Lebanon ICT Market Status and Real Potential

1. Lebanon ICT Market Status and Real Potential Dr. Imad Y. HOBALLAH Acting Chairman and CEO Head of Telecommunications Technologies Unit Telecommunications Regulatory Authority – Lebanon Notre Dame University Louaize, June 2, 2012

2. Outline • Status of the Telecommunications sector • Potential to Go: Broadband as a booster for the National Economy • Regulatory and policy tools www.tra.gov.lb

3. Status of the Telecommunications Sector www.tra.gov.lb

4. The enactment of Law 431 in 2002 and the establishment of the TRA in 2007 paved the way for telecom sector reform Before Law 431 After Law 431 MoT MOT: policymaker, regulator and service provider CoM: Arbitrary regulatory role (e.g. issuing all licenses) No formal regulatory regime TRA: regulator Drafts &implements regulations Awards licenses Ensures competition Prevents anti-competitive behavior Manages radio frequency on behalf of the Government of Lebanon (GoL) • MoT: Policymaker • Sets general guidelines of the telecom policy • Decides on international representations • Approves: • TRA recommendations on individual licenses • Frequency pricing • TRA annual budget policymaker regulator operator Operators (Incumbents and New Entrants) Provide telecom services to the public Install, own & manage telecom networks & facilities Abide by TRA rules, regulations and license terms www.tra.gov.lb

5. Although reform has started, “mobile” and “fixed” telecom operators in Lebanon are state-owned and the market requires more “competition” www.tra.gov.lb

6. The mobile sector is comprised of 2 state-owned networks operated under private management agreements; MOT is working on a policy away from a structure with no true competition that stifles innovation • Major milestones: • Consecutive decreases in prices since March 2009 for postpaid, prepaid & VAS • New prepaid offers introduced in June 2011 • 3G services launched in October 2011 • Achievements: • Penetrationrateincreased by 50 percentage points since 2008 • Mobile broadband penetration reached 13% in 5 months only • ARPU decreased by 45% since 2008 to reach $39in 2011 (~$33!) • Bottlenecks: • Despite the decrease in ARPU it is still considered high compared to the regional average of $15 • Even with major improvements, QoS is not yet up to international standards • Introduction of advanced and competitive services/offers is slow due to the structure of the sector Mobile Penetration Evolution Mobile Subscribers Evolution (in thousands) Blended ARPU Evolution www.tra.gov.lb

7. With the expansion of DSL services, there has been a small increase in demand for new “fixed lines”, Consumers await the introduction of bundled & IN-based services • Some Indicators: • # PSTN subscribers as of March 2012: 855,000 • Fixed line residential household penetration is ~64%, increasing by 2 percentage points since 2010 • The penetration rate per population of fixed services in Lebanon is higher than other countries with comparable GDP per capita • Jordan’s penetration rate is 8% while Lebanon’s is 21% • Major Milestones: • Decrease in fixed line installation rates in 2009 • Continuous growth in DSL subscribers: major growth since the introduction of high speed packages in Oct 2011 • Geographical expansion of DSL in 170 Central Offices • Bottlenecks: • Current service offerings lack bundled services, self-selection schemes, NGN services and Intelligent Network (IN) Services • Illegal VoIP services are widespread despite large international call tariffs cuts • High Cost related to management and maintenance of outdated PSTN network • Awaiting completion of fiber network expansion www.tra.gov.lb

8. DSL services had been priced well above regional prices; Prices decreased in October 2011, and Lebanon is now very well positioned compared to Arab countries. However …. Effective total monthly cost of 1MB residential ADSL, November 2011 (Average rates in USD, VAT inclusive ) ADSL Affordability Measure Total annual cost of 1 Mbps average ADSL rate as a % of GDP November 2011 Average=62 Average=21% Source: Arab Advisors Group Source: Arab Advisors Group 10 August 2014 www.tra.gov.lb

9. … required speeds for triple or quadruple play services are still much higher & prices are much lower than the ones currently available - Aggressive efforts are underway to correct the situation Service Packages available in Lebanon (Since Oct 2011) Typical Triple Play Service Packages • RESIDENTIAL • For around $46/month individual subscription to: • $16 for the basic entry plan of 1Mbps downlink with a cap of 4 GB (most used DSL plan) • $15 for very poor quality cable TV subscriptions • $15 for very low usage of Fixed Voice services • RESIDENTIAL • For around $40/month : • On average 8 Mbps downlink and 4 Mbps uplink with virtually no cap on usage • High speed Internet Access + 100 video Channels (including HD) + unlimited VoIP calls • BUSINESS • For around $4000/month: • 2 Mbps downlink and 2 Mbps uplink Internet access • With Service Level Agreement (SLA) • BUSINESS • For around $500/month: • Up to 10Mbps for business located in remote areas • High speed Internet Access viable for video conference, e-commerce, etc…+ 100 video Channels (including HD) + unlimited VoIP calls www.tra.gov.lb

