In 1998, Mohamed El Hout, director of real estate and financial assets department at the central bank, was appointed Chairman of Middle East Airlines (MEA). At the time, Lebanon’s national carrier was overstaffed and hemorrhaging money. His appointment was surrounded in controversy. He had no aviation background and an unproven track record. Critics accused him of being the central bank’s man, while his supporters claimed that it would need an outsider to turn the company around. Six years on, MEA has a new fleet of planes, a leaner workforce and is confident it will announce net profits of over $30 million for 2004. In an exclusive interview, El Hout talks to EXECUTIVE about the past, present and future of an airline that was brought back from the brink.

How would you describe the trajectory of MEA’s performance curve in the past six years?

When the new board took over in 1998, it inherited a net loss of $87 million and an $80 million operating loss from the previous year. The challenge was to make the company profitable within three years by restructuring the network, making new purchase agreements and creating a better purchasing policy. We also wanted to develop a hub and have alliances with international carriers to serve more points in North and South America, as well as increase staff productivity to boost the competitiveness of the company, control costs and lay off excess employees. Then we wanted to achieve better utilization of our aircraft, develop a better, and by that I mean safer and more reliable, product. With all of these taken together, it was clear that we could make MEA profitable, although not a lot of people believed it at the time because of the inherent political realities in the country.

Do you mean the traditional political influence exerted on MEA?

Exactly. If you want to lay off employees, is it easy? If you want to restructure and appoint a manager in this or that post, is it easy? If you want to change someone from one job to another, is it easy?

So there was political resistance to change?

At the beginning I faced a lot of hostility but eventually the politicians realized that we were serious and recognized the problems we were facing. They got used to us and our way of doing things.

It must have been a very sensitive issue?

It was at the very beginning, especially when we laid off employees. The whole restructuring was difficult. Was it possible? Yes. So we showed that we could do it if you have a policy and you believe in this policy. Timing was another factor.

How were you able to get the MEA staff on your side given that you did not have an aviation background?

Only by results, because they were not convinced at first. However, if you are a pilot you can fly a plane from point A to point B but it doesn’t mean you can run a company. If you a manager you can run any company irrespective of your lack of specialized knowledge in that field. Managers elsewhere in the world move from industry to industry. Maybe my financial background allowed me to identify problems that were not seen before or deal with problems that old management was prohibited from dealing with. Anyway the results are there for all to see. In 2002, we made $3 million net profit, in 2003, $22 million net profit and $32 million operating profit.

I understand that MEA is about to release some encouraging figures.

This year, 2004, we expect in excess of 30 million net profit but fuel prices are escalating faster than expected.

How are fuel costs impacting the results?

During the summer we have not responded [to the increases] because we believe our prices are high enough and we feel this is unfair on our customers to impose a surcharge on the fare. We are waiting for the low season, when we will reconsider our pricing policy, as will all airlines. Unfortunately, no one is looking at this seriously. A lot of carriers are expecting fuel prices to decrease. I think that $30 to $40/barrel is a fair price. It was the same in 1980. Prices have increased since then on aircraft and salaries, etc. It is fair that fuel should increase as well. They have to adjust to this new situation and they have to build a commercial policy, factoring in this cost.

What are MEA’s options if prices go up further?

We will have to increase our fares, but as we speak there is no plan to do that.

You say timing was a factor? How has MEA’s recovery been helped by Lebanon’s revival as a tourist destination, especially after 9/11?

I wish 9/11 hadn’t happened. It was a disaster for the Arab world. It hasn’t helped us in anyway. Four months after 9/11 we had a considerable decrease in the number of passengers as we did before, during and after the war in Iraq. But yes, I suppose in another way 9/11 made a lot of Gulf Arabs and Lebanese expatriates look at Lebanon. This has helped us achieve our targets earlier.

Are MEA and BIA post 9/11 compliant?

Before 9/11, our security was seen as overbearing but now it is normal and we are very satisfied that we have one of the most secure airports in the world.

What about onboard security?

We have no plans to appoint sky marshals and our pilots are not armed. You are not allowed to fly to the US. What is the latest on this situation?

This is a political decision. When this barrier comes down we will look at our options but it depends on the timing. I cannot predict the future.

What if the barrier came down now?

Now? Yes, but with an alliance with an American company. The American company would fly to Beirut and MEA would fly to the hub of this company in the US, where they would have access to connecting flights in the same way we would offer the flights from the US connections to the Gulf. This is the only way it would work. You can’t go to these competitive long-haul markets unless you have a partner. In any case, we are serving our customers in the US and Canada through our alliance with Air France and special agreements with Delta, Virgin and Continental.

Has MEA any plans to purchase more aircraft?

We would like one more, preferably a wide-bodied plane taking our fleet to ten aircraft.

How is MEA positioning itself in the regional/global market?

We have been receiving very positive feedback. We have luxurious planes, our safety record is second to none and we are constantly upgrading our service.

Why should I fly MEA rather than any of the other regional carriers? How does MEA convince the regional passenger that it is best?

I don’t want to compare but try MEA, and then fly another and tell me what you think. We don’t ‘over-promise’ like other airlines.

Is there a recruitment strategy for cabin staff in this regard?

Yes, we are recruiting new cabin staff to match the caliber of our pilots, ground staff and engineers. Out of 320 we have 200 new staff that have joined us in the last five years, with 120 experienced staff that can share their experience. It’s good mixture. We assess them every year for two years on an annual contact basis and then and only then do they become permanent staff.

MEA management’s relationship with the pilots’ association has been quite turbulent in the past. What is it like today?

We are recruiting pilots and we have reached an agreement with the pilots concerning work conditions.

Is MEA expanding their route network elsewhere?

Next year we will open Qatar, but let me stress again that long-haul routes are killers for an airline of MEA’s size. Low margins and a notoriously sensitive market means that long-haul route survival is very difficult. We have no long-haul plans for the moment I must stress this. What we do have is a network that is concentrated in the Middle East, North Africa and the Gulf. I think this policy has been the best one for MEA for the time being, given the current regional situation. We have partnerships with Qatar and Gulf Air to the Far East and we have now this month entered into a partnership with the Brazilian TAM.

How has MEA been able to attract the low season traffic?

For our part, our prices drop, but this is not enough. We have to market Beirut conferences and attract the European traveler. We have to create more activities in Lebanon. When Lebanon is in good health, we are in good health. The government has a role to play, as does the private sector.

How is MEA coping with demand this summer? Have there been delays like previous years?

Really, compared to other airports, we do not have long queues at our counters. Look at other airports and you will see what I mean. In the high season, yes when all the planes are leaving early, it is more busy than normal but really we are very good compared to others.

Is the staff size down to the airline’s needs in numbers and are employees up to the market challenges?

We have 2,400 staff. We had 4,200

It’s a huge achievement to downsize like this, but do you feel that by international standards, MEA is still slightly bloated?

Still over-staffed? No. The level of employment is acceptable. This is because if we compare ourselves to other airlines we are doing the handling and the engineering. These are not normally counted as airline staff. We can benefit from economies of scale. With every new plane we would only have to increase staff by half. In fact, the Arab world should look to bigger entities and not a lot of one or two plane airlines. This is in total contrast to what is happening outside. I met with the CEO of Delta, which has over 1,100 planes. He said we have to look for more consolidation and bigger volume in order to benefit from economies of scale. Then there are the mergers, such as that which happened between Air France and KLM. This is what is happening in the international market. In the Arab world we are always opening new carriers with a few planes. How can they compete?

Is MEA management not at all interested in running TMA, and why not?

At this stage no. Let me be very clear: it is not attractive to us. It does not add anything to MEA. In the future, it might depend on TMA’s situation and the cargo volume at BIA. It depends on whether or not there will be a cargo village, which cargo carriers are coming to Beirut and the level of competition. Things change. Again, like I said, timing is everything.

How is the company responding to the arrival of charter airlines?

