 expertise and a lot of financial resources. 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 resources :

• 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 bandwidth 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 bandwidth : 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.