Iraq’s telecoms upgrade to 3G will create jobs and boost economy

Potential economic benefits, but elections leave timeline in question.

Enabling Iraq’s telecoms operators to upgrade their networks from second generation (2G) to 3G will lead to faster economic development, said a senior official from the GSM Association, a conglomerate of mobile operators.

It is, however, unclear when the switch will be made, given the ongoing upheaval surrounding the elections.

Iraq’s council of ministers agreed on Monday to allow the operators to provide 3G services instead of going ahead with its plans to hold auctions for the licences, which it hoped would attract foreign operators.

“This is an opportunity for the Iraqi government to show governance and real progress. You have a country which 30 years ago led the Middle East in terms of development and education,” said Peter Lyons, the head of Middle East and North Africa at GSMA. “There is so much residual potential of the people, but right now there is too much focus on the potential of what is underground. The people need some kind of platform to connect with each other and to the outside world.”

Opening up internet services and introducing mobile broadband could increase Iraq’s GDP by 3.7 per cent by 2025 as well as help to create more than half a million new jobs, according to a joint report from Boston Consulting Group and GSMA.

“With the elections ongoing at the moment, nothing will be ratified,” said Philip Shepherd, a partner at PwC. “That said, pent-up demand in Iraq is enormous. Other equivalent countries across the region saw immediate uptake of 3G. There are a lot of [3G-enabled] devices already in the market.”

The three telecoms operators, Zain Iraq, Asiacell, a subsidiary of Qatar’s Ooredoo, and Korek Telecom, part owned by France Telecom, will each have to pay $307 million to use the 3G spectrums, bagging the government close to US$1 billion. With a population of 35 million, the spectrum fee is high and consumers will probably have to pay a great deal more for 3G services so that operators can make a return on the investment.

“It is equivalent to Pakistan, which auctioned off the same spectrum, but they have a population of 150 million,” said Mr Lyons. “It will be much harder for them [Iraqi operators] to recoup the investment.”

Iraq remains one of the few countries in the world without 3G, and while internet penetration stands at just 7 per cent, it is still a lucrative market for the players.

“The right to use the 3G frequencies is a positive step in the right direction,” said Mohammed Charchafchi, the chairman of Zain Iraq. “Numerous examples have proven in many countries that enabling 3G has had a positive impact on investment and helped accelerate the process of economic growth in those countries.”

Zain Iraq’s revenues currently contribute some 40 per cent to the Kuwaiti group’s total revenues. With just 4 per cent of Zain Iraq’s revenues coming from data services, the company expects substantial growth in data use once 3G goes live.

Zain has delayed its mandatory initial public offering until the end of this year, having previously said it would be ready to go to market by this June. The company is currently being sued by Korek Telecom for $4.5bn, which claims that Zain’s acquisition of the mobile operator Iraqna back in 2007 stopped it from buying the unit, resulting in huge losses.

thamid@thenational.ae

Follow us on Twitter @Ind_Insights

Published: May 7, 2014 04:00 AM

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