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French Version

DSL : A government achievement or 'disaster'?

Internet service providers say state is engaged in unfair competition with private sector

A few months ago billboards were erected on highways across the country announcing that the much delayed Internet revolution had finally arrived in Lebanon.

Successive governments had been promising the arrival of broadband Internet since 2001, but it was not until this year that limited DSL subscription was finally unrolled in selected neighborhoods.

Broadband has been trumpeted as the solution to Lebanon's IT woes for the past five years. Not only would replacing the antiquated dial-up IT infrastructure with DSL allow more users to be accommodated - boosting the lackluster penetration rate which has long hovered at 15 percent - but the Telecommunications Ministry's pledge to allow independent Internet service providers (ISP's) to compete with the state-owned telecom monopoly Ogero in service provision would supposedly lower the country's sky-high subscription rates.

But so far the introduction of DSL has yet to bridge the national "digital divide," since the state has not relinquished its stake in the IT sector enough to promote the competition necessary to bring down cost and increase the quality of service.

All successive governments since 2001 promised to introduce DSL at affordable rates, but officials always came away with different excuses for the delay such as poor infrastructure or the absence of bandwidth and cables.

But in January 2006, the Telecommunications Ministry and the state-controlled OGERO Telecom company finally drafted a memorandum of understanding and persuaded the main Internet providers to sign this agreement to bring DSL to Lebanon.

Desperate to launch DSL, most of the Internet service providers inked the memorandum, but many now say that under the terms of the agreement, OGERO has been given an unfair advantage in the small Lebanese market.

The memorandum stipulates that the Telecommunications Ministry and OGERO are to compete with the private sector on equal footing. The agreement also stresses that both the ministry and OGERO would not abuse their dominance in the market to weaken the private sector.

But many service providers say OGERO has an unfair edge over the competition, since the company maintains ownership of key infrastructure, such as land lines.

"The competition is rather unfair," one Internet service provider (ISP) told The Daily Star. "OGERO has more than 700,000 land lines and this means that they can provide the DSL service much quicker to the users."

It is estimated that OGERO has acquired between 3,000 and 5,000 DSL subscribers since the service was launched less than three months ago, whereas all of the country's ISPs combined have acquired fewer than 1,000 DSL customers.

Some telecom experts such as Riad Bahsounm say that it is illogical for a state-owned entity to be competing with the privately owned ISPs.

Bahsoun believes that the launch of DSL started with a miscalculated step. "You can't treat a patient with an aspirin all the time. The DSL solution which was launched by the current government, which claimed that Lebanon entered the IT know-how era, is a disaster," Bahsoun said.

He added that the DSL offered in Lebanon cannot even be considered broad band because it is too slow compared to other systems in the world.

"In Lebanon, the state is the only merchant which buys and sells bandwidth in the local market," Bahsoun said.

He added that some of the ISPs buy and install the bandwidth illegally. "Some of the ISPs buy some bandwidth from the state to cover up for their illegal purchase of this bandwidth from different sources," Bahsoun said.

He added that the Lebanese government does not have sufficient bandwidth to meet local demand and has even negotiated with Cyprus to buy one extra Gigabyte of bandwidth.

"The DSL in Syria is operating at under 1.8 Gigabytes while Lebanon is using a few hundred Megabytes," Bahsoun said.

According to Bahsoun, the number of DSL users in Syria is close to 700,000, and the service is less expensive than it is in Lebanon.

He emphasized that the DSL subscriber may not take full advantage of a DSL connection because there are lot of people connected to the same line, making the service tediously slow at certain hours.

"In some instances, you may share a 128-DSL connection with 50 people in certain hours. It all depends on your luck," Bahsoun said.

Bahsoun also said that the state, which is represented by the Telecommunications Ministry and OGERO, is handling the issue of DSL without coordinating with the Telecom Regulatory Authority, an independent body responsible for monitoring the market to ensure compliance and quality of service.

Bahsoun estimated that the Finance Ministry is collecting around $800,000 per year in revenues from the DSL and Internet business in Lebanon.

"We could easily have over 600,000 DSL users in Lebanon if we had real open competition and allowed any ISP to buy the bandwidth from abroad and without any restrictions," he said.

Bahsoun also criticized the fact that DSL services are offered with a cap or limit on the number of gigabytes that customers can download. He explained that other countries that are considered IT developed allow DSL users to download as many files as they want. "Qatar for example has 4.8 gigabytes for a population of 700,000 and this huge bandwidth permits the user unlimited downloads."

