US embassy cable - 05SANAA893

C O N F I D E N T I A L SECTION 01 OF 03 SANAA 000893 
 
SIPDIS 
 
PLEASE PASS TO AMBASSADOR GROSS AND EB/CIP/SP; USAID ANE 
TS-METZGER 
 
SIPDIS 
 
E.O. 12958: DECL: 04/04/2015 
TAGS: ECPS, EFIN, EIND, EINV, ETTC, KMPI, PGOV, PINR, YM, ECON/COM, ENVIRONMENT/S&T 
SUBJECT: EB ICT DAS AMBASSADOR GROSS'S MEETINGS WITH ROYG 
ON NEED FOR REFORM 
 
REF: SANAA 196 
 
Classified By: DCM Nabeel Khoury for reasons 1.4 (b) and (d). 
 
1. (U) Summary.  EB ICT DAS Ambassador David Gross raised the 
prospect of an independent telecom regulator and advanced AID 
proposals for rural internet development with ROYG officials 
on March 26.  His discussions with the Ministry of 
Telecommunications and Information Technology (MOTIT) and the 
Public Telecommunications Corporation (PTC) revealed a clear 
understanding among ROYG officials of the need for change, 
but that they were uncertain of how to proceed.  Ambassador 
Gross's discussion with the Deputy Prime Minister focused on 
the need for an independent telecom regulator as part of the 
WTO accession process.  Ambassador repeatedly referenced the 
upcoming World Summit on the Information Society (WSIS) in 
Tunis as an opportunity for Yemen to demonstrate its ICT 
potential.  He encouraged the ROYG to develop success stories 
for Yemen to share with the international community.  He 
suggested collaborating with USAID on IT projects in the 
health and education sectors, which was warmly received by 
ROYG officials.  At University Science and Technology in 
Sanaa, Ambassador delivered a lecture to an engaged audience 
on the role of ICT in the spread of democracy and economic 
growth.  End summary. 
 
------------------------------ 
Strategizing on ICT With USAID 
------------------------------ 
 
2. (U) Ambassador Gross met with USAID Country Director to 
collaborate on the role of ICT in development projects.  The 
meeting followed earlier discussions at the March Arab 
Telecom Regulatory Network Conference, that focused on 
internet access for rural schools and health clinics in 
Yemen.  In that meeting, Deputy Minister of Telecom Abdullah 
al-Hamami made clear that MOTIT's priority was to ensure that 
any internet access project would go through the ROYG 
monopoly. Hamami argued that the PTC could provide internet 
access almost anywhere in Yemen, despite the fact that fewer 
than one percent of Yemenis currently have connections. 
 
3. (U) Given the ROYG's vested interest in the status quo, 
both Ambassador Gross and USAID Director stressed the need 
for achievable goals that bring about policy change.  They 
agreed that any USG sponsored initiative should begin at the 
Ministry of Education.  USAID Director suggested a pilot 
program to connect remote MOE offices in an effort to help 
further the goals of education reform and government 
decentralization.  First the ROYG must understand the 
available technology and second must decide that its 
application is worthwhile. 
 
4. (U) USAID has to plans to send a representative from MOE 
to participate in the UNICT Task Force meeting in Dublin, 
April 13-15.  The aim is to expose MOE to the use of ICT in 
developing countries and the advantages it can provide for 
education.  Ambassador Gross agreed to meet with Yemen's MOE 
representative in Dublin to discuss this issue. 
 
---------------------------- 
MOTIT Eyes Change Cautiously 
---------------------------- 
 
5. (U) Ambassador Gross and USAID Country Director met 
Minister of Telecommunications Abdul Malik al-Moalimi and his 
deputy Mahmud Yassin.  The discussion focused on the need for 
regulatory reform and possibilities for ICT initiatives in 
anticipation of WSIS.  Ambassador praised the advances Yemen 
has made in telecom, citing MOTIT's limited policies of 
liberalization and technology neutrality.  "You've shown 
leadership, now it's time to reap the benefits of your hard 
work," said Ambassador.  He emphasized the need for an 
independent regulator to encourage investment and competition 
in the telecom sector. 
 
