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. -------------- THE BEST LAID PLANS . . . -------------- ¶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). -------------- OFTEN GO AWRY -------------- ¶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 BAGHDAD 00002452 002 OF 003 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. -------------- GSM OPERATORS PROTEST -------------- ¶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.) -------------- COMMENT -------------- ¶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 BAGHDAD 00002452 003 OF 003 to resolve such disputes. On the other hand, familiarity could breed contempt. CROCKER