We are not a direct competitor in terms of prices but what is worrying is that our open skies policy is not regulated. By this I mean that some subsidized carriers in the region are selling fares that do not reflect the reality of their operating costs and a fare structure that is not based on commercial considerations. This means the competition is not worried about making a loss. This can be as high as $40 to $50 million per year. It is the duty of the government to ensure fair competition, an efficient market structure and a better end product for the customer. Otherwise these carriers could force you out of the market.

Would you care to name these carriers?

I don’t have to. Everybody knows them. Yesterday you received an MSN message telling you that they are selling the seat at $150 to any point in the Gulf. We all know that cost per seat when the plane is full is more than $300 during the high season. They buy the planes and then look at the market, whereas we look at the markets and we buy the planes. But it is not only the charter carriers. Cyprus Airways have come into this market with excess capacity and have reduced their fares. The result was a disaster to the market and to them. They made a loss of $40 million last year and they have had to restructure their operations. Then you have the problem with equal access to the markets, which we at MEA do not have. For example, if you want to fly daily to Frankfurt or London we get bad time slots, making the cost per flight very high, but when they come to Beirut they have more beneficial timings. The basic rules of perfect competition, which are part of the US anti-trust laws, are not adopted in Lebanon, so we are operating in an unfair market. We need to look at reciprocity equal access and subsidized carriers. We are pro-open skies and we are pro competition but we would like to compete equally.

It has been five years since you were appointed. What have been the high and low points?

When I received the first new planes, it was really the most important period for me. I felt at the time that this was the result of everything we had worked for. We had the youngest fleet in the world we were a profitable company. A page had been turned.

And the worst time?

Like I said earlier, it was when we laid off the employees. It is hard to tell people to leave their jobs and it was very difficult for me personally. One bad year was 1999. The board was attacked and condemned without knowing why and we were impotent. It was a bad year but that was all in the past. We are looking forward.

It used to be that an explanation on new technology products could conveniently divide itself into three separate sections of use: personal, home and office. Each section would have its own array of products and its own technical jargon. Prices and functionality would invariably increase along a fairly even trajectory the closer you moved to the bulky world of corporate computing and communication. Mixing was not only discouraged (by most manufacturers and advertisers alike, who relied on profits from segmented markets), it was, well, downright impossible.

Alas, the world has changed. The techno-reviewer of old no longer has the benefit of clear boundary lines, much less a limited number of product lines from a limited number of well-known companies. Prosumer (professional/consumer). Convergence. Mobility. These are the current buzzwords used by the growing number of gadget magazines and websites, a phenomenon matched by the equally growing field of technology products.

In the midst of such confusion there is, of course, an abundance of pitfalls and opportunities – for both the daring reviewer and consumer. Price. Compatibility. Functionality. Durability. Though all these factors must be taken into account – and all present there own problems even now – rare is the techno-purchase that successfully navigates between all four. Rarer still is the consumer who can avoid the fifth axis, the ‘golden rule’ of techno-gadgetry: Thou shall not purchase or attempt to put to use a useless invention. Although a new gadget may indeed have its “uses,” if it is quickly shelved – as many PDAs have been – or is not updated with the latest virus protection or software updates, then it essentially becomes “useless.” (Try reviving that first generation PDA that you never got to work and you will quickly discover that it is basically “useless”). “People don’t realize that much of this technology needs to be maintained, it needs to be constantly updated. If is not, then it quickly becomes useless,” said Karim Harb, a Lebanese technologist, telecommunications expert and gadget aficionado. In Lebanon, of course, consumers face their own unique challenges since not all of the more basic functions of certain innovations can be used here. Wi-Fi, for example, the popular wireless internet and home/office networking technology, is only legal in a small number of areas, while Voice Over Internet Protocol technology, or internet telephony, is barred outside of intra-building use. As such, mobile PDAs and laptops, or office phones, lose key elements of their overall convergence capability.

And one should not forget that the Lebanese consumer also faces a final problem in the world of techno-gadgetry. “You don’t have any stores that are dedicated to gadgets,” explained Harb with a simple shrug of his shoulders to accentuate his annoyance. “You had the 460 store that was open on Hamra street – it closed down because the market was too small. Now all gadget stores are small sections of bigger stores – like at BHV and Virgin, for example. They don’t have a permanent supply of new stuff that comes out and you are never sure if you will find what you are looking for.” Supply problems aside, and with a wary eye towards overdoing it, there are indeed a number of recently introduced or improved technology products that can offer both the frugal and free-spending Lebanese consumer a wealth of innovative, productive and downright entertaining improvements to everyday life – at home, alone or at work.

Digital music players

One of the clear leaders in the general category of ‘improving life as we know it’ is, of course, the digital music player. In this arena, an epic fight is shaping up between Apple’s iPod and Sony’s new Walkman. Unfortunately, when Sony Corp. president, Kunitake Ando, showed off his company’s latest challenge to Apple’s increasing dominance in the area of sleek MP3 players, he held the so-called Network Walkman upside down.

It was not a good start.

Since that time, the 20 Gigabyte player, priced at around $400, has met with mixed reviews. Even on Sony’s home turf in Japan, press reports have been ebullient over the Japanese consumers’ apparent fascination with the iPod. The Walkman is “impossibly slim,” as some reviewers have put it, at 14mm (it is roughly the length of a credit card). It can store around 13,000 songs encoded on Sony’s ATRAC3 format and has a battery life of 30 hours (the iPod now lasts 12). Of course, the 13,000 song claim is a bit overstated – to get that much onto the Walkman, a lot of compression is necessary which degrades the sound. The iPod, for its part, can offer up to 40 gigabytes for around $600 – its 20 Gig version that ships soon is $100 less than the new Sony entrant. iPod is also comparable in thinness, though a bit heavier than the Walkman. Significantly though, it syncs up through either a PC or a Mac (the Walkman works only with PCs) to Apple’s iTunes online music service that has been wildly popular – songs are 99 cents for download. Although iPod has apparently not yet caught on with the Lebanese consumer, its ease of use and flexibility will make it stand out even as it benefits from Sony’s own push to increase the worldwide desirability of the digital music player.

When PDA, cell phone and camera meet

On the higher end of the market, two all-in-one phones immediately stand out: Sony Ericsson’s new P910, which ships this fall, and the new iMate II. Although the Ericsson model is priced around $900 (the latest iMate sells for around $1,300), both offer comparable, that is, suburb features. Both can support huge memory sticks, up to one gigabyte, for loads of pictures (although the quality ceiling here is lower than most of the mid-range digital cameras). When used with a DVD burner and encoder software, you can view your favorite movies on each device’s color screen in stereophonic sound with a smooth playback. Both offer mobile internet, chat, email and a wide range of Windows XP supported applications – including all standard PDA functions. Both also sync up wirelessly to laptops and are GSM Tri-Band phones. Although the processor is more powerful on the iMate II, the P910 is still a very imposing device with more than enough processing power to get most jobs done. [START OPTIONAL TRIM]On the lower end of the almost converged market, both the new Sprint PM-8920 camera phone and the Palmone Zire PDA immediately come to mind for. The Sprint phone is priced at $300 and offers some modest PDA features. Significantly, it is the Sprint’s first megapixel camera, which means the quality of its images can finally compete with the mid-range digital cameras. Palmone’s new PDA entry, for its part, priced at a mere $150 dollars, comes highly recommended by the tech press. It includes wireless synching, handwriting recognition technology, 8MB of memory, a full range of PDA features and what is described by some as “an iPod look and feel.” It is a solid purchase for the first time PDA buyer that just needs basic applications and ease of use. [END OPTIONAL TRIM]

For those of you who still like the good old fashioned cellphone, Seimens’ new M65 won’t let you down. It’s rugged design with rubber seals and protective metal frame mean it’s water resistant, dust and shockproof as well as offering integrated VGA photos and a video camera, all for $399

Phone accessories

No matter what device you purchase, a few accessories now on the market can fairly be described as “must haves.” One is Plantronics’ M3000 Wireless headset for cell phones. At $100 and with eight hours of battery life, it makes driving and talking safe and easy. So too does the new Q2 XDA from iMate, which is around $150. The wireless device hooks up to a car stereo and essentially operates the phone (kept in your briefcase if you wish) via a small touchpad on the dashboard. And finally, there is the Smart solar charger, which for $60, uses the sun to recharge or operate a cell phone. Ideal if you’re in a jam, but beware of uselessness: it could take up to eight hours or more for a full charge… and it has to be sunny out.

