The mobile telecommunications sector has been the heart of a controversy among government officials regarding issues centered on the assumed capacity of the network, rates, the relationship with the Ministry of Telecommunications, and the companies’ profits as compared with the government’s revenues.

In the year 2000, the government of Salim El Hoss requested $300 million from each cellular company, given the violations committed and listed by the government’s Accounting Bureau, However, the subsequent Hariri government terminated the contracts of both companies and entrusted them to continue operations until an international bid could be undertaken.

Still, the political interactions and discrepancies in the figures did not lead to any practical solution. The transitory stage, which was expected to be concluded by the end of 2001, continued until early June 2002.

Law granting cellular licenses

In June 2002 (one year since the cellular contracts were brought to an end), Parliament ratified Law No. 393 allowing the government to grant two licenses for the provision of cellular phone services and specifying the following:

Undertaking an international public tender to run the cellular firms for a period of 12 years, on the condition that the bid and tender take place at the same time, specifying the following:

• Granting licenses for 20 years or
• Undertaking a public tender to manage the cell firms contract for a period of 12 years.

The deadline for the process of examining both offers and exchange was August 31, 2002. In case the bidding operations do not succeed for any reason, the two cellular firms’ profits will accrue to the government starting August 31, 2002. The delay, whether in preparing the guideline booklet or issuing the law, made this alternative the only one available.

The Temporary Arrangement

In spite of all the political disputes and monetary descriptions, the Council of Ministers agreed to entrust the current cellular firms with the management of the network until January 31, 2003. Total revenues as of September 1, 2002 will be collected by the Lebanese government and each of the two firms will receive an operating and maintenance fee. This amounts to $39 million for LibanCell and $40 million for Cellis. Although this is a temporary agreement for a period of five months (some believe that it will be extended), the financial outcome for the government is doubtful.

The firms’ activities

Based on the figures published by the firms and used by the Ministry of Telecommunications, as no independent audit is available to ensure the accuracy of the figures, the revenues are distributed according to Table 1. The government’s revenues (international calls through mobile phones and a fee of 6 cents per minute as municipal tax with a 20% government share) stand at $317 million based on the results of the year 2001, whereby the number of subscribers for the two companies reached 800,000.

This revenue, along with the increase in the government share to 40% (according to the B.O.T contract signed in 1994) was supposed to bring in $405 million. Based on the final settlement and the figures pertaining to the total 2001 revenues ($720 Million), the monthly average for revenues totals $60 million, of which the government pays $16 million as operating costs and maintenance for the two firms. This results in $44 million per month to be collected by the government, reflecting an increase of approximately $10.25 million per month or $123 million annually.

The temporary phase extending until January 31, 2003 is supposed to give the government time to decide on the best alternatives for the future of this sector. In fact, according to the temporary arrangement, annual revenues are expected to reach $530 million, which would allow for the sale of the licenses at higher prices than the ones currently offered ($1 billion – $ 1.2 billion for each license).

The government has bought itself some time on this issue, but must conclude a final and permanent solution to insure the development of this sector and produce the most substantial revenue.

The last question, which anticipates the detailing of compensation to be paid out to each company for early termination of the contracts, remains: Would it have been better to wait four years for the legal expiry of the B.O.T. contracts that stipulated that the whole project’s assets and revenues would be turned over to the Lebanese government? That is especially in view of the additional revenues to be achieved by the government during this period, which do not exceed $500 million, as well as the question of compensation that may result in a value equal to or exceeding this figure.