Arab Telecom Sector: A Way Forward!

In the last decade of the twentieth century, the telecom sector in the United States of America contributed by 30 per cent in the economic growth of the largest economy in the world.

As the service sector constitutes more than half of the gross domestic product (GDP) of the developed economies, it's a main vehicle for growth with the telecom sector a main component of the service sector.

Telecoms in the developed economies are mostly in the hands of the private sector, that's why many investors and businesspeople in our region put their argument that unless governments here privatise telecommunications it'll not be developed as desired.

The status of telecom penetrations in the Arab countries is still far below the global levels. In general, only 8.7 per cent of the Arab population have access to fixed telephone services, while the international level is 19.2 per cent.

The same applies to mobile telephone access with 8 per cent penetration while the international level is 18.1 per cent. Internet connections, which are related to telecom penetration in away, are not that different with Arab countries level of penetration of about 2 per cent while international level is 10 per cent.

There's a wide disparity between individual Arab countries in the development of the telecom sector in recent years, with countries of the Gulf leading in that development and penetration levels. But countries like Yemen and Algeria have poor telecom networks.

The telecom divide applies also within individual countries to rural and urban areas, with the penetration mostly concentrated in urban areas while almost half the population in rural and remote areas is deprived of any telecom access.

Most Arab telecom services are still in the hands of governments either by ownership or tight regulation, though some countries privatised these services or floated monopolising companies in local markets.

In many cases the door was opened for international telecom companies to invest in Arab telecom, either via joint ventures or directly in development projects. In recent years, the Egyptian investment group ORASCOM invested in newly privatised telecom sector in the region and in Africa, but mainly in mobile telephone projects.

The potential of quick profits in a booming sector brought in large investments, but with signs of decline in profit ORASCOM is withdrawing now, selling its shares in telecom sector to local or international investors.

The later came to the region looking for potential revenues, in some cases expanding to cover losses in the region of their main activities. Examples vary from French-American group Vivendi investing in Morocco, to France Telecom investing in Egypt, Jordan or Syria.

Investments in Arab telecom sector reached about $3 billion, but there's a potential for more than double if that sector is to contribute more to economic growth in the region as targeted.

It's significant to note that development in telecom was not necessarily linked directly to privatisation.

For example, Sudan raised the share of private sector in fixed telephones from 40 per cent to 60 per cent and handed out 40 per cent of mobile telephones operation in the country to the private sector.

There was a short-lived boom, then a decline. Though one company is effectively monopolising telecom (fixed, mobile, and internet) in Gulf countries, the lack of competition didn't block funds for development to make the region leading in telecom penetration compared with the rest of Arab countries, and even reaching international levels as in UAE and Qatar.

No doubt that privatisation and competition is necessary for more investments to be lured in any sector.

But the development of telecom is part of a strategy for service sector overhaul in any economy; moreover, part of a general economic policy of reform and restructuring.

Arab economies need not to copy an example like Dubai to be mainly service sector oriented economies (which I prefer to call Dubaisation of the region), but still they need to open up this sector, deregulate it, in conformity with a clear policy to move forward towards a market oriented economy.

For instance, a government can still benefit from dropping the monopoly of telecom and levying fees and charges from private firms operating it, if that sector is planned to expand double or triple the current size.

Again, who would invest in a sector that can't grow separately irrelevant of the whole economy of any certain country?

How would we expect Internet to boom and attract investments if it's not streamlined as economic tool (for online business, shopping, advertising…etc.).

The simple conclusion is: yes, we need to de-regulate telecom sector in our countries to lure more investments, but it's not necessarily the way investors want; moreover this should be part of an overall economic strategy for growth. Otherwise we'll repeat the examples of Sudan and ORASCOM as governments and private businesses.

Ahmed Mustafa is an Arab writer based in Qatar.