US embassy cable - 02AMMAN2420

NEW JORDANIAN TELECOM REGULATOR FACES CHALLENGES

Identifier: 02AMMAN2420
Wikileaks: View 02AMMAN2420 at Wikileaks.org
Origin: Embassy Amman
Created: 2002-05-15 14:11:00
Classification: CONFIDENTIAL
Tags: ECPS BEXP EINV JO
Redacted: This cable was not redacted by Wikileaks.
This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 04 AMMAN 002420 
 
SIPDIS 
 
DEPT PASS USAID FOR ANE/MEA KIM FINAN 
USDOC FOR 4520/ITA/MAC/ONE/PAUL THANOS 
USDOC FOR 6000/ADVOCACY CENTER/CJAMES 
USDOC FOR 6400/RSTEELE/ITA/TD/OEC/RSTEELE 
TREASURY FOR PIPATANAGUL 
TDA FOR SIGLER 
 
E.O. 12958: DECL: 05/15/2007 
TAGS: ECPS, BEXP, EINV, JO 
SUBJECT: NEW JORDANIAN TELECOM REGULATOR FACES CHALLENGES 
 
REF: A) AMMAN 2200 B) AMMAN 1138 C) AMMAN 0794 D) 
 
     AMMAN 0567 
 
Classified by DCM Gregory L. Berry. Reasons 1.5 (B) and (D) 
 
------- 
SUMMARY 
------- 
 
1.  (SBU) The GOJ's recent reform of its telecom regulatory 
infrastructure thrusts its now fully independent regulator 
into the role of decision-maker at a time of transition, 
opportunity, and challenge.  As it finds its feet, the 
regulatory agency must find creative ways to encourage market 
entry, (even at the risk of ruffling the  monopolist, Jordan 
Telecom), ensure the provision of reliable and affordable 
service for Jordanians, and moderate a complex battle between 
mobile providers over interconnection rates.  End Summary 
 
------------------ 
A MINISTRY IS BORN 
------------------ 
 
2.  (SBU) Under Jordan's new telecom law, the former Ministry 
of Post and Communications officially became the Ministry of 
Information and Communications Technology (MOICT) on April 
22.  Minster Fouaz Zu'bi said that the Ministry's mandate is 
to stimulate local and foreign technological investment, 
promote awareness of IT issues, and establish Jordan as a 
regional player in IT development.  The Ministry will also 
oversee the implementation of the GOJ's e-government program. 
 While the Ministry will continue to make telecom policy, the 
Telecommunications Regulatory Commission (TRC), newly 
independent under the law, will enforce it.  Responsibility 
for the postal sector has been hived off from the Ministry in 
the form of the soon-to-be-privatized Jordan Postal Company. 
 
3.  (SBU) The TRC faces a number of challenges in 
establishing its independence.  Dominated by a monopoly in 
fixed-line service and a combative duopoly in mobile, the 
sector is in need of new entrants, both to enhance quality 
and to bring about a reduction in rates.  A potential new 
entrant, Real Time Communications (a U.S. led consortium) 
(REF B), is seeking to build a fiber-optic line between 
Lebanon and the Red Sea port of Aqaba as an alternate route 
for Europe-Asia telecom traffic, but faces opposition from 
Jordan Telecom, a dispute that will eventually make its way 
to the TRC.  The TRC will also be called upon to resolve rate 
concerns at a number of levels: the high rate Jordan Telecom 
charges for international calls; the high intercompany 
settlement rates Jordan Telecom charges for inbound calls 
that encourages foreign companies to use cheaper, and lower 
quality, inbound routes; and mobile interconnection rates. 
 
 
------------- 
THE REGULATOR 
------------- 
 
4.  (SBU) Formerly part and parcel of the old Ministry, the 
TRC had, in the past, been perceived as a lapdog of Jordan 
Telecom (JT).  Over the last few months, however, it has 
ruled against Jordan Telecom on two important and contentious 
issues.  In the first, the TRC ruled that pay phone service 
was a public right, and that Jordan Telecom could not cut off 
service to a local provider embroiled in a billing dispute 
with JT.  More recently, the Commission determined that 
mobile operators could issue seven-digit phone numbers, 
greatly expanding the pool of numbers available and enabling 
mobile operator Fastlink, a competitor of JT-owned MobileCom, 
to respond to customer demand (REF D).  Both rulings were 
upheld by the High Court following challenges by JT. 
 
5.  (SBU) TRC Director General Mamoun Balqar told us these 
rulings were a "welcome reassurance of the professionalism" 
of the Commission.  He said this reassurance meant that the 
TRC was on sound, legal ground in issuing the decisions, and 
was a vote of confidence in the pro-competitive direction the 
TRC was determined to move.  Balqar added that, as a former 
employee himself of Jordan Telecom, he understood their 
position on a number of issues, but said what is right for 
Jordan is not always going to be what is right for JT. 
 
