FAYYAD INTERVENES IN TELCOM ISSUES

S E C R E T SECTION 01 OF 02 JERUSALEM 000618 NOFORN SIPDIS NEA FOR FRONT OFFICE AND NEA/IPA; NSC FOR SHAPIRO/KUMAR; TREASURY FOR AHERN; JOINT STAFF FOR LTGEN SELVA E.O. 12958: DECL: 04/02/2019 TAGS: ECON ECPS PGOV PREL EINV KWBG IS SUBJECT: FAYYAD INTERVENES IN TELCOM ISSUES REF: A. 08 JERUSALEM 1372 ¶B. JERUSALEM 386 Classified By: Consul General Jake Walles for reasons 1.4 (b) and (d). ¶1. (C) Summary and Comment. PA Prime Minister Salam Fayyad has intervened in a series of telecommunications issues, including the PalTel Group's request for an extension of its mobile telephone license, a potential merger between PalTel and regional mobile provider Zain, and the frequency and interconnection issues required for the second mobile telephone operator, Wataniya, to begin operations. Fayyad is simultaneously negotiating with the GOI to get the frequency necessary for Wataniya to launch, per the July 28, 2008 agreement between the PA and GOI. Agreement with PalTel on the extension of the existing mobile license has the potential to deliver significant, and needed, funds to the PA, but it is stalled on Fayyad's demand that PalTel split its landline and mobile operations into two separate entities. As the most consistently profitable moneymaker in the West Bank and Gaza, the mobile telephone business has become a prize worth fighting over. End summary and comment. Telecom Lands on Fayyad's Shoulders -------------- ¶2. (S) PM Fayyad has intervened personally to untangle the Gordian knot that is the Palestinian mobile telephone business. As the one consistent moneymaker in the Palestinian economy, the interplay among the existing operator, the new licensee, the PA, and the GOI has provided a number of opportunities for collusion and double dealing. (PalTel Group, the monopoly fixed-line and mobile provider, reported 2008 revenues of USD 410 million, twelve percent of the GDP for all of the West Bank and Gaza.) ¶3. (C) Motivated by the desire to launch a second mobile telecom operator, lower costs, and improve competitiveness, the PA negotiated with the GOI over more than eighteen months to secure the necessary spectrum for Wataniya, the second mobile licensee, to launch (Ref A). But the agreement signed on July 28, 2008 required further PA negotiations on spectrum with PalTel, before the final blocks of spectrum are allocated. Those negotiations stalled quickly. PalTel CEO Abdelmalik al-Jabr told the Consul General in February 2009 that the company was being asked to incur too high a cost, with no compensation. ¶4. (C) Fayyad told the Consul General in early April that he had secured and then lost agreement with the GOI to release the necessary spectrum in the 1800 band to allow Wataniya to launch. Agreement was scuttled, Fayyad said, when his Israeli interlocutors (MOD Senior Advisor Amos Gilad and a "regulator" from the Ministry of Communications) claimed to need IDF permission before agreeing on the release. Fayyad wants the spectrum released to the PA, without reference to either of the competitors. "The Israelis should give it to us to administer and stay out of our internal affairs," Fayyad said. Fayyad plans continued contacts with Gilad to resolve this issue. Abu Mazen Has a Stake in This -------------- ¶5. (S/NF) The PA's spectrum negotiations with the GOI and subsequently with PalTel have deepened a rift between PA President Mahmud Abbas' office and the PalTel Group. During the negotiations with the GOI, Abbas (Abu Mazen) and his team became convinced that PalTel is in active collusion with elements of the GOI. Abu Mazen reportedly told his advisers that when he asked then-Israeli PM Olmert about the spectrum negotiations, Olmert responded: "Why are you Palestinians always f---ing yourselves?" This exchange reportedly convinced Abu Mazen that PalTel (and particularly CEO al-Jabr) is cutting deals with Israeli officials to obstruct progress. ¶6. (S/NF) Abu Mazen's role in this, however, is complicated by the fact that the second mobile telecom provider (Wataniya) is largely capitalized by the Palestine Investment Fund (PIF),and Abu Mazen's own economic adviser, Muhammad Mustafa, is both the Chair of the PIF and the CEO of Wataniya Palestine. (It is also widely believed among Palestinians that Abu Mazen's son, Yasser Abbas, has a financial stake in Wataniya.) JERUSALEM 00000618 002 OF 002 ¶7. (S/NF) Al-Jabr told the Consul General in February 2009 that he was being forced to resign as PalTel CEO by the President's office (though he did not ascribe the actions to Abu Mazen himself) and had been advised to leave the West Bank. Al-Jabr complained that the fact the PIF's Mustafa initially led the spectrum negotiations with Israel on behalf of the PA was a clear conflict of interest. He said PalTel had serious issues with the resulting agreement, including the requirement to reallocate existing frequencies. (Comment: Fayyad, who is no fan of al-Jabr, does agree that Mustafa's involvement is a conflict of interest or worse, leading him to step in himself to work the issue with Gilad.) Zain Steps In -------------- ¶8. (C) In early 2009, PalTel announced a proposed merger of its mobile telephone operations with Zain Jordan, a subsidiary of a Kuwaiti-based telecommunications company. In order to go through with the deal, PalTel requires the approval of the President's office (per the terms of their original license). Al-Jabr says that when PalTel requested approval, he was told it would cost PalTel approximately USD 300 million. ¶9. (C) Abu Mazen's Advisor on IT and Telecom, Sabri Saidam, told Econoffs on April 1 that the "bill" put to PalTel was the result of a months-long review of PalTel's finances and represents underpayments the company made to the PA over more than a decade, not a request for payment in exchange for the Zain deal. He and other prominent Palestinian businessmen are critical of the original concession that gave PalTel monopoly landline and mobile telephone licenses. Saidam said that the PA remains strongly supportive of the PalTel-Zain deal as a means to attract further foreign investors and that Abu Mazen had asked Fayyad to resolve the outstanding issues with PalTel to enable it to move forward. Fayyad Focused on Competitiveness -------------- ¶10. (C) So while Fayyad negotiates with the Israelis, he is also negotiating with PalTel. He told the Consul General on April 1 that he had agreed to extend PalTel's mobile license for the same period as Wataniya's in exchange for an equivalent fee (which could be in the USD 300 million range). However, Fayyad is demanding that PalTel Group officially separate their landline (PalTel) and mobile (Jawwal) telephone operations. Saidam noted that so long as Jawwal and PalTel are under the PalTel Group umbrella, Wataniya would be at a competitive disadvantage, particularly on interconnection fees. ¶11. (S) The demand to split the business apparently has scuttled the deal for now. On March 30, Fayyad told the Consul General that he had "thrown (PalTel Group Chairman) Sabih Masri out of my office" when Masri tried to use the PA's poor financial situation as leverage over the PA. Absent a deal on this issue, the Zain deal is on hold. However, if a deal can be reached, the PA stands to receive a substantial influx of cash at an opportune moment. ¶12. (S) Comment: Neither PalTel nor Wataniya has clean hands, and Fayyad is deeply skeptical of both. The relationship between the PIF, the President's office, and Wataniya is an additional aggravation to Fayyad, who believes the PIF needs to be returned to the PA's control and used more aggressively to meet the PA's immediate needs in the West Bank and Gaza. The need to secure Israeli approval for spectrum has only allowed each of the companies another opportunity to advance their interests. However, Fayyad also suspects some on the Israeli side also have dirty hands. Allocation of available spectrum by the GOI to the PA would significantly bolster Fayyad's leverage in these negotiations and advance a more even (and transparent) playing field between Wataniya and PalTel. WALLES