Digital cameras

Two recent cameras, one from Canon and one from Sony, seem to be sweeping the technology award world (an admittedly strange world). The Canon EOS 300D, priced at around $600, truly puts the “pro into prosumer.” The camera offers 6.3 megapixels for great pictures at any size. It is not meant to fit into a shirt pocket, however; it is meant to take great pictures with the ease and immediacy of a digital, and it does that better than its rivals. The Sony Cyber-Shot DSC-W1, Sony’s latest Cyber-Shot product, is now in stores for around the same price as the Canon. It weighs in at five megapixels, has a large 2.5 inch solar LCD screen and is far smaller than the Canon. Excellent, in other words if resolution and size are what you’re after. Mini hard drives

Although one gig mini hard drives that fit on a key chain are now available for around $400, Jetflash’s 256 MB mini drive provides the best value at $85. Mini hard drives are simple in their construction, so no need to buy for the name.

The ‘World’s Smallest’ Notebook PC, portable DVD player

From the manufacturer Lilliput comes the impressively small Life Book P7010. At 1.4 kilos, the 10.6 inch screen can indeed seem like just a screen – or one of those not-quite-accepted tablet PCs that are supposed to merge laptops and tower PCs. At around $2,000, you get a powerful enough processor, based on the new Intel Centrino mobile technology, all standard Windows-based functionality and a CD-RW/DVD drive.

Even though it’s small, you could also probably use a Wi-Fi finder with the notebook so you don’t have to take it out every time you want to see if an Internet hotspot is available. At $35, Kensington’s keychain Wi-Fi finder is ideal.

If you don’t want everything bundled together, however, or you want a larger screen for mere viewing, then the new Designer Vision DVD player, out this fall, may be perfect. The battery can last up to six hours, and the flip-screen set up is 7 inches. Though in the middle in terms of size –is well worth the $600 cost for its design, picture quality and sturdiness.

LCD and Plasma Screens The high end and increasingly the medium level marketplace for TVs has decidedly turned toward two options: LCD and plasma. Traditionally used for laptop monitors and small screen devices, LCD TVs generally offer a longer viewing life and sharper picture. Plasmas generally have a brighter picture and greater viewing angles. LCDs, however, are generally restricted to a smaller screen size – Samsung, in fact, recently rolled out the largest LCD at 42 inches. Plasmas can get significantly bigger. Price is, of course, a huge factor here, since LCDs are generally 20% more expensive than plasmas, although LCD prices are dropping faster than plasmas. That said, one new offering from NEC, their 40 inch LCD screen which acts seamlessly as both a computer monitor and TV, is priced at only $4,000. At a resolution of 1280X1024, the NEC model clearly beats the new Blautech 42 inch plasma screen, also priced at $4,000 (the Blautech plasma only gets 800X640 resolution). On the higher end, there is, naturally, Sony. Here, especially, one can see the price difference between LCD and plasma – the new Sony 42 inch plasma screen, the KE-42TSE, is priced at 6,000. The best Sony LCD, the KDL-L42MRX1, is a whopping $14,000. The resolution on both Sony screens is superior to the lesser priced competitors; what’s more both have built in tuners, so the total package is remarkably compact and slender.

Accompanying any plasma or LCD purchase is, necessarily, the home theatre. MSI offers what is essentially a PC to operate the NEC screen. At $1,000, when combined with a Logitech 5.1 surround sound system (500 watts) for $400, what you get is a fast computer, a terrific flat screen and a home theater to go along with it. All run on Windows XP and have all of the capabilities of any new desktop computer setup: DVD player, CD writer etc. It is, in short, one of the best convergence offerings out there, in terms of both value and functionality, for the home.

If, however, you want an even more powerful, crisp and compact sound system for the home theater, then Bose is the clear leader. The new Lifestyle 35, which just hit stores, offers a five inch speaker array for full 5.1 surround sound, accompanied by a DVD/CD player. The package is steeply priced at $3,485. But, as with Sony, what you are paying for is the name, the quality and the service which goes along with the label.

Video recorders

As hard drive prices have come down dramatically, and as the number of channels has increased exponentially, the home video recorder has become an indispensable part of the home theatre experience. Two options jump out. First is the newly launched Samsung DVD-HR700. The global leader in digital convergence technology, Samsung’s new recorder, priced at around $700, allows users to record in three different formats, including DVD-RAM, which allows for remarkable flexibility in the types of devices that can play any recordings. The recorder is capable of 160 hours of taping, without comprising the high quality of the video that is captured and can also play and record simultaneously (an especially convenient function). At 69mm, it’s also a sleek complement to any equally slender flat screen. For work…at home or at the office

While laptops and computers have been getting more powerful and cheaper on a fairly predictable curve, several new market entrants offer some dramatic improvements over current offerings. One of these is Samsung’s all-in-one printer that actually seems to make good on the promise of convergence. The SCX-4100 is a black and white laser printer, digital copier and color scanner. Priced at less than $200, the machine puts laser printing within reach of the average desktop setup. At 600 dots per inch, color scans up to 4,800 dots per inch and 14 pages per minute, the printer is especially efficient. At 16 inches by 15 inches, it is also perfect for cramped dorm rooms. [BEGIN OPTIONAL TRIM] At $369, HP’s new Photo smart 7760 offers what many families, individuals and companies want –a color printer that can print borderless pictures in brilliant resolution while tackling the everyday demands of document printing. The printer links easily to digital cameras, can print up to 21 pages per minute black and white (16 color), and carries an easy to use 4.6 inch LCD screen for fairly simple navigation. [END TRIM] Meanwhile the $1,200 WorkCentre M15 from Xerox offers 15 A4 prints per minute, crisp 1200 dpi print resolution, two-sided network printing, digital copying, electronic collation, color scanning and faxing. It really is a small and remarkably powerful machine. While the printers may be the workhorses of the desktop set-up, video projectors are fast becoming a necessary compliment in their own right. At under $2,000, it is now possible to have one of the clearest projection images available on the market. The Hitachi PJ-TX100, recently debuted, offers simple menu control, multiple connection ports for every imaginable device and a lightweight design that makes it easy to carry around for any kind of presentation – entertainment business or otherwise. Finally, for the truly converged home or office, there are Cisco’s IP phones. Although IP telephony is illegal in Lebanon, it is legal to use the technology within a company’s walls. This doesn’t really help the home user much, but for companies, the technology has been a boon. Cisco recently built a converged voice, video and data network for Kuwait’s Arraya Center that, at its core, is based on the IP telephones. It also did so recently for one large Lebanese company that is now saving almost $300,000 per year in maintenance and equipment fees. While Cisco’s offerings are more expensive than regular office phones, the value and savings come through the added functionality. Phones like the 79xx can reach up to $300, but by collapsing separate voice and data networks, thus eliminating separate maintenance charges, and by allowing for email, voicemail synching, plug-and-play capability, the IP phones are indeed the way we will all speak and share information in the coming years.

*Note: The internet prices that appear in the article may vary, sometimes substantially from local in-store prices.

It sure looks as if in the world and region, all things ICT are returning to normal. Shares in e-companies are no longer an anathema. The big market move of the season from a tech perspective, the Google IPO, clawed its way beyond obstacles to achieve figures that appear, all in all, more respectable than some headlines suggested. Earnings at multinational corporations from Cisco Systems to Dell look good – so good that a 5% quarterly drop in performance of Hewlett Packard’s enterprise server and storage division led the company last month to immediately sack three top executives, even as HP’s overall profits were up 9% for the quarter.

