EB ICT DAS AMBASSADOR GROSS'S MEETINGS WITH ROYG

C O N F I D E N T I A L SECTION 01 OF 03 SANAA 000893

SIPDIS

PLEASE PASS TO AMBASSADOR GROSS AND EB/CIP/SP; USAID ANE
TS-METZGER

SIPDIS

E.O. 12958: DECL: 04/04/2015
TAGS: ECPS EFIN EIND EINV ETTC KMPI PGOV PINR YM ECON COM ENVIRONMENT
SUBJECT: EB ICT DAS AMBASSADOR GROSS'S MEETINGS WITH ROYG
ON NEED FOR REFORM

REF: SANAA 196

Classified By: DCM Nabeel Khoury for reasons 1.4 (b) and (d).


1. (U) Summary. EB ICT DAS Ambassador David Gross raised the
prospect of an independent telecom regulator and advanced AID
proposals for rural internet development with ROYG officials
on March 26. His discussions with the Ministry of
Telecommunications and Information Technology (MOTIT) and the
Public Telecommunications Corporation (PTC) revealed a clear
understanding among ROYG officials of the need for change,
but that they were uncertain of how to proceed. Ambassador
Gross's discussion with the Deputy Prime Minister focused on
the need for an independent telecom regulator as part of the
WTO accession process. Ambassador repeatedly referenced the
upcoming World Summit on the Information Society (WSIS) in
Tunis as an opportunity for Yemen to demonstrate its ICT
potential. He encouraged the ROYG to develop success stories
for Yemen to share with the international community. He
suggested collaborating with USAID on IT projects in the
health and education sectors, which was warmly received by
ROYG officials. At University Science and Technology in
Sanaa, Ambassador delivered a lecture to an engaged audience
on the role of ICT in the spread of democracy and economic
growth. End summary.

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Strategizing on ICT With USAID
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2. (U) Ambassador Gross met with USAID Country Director to
collaborate on the role of ICT in development projects. The
meeting followed earlier discussions at the March Arab
Telecom Regulatory Network Conference, that focused on
internet access for rural schools and health clinics in
Yemen. In that meeting, Deputy Minister of Telecom Abdullah
al-Hamami made clear that MOTIT's priority was to ensure that
any internet access project would go through the ROYG
monopoly. Hamami argued that the PTC could provide internet
access almost anywhere in Yemen, despite the fact that fewer
than one percent of Yemenis currently have connections.


3. (U) Given the ROYG's vested interest in the status quo,
both Ambassador Gross and USAID Director stressed the need
for achievable goals that bring about policy change. They
agreed that any USG sponsored initiative should begin at the
Ministry of Education. USAID Director suggested a pilot
program to connect remote MOE offices in an effort to help
further the goals of education reform and government
decentralization. First the ROYG must understand the
available technology and second must decide that its
application is worthwhile.


4. (U) USAID has to plans to send a representative from MOE
to participate in the UNICT Task Force meeting in Dublin,
April 13-15. The aim is to expose MOE to the use of ICT in
developing countries and the advantages it can provide for
education. Ambassador Gross agreed to meet with Yemen's MOE
representative in Dublin to discuss this issue.

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MOTIT Eyes Change Cautiously
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5. (U) Ambassador Gross and USAID Country Director met
Minister of Telecommunications Abdul Malik al-Moalimi and his
deputy Mahmud Yassin. The discussion focused on the need for
regulatory reform and possibilities for ICT initiatives in
anticipation of WSIS. Ambassador praised the advances Yemen
has made in telecom, citing MOTIT's limited policies of
liberalization and technology neutrality. "You've shown
leadership, now it's time to reap the benefits of your hard
work," said Ambassador. He emphasized the need for an
independent regulator to encourage investment and competition
in the telecom sector.


6. (U) Yassin acknowledged the changing environment in
telecom and the need for greater liberalization, but conveyed
the ROYG's fears that opening the market under political
pressure may result in economic failure. He said MOTIT is
trying to be balanced in its approach, taking both revenue
and Yemen's infrastructure into account. Yassin said that
MOTIT is meeting with the ROYG WTO team on creation of an
independent regulator and that discussions are progressing
slowly. Ambassador Gross agreed that regulatory reforms
should be approached carefully, and offered training in areas
such as spectrum management through the US Telecom Training
Institute and the FCC. Moalimi offered MOTIT facilities for
such trainings, and specifically requested assistance with
the ROYG's stalled e-government program.


7. (U) Moalimi shared his belief that ICT growth in Yemen is
hampered by high costs to consumers and not, as some claim,
by deficient infrastructure. Most Yemenis are simply too
poor to purchase hardware, said Moalimi, which is why
President Saleh has initiated an installment plan for
government employees to purchase PCs. Ambassador Gross
responded that greater liberalization would bring new
technology and reduce costs to consumers. He cited the
example of international calling, where competition creates
jobs and shrinks tariffs. (Note: International calling in
Yemen is run by the state-owned monopoly TeleYemen and is
considered extremely expensive. End note.)


8. (U) As a former MOE official, Moalimi was receptive to
cooperative efforts on education, and concurred that such
programs would improve Yemen's image at WSIS. As expected,
Moalimi encouraged the use of PTC technologies to deliver
internet access, specifically CDMA wireless, which he said
was particularly well suited to Yemen's difficult geography.
The Minister stated that fifteen ISPs were licensed in Yemen,
but that only the two PTC-owned services are operational.
(Note: This is largely because the PTC offers the service
for free, charging only for the use of its wirelines. End
Note). All parties agreed that the next step should come
from MOE, and that MOTIT and the USG would facilitate
creating a strategy with MOE for remote internet connectivity.

