LONDON-The 1997 World Trade Organization (WTO) Agreement on telecommunications, together with the decision of the United States’ Federal Communications Commission to place a ceiling on international accounting rate payments set into motion a chain reaction toward liberalization and the end to the remaining monopolies in the telecommunications world.
At the International Telecommunication Union’s World Telecommunications Development Conference held in Malta earlier this year, FCC Chairman William Kennard spoke in favor of an end to monopoly and the demise of the accounting rate system.
Laying out the path ahead Kennard said: “First, we must take advantage of private capital. Second, we must drive development and innovation with competition. And third, we must set up transparent and independent regulatory regimes that will attract private investment. I believe these are the essential ingredients for achieving our common goal-universal access and, ultimately, universal service.”
The Middle East has not been untouched by these winds of change. Competition from call-back services and the reduction in revenues resulting from the U.S. decision on accounting rate payments, has made privatization an alternative means of generating funds for investment in the telecommunications sector. As a result, during the last 12 months the region has seen an introduction, though sometimes reluctant, of competitive market models.
Saudi Arabia is no exception, surprising observers with its decision to embark on privatization at the end of last year.
Following a meeting of the Saudi Cabinet in December 1997, the government decided that services operated by Saudi Arabia’s former incumbent, the Ministry of Post, Transport and Telecommunications (MoPTT), were to be turned into various private companies, beginning with the various telecommunications services. Subsequently a royal decree issued 22 April gave the green light for the formation of the Saudi Telecommunications Co. (STC). The board of the new company met the following day, and took over running the Kingdom’s telecommunications system beginning in June.
The formation of STC marked a significant moment in the region’s relationship with the privatization process. Since 23 April, more than a month ahead of schedule, STC has been responsible for the operation of the Kingdom’s telephone system, with the MoPTT retaining only a regulatory function and about 30 percent of revenues.
Under the current schedule, by the end of first-quarter 2000, 80 percent of STC’s capital will be offered up to private investors. STC has said there will be restrictions imposed on the number of shares per individual investor to avoid a situation whereby a few individuals gain disproportionate control of decision making. The exact form of the proposed flotation rests on its first financial statement, due out in mid-1999.
Once the private operation of fixed line services is well underway, licensing of private wireless services are surely set to follow. Industry analysts predict this will become a reality within the next two to three years.
Prospects for telecommunications development, and especially for the country’s long-running TEP-6 GSM (Global System for Mobile communications) expansion project, being undertaken by Lucent Technologies Inc., look set to proceed in a smoother fashion as a result of STC’s formation. The TEP-7 and TEP-8 projects, intended to provide an additional 500,000 GSM lines between them, also have been awarded to Lucent and are scheduled to follow on from TEP-6. The GSM system currently has about 230,000 subscribers.
Farah Jifri is the features editor at Middle East Communications, London.