10. Despite large DSL expansion, Lebanon is still far behind in terms of Broadband household penetration when compared to OECD and regional countries – Are we making it up with Mobile? Fixed Broadband Household Penetration OECD, June 2011 DSL Household Penetration Arab Countries Sept. 2011 10 August 2014 www.tra.gov.lb

11. Since the launch of DSL in June 2007, this market faced a lot of bottlenecks hindering the wide adoption of true broadband services • Anticompetitive behavior from the incumbent • Incomplete Reference Access Offers • Unfair access to Central Offices • No switchover procedures • DSPs not connected to all ISPs • Limited availability of true high speed and a high capacity national NGN Backbone Network • Limited fiber optic coverage - being worked aggressively • Expansion and modernization of national transmission network to lay-down a fully meshed fiber optic network of 4,400 km of backbone is underway • Saturated transmission network despite the latest upgrades • DSPs and ISPs are still connected by a maximum of 100 Mbps network ; there are no wholesale backhaul bundled offers • Lack of International Capacity • Despite the latest increases in international capacity and the major decrease in prices, the distribution of international capacity to the private service providers requires more transparency and fairness www.tra.gov.lb

12. Potential to Go Broadband as a booster for the National Economy www.tra.gov.lb

13. Next Generation applications and advanced e-services enrich consumer lifestyle, improve business performance and deliver value for stakeholders – These services are here Virtual Reality Tele-presence Interactive signboards Virtual sports Tele-medicine Interactivity Level Social Networking Quality Video Streaming Rich media Tele-learning VoIP Interactive IP-TV Next Generation TV Browsing Video Conference Email 64-256 Kbps 20 Mbps – 1 Gbps 512 Kbps - 2 Mbps Higher Speed / More Bandwidth Actual Generation of Broadband Narrowband Next Generation of Broadband PSTN, GSM, GPRS/EDGE DSL, WCDMA, HSPA+, WIMAX 802.16e, etc. FTTx, LTE Advanced, WIMAX 802.16m, GPON, etc.. 1st June 2012 www.tra.gov.lb

14. Broadband is uniquely positioned to stimulate economic growth, business development and social welfare GDP GROWTH: 1.38% increase per year for every 10% point increase of Broadband Penetration • Job Growth: • 0.25% increase in jobs for every 1 point increase in Broadband penetration • SOCIAL INCLUSION: • Boost human capital • Improve healthcare • Create new income opportunities in the poor and remote and rural areas Broadband - an economic Booster BUSINESS PRODUCTIVITY: Lebanese SMEs waste thousands of hours a year due to poor connections – to illustrate: 5000 hours a year represent a loss of $ 250K-$ 500K FISCAL RETURNS: $90 M per year for every 10% point increase of Broadband Penetration • GOVERNMENT REVENUES: new sources of revenues to the GoL will be generated (auction proceeds, RTU fees, RoW fees, revenue sharing …) BRAIN DRAIN: less youth migrate overseas with Lebanon as a hub for communication Sources: Economic & Fiscal Impact of Introducing Broadband Networks and Services in Lebanon – World Bank 2009 www.tra.gov.lb

15. Regulatory and Policy Tools www.tra.gov.lb

16. The development of the ICT sector in Lebanon is hindered by a slow decision making process and a lack of consensus on the policies and laws as well as future directions The development of the Telecommunications and ICT sectors is slowed down by the existence of numerous barriers: • Absence of a overarching economic vision • Lack of political consensus towards the implementation of the current laws such as telecom Law 431 (enacted in 2002 but its implementation is still being debated) • Very low government engagement in the development and enactment of modern laws and policies • Lack of competition in many important telecommunicationsmarkets • Very limited private sectorparticipation • Big barriers to the development of ICT as a core sector and as an enabler to other sectors (in addition to the weak content and application development) Availability Affordability services Users Usage TELECOM infrastructure applications www.tra.gov.lb

