Hamadeh says long-delayed deal should be done by fall

Feb. 12, 2007- Telecommunications officials confirmed over the weekend that the government plans to invite bids for each of its two mobile licenses in the fall, just days after the Cabinet approved appointees to the privatization regulatory body, whose formation had been stalled since 2002.

Telecommunications Minister Marwan Hamadeh told the Reuters news agency on Friday that the two banks appointed to manage the sale, Citigroup. and JPMorgan Chase, were "well advanced" in their work, and European and Middle Eastern firms had already expressed interest in the licenses, which he estimated to be worth between $6 and $7 billion. 

Political opposition to proposed appointees for the Telecommunications Regulatory Authority (TRA) - a prerequisite for mobile privatization to go forward - blocked successive government attempts over the past five years to auction Lebanon's outdated mobile networks.

Despite past delays, the head of the Higher Privatization Council was optimistic that Hamadeh's September or October deadline would be met.  

"The timeline is realistic because all [five] members of the TRA have been appointed, including the president of the body, Kamal Shehadi [Hamadeh's nominee]," Ziad Hayek told The Daily Star.

Shehadi was not available for comment.

But Hayek said it was still "too early" to comment on the accuracy of Hamadeh's valuations. "I don't think anyone should be talking about prices right now, because the companies will do due diligence to determine the value [of each mobile network] themselves when they start the tendering process," he explained. 

The only remaining hurdle in the way of full privatization is the passage of legislation to govern the tendering process, which Parliament is expected to vote on at its March session.

Hayek expects the government to sell 100 percent of each network in the initial bid round, though the consortium or company that wins the license will be required to float a portion of shares on the Beirut Stock Exchange for public subscription.

Whether current mobile operators MTC Touch and Alfa will bid on the licenses was not clear by the time The Daily Star went to press, but Hayek said he "hopes" both will participate in the sale since they "are very well positioned in the market."

Prime Minister Fouad Siniora said at the Paris III donor conference last month that the government intends to use proceeds from privatization to make interest payments on the public debt. But a source involved in the planned license auction said only a small share of revenues from sale, if any, should be considered privatization revenues, since the value of actual mobile equipment and infrastructure does not exceed $100 million.

"This is not a traditional privatization. We are selling the two networks, with company subscription bases, and licenses," he told The Daily Star on condition of anonymity.

"The $2.5 to $3.5 billion number is the value of a license. To achieve this number we need to invest in existing networks. If a company is sold, the price is not based on the value of computers or office building but on value of business itself," he said.

The law awaiting parliamentary approval is to regulate the sale of state-owned telecom assets, he said, adding that "most lawyers" do not even regard such legislation as necessary, "but the government is trying to be extra careful."

Based on the Telecommunications Ministry's projections for future cellular phone usage rates, Lebanon's mobile sector is indeed valuable.

A little more than a quarter of the Lebanese population - about 1.1 million people - are mobile subscribers, and the number is expected to increase to 3 million within the next three to five years, according to Hamadeh. Gross revenue of the telecom sector amounts to about $1 billion per year. 

The anonymous source said that after the auction is complete, 20 to 30 percent of shares in each new mobile company will be listed on the Beirut Stock Exchange, boosting the total capitalization of the bourse by 15 or 20 percent   

"If you list 20 percent of 6 billion, in one day you add 1.2 billion worth of shares to be traded on the stock exchange," he said. "And you are introducing stocks that are attractive to international and foreign investors. The impact will be similar to Solidere," the company responsible for rebuilding Downtown Beirut

Privatization is also expected to encourage investment in the current networks, whose infrastructure dates to 1994, and increased competition in the market will hopefully bring prices down, said Hamadeh.

Post-paid customers pay $0.13 per minute in Lebanon compared to as little as $0.04 per minute in Egypt and $0.09 per minute in Saudi Arabia, making local mobile charges the most expensive in the region.

Hamadeh attributes sky-high costs to the current telecommunications law, which allows no price changes until the companies are privatized. Though the bulk of new investment and technology will come with privatization, the minister said the government is making progress on some long-delayed reforms of its own.

"Blackberry will be introduced in the next two to three weeks. I would like to think that the greater Beirut area will have DSL [digital subscriber lines] operational from March," Hamadeh said.

"Our broadband capacity will increase ... to 10 gigabytes," from 150 megabytes currently, Hamadeh said. - With agencies