MINISTRY OF COMMUNICATIONS SEEKS GREATER CONTROL

S E C R E T SECTION 01 OF 03 BAGHDAD 002452

SIPDIS

E.O. 12958: DECL: 08/04/2018
TAGS: ECPS ECON EINT
SUBJECT: MINISTRY OF COMMUNICATIONS SEEKS GREATER CONTROL
OVER IRAQ'S WIRELESS OPERATORS

REF: BAGHDAD 2399

Classified By: Economic Minister Charlie Ries for Reasons 1.4 (b) and (
d).


1. (C) SUMMARY: The Iraq Ministry of Communications (MoC)
awarded contracts to several little known telecommunications
firms to build and operate MoC-owned international gateways
and provide international carrier services to Iraq's licensed
Global System Mobile (GSM) and Wireless Local Loop (WLL)
operators. The MoC plans to require wireless operators,
which have hitherto contracted their own international
services, to use the MoC's gateways and carriers. At a July
21 signing ceremony, recently confirmed Communications
Minister Farouk Abdel Rahman (reftel) echoed his new
Ministry's rationale for the contracts: controlling this
infrastructure will help the GOI fight terrorism and
cybercrime, generate revenue, and reduce the charges Iraqi
mobile users pay for international calls. This MoC
initiative is a change of pace for a Ministry that has
suffered for months under the weak leadership of an Acting
Minister and is of a piece with recent moves by the GOI to
assert its authority. But this expression of ministerial
energy, if not necessarily capacity, has its downside.
Private-sector contacts have questioned both the integrity of
the MoC's contracting process and the capacity of the winning
firms to deliver and operate gateways. The GSM operators,
for their part, have said they will not sign a MoC-proposed
gateway service agreement because it gives the Ministry too
much power. Successful implementation of the MoC's plans (no
sure thing) would be a step backward for Iraq's growing
mobile telecoms market, which has been a notable bright spot
of private investment since 2003, thanks in part to (until
now) minimal MoC interference. A GOI inter-ministerial
committee will attempt to arbitrate the disagreements between
the MoC and the GSM operators regarding the gateway service
agreement. END SUMMARY.

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THE BEST LAID PLANS . . .
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2. (C) Despite suffering from the feckless leadership of then
Acting Minister Jassim Jafar, in spring 2008 the MoC
developed plans to contract private companies to build and
operate state-owned international gateways and provide
international carrier services for all voice and data traffic
originating from, or terminating in, Iraq. Championed
primarily by Ministerial Advisor Dr. Hayam al-Yasiri
(Dawa-affiliated),the plans called for the MoC to award
three contracts to build and operate international gateways
(one each in Mosul, Baghdad, and Basrah) and six additional
contracts to provide carrier services. The MoC intended that
contracting three separate gateways and six carriers would
ensure a modicum of competitiveness in the prices the
contractors would charge the MoC, which the MoC would in turn
pass along to the GSM and WLL operators, and the wireless
operators to their users.


3. (C) Al-Yasiri's proffered rationale for the project
reflects her statist inclinations. She argues that: (1) MoC
control over this infrastructure is an important element of
"Iraqi sovereignty"; (2) state-owned gateways will enable the
GOI to monitor international voice and data traffic to fight
terrorism, internet pornography, and other cybercrimes; (3)
the MoC will capture a significant revenue stream through the
service fees it will charge the wireless operators; and (4),
the new arrangements will benefit Iraqi mobile users by
reducing costs for the GSM operators, which are presently
"overcharging" users for overseas calls. Minister Abdel
Rahman reiterated these justifications at the signing
ceremony and in our first official meeting with him (reftel).

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OFTEN GO AWRY
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4. (C) Plans notwithstanding, on July 21 the MoC awarded only
two contracts for gateways and one for carrier services. The
MoC awarded gateway contracts to little known firms Computer
Data Networks (CDN),headquartered in Kuwait
(http://www.cdn.com),and to Al-Fouad Telecom, based in
Baghdad (http://alfouadtelecom.com). The MoC derailed its
original vision by awarding CDN a carrier contract in
addition to its gateway contract. Several firms the MoC had
intended to award carrier contracts declined to accept
because of what they perceived to be a sweetheart deal for
CDN. Representatives from several would-be carriers told us
they feared CDN would, as a gateway operator, favor its own
traffic to the detriment of the competing carriers; they will
not sign so long as CDN's deal stands, they stressed. The
unsigned carriers have raised several additional objections

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to the MoC's proposed contract with them. With five of the
carrier contracts unassigned, an Al-Fouad representative told
us it was angling for a deal like CDN's.


