Both provide telecommunications services. Both have postponed going public. Both are linked inextricably to Lebanese issues. But there is much more than one tiny ‘o’ in difference between Oger Telecom, the Gulf-based multi-market provider of mobile and landline services associated with the Hariri family empire, and Ogero, the landline phone division attached to Lebanon’s ministry of telecommunications and would-be operator of a third mobile network in the country.
Would be – if plans for evolving Ogero into a modern company called Liban Telecom – were implemented with key components of getting the government entity ready for privatization and adding a mobile operator license to its portfolio to make it more attractive to buyers.
Lagging behind
In more real terms, Ogero is the entity that brought Lebanon public pay phones early in the 21st century, rolling out some 2,700 by the end of 2004. It is also in all probability – although the hypothesis has not been verified by global research – the world’s premier telecommunications services provider to confess on its home page that a customer service project of mailing phone bills to subscribers “is suspended for the time being”.
Other operators may have discontinued putting the bill in the mail because of paperless notification and payment; countless Ogero customers still queue in the “centrals” on payment date and never experienced the luxury of a mailed invoice. When the entity one day is turned into a customer-centric corporation and finds a way to deliver invoices electronically (rather than making customers ask for the invoice info), it will probably claim that it leapfrogged over the paper age.
But that is a long ways off. Ogero is not going to push for an initial public offering in 2007. According to Lebanon’s Higher Privatization Council, the operator could be transformed into Liban Telecom in late 2007 and be ready for partial privatization toward the end of 2008. The privatization act could involve taking a stake in Liban Telecom public.
Oger Telecom, by contrast, may very well do an IPO in 2007. The company actually stepped back from a planned $1.25 billion initial public offering on the London Stock Exchange and the Dubai International Financial Market in November, preferring an embarrassing last-minute withdrawal of the offer – which was overpriced by judgment of analysts – over the possibility that it would be a financial disappointment to its investors and greater damage to its corporate reputation.
Avoidance of disappointments has not been a priority for Ogero, or rather the decision makers who derailed the entity’s privatization with embarrassing repetitiveness since the national privatization debate started around eight years ago with plans developed by the administration led by Salim Hoss.
In 2000, for instance, Ogero was slated to be prepared for sale before 2004. World Bank (WB) documents show how the institution was committed more than five years ago to assist the government of Lebanon in readying Ogero for privatization, at the time expected to be “the next major transaction” after selling off Middle East Airlines with help of the International Finance Corporation.
According to the WB, the preparation for Ogero’s privatization was to include establishment and operation of the Telecommunications Regulatory Authority (TRA), to act as supervisor of the sector and provide support for severance payments associated with the privatization transaction. The estimated mid-point project cost of these measures was estimated at $27 million, out of a $90 million privatization support package to which the WB was willing to contribute $70 million.
On average once or twice per year since then, the issues of telecommunications liberalization, auctioning of mobile operator licenses, and privatizing Ogero have ruled the political and public debate in one form or another. The TRA was legislated; mobile phone license auctions were announced, delayed, called off and reshaped into management outsourcing agreements; Ogero employees protested against restructuring plans; network and service improvements were presented with fanfare and postponed without them. All that and more happened with the well-known triple effect of stifling investments into new technology, eroding anyone’s confidence in governmental announcements on telecom restructuring, and dooming the country to be an overpriced underperformer in telecommunications, period.
In June 2006, the situation had moved so far into the absurd that a – however laudable – student initiative by the Lebanese club at MIT was hailed as the solution to the country’s telecom misery. The group had a plan to draw up another road map for making Lebanon “a vibrant and sustainable technology hub in the Middle East and North Africa region”.
The good news in the current situation is that the transformation of Ogero and privatization of Liban Telecom does not play a central role in debt reduction plans associated with the hoped-for Paris 3 donor gathering.
Privatization plan sabotaged?
As the minister of economy and trade, Sami Haddad told Executive in late December that the Lebanese government’s main revenue proposition for sellable assets in connection with Paris 3 negotiations is again telecommunications. But it is the mobile sector which, according to the government’s international advisors, could fetch $5 billion.
This revenue would be used for debt reduction, Haddad said, but equally important, the privatization of the mobile sector would be the “largest inflow of foreign direct investment in Lebanon”, creating new jobs and possibly expanding the mobile phone sector from the current one million to three million subscribers within a year.
For Sami Haddad – who also says that MEA should have been privatized “yesterday” – the ogre factor in the Lebanese telecom story is political resistance to getting telecommunications privatization off the ground. “What stands in our way is that the TRA has been sabotaged by [President] Emile Lahoud. At every cabinet meeting, he sabotaged it,” Haddad said.
“The main thing for privatization is telecommunications and we have a strong parliamentary majority for it,” the minister added. “I think we should privatize the two mobile companies to 100%.”
In Haddad’s opinion, privatization of the mobile companies should take place through IPOs and that the government should ascertain, as laid out in its ministerial declaration on the issue, that no single person or company will own more than a stake of “x” in an operator. This limit has not been decided, but Haddad indicated there is wide agreement that it should be 50%.
By reaching market penetration rates of 70% or more in a short time, private sector mobile operators in Lebanon would reach goals that the old BOT operators in the 1990s, FTML and LibanCell, had seen as attainable for the year 2000.
And here, high growth stories from the private sector, like that of Oger Telecom or those of Kuwait’s MTC and Egypt’s Orascom, can today serve as examples. They show how companies with ambitious strategies could set and achieve not only good economic performance in regional markets, but expand outside of the Middle East with equal or larger success. They also illustrate how to handle setbacks that may arise en route to implementing targets – as Oger Telecom did with its IPO withdrawal, which did not discernably dampen the company’s plans for further acquisitions and growth.
Over the past five years, developments of the regional telecommunications industry have established new leaders in markets that were only vaguely defined a few years earlier. The sector’s rapid evolution has moreover shown that even several staid, state-owned landline companies and incumbents could transform into transnational corporations with tremendous performance under gradual privatization schemes.
In this, Batelco, Etisalat, and QTel stand in the same line as Saudi Arabia’s STC and Egypt’s Telecom Egypt. Compared to the un-dynamic bureaucratic bodies that some of these companies once were, their modern incarnations are centers of functionality that are well taking advantage of the region’s present favorable climate for telecommunication expansions and privatization measures.
The Lebanese government will see a major headache dissolve if its plans for privatizing the mobile operators finally come to fruition within 2007. For the transformation and privatization of Ogero, a question will remain if the currently strong hunger of potential telecom investors will stay strong, or if price scenarios will change by the time the company is ready for an IPO and sale to strategic partners. But, in any case, Liban Telecom will need time and will arrive on a regional communications landscape long after territories have been marked and bigger fish have built their markets.