17. Aspirations towards a knowledge-based economy should focus on two main ICT policy areas: (1) liberalization of the telecom market and (2) an ICT development strategy National ICT Strategy and Policy • Economic Diversification and Growth • Innovation and Productivity • Access to Education and Healthcare • Government Modernization • Social Inclusion (and Equity) • Environment Safeguarding • Country Competitiveness • Sustainable Development Telecom Policies ICT Industry Development Liberalization Sector Governance & Regulations National Coordination Cross Sectorial Vision Introduction of Competition and Corporatization of LT and Mobile Networks SMP, Cyber Security, Net Neutrality, etc. Promote Digital Literacy, Develop on-line Content, e-Commerce e-Education, e-Health, Smart Grid, e-Gov., Transportation LARGE TALENT POTENTIAL Availability of a Large Young Population Develop Strong Local Talent Pools Increased Enrollment in Higher Education and Focus on Training www.tra.gov.lb

18. The current ICT-focused activities within the government institutions are not integrated in a way to fully harness ICT potential in Lebanon , LTA www.tra.gov.lb

19. The liberalization of the telecom sector requires the elimination of existing bottlenecks and the development of competition within an enabling regulatory framework • Create a healthy corporate structure (in terms of human and financial resources) • Reinforce position on the market • Increase value on the market • Pave the way for a healthy retail versus wholesale corporate identity Main driver for infrastructure based competition Main driver for infrastructure based competition Infrastructure based competition • Abundant national and international capacity • High grade of services • Competitive prices Ensure Service-Based Competition • LT • NGN networks • Mobile Licensees • Long term licenses to ISPs and DSPs • MVNO Complete the Corporatization & Subsequent Licensing of Liban Telecom Enforce Regulations on Service Providers with SMP HEALTHY AND FAIR COMPETITION Ensure Infrastructure-Based Competition • Open access regime on essential facilities owned by dominant players (local loop, backbone, etc…) • Access to Public Property & Rights of Way (duct sharing reduces around 70% of the cost of laying fiber) • Structural separation between wholesale and retail segment of vertically integrated players Healthy and fair competition Healthy and fair competition www.tra.gov.lb

20. Since its establishment, TRA has been working extensively on setting a regulatory framework that would ensure successful telecom sector development –Awaiting policy development Drafting Stage Draft Ready Stage Awaiting Board approval Sent to MoT – Need State Council Review Final Review after consultation Issued Access to the Local Loop Regulation VOIP Policy Statement Spectrum Re-farming and Packaging Plan Access to Information Regulation Licensing Regulation SMP Regulation Spectrum Management & Licensing Regulation • Decisions: • VSAT, • Trial IPTV • Spectrum trial Allocation for MoT • Interim licenses for ISP and DSPs (+ extension) • Licenses for Trisat, LCNC and MADA National Roaming New building Requirements for BB delivery services Liberalization Roadmap Accounting Separation Regulation Broadband Licensing Plan Consumer Affairs Regulation Digital Migration Strategy for TV Broadcasting Plan Universal Service Technical requirements for NBCLs Class and Frequency License fees regulation CS / CPS Improving FM Broadcasting Pricing Regulation Interconnection Regulation National Numbering Plan Interconnection Interim Pricing Decision Sent to MoT- Need CoM decree Type Approval Regulation Numbering Regulation Study on the Use of Public Property Emergency Communication Plan Quality of Service Regulation Code of Practice for VAS Draft RTU Fees & SAC decree Decision for establishment of call centers EMF Regulation Rights of Way Draft Decree Lebanese National Frequency Table www.tra.gov.lb

21. Sustainable integrated economic/ICT policy and empowerment of the TRA are essential to ensure successful telecom/ICT sector development and highest benefits to all stakeholders Investors Investment opportunities Lower risks Regulated environment Empowering the TRA1-Full transfer of regulatory functions • 2- Staffing and organization • 3- Nomination of Board Members • 4- Financing Broader range of services Lower prices Better quality of service Telecom Operators Fair treatment Fair competition Consumers New and recurrent revenue streams Economic boost Government of Lebanon www.tra.gov.lb

22. Some demand-side promotion policies should be encouraged and adopted by the Government to stimulate growth of e-services (1/2) • Raising public awareness on benefits of e-services and promote their use • Governments providing training on the use of PCs and Internet contributing to rapid and widespread of broadband • Digital literacy program integrating both demand and supply sides (i.e. providing financial support to schools for network construction and broadband use) • Korea provided free or low-cost training to 10 million citizens who lacked access to ICT • Promote Digital Literacy • Subsidize Low-cost User Devices • Policies aiming at making user devices more affordable–Tablets effort in Lebanon • Wide range of policies to be adopted for subsidizing CPE: from complete government subsidization to private initiatives • Koreaprovides loans through postal finance service and allows amortization and distribution of free computers to students from low-income groups and people with disabilities • Sweden offers tax breaks and price reductions for bulk purchases • China and Tunisia subsidize standardized computers for poor and rural households 10 August 2014 www.tra.gov.lb

23. