GCC Insights: Privatisation is one thing and liberalisation another

Few days ago, the initial public offer (IPO) of Saudi Telecommunications Comp-any (STC) made headlines. However, Saudi Arabia is not liberalising the telecom industry. To be sure, most GCC states have taken measures for privatising state telecom monopolies rather than liberalising the industry or deregulating the services.

This article offers a report card on progress towards opening the telecom market within the GCC. With respect to Saudi Arabia, the STC was corportarised in 1998 as joint-stock company and permitted to operate on commercial basis.

In 2001, the government passed the telecommunications act and later set up Saudi Communications Commission as the telecommunications regulator. On December 17, 2002, the STC offered to sell 30 per cent of its shares, hoping to raise SR15.3 billion ($4 billion). But only Saudi nationals and government institutions were allowed to purchase the 90 million shares, sold at SR170 a piece.

Foreign investors are barred from investing in the telecommunications sector, as part of a negative list that prohibits foreign investments in some 20 activities. The IPO confirms STC's success in overcoming an earlier failure to win a strategic buyer - in 2000 SBC of the U.S. decided against joining the proposed partnership. The next plan calls for allowing entry of foreign operators in the mobile line by 2004.

Kuwait's telecommunications sector is the most liberal within the GCC economies - not a single monopoly firm controls the telecom services. Two firms, Mobile Telecommunica-tions Company (MTC) and National Mobile Telecomm-unications Company (Wataniya) provide mobile services. The government has minority stakes in both firms and acts as a regulator of the industry.

Also, in response to rapid growth of the GSM market, the authorities have commissioned a study to evaluate the possibility of granting a licence for a third mobile provider. Concerning the Internet, Qualitynet and Fasttelco are the two operators, helped by the 35 sub-providers. The state has no interest in the two firms or the sub-providers but acts a regulator of the Internet.

Now that private firms are providing the GSM and the Internet business with no apparent undue costs to the consumers, the authorities are contemplating opening the fixed-line network to the private sector.

Bahrain is introducing legislation to open up the telecom market by setting up an independent regulator. The regulatory bureau would oversee the rental process for the telecommunication infrastructure, which is currently owned by Bahrain Telecommunications Company (Batelco). Also, it would be responsible for granting licences and setting up the conditions and responsibilities for new firms. In February, the UK-based Intercia Mondiae Limited was commissioned to provide Batelco with technical, economic and legal consultation related to liberalised telecom market.

Oman has introduced steps in 2002 towards opening up the telecom industry. In March, the government passed legislation for opening up the domestic telecom market. Then in August, Oman Telecommuni-cations Regulatory Authority was formed as an independent regulatory body partly to oversee privatisation of Oman Telecommunications Company (Omantel). The government-owned Omantel is offering 40 per cent stake to a prospective strategic partner. Authorities hope that the partner would assist in expanding the telecom infrastructure. However, low foreign interest has delayed the potential sell off until 2003.

Qatar has no immediate plans to liberalise its telecom market. The latest move dates back to 1998 when the government sold 45 per cent of its stake at Qatar Telecommu-nications Corp (Q-Tel) earning the treasury some 2.7 billion riyals ($742 million). Granting foreign investors the right to own Q-Tel's shares was the most notable aspect of the sell off. However, the experience has not been rewarding to investors, as market price of the stock dropped later below the IPO price of 60 riyals a share.

In the UAE, Etisalat continues to wield tight monopoly over the telecom services. Plans for allowing Internet service providers within the Dubai Internet City have been all but shelved.

International Telecommu-nications Union (ITU) considers the GCC as being late in introducing liberalisation in the telecom industry. The irony is that by being profitable, telecom monopolies have been able to use the proceeds to develop a modern infrastructure without the need for liberalising the industry.