Achievers are keen to benchmark their performance and remain unafraid of comparing their accomplishments to the best. To measure the commercial success of Lebanon’s Internet Service Providers – the companies where speed, competitiveness, technological competence and service quality are crucial not only for their viability but for the entire online economy – with the aim of identifying the best performer on a national level is a task requiring the patience of a hero. ISPs themselves say they don’t know the exact size of either the legal residential or the corporate market and are unable to declare their market shares. Against this background of opacity, it is important to ask where Lebanon stands today in internet access by international and regional standards. But the answers are not pretty. According to consensus among providers, internet penetration of households this year amounts to 80,000 or so legal subscribers and anywhere between 50,000 and 100,000 illegal connections supplied by unlicensed wireless operators. In 2001, the numbers of legal subscribers were actually higher. In terms of adaptation of successful business models and new technologies, ISPs here five years ago were able to point to the Lebanese market’s edge over other countries in the region, which moved slowly and were mostly hesitant to reluctant in opening to the internet, socially as well as technically. “Lebanon was the most advanced country in the area in telecommunications. It is a shame to see where we stand today,” said Bassam Jaber, general manager of ISP Cyberia. The downward trend was spawned by a combination of reasons, from the deterioration of consumer purchasing power to high governmental charges for bandwidth and illegal competition that so far could not be erased. Efforts by the government to introduce lower rates for consumers linking per dial-up phone lines to ISPs and cut off unlicensed operators of cable internet helped but were not enough to turn the tide, Jaber said, even as the Lebanese people are still looking for connections to the internet. But ISPs continue to pay the ministry of telecommunications about $20,000 per month for a standard E1 connection of two Mbps, which elsewhere costs a fraction of that. In his opinion, the ministry is not blocking developments but things are moving just too slowly. This has created a paradoxical and unhealthy situation where Lebanese internet providers are showing only abroad what they are really capable of. “We need to be leaders in Lebanon before we can be leaders outside,” Jaber said. “Today, the situation is the opposite. We are leaders outside.” Simplified, the Cyberia ISP brand operates profitably in Jordan and Saudi Arabia – but scrapes by in Lebanon.
To understand the real abysmal picture of Lebanon’s internet penetration, one need only try ranking it against South Korea, the world’s leading nation in broadband connectivity in 2004. The government in Seoul announced last month that the country had achieved more than 30 million internet users – 30.6 million, to be precise. That’s 68.2 % internet penetration in a country that recently surprised us mostly through its enthusiasm for football. The Korean government offered a breakdown of their national figures into detailed analyses of usage preferences, age structures and form of connectivity. According to its statistics, 95.5% of youth between the ages of six and 19, and even 58.3% of people in their 40s go online regularly. As the Korean government followed through on its decision to support a digital society with participation by all, digital subscriber line and cable modem broadband services were used by over 95% of internet users and the average Korean spent 11.5 hours per week surfing the web, with online shopping, gaming, chatting and information searches being key activities.
Compare that to Lebanon’s most optimistic estimates of 250,000 users and well below 10% internet penetration rate, without broadband links in households and no analytical dissection of usage structures whatsoever put forth by the government. Remember also that commercial internet started within the past ten years in both countries. In 1997, when Korea had a mere one million internet users, penetration rates in Korea and Lebanon were not so incredibly far apart. To name what can be known about the structure of the Lebanese market, it is served by five ISPs, two of which specialized in recent years on providing only corporate services. This provider segmentation settled basically into the current shape in 2002 when two early-hour ISPs, Inconet and Data Management merged into IDM, which claims a strong position in both corporate and dial-up consumer markets (the latter largely on account of providing the internet service to the market segment of Banque Audi internet account holders). Cyberia, also an early entrant to the access game, placed their opening bets on the consumer market where they attempted in 2000 to pioneer the provision of proprietary news and information content but aborted the costly project due to lacking commercial viability. Their strength today lies mainly in the dial-up market. Terranet, the third ISP active in consumer dial-up, came onto the market as towards the end of the 90s and could expand their position quite speedily based on technological advantages. Fiberlink Networks launched initially as a consumer-oriented service under the brand name Lynx but refocused soon on the corporate segment where it reached a strong position, working for a limited period under the identity of PSI, a US-based group with high-flying ambitions. Fiberlink is planning to re-introduce consumer services under the Lynx brand. The provider segment is completed by Sodetel, a company that set out as a management and maintenance firm for a 1960s undersea communications cable linking Beirut to Marseille. The firm, established in equal parts by the Lebanese government and France Telecom, is viewed as a smaller player in the corporate market. The players are familiar with each other and – after terminating an unsustainable price war in 1999 and 2000, during which retail customer numbers soared but ISPs sold access massively below cost – have in recent years moved with remarkable harmony on the dial-up price front. Nonetheless, the commercial ISPs today guard their client counts and market share information with such envy that the possibility of future new position fights appears difficult to exclude. As the providers conceal their numbers and the MOT neither commissions research firms to monitor internet penetration and online demographics nor publishes its own figures on the size and development of registered corporate networks, it is hard to precisely evaluate the evolution of the sector – hard for outside analysts and apparently even for the companies. What all providers do agree on is that business so far has not been easy. “It is always difficult. Even with our strong teams in tech and sales, 2004 hasn’t been easy,” said IDM commercial manager, Zakie Karam. According to Jaber, the dial-up consumer segment is characterized in high fluctuation rates among retail customers who jump from one provider to the other. By maintaining their e-mail accounts with any of the big global providers – yahoo!, hotmail, et al – a large portion of users need a local ISP solely for access services and switch readily between them. As the provision of dial-up services is only marginally profitable per account and economies of scales are unachievable under conditions of high costs and competition from gray operators, the companies for the moment seem content with maintaining this status quo and hardly have reasons to invest much in retail expansion or loyalty building among dial-up customers. “Cyberia is well known, so why advertise today when there is an illegal market,” Jaber argued.
