PALTEL EXECUTIVES ON GAZA OPERATIONS, WATANIYA,

C O N F I D E N T I A L SECTION 01 OF 02 JERUSALEM 001711 SIPDIS NEA FOR IPA, NSC FOR SHAPIRO/KUMAR, JOINT STAFF FOR LT GEN SELVA E.O. 12958: DECL: 09/19/2019 TAGS: ECON KPAL KWBG IS GZ PGOV SUBJECT: PALTEL EXECUTIVES ON GAZA OPERATIONS, WATANIYA, AND THE TROUBLED ZAIN MERGER REF: JERUSALEM 618 Classified By: A/PO Greg Marchese for reasons 1.4 (b) and (d) ¶1. (C) Summary. Acting PalTel CEO Kamal Abu Khadijeh and Vice President Kamal Husseini claimed in a September 17 meeting that PalTel, the monopoly fixed-line and mobile provider in the West Bank and Gaza, faces several challenges, including a stalled merger between its mobile operator and Zain Jordan, continued rumors of its former CEO bribing Israeli officials to block the Wataniya launch, and too little spectrum for its own wireless operations. While Khadijeh and Husseini do not expect PalTel's revenue (valued at around 12% of GDP in 2008) to shrink as a result this year, they warned that PalTel's experience coupled with Wataniya's continued difficulties, could scare potential investors away from the IT sector and the West Bank as a whole. End Summary. Jawwal: Preconditions to Release Frequencies to Wataniya -------------- -------------- ¶2. (C) The acting CEO of PalTel, Kamal Abu Khadijeh, said that PalTel's mobile phone company, Jawwal, is already oversubscribed and in need of additional spectrum, with 1.6 million subscribers on a 4.8 MHz spectrum allocation on the 900 band (2.4 MHz for Jawwal alone and 2.4 MHz shared with Israeli cellular operator Orange). The benchmark, he said, should be what all Israeli cellular and Jordanian companies operate on: 8.0 MHz. Khadijeh noted that Jawwal had constructed 72 towers in Ramallah -- the same number of towers that cellular operators rely on in the much larger market of Riyadh -- to compensate for the lack of spectrum. PalTel, however, had taken a decision not to seek more spectrum until Wataniya's case was settled, he said. Abu Khadijeh emphasized that Jawwal would only consider releasing spectrum to Wataniya in the 900 MHz range in exchange for an allocation from the GOI in the 1800 MHz range (one of the options in the 2008 agreement) after several conditions had been met: importation and installation of new 1800 MHz-specific equipment, removal and re-export of the old 900 MHz equipment, and reimbursement of USD 120 million to cover the cost of the equipment switch. Jawwal Operations in Gaza -------------- ¶3. (C) According to Abu Khadijeh, PalTel employs 1,000 people in Gaza, where 40% of its mobile subscribers live. He acknowledged that PalTel "has to talk to Hamas" to maintain its operations, but claimed that he had not paid any taxes or licensing fees to HAMAS in Gaza. He said that, when HAMAS asked for money, PalTel replied that, as soon as HAMAS coordinated with the GOI to allocate needed frequencies and secure permission to import necessary equipment, PalTel would pay the licensing fees, as it had to the PA. The company has been prevented from repairing its damaged equipment, but Hamas is allowing Jawwal to operate, Khadijeh said. "If Hamas could operate the network, they would have kicked us out. But they don't have the technical expertise and we could cut the international connection," he added. Abu Khadijeh characterized Jawwal's relationship with HAMAS as an uneasy detente. "They know our redlines and we know theirs," he said. Zain's Failure to Launch -------------- ¶4. (C) The merger of PalTel with regional mobile operator, Zain, and Jawwal's re-branding is still stalled with no end in sight, said Abu Khadijeh. He insinuated that the only reason for the delay is because the Palestinian tax code currently requires multinationals that register in Palestine to pay tax on their international as well as domestic operations. Abu Khadijeh said he had no timeline for when the PA might make the necessary adjustments to the tax law. (Note: In a separate meeting, PA Cabinet Secretary Hasan Abu Libdeh said the merger's delay had nothing to do with the PA, and blamed disagreements over valuations between PalTel and Zain.) With no launch date in sight, white sheets cover the signs on Jawwal/Zain's storefronts. Zain's failure to launch has taken away what Abu Khadijeh called Jawwal's "competitive edge" over Wataniya: the Jordan-based switch that would have allowed its customers to avoid incurring international roaming charges in Jordan. He claimed that continued JERUSALEM 00001711 002 OF 002 uncertainty had taken a toll on PalTel's stock price, as well as on the Palestinian Stock Exchange as a whole. Rumors about the Former CEO -------------- ¶5. (C) Abdel Malik al-Jabr, CEO of Zain Levant and the former CEO of PalTel, was suffering from a rumor campaign that he had bribed Israeli officials to thwart Wataniya's launch (reftel),PalTel Vice President Kamal Husseini claimed. Husseini added that al-Jabr would be in Ramallah on September 18 for meetings, despite warnings from the PA President's office to stay away. (Note: Abu Mazen's IT advisor, Sabri Saidam, told us September 14 that the Attorney General would bring charges against al-Jabr shortly.) Every time Wataniya's launch was delayed, the rumors about al-Jabr's corruption surfaced again, Husseini said. He claimed this hurt "both the credibility of the PA and PalTel." MARCHESE