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PTC Sees the Future in Privatization
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9. (U) Kamal al-Jebry, Director General of the PTC, hosted
Ambassador amidst negotiations with Omani officials over
interconnection rates for a new fiber-optic cable connecting
the two countries. Ambassador Gross pointed out that an
independent regulator would be better suited to this role.
Jebry strongly agreed, saying that there is currently no
institution capable of resolving telecom disputes. Jebry
shared that he is interested in pursuing joint ventures
outside of Yemen, specifically with Oman, but is restricted
by MOTIT's regulatory framework. The main problem, said
Jebry, is that the ROYG doesn't know how to set up an
independent regulator.


10. (U) In Jebry's view, Yemen Mobile is hindered by
government ownership, as it cannot attract outside investment
like its private competitors. He further implied that the
PTC in general would benefit from privatization. "Help us be
helpful," said Ambassador, offering expertise in regulatory
reform and privatization. He added that as long as the
Ministry owns the company, investors will always be
suspicious.


11. (U) Jebry highlighted the PTC's infrastructure expansion
efforts, specifically in providing access to rural areas. He
said that Yemen has now reached four percent telephony
penetration. On Information Technology, Jebry reiterated
CDMA's potential in Yemen for delivering internet access. He
added that ISPs operating on different technology will not
invest in Yemen because of restrictions on Voice over
Internet Protocol (VOIP). Ambassador Gross said banning VOIP
is impossible and suggested it would be better to focus on
collecting termination fees for these services.


12. (U) The PTC is also looking towards WSIS and recently
returned from an Arab Group preparatory meeting in Cairo.
Jebry said that the group's main focus was Arabic content and
e-governance. There was discussion of the Internet
Corporation for Assigned Names and Numbers (ICANN),with
European representatives taking an active position on
internationalization. Their stance on public versus private
sector management of ICANN was less clear.

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Dissension in the ROYG on Telecom
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13. (C) Ahmad Sofan, Deputy Prime Minister and Minister of
Planning and International Cooperation, made clear early in
his meeting with Ambassador Gross that views regarding
telecom policy were not uniform within the cabinet. In
Sofan's view, the PTC has no choice but to privatize in the
future. Despite the Ministry's claims of profitability, the
DPM said they are a subsidized business that owes back taxes
to the ROYG. Sofan believes that telecom is essential to
fostering a positive business climate in Yemen, and that
MOTIT is a good place to begin reforms. It does not have an
established old guard opposed to liberalization, as in many
other sectors.


14. (C) Sofan also admitted to mistakes by the PTC in
establishing Yemen Mobile (reftel). The Finnish consultant
hired by MOTIT to conduct the tender underestimated the
Yemeni market, said Sofan. They projected only 37,000
customers after four years, and accepted bids of 10 million
dollars--a fraction of what they were worth. Once MOTIT
launched Yemen Mobile with CDMA technology, continued Sofan,
they thought they could have their way with the GSM
companies. Instead, the ROYG was forced to the negotiating
table to gain access to the extensive GSM network. The DPM
said this was the first time the ROYG related to private
sector representatives as equals, demonstrating the power of
competition. Sofan said this was a success story to share at
WSIS.


15. (U) Ambassador urged Sofan to support efforts to wire
remote areas using the private sector, and to demonstrate
these successes at WSIS. He shared the PTC's desire to
privatize and expand internationally, something that can only
be achieved with the creation of an independent regulator.
Sofan recognized the importance of regulation for foreign
direct investment and the WTO accession process, but was
unclear on how the ROYG could proceed. Ambassador cited many
examples for Yemen to study, specifically the British model
where the regulator answers to Parliament. "Parliament here
is with the GSM companies," replied Sofan, referring to the
al-Ahmar interest in Sabafon. Ambassador agreed that a
regulator must be free of the companies it regulates. (Note:
The WTO Coordination Office in the Ministry of Industry and
Trade shared a paper on telecom regulation with MOTIT. The
two ministries are currently discussing next steps. End
note.)

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University Students Challenge, Listen
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16. (U) Ambassador Gross delivered a speech at University
Science and Technology focusing on the future of ICT in
democracy and development. He emphasized the importance of
rule of law and transparency in building free societies, and
the ability of ICT to facilitate such changes. Ambassador
Gross detailed recent democratic advances in the region,
which met with a mixed response from the audience of students
and faculty. Ambassador Gross fielded a wide range of
questions ranging from the cost of new technologies in Yemen
to U.S. intentions in Iraq and the Palestinian Territories.
Skeptics were impressed with Ambassador's view that ICT is
politically neutral and critical to the growth of Iraqi and
Palestinian economies, as well as Yemen's.

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Comment
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17. (C) Ambassador Gross's visit successfully pushed the key
issues of regulatory reform and telecom liberalization.
MOTIT would likely be the biggest obstacle to reform, fearing
lost revenue and influence without the PTC monopoly. The
Ministry's direct involvement in Yemen Mobile indicates
hesitancy in Yemen's commitment to private sector growth.
Without pressure, they are unlikely to enact serious policy
changes, but other ROYG officials are eager for reforms. PTC
officials themselves would like to begin privatization,
allowing them to follow a more aggressive and profitable
business model. DPM Sofan also recognizes the importance of
telecom liberalization for attracting investment and
accession to international trade regimes. As a first step,
the U.S. can help in the development of a more independent
regulator by providing training and technical advice.
Reforms would require policy changes in the ROYG's
monopolistic approach to ICT. USAID programs initiated
through the health and education sectors can help direct ROYG
policy, by encouraging technological innovation and increased
competition in bringing the internet to underserved areas.


18. (U) Note: Ambassador Gross did not have the opportunity
to clear this message. End note.
Krajeski