GCC Insights: Bahrain telecom reforms gather pace

Liberalisation of the telecom sector is in full swing in Bahrain. The authorities seem determined to open up the whole sector for competition, starting with the GSM phone network.

To this effect, the government has set up the Telecommunica-tions Regulatory Authority (TRA) to oversee the liberalisation process. The plan calls for allowing competition in mobile, Internet, fixed-line, VSAT (very small aperture terminals) satellite networks and international paging.
Recently, TRA granted licence for a second mobile operator to a joint venture of Mobile Telecommunications Company (MTC) of Kuwait and Vodafone of the UK.

Some ten local and international companies bid for the second GSM licence.

MTC Vodafone Bahrain will have a 15-year concession to offer GSM services for local and international calls.

The new company is allowed to interconnect with the existing telecommunications infrastructure. The second operator will have the option to develop the third generation network (3G), provided that Bahrain Telecom-munications Company (Batelco) does not offer its own 3G network within nine months.

The TRA has tacitly warned of granting another licence if neither of the GSM providers introduces a 3G network.

Existing rules do not require either Batelco or MTC Voda-fone to 3G mobile technologies.

Currently, Batelco enjoys a monopoly over the telecom services, but will lose the privilege once MTC Vodafone begins its operation by year-end. Details of the liberalisation call on TRA taking over most of the existing infrastructure of Batelco.

In preparation for the competition, Batelco has revealed plans to shed hundreds of jobs, as part of moves to streamline operations and reduce operating expenditure.

In the initial stage, the company intends to axe some 300 employees through an early retirement scheme. Not surprisingly, the move is not popular with the employees, and has led to demonstrations by would-be retirees.

Workers feel that the decision is not fair, not least because the company is profitable, having achieved net income of $155 million in 2002, up nine per cent on the year.

Employees affected

The affected employees charge Batelco management with over-reacting, but company executives have indicated that some of the dismissed employees could find jobs in the new company.
Bahrainis constitute the majority of Batelco's more than 2,000 employees, and the lay-offs would further complicate the unemployment problem, which currently stands at 15 per cent.

The TRA will be policing all licensees, including that of Batelco, in order to ensure standards of service.

The ruling stipulates that subscribers should be able to transfer from one network to another without changing their handsets. But TRA has already warned of the consequences for anti-competitive behaviour, notably price-fixing.

Bahrain's economy stands to be benefit from the telecom liberalisation. The TRA estimates that issuance of a second licence will attract millions of dollars in foreign investment, as the successful bidder is required to locate assets in Bahrain.

MTC Vodafone Bahrain has disclosed plans to invest some $120 million. The new company intends to increase its paid up from nearly $20 million to $53 million and raising shares of Bahraini investors to 40 per cent through an initial public offering, and listed on the Bahrain Stock Exchange. The TRA expects some 400 new jobs within two years. MTC Vodafone has promised to keep three fourths of the jobs for locals.

Consumers are generally pleased with the far-reaching liberalisation programme, and expect rivalry to bring about improvement in services and terms and, more importantly, better value for money.

There remains a possibility that the new company will take business away from Batelco by attracting dissatisfied users.

Rumours suggest that Batelco intends to introduce numerous telecom packages to suit the diverse needs of clients, offering different pricing schemes, particularly for the GSM subscribers.

But other plans call for applying charges for services currently offered for free, including getting operator assistance and Internet support.

Competition

The authorities imagine the competition will lead to stronger proliferation of telecom services.

According to International Telecommunications Union, as of 2001, there was about 43 per cent GSM penetration rate, with mobile subscribers making up nearly two-thirds of the total telephone subscribers. Also, there was 25 per cent fixed-line teledensity and about 20 per cent Internet penetration.

The second phase of the liberalisation initiative calls for allowing entry of Internet Service Providers (ISPs) to the market, possibly late this year or early next year.

By 2004, the TRA plans to allow competition in the fixed-line network. If the TRA sticks to its plan, Bahrain will become the most open telecom market in the region.