Identifier
Created
Classification
Origin
02AMMAN2420
2002-05-15 14:11:00
CONFIDENTIAL
Embassy Amman
Cable title:  

NEW JORDANIAN TELECOM REGULATOR FACES CHALLENGES

Tags:  ECPS BEXP EINV JO 
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C O N F I D E N T I A L SECTION 01 OF 04 AMMAN 002420 

SIPDIS

DEPT PASS USAID FOR ANE/MEA KIM FINAN
USDOC FOR 4520/ITA/MAC/ONE/PAUL THANOS
USDOC FOR 6000/ADVOCACY CENTER/CJAMES
USDOC FOR 6400/RSTEELE/ITA/TD/OEC/RSTEELE
TREASURY FOR PIPATANAGUL
TDA FOR SIGLER

E.O. 12958: DECL: 05/15/2007
TAGS: ECPS BEXP EINV JO
SUBJECT: NEW JORDANIAN TELECOM REGULATOR FACES CHALLENGES

REF: A) AMMAN 2200 B) AMMAN 1138 C) AMMAN 0794 D)

AMMAN 0567

Classified by DCM Gregory L. Berry. Reasons 1.5 (B) and (D)

-------
SUMMARY
-------

C O N F I D E N T I A L SECTION 01 OF 04 AMMAN 002420

SIPDIS

DEPT PASS USAID FOR ANE/MEA KIM FINAN
USDOC FOR 4520/ITA/MAC/ONE/PAUL THANOS
USDOC FOR 6000/ADVOCACY CENTER/CJAMES
USDOC FOR 6400/RSTEELE/ITA/TD/OEC/RSTEELE
TREASURY FOR PIPATANAGUL
TDA FOR SIGLER

E.O. 12958: DECL: 05/15/2007
TAGS: ECPS BEXP EINV JO
SUBJECT: NEW JORDANIAN TELECOM REGULATOR FACES CHALLENGES

REF: A) AMMAN 2200 B) AMMAN 1138 C) AMMAN 0794 D)

AMMAN 0567

Classified by DCM Gregory L. Berry. Reasons 1.5 (B) and (D)

--------------
SUMMARY
--------------


1. (SBU) The GOJ's recent reform of its telecom regulatory
infrastructure thrusts its now fully independent regulator
into the role of decision-maker at a time of transition,
opportunity, and challenge. As it finds its feet, the
regulatory agency must find creative ways to encourage market
entry, (even at the risk of ruffling the monopolist, Jordan
Telecom),ensure the provision of reliable and affordable
service for Jordanians, and moderate a complex battle between
mobile providers over interconnection rates. End Summary

--------------
A MINISTRY IS BORN
--------------


2. (SBU) Under Jordan's new telecom law, the former Ministry
of Post and Communications officially became the Ministry of
Information and Communications Technology (MOICT) on April

22. Minster Fouaz Zu'bi said that the Ministry's mandate is
to stimulate local and foreign technological investment,
promote awareness of IT issues, and establish Jordan as a
regional player in IT development. The Ministry will also
oversee the implementation of the GOJ's e-government program.
While the Ministry will continue to make telecom policy, the
Telecommunications Regulatory Commission (TRC),newly
independent under the law, will enforce it. Responsibility
for the postal sector has been hived off from the Ministry in
the form of the soon-to-be-privatized Jordan Postal Company.


3. (SBU) The TRC faces a number of challenges in
establishing its independence. Dominated by a monopoly in
fixed-line service and a combative duopoly in mobile, the
sector is in need of new entrants, both to enhance quality
and to bring about a reduction in rates. A potential new
entrant, Real Time Communications (a U.S. led consortium)
(REF B),is seeking to build a fiber-optic line between

Lebanon and the Red Sea port of Aqaba as an alternate route
for Europe-Asia telecom traffic, but faces opposition from
Jordan Telecom, a dispute that will eventually make its way
to the TRC. The TRC will also be called upon to resolve rate
concerns at a number of levels: the high rate Jordan Telecom
charges for international calls; the high intercompany
settlement rates Jordan Telecom charges for inbound calls
that encourages foreign companies to use cheaper, and lower
quality, inbound routes; and mobile interconnection rates.


--------------
THE REGULATOR
--------------


4. (SBU) Formerly part and parcel of the old Ministry, the
TRC had, in the past, been perceived as a lapdog of Jordan
Telecom (JT). Over the last few months, however, it has
ruled against Jordan Telecom on two important and contentious
issues. In the first, the TRC ruled that pay phone service
was a public right, and that Jordan Telecom could not cut off
service to a local provider embroiled in a billing dispute
with JT. More recently, the Commission determined that
mobile operators could issue seven-digit phone numbers,
greatly expanding the pool of numbers available and enabling
mobile operator Fastlink, a competitor of JT-owned MobileCom,
to respond to customer demand (REF D). Both rulings were
upheld by the High Court following challenges by JT.