6.  (SBU) Balqar said that under the new law, the TRC will be 
even more professional.  The Commission will be run by a 
full-time Chairman, selected by the Council of Ministers, 
with five commissioners.  The commissioners will also be 
named by the Council, and will probably include a lawyer, an 
economist, a telecom specialist, and an IT specialist. 
Balqar said that he had no desire to be the Chairman, adding 
that  administrative duties were a headache.  Instead, it was 
his desire to be the telecom specialist on the Commission, a 
slot he expected to fill.  Balqar said it was not yet clear 
who the Chairman would be, nor the make-up of the rest of the 
Commission.  But he said they would be much more in tune with 
telecom issues than the "yes men" who had served on the TRC 
in the past.  He expected the entire Commission to be named 
by June 1. 
 
7.  (SBU) Alluding to challenges facing the TRC, Balqar 
opined that it was not too early to start thinking about what 
the telecom playing field in Jordan might look like once JT's 
monopoly expired at the end of 2004.  He said he saw most of 
the future opportunities in cellular and other mobile 
services, local and international operators, and IT backbone 
projects.  He pointed to the Jordan Wireless Sector Market 
Liberalization Project, a U.S. Trade and Development Agency 
funded feasibility study to develop a national mobile 
strategy, as a demonstration of Jordan's commitment to open 
up the telecom market. 
 
--------------------- 
A MONOPOLY ENTRENCHED 
--------------------- 
 
8.  (SBU) We met with Pierre Mattei, Jordan Telecom's CEO, 
currently on loan from France Telecom.  Adamantly defending 
JT's fixed-line monopoly, which runs until January, 2005, 
Mattei admitted he was very protective of JT's position in 
Jordan.  He stressed that there was no need for a second 
network.  "There is room for only one network in Jordan," he 
said.  He emphasized the company's many contributions to the 
Kingdom, and said, "We are a strategic partner with the 
government of Jordan.  We are also an employer, a customer, 
and a developer here.  Jordan Telecom works for the interests 
of the people." 
 
9.  (SBU) Responding to concerns regarding quality of service 
on international calls and faxes (international service, 
particularly inbound calls and faxes, is haphazard; even when 
calls are able to get through, voices are often 
unintelligible, and the calls themselves are given to 
frequent, sudden cut-offs),  Mattei attributed the problems 
to "hackers" who divert international traffic through 
voice-over internet networks.  He said it was the TRC's job 
to catch these "pirates", but said that the Commission was 
"too weak" to work on the issue.  Mattei also admitted that 
JT's high intercompany settlement rates worked to discourage 
international providers from using JT's lines.  He pointed to 
JT's current intercompany settlement rate of 19 cents per 
minute (as opposed to 3 cents for outgoing calls) as a reason 
for foreign companies to bypass JT.  He added that JT was in 
the process of reducing the rate to 16 cents and would 
eventually bring it down to 13 cents.  But he said that 
tariffs for domestic calls were too low, forcing JT to keep 
international rates high.  In addition, Mattei cited an 
arrangement among Arab League countries that keeps rates 
between those countries high as well. 
 
10.  (SBU) We posed the quality question to TRC's Balqar, who 
agreed with Mattei's interconnection argument, but said JT's 
high rates prompted long distance companies to route calls 
through cheaper land lines for five cents a minute, not so 
much via voice over internet.  Balqar claimed that in the few 
hacker cases that came the Commission's way, the TRC, with 
the help of JT, had achieved some successful prosecutions. 
Balqar said the only way the quality issue might be solved 
would be if Jordan Telecom reduces its international rates to 
the point that foreign operators find it unnecessary to 
reroute calls to the least costly port of entry. 
 
--------- 
REAL TIME 
--------- 
 
11.  (SBU) As an example of JT's resistance to innovation and 
new entrants into the market, we posed the Real Time issue to 
Balqar.  He mused that working with Jordan Telecom probably 
represented the "best and only option" for the American 
company to penetrate the Jordanian market.  Sounding a theme 
we've heard before, Balqar said the monopoly is a fact of 
life, at least for the time being.  He said that perhaps Real 
Time's strategy for the project, which includes a fiber-optic 
backbone linking Jordan to Cyprus and Europe via Syria and 
Lebanon, should be "if you can't beat them, join them".  But 
he added that the Commission was entering the debate, and 
said the TRC would look at "legal angles" that might make 
Real Time's entry possible. 
 
12.  (C) JT CEO Mattei predictably expressed skepticism over 
the project.  He asked rhetorically, "Where is the business 
plan?  Where is the profit?"   He added that there was 
already over-capacity in fiber-optic in the world.  But, 
opening the door somewhat, he said that if Real Time "can 
show me that there is a market, we could discuss it".  (Note: 
Jordan Telecom's plan to have an Amman hub in a link between 
Syria, Iraq, and Europe, coincidentally announced on the 
heels of Real Time's stated interest, suggests that indeed 
such a market exists. (REF A) End note.) 
 