6. (U) Yassin acknowledged the changing environment in 
telecom and the need for greater liberalization, but conveyed 
the ROYG's fears that opening the market under political 
pressure may result in economic failure.  He said MOTIT is 
trying to be balanced in its approach, taking both revenue 
and Yemen's infrastructure into account.  Yassin said that 
MOTIT is meeting with the ROYG WTO team on creation of an 
independent regulator and that discussions are progressing 
slowly.  Ambassador Gross agreed that regulatory reforms 
should be approached carefully, and offered training in areas 
such as spectrum management through the US Telecom Training 
Institute and the FCC.  Moalimi offered MOTIT facilities for 
such trainings, and specifically requested assistance with 
the ROYG's stalled e-government program. 
 
7. (U) Moalimi shared his belief that ICT growth in Yemen is 
hampered by high costs to consumers and not, as some claim, 
by deficient infrastructure.  Most Yemenis are simply too 
poor to purchase hardware, said Moalimi, which is why 
President Saleh has initiated an installment plan for 
government employees to purchase PCs.  Ambassador Gross 
responded that greater liberalization would bring new 
technology and reduce costs to consumers.  He cited the 
example of international calling, where competition creates 
jobs and shrinks tariffs.  (Note:  International calling in 
Yemen is run by the state-owned monopoly TeleYemen and is 
considered extremely expensive.  End note.) 
 
8. (U) As a former MOE official, Moalimi was receptive to 
cooperative efforts on education, and concurred that such 
programs would improve Yemen's image at WSIS.  As expected, 
Moalimi encouraged the use of PTC technologies to deliver 
internet access, specifically CDMA wireless, which he said 
was particularly well suited to Yemen's difficult geography. 
The Minister stated that fifteen ISPs were licensed in Yemen, 
but that only the two PTC-owned services are operational. 
(Note:  This is largely because the PTC offers the service 
for free, charging only for the use of its wirelines.  End 
Note).  All parties agreed that the next step should come 
from MOE, and that MOTIT and the USG would facilitate 
creating a strategy with MOE for remote internet connectivity. 
 
------------------------------------ 
PTC Sees the Future in Privatization 
------------------------------------ 
 
9. (U) Kamal al-Jebry, Director General of the PTC, hosted 
Ambassador amidst negotiations with Omani officials over 
interconnection rates for a new fiber-optic cable connecting 
the two countries.  Ambassador Gross pointed out that an 
independent regulator would be better suited to this role. 
Jebry strongly agreed, saying that there is currently no 
institution capable of resolving telecom disputes.  Jebry 
shared that he is interested in pursuing joint ventures 
outside of Yemen, specifically with Oman, but is restricted 
by MOTIT's regulatory framework.  The main problem, said 
Jebry, is that the ROYG doesn't know how to set up an 
independent regulator. 
 
10. (U) In Jebry's view, Yemen Mobile is hindered by 
government ownership, as it cannot attract outside investment 
like its private competitors.  He further implied that the 
PTC in general would benefit from privatization.  "Help us be 
helpful," said Ambassador, offering expertise in regulatory 
reform and privatization.  He added that as long as the 
Ministry owns the company, investors will always be 
suspicious. 
 
11. (U) Jebry highlighted the PTC's infrastructure expansion 
efforts, specifically in providing access to rural areas.  He 
said that Yemen has now reached four percent telephony 
penetration.  On Information Technology, Jebry reiterated 
CDMA's potential in Yemen for delivering internet access.  He 
added that ISPs operating on different technology will not 
invest in Yemen because of restrictions on Voice over 
Internet Protocol (VOIP).  Ambassador Gross said banning VOIP 
is impossible and suggested it would be better to focus on 
collecting termination fees for these services. 
 
12. (U) The PTC is also looking towards WSIS and recently 
returned from an Arab Group preparatory meeting in Cairo. 
Jebry said that the group's main focus was Arabic content and 
e-governance.  There was discussion of the Internet 
Corporation for Assigned Names and Numbers (ICANN), with 
European representatives taking an active position on 
internationalization.  Their stance on public versus private 
sector management of ICANN was less clear. 
 
