WATANIYA PALESTINE: ONE MONTH POST-LAUNCH

C O N F I D E N T I A L JERUSALEM 002197

SIPDIS

STATE FOR NEA/IPA AND EEB, NSC FOR KUMAR, OPIC FOR
DRUMHELLER, JOINT STAFF FOR LTGEN SELVA

E.O. 12958: DECL: 12/03/2019
TAGS: ECON EINV ECPS KPAL KWBG IS
SUBJECT: WATANIYA PALESTINE: ONE MONTH POST-LAUNCH

REF: A. JERUSALEM 1888

B. JERUSALEM 1497

Classified By: Acting PO Greg Marchese, Reasons 1.4 (b) and (d)


1. (SBU) Summary. One month following its November 1 launch,
Wataniya Palestine has 80,000 subscribers and 300 direct-hire
employees. Wataniya CEO Allan Richardson said that the GOI
has given "assurances" to the Office of the Quartet
Representative (OQR) that it will allocate the needed
remaining 1.0 MHz when Wataniya reaches 70% of capacity, and
predicted that Wataniya will reach that limit in the next
four to five months. Aside from the spectrum allocation,
Wataniya, like many other companies operating in the West
Bank, continues to face delays and difficulties obtaining
import permits and Area C permits. End Summary.

300 Direct Jobs, 80,000 subscribers
--------------


2. (SBU) One month after its formal launch ceremony on
November 1, Wataniya has attracted approximately 80,000
subscribers (thanks in part to an Eid promotion that offered
free calls between subscribers) and created 300 direct-hire
jobs in addition to several hundred employment opportunities
for distributors and contractors. The number of employees
will continue to grow as Wataniya adds subscribers, according
to Richardson, who confirmed earlier employment estimates of
500 direct hires and 2,000 contractors. Wataniya has already
outgrown its three floors of office space and is looking for
a new building. Richardson calculates that it will be two
years before the company is profitable, but said that is
typical for mobile telecom providers. While no additional
licensing fees are due, Wataniya, like Jawwal, shares 7% of
its revenues with the Palestinian Authority (PA).

70% Capacity Expected in 4-5 Months
--------------


3. (C) According to the "assurances" reportedly given by the
GOI to OQR prior to the launch, Wataniya will receive the
remaining 1.0 MHz spectrum when it reaches 70% capacity on
its current allocation of 3.8 MHz. (Note: Neither
Richardson nor the PA Ministry of Telecommunications has
received such assurances from the GOI in writing.)
Richardson expects Wataniya to reach 175,000 subscribers,
equaling approximately 70% of its capacity in approximately
four to five months (April/May 2010). He characterized the
GOI's refusal to grant the full spectrum up front as a
reaction to concerted international pressure, and suggested
that the GOI did not want to be seen as "giving in." Now
that Wataniya has launched, he said, international attention
is focused elsewhere, and ISRAEL may not feel "backed into a
corner." However, Richardson added, it would be helpful if
the Israelis are privately reminded that spectrum allocation
(and adherence to the July 2008 agreement) still remains a
priority for the international community and the PA.

IFC Hesitant on Next Loan Disbursement
--------------


4. (C) According to Richardson, the International Finance
Corporation (IFC) is dragging its feet on the next
disbursement of its loan because of concerns that Wataniya
cannot meet its business plan without the remaining 1.0 MHz.
(Note: USD 44 million of the USD 85 million syndicated loan
has already been disbursed to Wataniya, despite lenders'
concerns that the company might not receive sufficient
spectrum from the GOI.)

Import Restrictions and Area C Issues
--------------


5. (SBU) Wataniya subscribers are spread throughout Ramallah,
Hebron, Jenin, Tulkarem, East Jerusalem, and Nablus, but
coverage remains weak to non-existent between cities due to
Wataniya's inability to secure any permits to build towers in
Area C. Wataniya, like most other ICT companies, also
continues to face difficulties and delays clearing equipment,
such as base stations and transmitters, into the West Bank,
according to Richardson.

Next Stop: Gaza?
--------------


6. (C) Richardson emphasized the importance of the Gaza
market, noting that the company had been banking on the 40%
of the Palestinian market in Gaza when developing its
business plan. While he acknowledged the resistance he would
face from the GOI, he said he expected the Qataris (as the
owner of parent company QTel) would lean on Hamas to permit
Wataniya's entrance into Gaza under "acceptable conditions,"
noting that representatives of the Hamas government had
already sent Wataniya a letter welcoming it to Gaza.


7. (C) Comment: Richardson was appreciative of the
international community's efforts on Wataniya, but wondered
in retrospect if the public debate had hardened the GOI's
position against releasing the full spectrum. As a result,
he is now pursuing a more low-key approach on securing the
remaining spectrum. The launch of a second mobile carrier is
a positive development both for the PA's finances and the
Palestinian economy. However, the web of restrictions that
Wataniya continues to face with import permits, Area C
permits, and the allocation of the remaining 1.0 MHz is an
unfortunate signal to potential foreign investors that doing
business in the West Bank presents significant risks.
MARCHESE