The corporate segment, where client relationships are stable and an account generates from $400 to $500 per month upwards in revenue, has been more attractive to the ISPs and the sector achieved more growth here than in the consumer market, probably as much as 500% over the past five years. In the estimate of Fiberlink general manager Imad Tarabay, the corporate market nonetheless does not contain more than 800 active accounts, equivalent to 8% of the about 10,000 firms registered with the VAT system. Thus the players are plowing on, with moderate efforts in retail marketing, deployment of technologies and broadening of services. One such positive innovation was the launch of a public internet access system with wireless hotspots at Beirut Airport earlier this year. IDM, which won a tender to establish the airport network, experienced smooth sailing of the service and saw usage increases of 50% during the summer travel season. IDM is pressing forward this year with the establishment of hotspots. According to Karam, by the end of the year, 25 such wireless access zones are scheduled to be operational in places such as the coffee house outlets of Starbucks and Tribeca, the Roadster diners, and the Riviera and Mayflower hotels, letting 2004 see the first wave of wireless rollouts in public places. By experiences from the recent past and under existing circumstances, however, the corporate market is the main candidate for creation of meaningful new impulses in breaking the slump of the past few years and deploying new online capacities in Lebanon. Connectivity growth could start with the provision of more powerful corporate intranet services, and if things go as one player envisions, it is starting just about now. This would come through a new company under leadership of Fiberlink’s Tarabay. Called Cedarcom, it is geared to serve business organizations with the need for intranet communications between several locations as well as provide last mile services for ISPs and similar clients. Cedarcom is one of four firms (plus Ogero) licensed by the MOT for operation of legal wireless or cable networks within Lebanon, paying this privilege with an annual fee of $65,000 and the obligation to transfer 20% of revenue to the ministry. The seven-year-old Cedarcom had been acquired by Tarabay and his partners in the spring of 2003 and re-started commercial operations in May of this year. By end of September, the network will reach full coverage of Lebanon’s major population centers, including the Bekaa. Marketing activities are rolling from the beginning of this month, with a launch event at the Termium fair. What makes this firm remarkable is that its commercial launch marks the introduction of an important new technology in the Middle East – namely, the wireless Multi Protocol Labeled Switching (MPLS), which was developed by Cisco Systems. Creation of the network required investments of nearly $5 million, of which 70% was needed to achieve national coverage and will contribute less than 20% to revenue. But although expensive, national coverage is indispensable for Cedarcom’s ability to attract important clients who can budget something like $10,000 per month to interconnect 20 branches to their headquarters. In the existing market, Tarabay sees banks, with their mandatory intranet linkage of all branches, as the main clientele of Cedarcom, which will be able to offer more services for lower fees. While a multi-branch client per location typically pays $500 in Beirut to $700 outside of the metro area for a 64 Kbps capacity, Cedarcom rushes in with 512 Kbps lines at a charge starting slightly above $400. With this much power to offer, the company swept all contracts it bid for during the past three months, Tarabay claimed, even if competitors positioned their bids below their usual rates. But the existing market is not the real potential. At an estimated 1,500 client units (almost 900 of them bank branches), Tarabay estimates this corporate intranet business to be worth “$7 million or $8 million, not more.” This market could grow fourfold in size over the coming two years, he believes, if the government finally takes the two steps of establishing the Telecoms Regulatory Authority and lowering the connectivity charges. Costs of bandwidth for companies could be cut in half under those conditions, opening the market to a large number of midsized multi-office businesses. After many political delays, Tarabay sees the issuance of the laws and decrees that will make the 2002 telecommunications law fully applicable happening in the near future, probably after the presidential elections. After that, things would really take off. “We over dimensioned our network, because we will start feeling the growth,” he said.
Such a development of the corporate market is meaningful, because it could finally spell the beginning of affordable broadband provision to private homes, by which growth of data network and internet penetration in Lebanon would evolve hand in hand, enabling the country to eventually catch up and close the internet gap between, at least, other Middle Eastern countries. The providers, although few in number, certainly seem ready, eager and willing for a second birth of Lebanon’s digital society. The old vigor of the sector’s days as regional pioneers and service innovators has not vanished, it only rests beneath the tired faces of the small provider community, Jaber said. “When we started we did not have the same problems as we have today. But we still have the same spirit that we had then.”