5. (C) Better known firms, including Verizon and Amman-based
Itisaluna, had responded to the MoC's gateway and carrier
requests for proposals (RFPs),but did not win.
Representatives from one well known but unsuccessful firm,
admittedly disappointed, told us they believed the
contracting process was tainted, though they could offer no
direct evidence of corruption. They claimed familiarity with
the other firms' proposals because the contracting process
was ostensibly open and assessed that the winners had failed
to meet the RFP criteria and had grossly underbid the
contracts. Dubious of CDN's and Al-Fouad's technical
competence and financial wherewithal, the representatives
projected that, six to twelve months from now, the MoC would
be several million dollars out of pocket, have no gateways to
show for it, and need to rebid the project.

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GSM OPERATORS PROTEST
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6. (S//NF) A representative from one of Iraq's three
nationwide licensed GSM operators--Zain-Iraq, Asiacell, and
Korek--said the firms opposed the MoC's plan in its current
form. The MoC presented the companies with a draft agreement
(which he shared with us) that would make the Ministry the
operators' exclusive provider of gateway and carrier
services. (NOTE: The GSM operators' licenses provide that
they may make their own arrangements for overseas calls so
long as the MoC's Iraq Telephone and Postal Company (ITPC)
"is unable to provide the international gateway services
required by the licensee." END NOTE.) The firm's legal
counsel struggled to make sense of the MoC's proposed
agreement, lamented its lack of professional draftsmanship,
and advised the firm not to sign it in its present form.
Among other things, the contract purports to give the MoC the
unilateral right to revise the rates it charges the
operators, without notice. The GSM operator rep said: "we
have relationships with a portfolio of carriers with whom we
renegotiate rates every month based on prevailing market
prices. We cannot do business this way (i.e., under the
MoC's proposed agreement)."


7. (C) Representatives from the three GSM operators met with
MoC officials July 30-31 to raise the firms' reservations
with the proposed agreement. A shouting match reportedly
ensued between Dr. Hayam al-Yasiri and representatives from
Zain and Korek; the parties reached no resolution but agreed
that an inter-ministerial committee would attempt to
arbitrate the dispute. (NOTE: The GSM licenses provide that
the Iraq Communications and Media Commission (CMC) will
mediate disputes arising under the license. The GOI has
repeatedly sidelined the CMC, presently without active
commissioners, since the August 2007 GSM license auction.
END NOTE.)

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COMMENT
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8. (C) The international gateway project is a noteworthy
demonstration of MoC initiative, unusual for a Ministry that
has struggled to make progress on key priorities since losing
its fulltime Minister in November 2007. The MoC officials
championing the gateway plans are unabashed about their
purpose: (1) to impose greater state control over what they
believe is a chaotic wireless telecoms sector; (2) to monitor
traffic; (3) to capture revenue; and (4) to reduce
international calling charges for Iraqi mobile users. This
fourth point reflects the officials' limited understanding of
free markets; the GSM operators base their international
calling charges on demand for those services, not on the
costs for providing them. Even if the MoC provided the GSM
operators with cheaper international services, the firms
would simply increase their profit margins on those calls
(absent price controls).


9. (C) MoC clumsiness has made unlikely successful
implementation of its gateway plans in their present form,
given the caliber of the companies awarded contracts so far,
the fallout among other would-be carriers from CDN's special
deal, and the GSM operators' opposition. One potential
positive development from the current impasse, however, would
be increased dialogue between the companies chagrined about
the MoC's moves and the Ministry officials skeptical of the
private sector. Their relationships are not good. Such
dialogue could help develop MoC institutional capacity by
increasing the staff's understanding of the firms'
free-market thinking and by regularizing public-private talks

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to resolve such disputes. On the other hand, familiarity
could breed contempt.
CROCKER