OMAN: TELECOMS UPDATE

UNCLAS SECTION 01 OF 02 MUSCAT 000674

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STATE FOR EB/CIP/DROHATGI AND NEA/ARPI
STATE PLEASE PASS USTR/JBUNTIN AND AAUGEROT
USDOC FOR 4520/ITA/MAC/AMESA/OME/MTALAAT

E.O. 12958: N/A
TAGS: ECPS ETRD MU
SUBJECT: OMAN: TELECOMS UPDATE



1. (U) Summary: A series of local press reports in mid-
April outlined three noteworthy developments in Oman's
telecommunications sector. The launching of the Falcon
submarine cable project will transform Oman into a regional
hub for broadband and advanced telecom services. The
project will connect Oman to GCC countries, India, Egypt,
and onward to the rest of the world. A separate
announcement April 13 heralded a new Royal Decree
stipulating an increase of state-owned Omantel's capital to
USD 195 million. Finally, a Chinese telecoms firm April 18
signed a lucrative contract with Omantel to extend a
wireless local loop to rural and remote areas in Oman. End
Summary.

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Falcon Lands in Oman
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2. (U) On April 12, Minister of Transport and Communications
Mohammad bin Abdullah al-Harthi officially launched the
Falcon submarine cable project in Oman. The Falcon project
is a new high-capacity resilient loop cable system with
multiple landings throughout the Gulf region. Its submarine
links will stretch from the Middle East and Egypt in the
west to India in the east. The investment, estimated at
hundreds of millions of dollars, is promoted by FLAG
Telecom, an international wholesale communication services
firm. State-owned Omantel is investing in the project under
a 15-year contract that grants it capacity rights along with
the ability to plug into the system for high-speed
connectivity and broadband services. Two landing stations
reportedly will be built in Oman.

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Another Step Toward Omantel's IPO
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3. (U) A Royal Decree issued April 12, 2005 increased state-
owned Omantel's capital to USD 195 million, retroactive to
December 31, 2003. Article Two of the Decree stipulates
that the company "may" be transferred into a joint stock
company according to the provisions of the Commercial
Companies Law. Determination of the company's rules and
procedures for forming its board, as well as other
provisions mentioned in its articles of association, are
subject to decisions to be made at its general meeting.
According to the decree, the Council of Ministers shall
regulate the percentages, terms and procedures to sell or
offer to the public any part of the government-held shares
in Omantel's capital, specifying their nominal value, and
determining parties or persons who may buy or subscribe.
Such rules will be exempted from the Commercial Companies
Law, Capital Market Laws and Privatization Laws.

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Chinese Entry in Rural Telecoms
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4. (U) Local newspapers carried front-page coverage on April
19 of a deal signed between the Ministry of Transport and
Communications and Chinese telecoms firm Huawei to develop
Wireless Local Loop (WLL) services in rural and remote areas
in Oman. The initial WLL rollout will cover 200 villages,
with an expansion to 450 villages envisioned in the future.
The contract, valued at roughly $8.7 million, is touted as
part of Omantel's commitment to extend telephony across the
entire Sultanate. Press reports indicated that the WLL
service is based on CDMA2000 technology at 450 megahertz,
and the system will provide voice, low-speed data, fax, and
Internet services.

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Comment
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5. (SBU) Telecommunications remains one of Oman's last
privatization frontiers, and these recent developments
largely aim to bolster Omantel's services in advance of its
expected IPO this summer. While the new Royal Decree opens
the road to this long-awaited partial privatization of
Omantel, two points are worth highlighting: the first is
that any public sale of Omantel's shares will be exempted
from the commercial companies, capital market, and
privatization laws, further indication that the
telecommunications giant will be treated as an exceptional
case in the Omani economy. The second is that projects like
Falcon and the WLL initiative give a future exclusive
competitive advantage to Omantel at a time when the
Sultanate is supposedly opening the doors to competition and
the free market. We will watch Omantel's actions very
carefully, particularly in light of the free trade agreement
negotiations underway, where telecoms remains a sticky
issue.

BALTIMORE