The big names are also hiring. IBM announced in August that it has 18,000 new jobs on offer to bring its worldwide headcount to 330,000 at the end of 2004 and Microsoft said they would hire 6,000 to 7,000 persons during the coming 12 months on top of their current staffing of 57,000. The latest news from the ICT employment market in Germany, Europe’s strongest economy, is that salaries for information and communications technology specialists have accomplished a full rebound to sector income levels of early 2001. Across the MENA region, ICT growth also is again in focus. From PC and software sales to continued surging numbers of mobile phone subscribers, market watchers make enthusiastic projections and global ICT companies court Arab markets for their promising potential, even as these markets are marginal in their annual reports. With many signs to the unmitigated importance of ICT for regional economies and new good days for people in the sector, it appears paramount for a country like Lebanon to do its utmost in preparing the best possible environment for ICT companies to thrive here. International and local experts and executives for firms of all sizes and specializations in the Lebanese ICT community agree not only (despite their differences on many other things) that the country still has a good shot at being an ICT location, but are also in total unison on where crucial changes are needed first. “ICT in the Arab world is a high priority and opportunity for economic development and inclusion in the digital information age,” Microsoft’s regional manager, Charbel Fakhoury, told EXECUTIVE, and enthused, “Lebanon’s ICT potential is still to be fully realized and we are witnessing a strong momentum and support from executive leadership to expedite Lebanon’s realization of the ICT opportunity.” The right size for the Lebanese ICT industry’s production would be around $2 billion, or 10% contribution to GDP, suggested economist Louis Hobeika to EXECUTIVE, and underscored how the country has come a long way in ICT development but has lost ground within the region. “In absolute terms we are perhaps moving forward, but in relative terms we are falling behind,” he said. “One of the obstacles for companies to locate in Lebanon are the high costs in the telecommunications sector, which are three times higher than in the UAE. Our ICT sector today is of average value and average performance.” In Hobeika’s view, Lebanon has several models in the Arab world to look to as examples of who is getting things right: Dubai already, and soon probably also Bahrain, Oman, Kuwait and Qatar. For Lebanon to gain a new edge in ICT, experts and industry members agree that one urgently required improvement is the establishment of special technology parks. Co-locating numerous companies from one industry in shared environments has proven to lead to interconnections and mutually supporting industrial clusters, enabling stakeholders to advance together and become fit for international competition. Clustering boosts efficiency. Due to ICT companies’ pronounced needs for communications technology and highly trained staff, dedicated tech industry zones, as shown by multiple studies and practical examples, are especially helpful to ICT firms for optimization of their development potential.

The ICT community in Lebanon recognized these potentials earlier than their colleagues and public officials in many other Middle Eastern countries and entrepreneurs started drafting plans for ICT parks as far back as 1997. However, up until today, no large-scale plan has been implemented here. By contrast, tech zones in the UAE, Jordan and Egypt were designed after the first such Lebanese projects – and implemented years ago. Thankfully, however, Lebanon has one ICT technology park, which is demonstrating, albeit at a smaller size, how such an endeavor can be just as successful here as in the industry’s more conspicuous international locations.

The Berytech technological pole incorporates three essentials of a cluster for a growing ICT sector: hosting services, communication facilities, and an incubator where startup businesses can take their first corporate steps. The pole, a $4.5 million project established under strong involvement of Universite Saint Joseph (USJ), opened its doors in November 2002 on a site adjacent to the USJ Mar Roukos campus overlooking Beirut. Not even in its third year, Berytech is already home to some 40 enterprises and is currently researching where it can build additional facilities. “Our plan is to expand every year by 15 to 20 companies between startup and hosted companies,” Berytech president Maroun Chammas told EXECUTIVE. This growth target foresees significant incremental increases in the size of the facility, and the master plan calls for building each year 3,000 to 4,000 square meters in facilities until 50,000 square meters are added to its current 8,000 square meters in built-up area. As this expansion cannot be undertaken on Berytech’s current 3,000 square meter plot, the institution is trying to get land nearby on properties owned by a monastic order or, alternatively, seek buildings in Beirut. The latter option would also suit some resident companies, who told the Berytech management that they would like to be closer to the city, but the business incubator for startup enterprises would in any case remain at the Mar Roukos location. According to Chammas, thus far, all companies located at Berytech have been successful in their business ventures. The pole is open to companies from seven sectors, with information technology and multimedia/communications most developed in their presence. Although the shareholder base of Berytech consists of the USJ, 10 banks and seven industrial enterprises, it is one of the challenges for startups at the pole to acquire financing. “The fact that people are at Berytech makes access easier but Lebanese banks have not developed the business of lending to startups,” Chammas said, “it is one of our responsibilities to ensure that the incubator inspires banks with confidence.”

Startup entrepreneurs receive special support in the pole’s business incubator for a limited period of time. Hosted companies pay charges of $13/m2 per month in rent and $15 per month and computer terminal in connectivity fees. Although these charges may appear substantial by local standards, they have a great advantage in being fully transparent and calculable, said Ralph Bitar, manager of Soft Mind, a developer of corporate software solutions. “Here, a flat fee covers everything. Costs are not higher than in other buildings but benefits are much larger,” he said, and after trying out several locations in Beirut, his firm had found locating at Berytech a great improvement. Habib Maaz, CEO of another software firm, Unilog, concurred, saying his firm had been at Berytech since January 2003, and it had proven a good choice and location, which also impressed foreign visitors.

With Berytech’s good reception in the market, Chammas said he saw potential for having many more poles of its type all throughout the country. “I believe there is room for expansion everywhere in Lebanon.”

Enter the Beirut Emerging Technology Zone. With a projected size based on a one million square meter site, the BETZ project is of a different dimension to Berytech and incorporates a scale that would make it perform in the same league as the Dubai Internet City, the Middle East’s showcase ICT zone. But whenever the BETZ topic comes to discussion these days, opinions among the Lebanese ICT community are divided. Initially put on the table in 1997 through a grant for a feasibility study by USAID, the BETZ concept actually dates back to the bubble days of the new economy. This in itself would not be a problem as the need for a substantial ICT industry zone is as great now as it was then. The problem arises from the project’s enormously sluggish evolution. For the first few years after the proposal’s creation, the BETZ feasibility grants were stuck in various government drawers, with government experts in favor of the project having to produce contrived explanations every time they were asked why the study was experiencing yet another delay in implementation. When the study finally came to see execution around 2002, it was carried out by an American consulting company – somewhat understandably, knowing that US funding in international assistance likes to work that way. Less clear was perhaps, why research for something called BEIRUT Emerging Technology Zone would spend much time evaluating sites in far corners of the nation. As several communities were examined, ICT and development enthusiasts in some of them invested themselves considerably to present their community as location of choice for the project. Relief should have set in when in spring of 2003, IDAL chairman Samih Barbir could make a jubilant announcement that BETZ would be built in Damour in a partnership between IDAL and the municipality. For many in the ICT community, this announcement came so late that they were inclined to question the government’s intentions and validity of the project in numerous respects or were simply in disbelief that BETZ could now be put on the promised fast track of construction and welcome its first tenants by autumn 2006. As if to prove them right, the municipal elections followed and with them a change of elected officials in Damour. Since then, the situation of the project has been obfuscated by disagreements and lagging negotiations, the latest results of which apparently were that the municipality no longer wants to be a partner in owning the project but merely wants to lease the land to BETZ and receive annual rent to the tune of $4 million. Rumours circulating about the municipality’s position moreover talk of local fears to see inflows of outsiders and a tossup of the town’s sectarian balance, instead of welcoming the project’s manifold opportunities for developing the community. For supporters of growth in the Lebanese ICT industry, this is worrying news, because they are convinced that missing out on BETZ now would mean missing out on a crucial chance.

