Tuesday, February 10, 2009

Lebanon's corrupt cell

Special Note: For those who wish to donate or assist the bushfire victims in Victoria, please visit the Australian Red Cross website.

It's good to be back writing and blogging after a few weeks away. A few things have happened since my last post on January 19th. I've moved cities (from Melbourne to Canberra) to undergo post-graduate studies at the Australian National University, had to bear an unbearable heat wave (that has caused roughly 300 deaths in my home state of Victoria, Australia's worst ever natural disaster), and commenced writing for Global Voices Online.

I joined the Lebanon team, currently consisting of Moussa Bashir and Nash Sleiman, in preparation for this year's Lebanese parliamentary elections in June. We're hoping to offer an alternative coverage to the tainted reporting we're so often accustomed to in Lebanon.

My first post today entailed the story of one of Lebanon's most corrupt sectors, telecommunications.

New contracts have been forged, Telecommunications Minister Gibran Bassil has promised the lowering of mobile call rates, but Lebanese bloggers aren't impressed. You can read why here.

What I don't understand is the functionality of this sector. The networks and infrastructure, mainly developed under Rafik al-Hariri in the 1990s, are all entirely state-run. The Lebanese Government then awards contracts to two network operators to effectively operate Lebanon's state-run and substandard networks.

The companies bid to run Lebanon's telecommunications networks, pay roughly US$1billion, and then the companies implement their own pricing and make substantial profits.

This is my understanding anyway. An analogy would be a city's railway or metro system. For example, Melbourne has awarded French train operator Connex the contract to run its transportation system, but the infrastructure is completely in government hands.

The reality of this scenario in Lebanon is that mobile phone rates are among the highest in the world, and telecommunications technology is severely lagging. Broadband has scarcely made its way into the country, and mobile phones still operate on decade-old networks. Infrastructure is so far behind that many advanced options you receive with an iPhone or a Blackberry, for example, do not work in Lebanon because the networks aren't up to speed with the phone's technology.

According to this French-Lebanese blog, Lebanon in the 1990s was ahead of many countries in mobile phone technology because companies such as France Telecom (who had majority share of then-Lebanese provider Cellis) would test out new mobile technology, such as GSM, before implementing it in France.

Due to political corruption and the wrangling of which politician could benefit the most in the late-1990s/early 2000s, this arrangement collapsed and has been state-run ever since. Lebanon's telecommunications technology has remained stagnant since the state takeover in 2002.

However, contracts continue to be awarded, and massive profits continue to be earned.

Where has the billions of dollars of government and corporate profit gone?

It is the state's responsibility to provide the latest in telecommunications technology, but if the government isn't investing in this sector, where on earth has the money gone? No money has been thrown onto our horrendous debt of US$46billion. No money has been thrown on essential services. No money has been thrown on reparation work or development projects.

Surely any contract would stipulate that a certain margin of the profits would go back into re-investment, maintenance and development of our telecommunications networks. Not in corrupt Lebanon.

And this isn't partisan. In 2002 when the takeover occurred, the Harirists, Jumblattists and Hezbollah all enjoyed Syrian support. Post-2005, Hariri/Jumblatt retained power, only to have the ministry flip over to Hezbollah's ally in the FPM last year. Either way, the same hands have been in the pie, regardless of how they label their alliances today.

One idea that has been hotly contested in Lebanon's political arena is the privatisation of our two networks, with the addition of a third network. The revenue from the sale would go to our large debt. In Lebanese terms, this means the revenue will go to more villas, private jets, a new apartment in Paris, a new hospital or stadium named after a warlord/chieftain and so forth.

The privatisation has been stalled due to Hezbollah's concerns that Lebanon would lose majority share. Therefore, Bassil has included a stipulation that guarantees Lebanese majority share of the network. The Oxford Business Group says this will decrease foreign investment interest, but I disagree.

Australia retained majority share (51%) of its network until 2006, and there was still substantial interest in the country's telecommunications sector. However, it is worth adding that Australia didn't restrict the amount of operators in the country to two. It did, originally, when it first opened the market in the late 1980s (an indication of how far behind Lebanon is), but since then the industry has expanded, developed, whilst keeping solid competivity.

Two operators, or a duopoly, will not increase competition, but only maintain domination and high call rates.

I'm happy for Lebanese to retain majority share, but the market needs to be opened up and more providers need to be allowed to operate in Lebanon. I have no problem with the networks remaining in majority Lebanese hands, so long as the Lebanese invest in its infrastructure and root out corruption. Of course, I'm dreaming, but this is the most effective solution.

If the government or a Lebanese enterprise is unwilling to invest in our infrastructure, at least allow someone else who will. Telecommunications is one among many sectors where the Lebanese people are getting robbed on a daily basis.

