ON TUESDAY this week mobile phones in Baghdad suddenly flickered into life — and promptly created an unexpected headache for the Coalition Provisional Authority that now runs Iraq. At stake is the ability of the CPA to award contracts that stick, necessary if the authority is to encourage Western companies to invest in the reconstruction of the Middle Eastern country.
The fledgeling service, which covers central areas of Baghdad only, is Iraq’s first public mobile phone network. On its first full day of operation, it handled about 3,000 calls, representing a successful outcome of two months of covert planning and $5 million (£3 million) of investment by Bahrain’s telecoms operator Batelco. Yet Batelco has no licence to operate a service — and the CPA is not impressed. A system of licensing, which restricts the number of companies able to operate a mobile service, is the cornerstone of the industry around the world.
The CPA says that Iraq, as per its order 11 issued on June 9, already has a telecoms licensing system and warns that Batelco is in breach of it. Another operator that tried its luck, Kuwait’s MTC, has already abandoned a rival Baghdad service under CPA pressure.
A spokesman for the provisional authority said last night: “There is a system of regulation here. We’ve already sent them (Batelco) a letter, warning that they are in breach of order 11. If they don’t shut down their systems, then we’ll take further measures. We know where their base stations are.”
However, Rashid al-Snan, Batelco’s regional operations manager responsible for the Iraqi project, defends his company’s actions on the basis of humanitarian opportunism. Speaking before the CPA’s warning, he said: “Nobody has a licence. We were encouraged by calls for the rebuilding in Iraq, but we did not seek permission.”
Behind Batelco stands the London-based international carrier Cable & Wireless, a long-time business partner and 20 per cent shareholder. The British company is providing engineering support, including a satellite link between the Baghdad network and Bahrain, as the first leg in transporting international calls. A spokesman for C&W said yesterday: “We are supportive of Batelco’s efforts in Baghdad, and we expect the company to apply for a licence in due course.”
Cable & Wireless, despite its recent financial troubles, remains an ideal partner for Batelco in Iraq. The British group’s board members include a string of people with connections in the defence industry, led by its chairman Richard Lapthorne, a former British Aerospace finance director.
Lord Robertson of Port Ellen, the Secretary-General of NATO and former Defence Minister, is planning to join as deputy chairman next February, while one of his former advisers, Bernard Gray, is already a non-executive. However, none of the board members will relish what is already threatening to become a politically embarrassing conflict.
In any event, the CPA already has other ideas. A few days before Batelco’s coup, the authority issued a competitive tender for three regional mobile licences, and sought expressions of interest from operators around the world. Unlike other contracts, there is no requirement on bidders to have an Iraqi partner. Now, Batelco’s arrival means that, rather unexpectedly, there is a company that is already trying to project an image of itself as an incumbent.
It is wasting no time in doing so. Mr Al-Snan said: “We intend to fight for a licence. If we were forced to pull out, it would be very bad for the public, who are already enjoying a service.” Surprisingly, he goes further and hints that if the company does not win the central region licence that covers Baghdad if would even consider defying the CPA. “We would have every right to continue providing our service to the public,” he says.
As of the end of this week Batelco was still planning to sell pre-pay mobiles to wealthy locals from Monday. The company says its tariffs will be the same as it charges in its home country and that phones will cost no more than $300.
The company says that it has another $50 million to invest if it can. But the CPA’s firm opposition presumably makes it unlikely that Batelco will get any further. If it was allowed to do so, it would raise clear questions about the authority’s ability to control the business environment.
Outside any work exploiting the country’s oil reserves, the mobile licence contracts could end up being one of the most valuable business opportunities available in Iraq, although development of a sizeable customer base will take several years.
In many developing countries, most obviously China, mobile has become big business, helped by tumbling equipment and handset prices. As a result it has become possible to develop lucrative franchises, which are more attractive to investors than building time-consuming and expensive fixed-line networks.
The problem is that the Iraq licences — which cover the north including the Kurdish area, the central Baghdad region, and Basra and the south — are initially only of two years in duration, although they can be extended.
Nor has any particular technology been specified. After a heavy lobbying campaign by both camps, the CPA will allow bidders to offer either a service based on the European GSM standard, which is widely used in the region, or the American CDMA standard, which, outside the United States, is widely used only in South Korea, China and Israel. That could lead to incompatible technologies being used in different parts of the country.
Nevertheless, mobile phone penetration in wealthier parts of the Gulf region is taking off, and Iraq itself would clearly be at the back of the pack. In Bahrain and Kuwait, penetration levels are nearly 60 per cent, according to the research consultancy Baskerville, although in Syria the penetration is just 2 per cent.
It would be possible to reach profitablity, although it would take several years. Stephen Pentland, a mobile phone specialist with Spectrum Strategy Consultants, said: “Western operators’ rule of thumb is that you need one million customers to make it worthwhile to run your own network. Three networks over the country’s 17 million population implies penetration needs to reach 20 per cent, which should be possible.”
It is not yet clear who will bid. European operators, many of whom are carrying heavy debts, are unlikely to show much interest. However, Vodafone, which is being very cagey about its own position, is likely to work with Kuwait’s MTC, which has a long-standing marketing partnership. MTC- Vodafone, as the group likes to be known, already provides a private service to military personnel in the south of the country, in a deal that dates back to before the conflict.
The near-dominance of US companies in other reconstruction contracts has led to speculation that American operators, which traditionally have very limited overseas investments, will get involved. Intriguingly, MCI — formerly the disgraced WorldCom — is providing a private service to the US military in Baghdad. MCI, which is badly in need of rebuilding its reputation, does not operate a mobile business anywhere else in the world.
However, the most logical candidates to manage the licences are the Arab operators, such as Batelco. Yet, the Bahrain company’s attempt to steal a march on its would-be competitors may turn out to be terminal to its chances.