“Microsoft has been a strong supporter of BETZ,” Fakhoury confirmed to EXECUTIVE, describing the zone as “a milestone ICT project that will show Lebanon’s commitment to encourage ICT.” His company was dedicated to continue discussions with stakeholders on how local and multinational IT companies would be able to contribute and benefit from BETZ but warned, “If the project does not get real support, a real boost, it will move slowly.”

In the revamping of cellular network operations in Lebanon, a joint venture under leadership of German company Detecon – itself a full subsidiary of Deutsche Telekom – was awarded a contract to manage the network formerly known as Cellis under a $201 million contract over 48 months. EXECUTIVE talked to Ineke Botter, who is the managing director of the new company, Fal Dete and, incidentally, the first top female executive of a company of its size in Lebanon.

You have stepped into the management of the former Cellis mobile phone network at the beginning of June. What are your impressions after the first three months?

When I came here, I quickly discovered that the personnel – what we have left – is very professional and skilled. That helps a lot. I also discovered that the people are very anxious to keep the business growing, which again is a big benefit to us. We are involved in several areas, beginning with the setup of Fal Dete Telecommunications as the managing company. On the other hand, we have to run the operations and we are running them on half force. About half of the staff left, but the company is undertaking the human resources project to bring staff again to acceptable levels. And we are starting new projects, like the numbering plan, studying business environment, assessing distributors and reviewing the plan of the company – so there is a whole lot to do. My first interest was to get the company up and running by September 1 with almost full staff.

How many employees do you have at present?

At September 1, our number is about 350.

Down the road, what head count do you plan for?

Approximately 400 in the autumn. But we aim to introduce new lines into the market at a very steady base. Each time you do that, you have to look at your personnel because the ratio, for example, between the contact center (to answer all the questions) and the number of subscribers is almost linear. We will grow further.

Your offer to manage the network was much lower than sums paid under previous arrangements. How could you give such an aggressive offer for managing the network?

One of the competing bidders had almost the same offer, so there are at least two people who have the same sort of opinion. I think [we could place this bid] because Detecon is in so many countries and has so much experience with how one can rationalize a company and make it more efficient. Of course, it has also to do with the fact that the sector was very cash rich in the past. In the last few years, it was not so cash rich. Detecon has experience with how to look at efficiencies in companies. We are looking at future proof systems to be put in place, which means that we will grow, but at a steady pace and in line with customer care needs and subscriber numbers.

What is in it for you? Isn’t it correct that as an operator, you do not participate in profits and if you increase profitability, you do not get a greater share?

I cannot comment on that. You have to talk to the shareholders. I am running the company and I have targets.

And these targets are to develop the company in terms of market penetration?

Yes, that is part of it. Of course, our bid was based on a business plan, and the business plan foresees growth in the market. Our company is the manager on behalf of the government. I am the chairperson and also the CEO. We have targets that are related first of all to the business plan that Fal Dete has, which was accepted by the government as an integral part of the network management agreement. Targets are that we manage it and improve the efficiency and put new systems in and make sure that especially the quality is of a high level. It also includes that we propose new services and make sure that the distribution network is in place.

This relationship is limited to managing the network over four years on behalf of the government?

The agreement is that we will manage the network for four years, with measuring activities to make sure that the quality is guaranteed. Some issues will be measured on a weekly, others on a monthly basis and the packet is to make sure that we have performance in our operation and serve the customer according to the government wishes. It doesn’t mean that we are sitting on a chair and just doing what the government says. We were also hired because we are a professional company and come up with ideas and suggestions. It is for the government to decide if they want to accept them.

Would it for instance be possible to switch in the near future from per minute billing to per second billing?

That is the government’s decision. To implement such a change in technical terms requires having information on the billing system and I actually asked this question. It is typical that older systems have more difficulties and you have to make sure that they are addressed. Are some of the network’s tech systems in need of an upgrade?

For sure. In the lifetime of our agreement we will have to replace equipment. For example there about 400 base stations. These do not only have an economic depreciation but also a technical depreciation time, and over the years, a lot of them will have to be replaced. We are carrying out studies now on the whole network to make sure that we understand where we have to upgrade and where the equipment is running out of lifetime.

What are your limits on numbering and the timeframe for a new numbering plan?

Between MTC and ourselves, we can have one million subscribers in the 03 numbering block. We will of course run into a limit and talks are ongoing between Fal Dete and the ministry. They have proposed new methodologies etc, and we are having a look at the technical and economic possibilities of how the proposals would work.

Where do you see the potential for mobile penetration in Lebanon?

Again, I have to refer back to the government, because the investments are done by the government. In our estimation we have predicted a 40% market penetration. But every step needs studies. It is price elasticity that drives the penetration and on the other hand the revenues. There is always equilibrium.

The Cellis services included value added systems such as the plugged portal and StarAd corporate advertising service. Are you developing them, or perhaps reducing some?

One thing is that we will at one point have a new brand name. Once we have a new brand, we will start marketing certain services. It is too early to say which ones we will market more than other ones. We are looking at all possibilities.

Have future fee structures and charges for new lines already been determined?

I cannot comment.

Does Detecon have a position in the discussion on the virtue of liberalization of telecoms markets?

From my personal experience, comparing the difference in development of the regulatory environment for instance between Eastern Europe and Lebanon, I have to admit that Eastern Europe is a lot further. But I have to also say that I had talks with the ministry about these regulatory talks and there is definitely a willingness from the ministry.

Beyond managing networks, Detecon is well known as consultants doing studies and advising governments on ICT. As far as the Middle East, is it correct that you have thus far been doing business only in Saudi Arabia?

There are Saudi partners and we are doing business development with them as we speak, for other countries in the region.

Detecon is expanding in the Middle East?

Detecon is in many countries, and yes, from a communications point of view, the Middle East is very interesting for us.

Let’s talk a bit more about brand building. What does Fal Dete stand for?

That is the manager, it is not a brand. Fal stands for a Saudi Group, and Dete for Detecon.

And you are phasing out the Cellis name?

We have phased it out in a sense that Cellis was sometimes used as the company name and there was a little bit of confusion. We are making some efforts to get the company on the map; that is why we have put the banners with Fal Dete up on this building. That is the first step. We should not confuse the customers, so we introduce the company now and next we will introduce the brand. At some point, the brand awareness for the new brand should be higher than for the company name.

How much of a budget are you allocating to the development of the new brand?

Sizeable.

Can you provide numbers on that?

No. It is again something that we need to discuss with the government.

Is the new brand name being devised by you or by the government?

It is a joint project.

Can you reveal the brand name?

No, we haven’t decided yet (laughs). It is still in production.

By what time do you anticipate the establishment of the brand to be concluded?

It will be concluded by the end of 2004. It is a big project.

How many members of the Detecon staff are working with Fal Dete?

At the moment there is a group of consultants but it is diminishing almost per week. Then there is the management, which consists of four persons. The management stays for four years and the consultants are phased out.

And the bulk of employees are Lebanese?

Yes, except for the four managers.

You said that the level of human resource quality is good?

Yes, and talking from personal experience, that is what I find. I left the Netherlands in 1988 and have worked all over the world since then. I worked in very rich countries like Sweden and Switzerland and in very poor countries, like Kosovo. And if I see how the people are so ambitious to grow and make their lives better, I am always impressed. We appreciate that a lot.

Are employment benefits and salaries comparable to what staff members could earn before, or are there differences?

Reorganization also means that we looked at salary scales, etc. I cannot comment on the level but we are, in my opinion, still on a good pay scale.
 