5. (SBU) TRC Director General Mamoun Balqar told us these
rulings were a "welcome reassurance of the professionalism"
of the Commission. He said this reassurance meant that the
TRC was on sound, legal ground in issuing the decisions, and
was a vote of confidence in the pro-competitive direction the
TRC was determined to move. Balqar added that, as a former
employee himself of Jordan Telecom, he understood their
position on a number of issues, but said what is right for
Jordan is not always going to be what is right for JT.


6. (SBU) Balqar said that under the new law, the TRC will be
even more professional. The Commission will be run by a
full-time Chairman, selected by the Council of Ministers,
with five commissioners. The commissioners will also be
named by the Council, and will probably include a lawyer, an
economist, a telecom specialist, and an IT specialist.
Balqar said that he had no desire to be the Chairman, adding
that administrative duties were a headache. Instead, it was
his desire to be the telecom specialist on the Commission, a
slot he expected to fill. Balqar said it was not yet clear
who the Chairman would be, nor the make-up of the rest of the
Commission. But he said they would be much more in tune with
telecom issues than the "yes men" who had served on the TRC
in the past. He expected the entire Commission to be named
by June 1.


7. (SBU) Alluding to challenges facing the TRC, Balqar
opined that it was not too early to start thinking about what
the telecom playing field in Jordan might look like once JT's
monopoly expired at the end of 2004. He said he saw most of
the future opportunities in cellular and other mobile
services, local and international operators, and IT backbone
projects. He pointed to the Jordan Wireless Sector Market
Liberalization Project, a U.S. Trade and Development Agency
funded feasibility study to develop a national mobile
strategy, as a demonstration of Jordan's commitment to open
up the telecom market.

--------------
A MONOPOLY ENTRENCHED
--------------


8. (SBU) We met with Pierre Mattei, Jordan Telecom's CEO,
currently on loan from France Telecom. Adamantly defending
JT's fixed-line monopoly, which runs until January, 2005,
Mattei admitted he was very protective of JT's position in
Jordan. He stressed that there was no need for a second
network. "There is room for only one network in Jordan," he
said. He emphasized the company's many contributions to the
Kingdom, and said, "We are a strategic partner with the
government of Jordan. We are also an employer, a customer,
and a developer here. Jordan Telecom works for the interests
of the people."


9. (SBU) Responding to concerns regarding quality of service
on international calls and faxes (international service,
particularly inbound calls and faxes, is haphazard; even when
calls are able to get through, voices are often
unintelligible, and the calls themselves are given to
frequent, sudden cut-offs),Mattei attributed the problems
to "hackers" who divert international traffic through
voice-over internet networks. He said it was the TRC's job
to catch these "pirates", but said that the Commission was
"too weak" to work on the issue. Mattei also admitted that
JT's high intercompany settlement rates worked to discourage
international providers from using JT's lines. He pointed to
JT's current intercompany settlement rate of 19 cents per
minute (as opposed to 3 cents for outgoing calls) as a reason
for foreign companies to bypass JT. He added that JT was in
the process of reducing the rate to 16 cents and would
eventually bring it down to 13 cents. But he said that
tariffs for domestic calls were too low, forcing JT to keep
international rates high. In addition, Mattei cited an
arrangement among Arab League countries that keeps rates
between those countries high as well.


10. (SBU) We posed the quality question to TRC's Balqar, who
agreed with Mattei's interconnection argument, but said JT's
high rates prompted long distance companies to route calls
through cheaper land lines for five cents a minute, not so
much via voice over internet. Balqar claimed that in the few
hacker cases that came the Commission's way, the TRC, with
the help of JT, had achieved some successful prosecutions.
Balqar said the only way the quality issue might be solved
would be if Jordan Telecom reduces its international rates to
the point that foreign operators find it unnecessary to
reroute calls to the least costly port of entry.

--------------
REAL TIME
--------------


11. (SBU) As an example of JT's resistance to innovation and
new entrants into the market, we posed the Real Time issue to
Balqar. He mused that working with Jordan Telecom probably
represented the "best and only option" for the American
company to penetrate the Jordanian market. Sounding a theme
we've heard before, Balqar said the monopoly is a fact of
life, at least for the time being. He said that perhaps Real
Time's strategy for the project, which includes a fiber-optic
backbone linking Jordan to Cyprus and Europe via Syria and
Lebanon, should be "if you can't beat them, join them". But
he added that the Commission was entering the debate, and
said the TRC would look at "legal angles" that might make
Real Time's entry possible.