--------------------------------- 
Dissension in the ROYG on Telecom 
--------------------------------- 
 
13. (C) Ahmad Sofan, Deputy Prime Minister and Minister of 
Planning and International Cooperation, made clear early in 
his meeting with Ambassador Gross that views regarding 
telecom policy were not uniform within the cabinet.  In 
Sofan's view, the PTC has no choice but to privatize in the 
future.  Despite the Ministry's claims of profitability, the 
DPM said they are a subsidized business that owes back taxes 
to the ROYG.  Sofan believes that telecom is essential to 
fostering a positive business climate in Yemen, and that 
MOTIT is a good place to begin reforms.  It does not have an 
established old guard opposed to liberalization, as in many 
other sectors. 
 
14. (C) Sofan also admitted to mistakes by the PTC in 
establishing Yemen Mobile (reftel).  The Finnish consultant 
hired by MOTIT to conduct the tender underestimated the 
Yemeni market, said Sofan.  They projected only 37,000 
customers after four years, and accepted bids of 10 million 
dollars--a fraction of what they were worth.  Once MOTIT 
launched Yemen Mobile with CDMA technology, continued Sofan, 
they thought they could have their way with the GSM 
companies.  Instead, the ROYG was forced to the negotiating 
table to gain access to the extensive GSM network.  The DPM 
said this was the first time the ROYG related to private 
sector representatives as equals, demonstrating the power of 
competition.  Sofan said this was a success story to share at 
WSIS. 
 
15. (U) Ambassador urged Sofan to support efforts to wire 
remote areas using the private sector, and to demonstrate 
these successes at WSIS.  He shared the PTC's desire to 
privatize and expand internationally, something that can only 
be achieved with the creation of an independent regulator. 
Sofan recognized the importance of regulation for foreign 
direct investment and the WTO accession process, but was 
unclear on how the ROYG could proceed.  Ambassador cited many 
examples for Yemen to study, specifically the British model 
where the regulator answers to Parliament.  "Parliament here 
is with the GSM companies," replied Sofan, referring to the 
al-Ahmar interest in Sabafon.  Ambassador agreed that a 
regulator must be free of the companies it regulates.  (Note: 
 The WTO Coordination Office in the Ministry of Industry and 
Trade shared a paper on telecom regulation with MOTIT.  The 
two ministries are currently discussing next steps.  End 
note.) 
 
------------------------------------- 
University Students Challenge, Listen 
------------------------------------- 
 
16. (U) Ambassador Gross delivered a speech at University 
Science and Technology focusing on the future of ICT in 
democracy and development.  He emphasized the importance of 
rule of law and transparency in building free societies, and 
the ability of ICT to facilitate such changes.  Ambassador 
Gross detailed recent democratic advances in the region, 
which met with a mixed response from the audience of students 
and faculty.  Ambassador Gross fielded a wide range of 
questions ranging from the cost of new technologies in Yemen 
to U.S. intentions in Iraq and the Palestinian Territories. 
Skeptics were impressed with Ambassador's view that ICT is 
politically neutral and critical to the growth of Iraqi and 
Palestinian economies, as well as Yemen's. 
 
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Comment 
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17. (C) Ambassador Gross's visit successfully pushed the key 
issues of regulatory reform and telecom liberalization. 
MOTIT would likely be the biggest obstacle to reform, fearing 
lost revenue and influence without the PTC monopoly.  The 
Ministry's direct involvement in Yemen Mobile indicates 
hesitancy in Yemen's commitment to private sector growth. 
Without pressure, they are unlikely to enact serious policy 
changes, but other ROYG officials are eager for reforms.  PTC 
officials themselves would like to begin privatization, 
allowing them to follow a more aggressive and profitable 
business model.  DPM Sofan also recognizes the importance of 
telecom liberalization for attracting investment and 
accession to international trade regimes.  As a first step, 
the U.S. can help in the development of a more independent 
regulator by providing training and technical advice. 
Reforms would require policy changes in the ROYG's 
monopolistic approach to ICT.  USAID programs initiated 
through the health and education sectors can help direct ROYG 
policy, by encouraging technological innovation and increased 
competition in bringing the internet to underserved areas. 
 
18. (U) Note: Ambassador Gross did not have the opportunity 
to clear this message.  End note. 
Krajeski