“A gun is a man’s jewelry.” So says an old Arabic proverb. Traditionally, a father would buy his son a gun when he is born in the same way a girl would receive a pair of gold earrings. In Lebanon, this tradition is all but dead, but the Lebanese still love their guns. In fact, the country is loaded with them. It is estimated that there are over 1 million weapons in private circulation. A significant percentage of them are sporting guns and rifles. Despite a nine-year-old ban on hunting some 30,000 rifles and shotguns – costing between $300 (for a mass produced Turkish 12-bore) to $100,000 for the top of the range Purdeys – are sold in Lebanon every year. There are over a dozen importers and some 50 medium to large distributors operating in a market with a worth of up to $2 million a year. With the right permits, importing and selling hunting weapons is legal. The import of handguns for private – as opposed to government use – is not. This black market is made up of discreet gun collectors, who have the money to pay over the odds for the world’s finest handguns. Then, there are the heavy caliber weapons, both those creaking relics of the civil war (mainly small arms such as the 7.62mm AK47s and M16s and the equally ubiquitous, shoulder-fired RPG launchers, which are coveted by thugs, bodyguards and nostalgics of every stamp) and the new hi-tech hardware destined for private armies and resistance groups, such as Hizbullah. Finally, while Lebanon is not an integral cog in the $30 billion global arms trade, some of its movers and shakers are Lebanese.

The law

Unless you have a permit, it is illegal to carry a non-hunting weapon about your person in Lebanon. This means anything from a Derringer to Stinger. A license can be obtained from the ministry of defense (although one issued by the Syrian ministry of defense gives the owner greater kudos) and, while there is no exact criteria laid down for who can get a permit under what circumstances, an applicant basically has to prove that the weapon is a matter of life and death for himself, his family or his business. Having the right connections can also work miracles.

Politicians often have a permit, as do diamond dealers, money runners, security personnel, bodyguards and, last but certainly not least, undercover law enforcement officers. To own a hunting rifle or shotgun a permit is required from the ministry of interior. To hunt however, requires a second permit, issued annually by the ministry of agriculture, even though hunting has been banned since 1995 after the UN laid down conditions for the donation of millions of dollars to establish a string of nature reserves in the country. Last January however, the law was changed, allowing hunting of certain species at certain times, although this law still has to be ratified. When it is, enforcement will be the responsibility of the ministry of environment.

Gun importers and agents need a permit from the ministry of interior to trade. Both importers and distributors need to satisfy the ministry of defense that they comply with all safety requirements concerning the storage of arms and ammunition, before the permit from the ministry of interior can be issued.

A-hunting we will go

The market for hunting guns is currently worth an estimated $1.5 to $2million. Business boomed just after the war, when peace allowed hunting enthusiasts to resume their old hobby. It was to be a short-lived reunion. The 1995 ban hit the sector hard, causing sales to drop by some 40% to 50% (one importer has sold 16,000 guns since 1993, half of which were sold before 1995).

There are 17 gun importers in Lebanon and some 260 shops selling hunting equipment, although most are quite small, located in the villages, and only offer a handful of guns and cartridges. This leaves around 50 medium to large outlets, which sell a wider range of hunting weapons (although many of these push the definition of “hunting” and would be equally suited to the streets of Fallujah than the mountains of Lebanon) as well as binoculars, camouflage jackets, tents, and boots. Prices of guns vary considerably. A quality shot gun, of say the Italian Beretta or Benelli, costs an average of $400 to $600, while you pay up to $6,000 for the top of the line models. As much as 90% of guns sold in Lebanon fall under the first category.

If you opt for a handmade, bespoke gun, expect to pay between $15,000 to $50,000. The Lebanese agent for Beretta recently sold a $16,000 gun to the Sultan of Bahrain, but this is small change when compared to those made by the British craftsmen of Holland & Holland and Purdey, whose antique models sell at auction for hundreds of thousands of dollars. On a recent trip to Iraq, however, one lucky Lebanese businessman picked up a pair of Holland & Holland rifles, worth around $40,000, for $7,000 from a cash strapped owner.

Handguns

Unlike the US, where a handgun – and even a machine gun – can be bought on nearly every block, the private sale of handguns in Lebanon is illegal. Supply is limited and demand among gun aficionados has pushed-up the price to roughly three times the normal market value. While in the US, an average Colt or Glock will cost you about $600, expect to pay around $2,000 in Lebanon. Silencers and other deeply desirable options – engraving etc. – come at an extra cost.

Lebanese collectors, unlike their counterparts in the Gulf, who like their guns plated with gold or encrusted with diamonds, generally opt for the original or “classic” models in mint condition. A small collection (say between 10 to 15 guns) can be worth as much as $30,000 to $40,000, but some local collectors have rooms with weapons worth nearly $1 million.

In the same way that a watch can be much more than just a timepiece, so too is a gun more than just a weapon to a collector. But like the man who wears a Casio digital, the gun enthusiast who wants a no-frills gun that will never let him down will buy a Browning. Developed originally in Belgium at the turn of the century, it has today become the standard issue for many armies and law enforcement agencies around the world. In Lebanon, a Browning 9mm can cost as little as $100.

Heavier items

During the Civil War, Lebanon was flooded with arms. The USA and Israel supplied the Christian militias. The Libyans, Saudis and other Arabs states armed the Palestinians and their leftist allies; Iraq came to aide of General Aoun, while Iran and Syria supplied Amal and Hizbullah. When the war ended, the Lebanese army impounded much of this huge stockpile, but a significant portion was sold on to other militias, especially in the Balkans, fighting their own civil wars.

Equally large numbers of small arms – M-16s and AK 47s – have been stashed away, part of the national paranoia that one day all hell would again break loose. Many found their way onto the open market. While an M-16 can cost up to $1,000 on the international market, in Lebanon it can be bought for as little as $400. AK47s, at $200, come even cheaper.

After the end of the Cold War, the market was flooded with surplus arms from both sides (it is these small arms – and the hugely unreliable but very spectacular RPGs – that are harassing the coalition forces in Iraq) but the really heavy stuff – tanks and artillery – came from the cash-strapped former communist countries of Eastern Europe. Today, you can buy a former East German tank for $40,000, while an RPG will not cost you more than $1,000. Hizbullah’s mortar and Katusha rocket systems have a price tag of several thousand of dollars.

Recently, a sizeable number of MP5K automatic machine guns have entered the Lebanese market from Iraq. This American-made weapon was used mainly by the Iraqi police and army and used to cost around $6,000 in Lebanon. Today, they can be picked up for $3,000. It is expected that many more weapons from the pre-war regime will flood the market in coming months and years, such are the huge stockpiles of conventional arms amassed by Saddam Hussein.

In any country the biggest spender on arms would normally be the army, and security services, but in Lebanon, most of the post-war budget goes on salaries and maintenance (the army’s 300 tanks are at least 30 years old) and no major investments have been made, although the US did sell the Lebanese government some old helicopters – the ones seen on parades and state visits – for bargain basement prices.

The international arms trade

According to Stockholm International Peace Institute, global military expenditure and arms trade form the largest spending in the world at over $950 billion annually, half of which is bankrolled by the US. By far the largest part is spent on operations, personnel and maintenance. The total value of global arms transfers between 1999 and 2002 was $139.8 billion, some 60% of which was paid by developing countries.

The bulk of the business is composed of highly expensive fighter jets, ships, submarines, tanks and other big items, which are sold mainly by and to governments. The world’s main producers are UN Security Council members, the USA, Russia, Britain, China and France, followed by Israel, South Africa and several smaller European countries. Private arms dealers generally supply the smaller arms, with which most wars are fought – rifles, machine guns, grenades, mortars and RPG launchers. There are an estimated 600 million small arms in circulation around the world, which cause an estimated 500,000 deaths every year.

Arms brokers come in handy when governments intend to sell weapons to clients that are considered too controversial – guerillas, revolutionaries and dictatorial regimes. One of the world’s most famous arms brokers is Lebanese: Sarkis Soghanalian (see box). According to London-based Jane’s Intelligence Review, the unofficial global trade is worth an estimated $2 billion to $10 billion depending on who is fighting whom. Arms dealers never work alone, so it is an open secret that despite the UN embargo, Germany supplied Croatia in the Balkan War, Russia armed Serbia, and Iran and the USA armed Bosnia.