12. (C) JT CEO Mattei predictably expressed skepticism over
the project. He asked rhetorically, "Where is the business
plan? Where is the profit?" He added that there was
already over-capacity in fiber-optic in the world. But,
opening the door somewhat, he said that if Real Time "can
show me that there is a market, we could discuss it". (Note:
Jordan Telecom's plan to have an Amman hub in a link between
Syria, Iraq, and Europe, coincidentally announced on the
heels of Real Time's stated interest, suggests that indeed
such a market exists. (REF A) End note.)

--------------
THE MOBILE MARKET
--------------


13. (SBU) Two mobile providers currently serve Jordan: JT's
affiliate MobileCom, and Fastlink, a subsidiary of
Egypt-based Orascom under terms of a duopoly which is set to
expire January, 2004. Although a newcomer to the market,
Fastlink is the dominant mobile carrier, serving more than
800,000 subscribers, compared to MobileCom's 200,000.
However, service outages and quality concerns, along with a
concerted MobileCom effort to undercut Fastlink on rates, has
recently prompted a number of subscribers to switch to
MobileCom.


14. (SBU) Fastlink CEO Michael Dagher told us that despite
the explosive growth in subscribers, the company was under
financial pressures that were limiting its ability to invest
in expanding and upgrading the network. The first such
pressure came from a complex battle between the mobile
providers has emerged over rates. Each company is promoting
tariff plans that reduce rates between subscribers, but
increase rates for calls to other providers, mobile or fixed.
Balqar said the TRC has put a cap on rates for both mobile
and fixed providers, and that it was up to the telecom
companies themselves to set rates under the cap and that as
long as they avoided the upper limit on tariffs, they were
free to do what they want. While mobile rates continue to
decline as a result of competition between the two mobile
companies, JT has retained its interconnection fee of 3.5
cents per minute for both mobile providers, in accordance
with the terms of its license. However, as MobileCom is an
affiliate of JT, this interconnection fee disfavors Fastlink
and in effect represents an indirect subsidy for MobileCom.



15. (SBU) Yet another challenge is the high cost of entry
and doing business in the sector. Dagher said that
Fastlink's revenues in 2001 were USD 160 million, but he said
that the GOJ's 15 percent sales tax, 25 percent income tax,
and other taxes in 2001 totaled USD 70 million for Fastlink.
He complained that these taxes, along with the USD 35 million
mobile license fee, were diverting capital away from
investment and hurting the company's ability to expand and
innovate. (JT's Mattei expressed the same concerns. He said
it cost France Telecom USD 500 million to acquire its 40
percent stake in JT, not including license fees and taxes.
He said that in addition to sales and income tax, JT paid USD
19 million in privatization fees in 2001 and USD 77 million
in 2000.)


16. (SBU) Finally, Dagher did not mention, but we have heard
from other sources, that the financial problem of Fastlink's
Egyptian parent company Orascom, which owns 91 percent of the
company (Motorola sold a 30 percent share in 2001) are also
undercutting the company financially. According to local
bankers, Orascom is siphoning money from Fastlink to help
cover the cost of ambitious expansion plans in North Africa
and Syria. In fact, they say that Fastlink has exhausted its
credit in Amman (which Dagher attributed instead to the
excessive caution of Jordanian bankers).

--------------
COMMENT
--------------


17. (SBU) In response to concerns about the high cost of
doing business, Balqar said that upcoming license fees and
award procedures was among the priorities of the new
Commission. He said, for example, that there is room for one
or two more mobile operators in Jordan, and he expected those
license would be awarded in a competitive bidding process.
But he added that telecom companies in general had "learned
their lesson" when they paid exorbitantly high fees for 3G
licenses in the 1990s, and suggested they would be much more
conservative from now on. Balqar also said the tax and
revenue structure was very complicated, but, as it may
represent a barrier to foreign investment, should and would
be examined by the TRC. He emphasized, however, that despite
the high taxes and fees JT had paid to the GOJ over the
years, the company was still generating a profit and that in
fact, France Telecom was likely to attempt to increase its
stake in JT when the next tranche of shares goes on the
market later this year.


18. (C) Commissioner Balqar is a competent professional who
enjoys a thorough understanding of the telecom industry and
the challenges facing the sector as it liberalizes. But the
TRC under his leadership is a less dynamic and proactive
regulator than Jordan needs today, and one hopes that the
rest of the as-yet-unnamed commission can provide the
leadership and expertise needed to recognize and meet those
challenges head-on, even at the risk of confronting Jordan
Telecom and its various interests and supporters. As the new
TRC sorts through these complicated issues in the months and
years ahead, we will continue to encourage and support an
environment that fosters an open market leading to the
provision of dependable and innovative service at rates that
are fair and accessible. (USAID anticipates providing
assistance to the TRC in strengthening its regulatory
capablilities over the next few years as part of its
Information Communications Technology initiative.) End
comment.
Gnehm