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Virtual lights against a tide of darkness

Leveraging telecom for society’s gain

by Thomas Schellen

If owning Lebanon’s digital future was the objective of a massively multiplayer online game, the MMO design could easily be for a win-lose contest where one winner could walk away with some virtual trophy and be rewarded some non-fungible token (NFT) or an amount in stablecoin. But the reality of Lebanese telecommunications is not a political game, multiplayer or otherwise – despite it having appeared as such over the years. The impact of telecommunications and the wider ICT sector on the real economy and the well-being of society is such that it is paramount to change the telecom game from a lose-lose past into a win-win future. 

With many contradictory elements and an ironic political twist at the end of its long first round, the economic and social telecommunications narrative meanders madly from the activation of mobile telephony as a phenomenally productive infrastructure innovation and landmark for the attraction of large syndicated finance in the mid-to-late 1990s to the day of October 17, 2019, when another attempted exploitation of telecom for state tax income triggered the people’s thawra as a national moment of constructive and peaceful rage.

The sadly ironic twist of the latter unjust taxation attempt is that the outrage over it might have translated into a broad economic good – had such vigorous and inclusive public protests been happening back in the days of 1998, 2000, or 2002, when Lebanon had a substantial regional edge as an early adapter of mobile telephony and information and communication technology (ICT). The edge is a memory, but the digital story with its enormous economic upside potential is as important, or more important, for Lebanon today as it was in the early GSM days.

What is this telecommunications tale as of spring 2022? One way to approach it would be to think of three fields of force or axes of gravity that pull on the sector. One such force field is what non-economic psychologists call the people’s “coping mechanisms” during a crisis, the second source of gravity is the behavior of the dominant institutions and the leaders behind those institutions, and the third fundamental force in play is the tremendous pull of digital economic growth (see interview on page xxx) that makes it imperative to implement a telecommunications strategy as the foundation of developing the digital future.

The market’s balancing power

The first force field is being constituted by the economic coping mechanism of the market, specifically taking the case of the handset market. This aspect of the communications sphere seems to exert itself rather well through the instrument of the significantly informal market, albeit within the limitation and overall manner of market forces, meaning this largely self-adjusting platform is neither inherently social nor moral, but practical. It primarily involves individual participants, such as the millions of phone users and the many small retail device sellers.

Consumers have been adjusting their telecom-related purchase choices to their continued communication needs while commanding increasingly few financial resources in cash or credit. With cash as an almost singular purchasing tool at the disposal of this market, distributors/retailers would bring new types of budget market handsets and adjust their ancillary offerings (see story on page).

Since 2020, the handset market has been exposed to minimal adulteration by state intrusions such as indirect taxes – effectively diminished during the crisis – or the realization of higher customs levies. The handset market appeared to find a new equilibrium informally as the crisis subjected it to the forces of demand and supply in a pure way.  

The potentially devastating gravity of old institutions  

Similar to the effective absence of tax distortions in the handset market, state interference in the operational side of telecommunications was inactive during the crisis. Likely due to political reticence, the sector applied the official pre-crisis exchange rate and thus had a reprieve from the madness of arbitrary multiple exchange rate issuances until the 2022 parliamentary elections (which is the time of this writing). 

With fee collections being implemented at the official exchange rate, communication costs of the population during the crisis were beholden to a level that stood out as an island of affordability and good value for money on the consumer side. In parallel, it placed the aggregating figurative and literal burdens of “keeping the lights on” to the state-owned providers. 

For example, this inequitable situation is reflected in the growing inefficiency of customer care service deliveries by the duopoly of mobile operators Alfa and Touch. Still, if Executive’s experience with the operators’ communication departments is symptomatic, it also is responsible for a general deterioration in their corporate cultures. 

In any case, the political fears that underlie the state’s hesitancy to adjust tariffs have increasingly become juxtaposed with the need to increase the short-term revenues from the sector and offset the incompletely covered operating costs of the state assets in the telecommunications sector.

As the deep plunge in revenue per user from the maximum extraction model used before the crisis has, of course, not been sustainable, today, the need for tariff adjustments appears to loom ahead as a precarious balancing act. In finding such required balance, the relevant institutions – by default distrusted in the politically contaminated telecommunications sector – will have to address the risk of operational breakdowns due to exhaustion of resources on the one hand and the risk of widespread unrest up to the level of street confrontations in response to placing yet another cost burden on the people for whom their phone and internet usage are both a vital economic enabler and the only remaining means of preserving their mental health and social ties.

How this, under prevailing ownership and decision-making processes, deeply political problems will be approached after the elections is of paramount importance – but so far, long on vague promises, fears, and badly deficient information. The numbers of a more than five-fold increase in lira terms seem hackneyed, in the best-case lacking finesse and, in the worst, void of elements that would make for a good transitional plan. Executive calls for extreme transparency and multi-stakeholder communication in the urgently needed devising and implementation of such a plan.

While not the only need of Lebanon, and perhaps not even the most pressing or fundamental one in the immediate crisis, an indisputably needed step forward is to initiate a new round of digital economic development. And it is feasible and required to activate this development as soon as possible. As experts invested in the sector show in conversations with Executive (see story page xx), they have a strong understanding of the factors that caused the malfunctioning of the erstwhile mobile telecom miracle of the 1990s, of the current financial limitations, and the overall direction that the sector needs to take.

In this latter regard, the recovery of telecom is an interconnected story where the best chances of breaking the destructive patterns of the past can be gained when everything is constructively connected to everything: ethical standards and best practices, industry, tech entrepreneurship, innovation, design, civil society, legislation, policy-making and enforcement, and even the dreaded craft of day-to-day politics.

At the core will have to be partnerships, and it seems that the best bets would be public-private partnerships (PPPs) with large strategic partner companies. In the views of the experts, there are good chances to forge such partnerships with regional or multi-national telecom powerhouses with brand values in the billions of dollars – notably, more than one regional player has matured to such a level, as assessed by brand studies – and negotiation power that no Lebanese state could ever achieve because of the market’s small size. 

These new-generation PPPs, however, will have to be what Lebanese PPP expert Ziad Hayek calls “true partnerships” that are constructed not as alternative procurement contracts but as frameworks of mutual obligations and benefits in the face of radical uncertainties as well as significant societal and economic risks, from pandemics to tech innovation shocks.

The other vital ingredient will be the human element. Cost it what it may, we need to retain not only our experienced engineers but also our customer care teams, we need to invest in educating new tech and managerial talent, and build trust in leaders with the skill and authority to negotiate public telecommunication goods in the interest of the country. 

It will not be easy to negotiate good deals for Lebanon in the years to come. But seeing many capable persons in the telecommunications sector and ICT industry, among potential investors, academia, civil society, and even politicians, this magazine is of the opinion that the moment has come – and the last good chance it may be – where a diverse people who are determined and professional optimists could forge a win-win telecommunications path. Hopefully, it would enable digital potential in anything from e-government and online procurement to the global and local productivity gains hidden in the digital future. 

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Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years. Send mail
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