In May the Lebanese government announced it would manage the country’s mobile networks, effectively bringing both the Orascom-owned Alfa and Zain-backed Touch under state control.
The government planned to open tenders this summer, allowing Orascom, Zain and others to bid. But this week the entire government of Lebanon resigned with telecommunications minister Talal Hawat among them.
As a result, the tender – and the future of Lebanon’s mobile industry – is hanging in the balance.
“The question is how long will it take for a new government to be formed. How much experience and how reliable their replacements will be, needs to be seen,” said Andrew Kitson (pictured), head of TMT, country risk and industry research at Fitch Solutions.
“They may decide to contract to international advisors, but that also takes time, due diligence needs to be done. Obviously, no-one has gone in and looked at the market since the 2015 tender was launched and aborted, so they would need to look at the market from the ground up,” he added.
Those assessments should consider current dynamics and future potential calculations on the value of the market in order to set lower and upper ceilings for a spectrum auction.
Despite operating in a legal vacuum, Kitson maintained that Orascom and Zain are highly unlikely to cease provision before a new government is formed, but he also highlighted that the door is open for others to bid for the contracts.
“We know the French government has historic reasons to back Lebanon so it might well be that if a new tender is opened up to international players we might find Orange coming to the table and saying they want to provide mobile services in this market,” he said.
“A big company like Orange has considerable experience of operating across the Middle East and Africa in very challenging situations. So, they wouldn’t be necessarily phased by the challenges they would face in Lebanon,” he added.
The Lebanese economy itself is a double-edged sword for any international player looking for a debut: while they could secure a favourable exchange rate, the ability to generate strong revenues is muted because of low incomes and the cost of procuring OTT services from abroad.
“If you are an international player with high expectations for the market, you would need to take a reality check,” said Kitson.
“It may well be that in terms of value added services, the existing operators will increasingly find themselves retreating to providing just very basic offerings, which would then, if I were an international investor looking on, make me a little bit cautious about maybe participating in any new tender,” he added.
Given the timeline to form a government, conduct due diligence and open the tender process, Kitson said the current limbo could last up to two years, but that there is scope for a positive outcome in the long term.
“That means poor quality of service is likely to persist for a little while – anything up to two years – but if they get it right and the government is consistent and consumer friendly, business friendly, and puts the needs of the country first, then there is no need to suspect that the industry couldn’t go from strength to strength, relatively speaking.”
There's more on this story in Episode 16 of the Digital Digest