Some ISPs also complain about the prices being offered by the ministry. "Pricing of the services was a political stunt aimed mostly at demonstrating government and ministry achievements - one of too few - rather than the actual provision of such services to the public," said one provider, who spoke on condition of anonymity.

One provider also charged that the prices offered to the end users in Lebanon are too cheap and do not cover the ISPs' main expenses of offering the service.

He added that in order to offer Internet services at such low prices, the quality of service will be compromised given that the costs are high relative to price. "Simple calculations indicate that E1 [bandwidth 2Mb/s] cost to ISPs stands at $2,600 per month, which when divided by 8 gives a 256k service that would have to be shared by 10 to cover the cost of Internet only, let alone to cover network investment, maintenance, staff to provide good efficient service, customer help desks as well as marketing costs," one of the providers said.

He added that in order for providers to meet costs, they will have to make 30 to 40 customers share a connection at early stages of the service. Although this number will come down if the number of subscribers decreases, it will never be less than the 10:1 ratio, he said.

Some of the providers say that until very recently, the price of E1 stood at around $16,000.

"This [price] was by far the highest in the region if not in the world. Under pressure from the private sector to lower capacity prices hence to pass savings to consumers, the Ministry of Telecommunications/OGERO dropped prices almost six-fold to $2,600/E1. Still such prices are relatively higher than in other places in the region and Europe where prices stand at $400/E1."

The provider stressed that the presence of the ministry and OGERO in the market constitutes unfair competition with the private sector, since both the ministry and OGERO have extensive and powerful marketing throughout the country and are better equipped to access potential customers.

The provider also claimed that both the ministry and OGERO, like any other public/government organization, have no cost-accounting structure. "In other words, revenue is not balanced against costs. This may be fine for the DSL user now, but at some stage such a system and under privatization is expected to collapse," the provider said.

Other providers expressed similar views. "Abdel-Menhem Youssef, the director general of OGERO, repeatedly said that DSL represents a small percentage of the ministry's revenues. If this is the case then why would OGERO and the Ministry compete with the private sector in such a manner?" another provider asked.

He warned that such practices by OGERO are likely to put some of the ISPs in the red, hence removing the Internet service quality long enjoyed in Lebanon and killing off any prospects of new investment in the sector.

The provider also agreed that well before the introduction of DSL, there was a shortage in the market for international capacity such as bandwidth and broadband. He added that OGERO booked 53 unused E1s for itself while ISPs have applied for more than 150 E1s and been provided with only 30 E1s.

One provider said that when Internet services were first offered back in 1994, the incumbent minister of telecommunications sought to be an infrastructure provider for ISPs and not to enter the ISP business. "This has changed with DSL," he said, adding that the ministry and OGERO were now using their "dominant position ... to stifle the private sector."

He added that the Telecom Regulatory Authority (TRA) has a duty to protect ISPs and DSPs and their investments, to ensure fair competition.

"So far, for political reasons and the inability to operate, the regulator has stood aside watching. Who will stand up and save the private sector and investments?" he asked.

But Kamal Shehadi, the chairman and CEO of the newly established TRA, explained his position on the issues raised by the ISPs. "It is good that DSL was launched and there are always sources of friction in any country when the DSL or any service is introduced in the beginning," Shehadi said.

He added that introducing DSL is a complex matter that needs time to fully address.

"All over the world, DSL was introduced gradually," he added.

He admitted that there were some matters regarding DSL that should have been pursued differently, but added that the TRA is addressing these issues. "The TRA is currently working on ground rules for the DSL in Lebanon and these guidelines will be submitted in the near future," he said.

He added that the TRA will review, assess and make amendments to the DSL memorandum if the need arises.

"If the question is will the introduction of DSL go down in the annals of history, then the answer is no. But nevertheless the launch of this service at this particular time was an achievement," Shehadi said.

He added that this is the first time in Lebanon's history that a ministry had managed to offer DSL, even before transforming OGERO into LibanTelecom, a first step in privatization.

"The DSL in Lebanon is a double-edged sword. You can look at it as solution and you can perceive it as a problem at the same time," Shehadi said.

Shehadi explained his argument for the DSL prices in Lebanon. "There are prices for the end users and there are prices to the Internet operators who then sell them to the end user."