But of course come the next elections, the sheep that is the Lebanese people will ignore the fact that their lives are being manipulated and raped at every corner, and will re-elect their selfish, sectarian warlords.

It all falls back on the corrupt political culture of our country ... everyone is in it for themselves. 'National interest' doesn't exist in Lebanon.


Anonymous said...

This analysis is true to some degree, but lacks a lot of insight.

the telecommunication sector has been one of the biggest sources of income to the Lebanese government over the past few years. Providing much more of the share of gov revenue than in other countries.

This sector is much less corrupt than the other sectors in lebanon (at least its very profitable)
But i agree on the issue that the sector has stagnated over the years.

Antoun said...

Anonymous, my analysis is very brief and superficial from the outset.

However, the stench of mismanagement is so strong that one doesn't need to delve any deeper to sniff it out.

And I look at the realities.

Yes, the sector is profitable, but why? Because it has one of the highest rates in the world!

The people are being ripped off with abhorrent mobile phone rates, and the government makes a profit. Sorry, but this isn't a way an economy is run.

It only demonstrates the lack of investment, development and economic policy. The government relies on ripping its citizens off through the telecommunications sector to keep its budget running. This is terrible economic management!

And what does the government do with this revenue? Nothing has been poured back into the industry, and the technology is severely lagging.

This sector isn't serving the economy well at all. Opening the sector up to more privatisation (retaining Lebanese majority share is fine, but the private sector needs to get more involved), and allowing more telcos to operate the networks as well as the infrastructure will:

a) Lower rates to the normal rates enjoyed throughout the world, and by doing so, increasing internet and mobile subscription.

b) Increase technological efficiency, including greater internet speeds and mobile technology, such as ADSL+2 and 3G.

c) Increase the productivity and efficiency of our economy due to greater technological availability. Most companies today are reliant on efficient telecommunications.

d) Increase competition, both among internet companies and telecommunications providers. This will increase jobs in the sector, and increase tax revenue for the government!

Do not underestimate the incompetence and the high levels of corruption of our political establishment. And don't assume for a second that our political leaders don't know how to efficiently run this system.

Their billions of dollars of wealth opens them up to the most intelligent of economic and industry consultants around the world.

They choose not to for short-sighted political gains and individual satisfaction. In a single word, corruption.

frenchy said...

to answer you about the profit and its disappearance
the cell companies were giving huge dividents to their shareholders ei: mikati, dalloul, FT.
The other thing that happened is that the syrian mafia at that time and especially khaddam were getting some pocket money from these companies as well)

we can say more about what happened especially if we know the insider but i guess time did not come yet for that to happen.
nice blog, i enjoyed reading it

Antoun said...

Thanks Frenchy.

What about today? Where is the money going, and is it simply a coincidence that all major political parties (including Hezbollah) prefer to keep it under "Lebanese" control?

frenchy said...


well the cellular business is going badly:
first of all Cellis for ex used to employ 200 people on the IT part, 8 only were left in Alfa. So the network is not so well maintained, the situation is worst, according to what I know in MTC Touch (ex libancell)
8 millions dollars in average were spent monthly by Marwan Hamadé at that time to pay each company were definitly not enough also. If I have to juge the situation now, i would say that those who would buy the networks are not buying the networks as they would have to spend a juge amount of money in order to upgrade the current network, which has not be done since 5 years. They would buy it for different purpose such as enlarging their market share to the middle east (orange) so for global purpose or for the hope of making revenues as the lebanese is consuming 700 min/monthly which is one of the highest average worldwide. (only Norway I guess is doing worst)

I stopped to follow closely the matter since 2006.

frenchy said...

last part published today
if you care about reading it :)

Antoun said...

Thanks, I will.

Your insight is very interesting.

The Oxford Business Group wrote an article on it recently, and stated that now is probably the best time to attract foreign investors.

The benefit is that there's definitely potential for the market to grow, as there's only 1.3million subscribers.

The government does need to invest in the industry though, which I doubt is something we'll see soon.

frenchy said...

well today there was the interview of the new director of Alfa.
He stated some numbers that I guess are interesting
Lebanese are consuming 500 min/monthly (whereas 700 min in the 90's)

but still he did not give any number about the churn ratio to see how the clients are moving from one company to another. It would be very interesting to get these number especially to see if there is a real competition btw alfa and Mtc.
When i was knowing the figures, they were very low...

Antoun said...

I'm not in Lebanon to know this, but how transparent are company dealings in the country?

These figures should be made public on a regular basis. Is there no watchdog monitoring the performances of ALFA and MTC?