By the daily Star
The Lebanese ICT sector
holds a lot of economic potential given its fast-growing pace and its
vast reach to the different aspects of consumers’ daily life, health,
transport, etc. In fact, the sector’s added value amounted to $1.3
billion in 2013 and is estimated to have reached $1.7 billion in 2016,
hence contributing to more than 3 percent of gross domestic product. The
ICT sector is considered the fastest-growing sector of the economy
after recording a 7 percent compounded annual growth rate (CAGR) in the
last two years alone.
According to Business Monitor International,
the market size of information technology, which is an expanding
segment of the ICT sector, registered a 12.6 percent CAGR in the last 10
years and is expected to hit $436 million in 2016 and $466 million in
2017.
The wave in favor of data usage seems to be modifying the
ICT market’s dynamics in Lebanon. Between 2013 and 2015, according to
the Telecommunications Ministry, the number of subscribers for broadband
internet more than doubled, going from 480,000 to 1.24 million.
Similarly, mobile data subscriptions hit 2.92 million in 2016 as
compared to 2.02 million in 2015.
In the same context, low-cost
Voice over Internet Protocol services through mobile devices boosted
demand for data services at the expense of the standard calling
services. Considered as the most successful technology of the last
decade, VoIP services such as Skype, Viber and recently WhatsApp are
becoming more popular among the Lebanese population as they provide a
cheaper alternative for communication services. In fact, revenues
deriving from voice calls are witnessing a double-digit decline
simultaneously with data usage growing at a double-digit pace. “In fact,
more than 50 percent of Alfa’s revenues are derived nowadays from data
services rather than voice” said Marwan Hayek, chairman and CEO of Alfa.
The
ICT sector fares barely better than the average compared to
international and regional peers. The ICT Development Index, which
monitors and compares developments in ICT, ranked Lebanon 66th out of
175 countries, while Turkey and China respectively took the 70th and
81st places in 2016. The index also revealed that Lebanon grasped the
8th rank among Arab countries, outperforming Jordan and Tunisia and
standing just after each of Kuwait and Oman.
ICT still has a long
way to go, as the poor infrastructure of the sector keeps on hindering
the quality and speed of internet connections. Even though fiber optics
is already installed in big cities but not yet operational, Lebanon
actually relies on copper cables to have access to the internet.
However, these cables have limited capacity in terms of data transfer
and speed. Based on the latest data released by Akamai, a global
provider of content delivery network services, the average connection
speed in Lebanon stood at 1.8 Mbps in Q2 2016, compared to 4.0 Mbps in
Egypt and 4.3 Mbps in Jordan. South Korea topped the list with an
average connection speed of 27.0 Mbps and was trailed by Japan (17.2
Mbps) and the United States (15.3 Mbps). It was also noticeable that,
while the global average connection speed grew by a yearly 14 percent in
Q2 2016, Lebanon’s slipped by 0.8 percent over the same period.
Another major issue faced by the ICT sector in Lebanon
is the lack of competitiveness due to the government’s tight control
over the sector. Despite the sequential declines in communication prices
since 2014, the fact that both telecom companies Alfa and touch are
publicly owned entities, operated by private companies for the benefit
of the government, creates a sort of duopoly agreement between the two
companies. According to World Bank sources, “limited competition in
telecommunications and broadband is stifling growth of the sector. The
fixed-line and broadband market sees the dominant position of Ogero,
while the mobile sector, unlike most countries in the world, is under
the control of the government.” Besides inhibiting growth and
innovation, government control is keeping tariffs high and limiting
product differentiation. According to Arab Advisors Group, Lebanon
ranked 17th in 2015 out of 19 Arab countries in the Cellular Competition
Intensity Index.
The current pricing of 4G data/voice packages is
still high, despite the recent price cuts. Maroun Chammas, chairman and
CEO of Berytech, believes that “wholesale prices need to be revised in
order to provide more capacity and a better reflection of accurate
demand and cost. More gigabytes should be offered for users at the
current retail prices while pricing to ISPs [internet service providers]
and MISPs [mobile ISPs] should be brought down to reflect a fair
policy.”