The task of a private arms dealer is not only to guarantee that the weapons arrive and money is paid, but most of all, to ensure that the paper trail concerning the weapons’ origins cannot be traced back to the supplier. The deal is, therefore, executed by a string of shell companies and off-shore banks. Most essential, is that the broker knows how to obtain a so-called “end-user certificate,” which states that the arms will not be sold on to third parties. Bolivia is believed to be a major trade hub on the black market. Switzerland comes in handy on the financial side of deals and has traditionally regarded arms trade as just another business, while London, home to over 300 major dealers among whom several are Lebanese, is the trade capital of the world.

Sarkis Soghanalian

Born in 1939, this 150-kilo Lebanese of Armenian descent made his name and fortune during the Cold War, as the CIA’s main business partner. For two decades he was based in the USA, brokering all kinds of deals that broke official embargos. He started his trade by funneling weapons to Lebanon’s Christian militias, before supplying rebels in Ecuador, Nicaragua, and Argentina. He went on to arm Iraq under the reign of Saddam Hussein. He claims everything he did was with the knowledge of US government officials. He was briefly jailed after the Gulf War and is currently standing trial in absentia in Peru for supplying East German AK47s he had bought from Jordan to the Peruvian government, which eventually ended up in the hands of Columbian rebels.

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.”

The operators of the currently government-controlled Lebanese mobile phone networks are officially called MIC 1 and MIC 2, for Mobile Interim Company. MIC 2 is the Mobile Telecommunications Company (MTC) Group, the rapidly growing Kuwait-based Arab telecommunications firm with operations across the Middle East. EXECUTIVE talked to MTC general manager, Saad Al Barrak, on their management of the Libancell network and on how long MTC would like to play an “interim” role.

At this early stage, how are things going with the management of the Libancell network?

Everything is going all right. We have significant achievements and although we have just started, we have the operation totally under control, with increases in subscribers, revenue, everything – which is extremely encouraging.

How many employees do you have at this point?

Today, we have 305 and I think this is the level we are going to stay at. That is more than enough to handle the entire operation.

How many new people did you have to hire?

[Of previous staff] 140 stayed and we hired 160. This is a massive change and not easy. Doing it quickly and letting people pass through orientation and training and at the same time operate as normal and even better, with improvements on productivity, was a good achievement.

Were there any glitches in the takeover phase?

Yes, the glitch was mainly on the prepaid service. It is an old technology that is susceptible to attacks. We had two major virus attacks that brought the network down and caused us some problems, including interruption of service. However, this is a heritage of the past that we have to deal with. We have already made an agreement with the government to change to a newer technology platform.

And the government will finance this?

Definitely, the government finances all the capital expenditure. This is well under way and we hope that things will soon be much more robust and reliable. In the meantime we are enhancing and protecting the current installation, in order to overcome the period until the new technology is in place.

Are you foreseeing changes in the service portfolio, dropping or adding specific services?

We have to revamp a lot of the products. This is also subject to the government’s approval, especially with new packaging and pricing. We have many ideas in that regard, which should promote the overall wellbeing of the network and the services.

How is your relationship with the government at this point?

It is excellent. I think the ministry of telecommunications, presented by the minister and his assistants are all extremely helpful and fully understanding.

Is it correct that you will not only make changes in technology and services but also in identity and marketing?

Right. Libancell belongs to the old company. We can use it only to a maximum of six months. During this time, we are agreeing on a new name and a new brand with the government. They have to endorse it because they own the company.

Did you already present a proposal?

We have been engaged in presentations and discussions for the last month, and we are arriving at the conclusion of this stage.

But the operating company will be MTC?

It will be MTC Liban. It is a separate company and a subsidiary of MTC, registered as a Lebanese company.

Does it have any Lebanese shareholders?

No, not at all. It is 100% owned by MTC.

And management of the company and network will be handled from Beirut?

Totally from Beirut, yes. We sent a management team here, which is in place. They are operating as an independent team here and supported by the group.

Will there be any synergies from your presence in other countries across the region?

Yes, of course, that’s the beauty of contracting with a group and not an individual company. All the goodies of the group will be earned at a very low cost here.

Can you give examples for synergies?

They exist in terms of promotion, branding, training, availability of resources, funding, product development, technology development, also collective bargaining with suppliers, which will give the government much better prices for their cap[ital] ex[penditure] investment.

MTC entered management bids for both networks and was the second to achieve a contract. Did you get an equivalent deal by being awarded management of the Libancell network?

I don’t think that there is better or worse in this case. These are two companies that have been operating at similar size. Cellis definitely had better technology. We knew this and that’s why our price to manage Cellis was higher than our price to manage Libancell. Libancell’s technologies are also closer to our technologies. Our knowledge and expertise in Libancell was greater than in Cellis; that was the main differentiator.

Are you having plans for the presence of MTC in the Lebanese market beyond the management function at the network?

Our plan is wherever we go to own equity as well as manage. We will definitely be working on an ownership plan, along with everybody else who will present proposals to the government. We hope to be more convincing than others, with more benefits, and that’s the challenge to us.

Would you see a step into ownership already possible during the management period or only afterwards?

There is a clear decision and strategic direction of the Lebanese government on privatization of the telecoms sector. The management contract has been widely publicized and taken as an interim period until we arrive at full privatization. So everybody agrees that there must be full privatization. The speed and the approach are where the differences are. Once these things are resolved, it is definitely better to transform the stake of the state. There is much more advantage to it in selling its stake. I think they will take that step sooner rather than later.

Your bid for the management contract was substantially below what the government paid previously and also below expectations. What gave you the confidence to be able to make a profit at this level?

Number one, we are a highly experienced company. We have the economy of scales, so our cost structure will be lower than others who would only handle Libancell on its own. These are two major factors. We have been very aggressive. The Arab world market is the prime market for the MTC Group. We want to be recognized by countries that we can come, manage their strategic assets in telecommunications business and do very well so that will extend the goodwill and, hopefully, move to the full privatization stage. This was our objective and we are extremely happy about developments so far and don’t regret it.

To what degree of market penetration do you foresee growth of the mobile market in Lebanon?

I think Lebanon should have a minimum of 40% penetration in three to four years time, given the liberalization of the market that we are free to expand as much as we can.

This means you first need a numbering plan?

Definitely. A numbering plan is being discussed now and will be amended hopefully by the end of the year, which will give everybody a big range of numbers. Lebanon has already passed the telecommunications law, which is a very good and advanced law. They need to enact this law by setting up an independent regulator, the Telecommunications Regulatory Authority. That should be very helpful in instigating development and furthering the growth of the telecommunications industry in Lebanon.

You would not disagree if I say that telecommunications is too expensive now?

It is very expensive in Lebanon and we hope to contribute to making it much more cost effective with a lot more variety and much better service for the client.

But at this point you cannot give a target number for per minute rates and such?

I cannot. If I fully owned Libancell, I would give you a plan with dates and commitments and numbers, but since the decision is lying with the state and we know the complications of the political side of the story, then definitely I cannot make any comments.

People in the industry claim that authorities were already twice close to signing the enactment laws but didn’t because of political personality problems. Would that deter you in any way?

I think it is deterring the whole country. We hope that with the new elections on presidential and parliamentary levels within a year from this time, things will be much better, like all the Lebanese hope for a much better political environment, not to hinder the development of the country.

But are you confident that in any case, Lebanon will remain stable?

That, I have no doubt about. Lebanon is volatile and highly moving, but it is stable.