He added that the prices offered to the end users are based on administrative decisions. Shehadi acknowledged that some of the prices offered to the end users were not discussed with the ISPs. He added that usually the operators negotiate the prices of DSL with the ministry.

"You should understand that the ministry operates differently from a corporation and that's why the prices were not discussed with the operators."

He said that the prices offered to the end users should be based on the cost of the bandwidth.

"Because it is a monopoly service and there are no alternatives, the basic principle is that the service should be offered at cost," he said.

He added that the ministry has been unable to calculate its cost for launching DSL. "We [TRA] have suggested two proposals and are examining each of them," he said.

He added that the TRA wants to release what it terms as unbundling guidelines which stipulate that the Telecommunications Ministry and the private sector will re-negotiate a new contract for the DSL, including new prices.

"Second, the TRA will be studying the prices of the DSL service and evaluate the benchmark for the launch of the DSL," he added.

In Shehadi's view, the prices offered to the end user in Lebanon are similar to those offered in other countries in the region.

"But the prices of services offered to the private sector are much higher than they should be, and there should be equal treatment between the data providers and OGERO."

He added that no decision by the TRA can change that price structure if LibanTelecom is not established soon.

In other words, the ISPs must wait for the creation of LibanTelecom before re-negotiating new prices for the DSL bandwidths.

"We will look at the guidelines and have a good look at the current prices before issuing our guidelines," Shehadi said.

He added that once the TRA completes its study, the providers will then come to the TRA and say whether the proposed prices are reasonable.

"We have also recommended that both the ministry and OGERO should not be in the playing field of the DSL business," Shehadi emphasized.

He added that the fairest way to ensure competition in the end-user market is for the ministry and OGERO not be in the ISP business.

"Had the ministry been corporatized in LibanTelecom, we would have put these remedies in place very quickly," he said.

He added that while the TRA is implementing the medium- and long-term plans for DSL in Lebanon, the TRA and the Telecommunications Ministry will work jointly on short-term measures that will preserve the viability of the telecommunication market.

"We have to open up the international gateways because that would relive the pressure and create more competition in the market."

He rejected the notion that the government only launched DSL to boost its image. "The question that should be asked if the ministry was badly advised on the issue of DSL. The most important thing to me is what we should do now," Shehadi said.

For his part, Abdul Minum Youssif, the director general of OGERO, assured the ISPs in a recent meeting that OGERO is assessing the performance of the technical service delivered by DSL.

He also stressed that OGERO does not discriminate between one ISP and another.

"It is natural for the land line telephone subscribers to call OGERO for the connection of the DSL because we have 700,000 land lines," he said.

He also promised to meet the needs of the ISPs as soon as possible.

Memorandum of understanding

The Ministry of Telecommunications (MoT), OGERO and the country's Internet service providers (ISPs)engaged in lengthy negotiations before the launch of DSL this year and signed a memorandum of understanding outlining the terms under which DSL would be offered in Lebanon.

The MOU was seen as a launching pad for the highly anticipated high-speed Internet connection, although some of the providers now say that the memo has lot of loopholes and should have been negotiated more thoroughly.

It is worth mentioning that all successive governments promised to launch DSL since 2001 but none of them translated their pledges into concrete action.

Memorandum of Understanding
Back in January 2006, under the auspices of Minister Marwan Hamadeh, an MOU was signed between the MoT and the private sector that heralded a new era of private-sector involvement in the development of telecommunications in Lebanon. The MOU laid down conditions for the launch of DSL in Lebanon, creating a framework for a joint effort between the public sector and the private sector. The ISPs, including Terranet, Cyberia and IDM, signed the deal as did the DSPs, including Cable One, Pesco and GDS.

The MOU outlined key criteria that were to be met in order to ensure success:
1. MoT/OGERO are to compete with the private sector only on equal footing
2. MoT/OGERO shall not abuse its dominance in the market to weaken the private sector
3. MoT shall ensure that international bandwidth/capacity (the Internet pipe) would provide sufficient capacity for all operators in order to meet market demand
4. International capacity rates shall be competitive and would be much reduced
5. Charges by MoT for use of its infrastructure are not to kill competition but to encourage it in order for the IT sector to prosper
6. Services are to be universal and offered all around the country

The private sector was to make a huge investment in equipping MoT central offices with its own equipment while the MoT was to offer co-location rights (space), use of facilities and transmission.

Beirut 23-07-2007
The Daily Star

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