The continuing extensions of management
contracts are another barrier for state-owned mobile operators in
Lebanon. In reality, Charbel Cordahi, economist and finance leader in
the ICT sector, explained that “the one-year agreement granted in
January 2012 by the government to touch and Alfa has been extended 22
times since that time.” This is limiting the implementation of business
strategies, long-term planning and technological development. However,
according to Cordahi, “the two operators were able to introduce the
latest technologies in difficult economic times.”
Public
negligence and corruption proved to be capable of hindering the sector
far more than expected. In reality, the latest Ogero scandal was another
impediment for Lebanon’s ICT sector following the discovery of four
unlicensed internet providers earlier this year that are supplying
illegal internet services from foreign-based connections at reduced
prices. The exposed corruption in the illegal sharing of bandwidth
profits is estimated to have caused around $200 million loss per year,
according to Lebanon’s finance minister. Moreover, an increase of 15
percent in sales came after the revelation of the scandal.
In
light of these deficiencies, the first step to improve the sector would
be revamping its infrastructure, given its huge potential and capability
of reshaping the Lebanese ICT market. Economically speaking, it is
assumed that Lebanon’s GDP will increase by 0.3 percent every time the
broadband doubles. Hence, the installation of fiber optics has gradually
started in Lebanon and it is expected that 85 percent of the population
will have access to the service by the end of 2017. “The current copper
infrastructure provides a maximum internet speed of 8 to 20 Mbps
depending on the regions; the [Telecommunications Ministry] should
immediately open the local loop, so that the users can benefit at once
from a better internet experience. While fiber-optic internet provides a
speed up to 100 Mbps, infrastructure should be completed so that
internet traffic is shifted to the fiber-optic infrastructure, and
ultimately complete the work of fiber to the home [FTTH] and fiber to
the office [FTTO]. This will provide a radical and definite improvement
in internet connection’s speed and user experience,” Berytech’s Chammas
said.
Another suggestion that, however, might be politically
controversial would be the liberalization of the sector from the
government’s grip to boost competition. For instance, privatization
would have many benefits in terms of prompting higher inflows of capital
and expertise into the sector. In this context, Alfa’s Hayek stated
that “partial privatization might be a solution through the addition of
strategic partners, not necessarily foreigners, with management
experience and where the government can become a shareholder.”
Similarly, according to World Bank sources, “one of the potential
measures is the implementation of comprehensive reform, aiming at
bringing competition in the market, on the model of Eastern European
countries such as Lithuania, which now has the highest FTTH penetration
in Europe, or Romania, where the average internet speed is higher than
that of France and Italy.”
Also, even though some initiatives were
formed to boost the sector, they still need to be former embraced and
implemented. While telecommunications minister, Boutros Harb launched
his 2020 Agenda that aims at modernizing the national telecoms
infrastructure. The $600 million worth project is expected to install
4.5G services and develop 5G services. The project will also plan, over 3
stages, for the upgrade of the internet infrastructure from copper
cables to fiber optics by 2020.
Finally, a thriving ICT sector is a
necessity for countries looking for prosperity and growth. As for
Lebanon, the industry has a huge potential to grow given the
well-educated workforce and the readiness to shift toward a more
digitized environment. In reality, and as stated by former
Telecommunications Minister Nicolas Sehnaoui, “the ICT sector is
multifaceted: On one hand it is an enabler of the economy, and as such
it boosts productivity and innovation of all sectors, and on the other
hand it is a sector of its own that will thrive and export its goods and
services regionally and globally.” In this context, insuring a healthy
environment for the ICT sector to grow is essential for the success of
Central Bank Circular 331, which aims at boosting the knowledge economy
by supporting startups and especially tech businesses.
This monthly editorial is brought to you by the Research Department of BLOMINVEST BANK. Contact: mirna.chami@blominvestbank.com
blog.blominvestbank.com