It sure looks as if in the world and region, all things ICT are returning to normal. Shares in e-companies are no longer an anathema. The big market move of the season from a tech perspective, the Google IPO, clawed its way beyond obstacles to achieve figures that appear, all in all, more respectable than some headlines suggested. Earnings at multinational corporations from Cisco Systems to Dell look good – so good that a 5% quarterly drop in performance of Hewlett Packard’s enterprise server and storage division led the company last month to immediately sack three top executives, even as HP’s overall profits were up 9% for the quarter. The big names are also hiring. IBM announced in August that it has 18,000 new jobs on offer to bring its worldwide headcount to 330,000 at the end of 2004 and Microsoft said they would hire 6,000 to 7,000 persons during the coming 12 months on top of their current staffing of 57,000. The latest news from the ICT employment market in Germany, Europe’s strongest economy, is that salaries for information and communications technology specialists have accomplished a full rebound to sector income levels of early 2001. Across the MENA region, ICT growth also is again in focus. From PC and software sales to continued surging numbers of mobile phone subscribers, market watchers make enthusiastic projections and global ICT companies court Arab markets for their promising potential, even as these markets are marginal in their annual reports. With many signs to the unmitigated importance of ICT for regional economies and new good days for people in the sector, it appears paramount for a country like Lebanon to do its utmost in preparing the best possible environment for ICT companies to thrive here. International and local experts and executives for firms of all sizes and specializations in the Lebanese ICT community agree not only (despite their differences on many other things) that the country still has a good shot at being an ICT location, but are also in total unison on where crucial changes are needed first. “ICT in the Arab world is a high priority and opportunity for economic development and inclusion in the digital information age,” Microsoft’s regional manager, Charbel Fakhoury, told EXECUTIVE, and enthused, “Lebanon’s ICT potential is still to be fully realized and we are witnessing a strong momentum and support from executive leadership to expedite Lebanon’s realization of the ICT opportunity.” The right size for the Lebanese ICT industry’s production would be around $2 billion, or 10% contribution to GDP, suggested economist Louis Hobeika to EXECUTIVE, and underscored how the country has come a long way in ICT development but has lost ground within the region. “In absolute terms we are perhaps moving forward, but in relative terms we are falling behind,” he said. “One of the obstacles for companies to locate in Lebanon are the high costs in the telecommunications sector, which are three times higher than in the UAE. Our ICT sector today is of average value and average performance.” In Hobeika’s view, Lebanon has several models in the Arab world to look to as examples of who is getting things right: Dubai already, and soon probably also Bahrain, Oman, Kuwait and Qatar. For Lebanon to gain a new edge in ICT, experts and industry members agree that one urgently required improvement is the establishment of special technology parks. Co-locating numerous companies from one industry in shared environments has proven to lead to interconnections and mutually supporting industrial clusters, enabling stakeholders to advance together and become fit for international competition. Clustering boosts efficiency. Due to ICT companies’ pronounced needs for communications technology and highly trained staff, dedicated tech industry zones, as shown by multiple studies and practical examples, are especially helpful to ICT firms for optimization of their development potential.

The ICT community in Lebanon recognized these potentials earlier than their colleagues and public officials in many other Middle Eastern countries and entrepreneurs started drafting plans for ICT parks as far back as 1997. However, up until today, no large-scale plan has been implemented here. By contrast, tech zones in the UAE, Jordan and Egypt were designed after the first such Lebanese projects – and implemented years ago. Thankfully, however, Lebanon has one ICT technology park, which is demonstrating, albeit at a smaller size, how such an endeavor can be just as successful here as in the industry’s more conspicuous international locations.

The Berytech technological pole incorporates three essentials of a cluster for a growing ICT sector: hosting services, communication facilities, and an incubator where startup businesses can take their first corporate steps. The pole, a $4.5 million project established under strong involvement of Universite Saint Joseph (USJ), opened its doors in November 2002 on a site adjacent to the USJ Mar Roukos campus overlooking Beirut. Not even in its third year, Berytech is already home to some 40 enterprises and is currently researching where it can build additional facilities. “Our plan is to expand every year by 15 to 20 companies between startup and hosted companies,” Berytech president Maroun Chammas told EXECUTIVE. This growth target foresees significant incremental increases in the size of the facility, and the master plan calls for building each year 3,000 to 4,000 square meters in facilities until 50,000 square meters are added to its current 8,000 square meters in built-up area. As this expansion cannot be undertaken on Berytech’s current 3,000 square meter plot, the institution is trying to get land nearby on properties owned by a monastic order or, alternatively, seek buildings in Beirut. The latter option would also suit some resident companies, who told the Berytech management that they would like to be closer to the city, but the business incubator for startup enterprises would in any case remain at the Mar Roukos location. According to Chammas, thus far, all companies located at Berytech have been successful in their business ventures. The pole is open to companies from seven sectors, with information technology and multimedia/communications most developed in their presence. Although the shareholder base of Berytech consists of the USJ, 10 banks and seven industrial enterprises, it is one of the challenges for startups at the pole to acquire financing. “The fact that people are at Berytech makes access easier but Lebanese banks have not developed the business of lending to startups,” Chammas said, “it is one of our responsibilities to ensure that the incubator inspires banks with confidence.”

Startup entrepreneurs receive special support in the pole’s business incubator for a limited period of time. Hosted companies pay charges of $13/m2 per month in rent and $15 per month and computer terminal in connectivity fees. Although these charges may appear substantial by local standards, they have a great advantage in being fully transparent and calculable, said Ralph Bitar, manager of Soft Mind, a developer of corporate software solutions. “Here, a flat fee covers everything. Costs are not higher than in other buildings but benefits are much larger,” he said, and after trying out several locations in Beirut, his firm had found locating at Berytech a great improvement. Habib Maaz, CEO of another software firm, Unilog, concurred, saying his firm had been at Berytech since January 2003, and it had proven a good choice and location, which also impressed foreign visitors.

With Berytech’s good reception in the market, Chammas said he saw potential for having many more poles of its type all throughout the country. “I believe there is room for expansion everywhere in Lebanon.”

Enter the Beirut Emerging Technology Zone. With a projected size based on a one million square meter site, the BETZ project is of a different dimension to Berytech and incorporates a scale that would make it perform in the same league as the Dubai Internet City, the Middle East’s showcase ICT zone. But whenever the BETZ topic comes to discussion these days, opinions among the Lebanese ICT community are divided. Initially put on the table in 1997 through a grant for a feasibility study by USAID, the BETZ concept actually dates back to the bubble days of the new economy. This in itself would not be a problem as the need for a substantial ICT industry zone is as great now as it was then. The problem arises from the project’s enormously sluggish evolution. For the first few years after the proposal’s creation, the BETZ feasibility grants were stuck in various government drawers, with government experts in favor of the project having to produce contrived explanations every time they were asked why the study was experiencing yet another delay in implementation. When the study finally came to see execution around 2002, it was carried out by an American consulting company – somewhat understandably, knowing that US funding in international assistance likes to work that way. Less clear was perhaps, why research for something called BEIRUT Emerging Technology Zone would spend much time evaluating sites in far corners of the nation. As several communities were examined, ICT and development enthusiasts in some of them invested themselves considerably to present their community as location of choice for the project. Relief should have set in when in spring of 2003, IDAL chairman Samih Barbir could make a jubilant announcement that BETZ would be built in Damour in a partnership between IDAL and the municipality. For many in the ICT community, this announcement came so late that they were inclined to question the government’s intentions and validity of the project in numerous respects or were simply in disbelief that BETZ could now be put on the promised fast track of construction and welcome its first tenants by autumn 2006. As if to prove them right, the municipal elections followed and with them a change of elected officials in Damour. Since then, the situation of the project has been obfuscated by disagreements and lagging negotiations, the latest results of which apparently were that the municipality no longer wants to be a partner in owning the project but merely wants to lease the land to BETZ and receive annual rent to the tune of $4 million. Rumours circulating about the municipality’s position moreover talk of local fears to see inflows of outsiders and a tossup of the town’s sectarian balance, instead of welcoming the project’s manifold opportunities for developing the community. For supporters of growth in the Lebanese ICT industry, this is worrying news, because they are convinced that missing out on BETZ now would mean missing out on a crucial chance.

“Microsoft has been a strong supporter of BETZ,” Fakhoury confirmed to EXECUTIVE, describing the zone as “a milestone ICT project that will show Lebanon’s commitment to encourage ICT.” His company was dedicated to continue discussions with stakeholders on how local and multinational IT companies would be able to contribute and benefit from BETZ but warned, “If the project does not get real support, a real boost, it will move slowly.”