----------------- 
THE MOBILE MARKET 
----------------- 
 
13.  (SBU) Two mobile providers currently serve Jordan: JT's 
affiliate MobileCom, and Fastlink, a subsidiary of 
Egypt-based Orascom under terms of a duopoly which is set to 
expire January, 2004.  Although a newcomer to the market, 
Fastlink is the dominant mobile carrier, serving more than 
800,000 subscribers, compared to MobileCom's 200,000. 
However, service outages and quality concerns, along with a 
concerted MobileCom effort to undercut Fastlink on rates, has 
recently prompted a number of subscribers to switch to 
MobileCom. 
 
14.  (SBU) Fastlink CEO Michael Dagher told us that despite 
the explosive growth in subscribers, the company was under 
financial pressures that were limiting its ability to invest 
in expanding and upgrading the network.  The first such 
pressure came from a complex battle between the mobile 
providers has emerged over rates.  Each company is promoting 
tariff plans that reduce rates between subscribers, but 
increase rates for calls to other providers, mobile or fixed. 
 Balqar said the TRC has put a cap on rates for both mobile 
and fixed providers, and that it was up to the telecom 
companies themselves to set rates under the cap and that as 
long as they avoided the upper limit on tariffs, they were 
free to do what they want.  While mobile rates continue to 
decline as a result of competition between the two mobile 
companies, JT has retained its interconnection fee of 3.5 
cents per minute for both mobile providers, in accordance 
with the terms of its license.  However, as MobileCom is an 
affiliate of JT, this interconnection fee disfavors Fastlink 
and in effect represents an indirect subsidy for MobileCom. 
 
 
15.  (SBU) Yet another challenge is the high cost of entry 
and doing business in the sector.  Dagher said that 
Fastlink's revenues in 2001 were USD 160 million, but he said 
that the GOJ's 15 percent sales tax, 25 percent income tax, 
and other taxes in 2001 totaled USD 70 million for Fastlink. 
He complained that these taxes, along with the USD 35 million 
mobile license fee, were diverting capital away from 
investment and hurting the company's ability to expand and 
innovate.  (JT's Mattei expressed the same concerns.  He said 
it cost France Telecom USD 500 million to acquire its 40 
percent stake in JT, not including license fees and taxes. 
He said that in addition to sales and income tax, JT paid USD 
19 million in privatization fees in 2001 and USD 77 million 
in 2000.) 
 
16.  (SBU) Finally, Dagher did not mention, but we have heard 
from other sources, that the financial problem of Fastlink's 
Egyptian parent company Orascom, which owns 91 percent of the 
company (Motorola sold a 30 percent share in 2001) are also 
undercutting the company financially.  According to local 
bankers, Orascom is siphoning money from Fastlink to help 
cover the cost of ambitious expansion plans in North Africa 
and Syria.  In fact, they say that Fastlink has exhausted its 
credit in Amman (which Dagher attributed instead to the 
excessive caution of Jordanian bankers). 
 
------- 
COMMENT 
------- 
 
17.  (SBU) In response to concerns about the high cost of 
doing business, Balqar said that upcoming license fees and 
award procedures was among the priorities of the new 
Commission.  He said, for example, that there is room for one 
or two more mobile operators in Jordan, and he expected those 
license would be awarded in a competitive bidding process. 
But he added that telecom companies in general had "learned 
their lesson" when they paid exorbitantly high fees for 3G 
licenses in the 1990s, and suggested they would be much more 
conservative from now on.  Balqar also said the tax and 
revenue structure was very complicated, but, as it may 
represent a barrier to foreign investment, should and would 
be examined by the TRC.  He emphasized, however, that despite 
the high taxes and fees JT had paid to the GOJ over the 
years, the company was still generating a profit and that in 
fact, France Telecom was likely to attempt to increase its 
stake in JT when the next tranche of shares goes on the 
market later this year. 
 
18.  (C) Commissioner Balqar is a competent professional who 
enjoys a thorough understanding of the telecom industry and 
the challenges facing the sector as it liberalizes.  But the 
TRC under his leadership is a less dynamic and proactive 
regulator than Jordan needs today, and one hopes that the 
rest of the as-yet-unnamed commission can provide the 
leadership and expertise needed to recognize and meet those 
challenges head-on, even at the risk of confronting Jordan 
Telecom and its various interests and supporters.  As the new 
TRC sorts through these complicated issues in the months and 
years ahead, we will continue to encourage and support an 
environment that fosters an open market leading to the 
provision of dependable and innovative service at rates that 
are fair and accessible.  (USAID anticipates providing 
assistance to the TRC in strengthening its regulatory 
capablilities over the next few years as part of its 
Information Communications Technology initiative.) End 
comment. 
Gnehm 

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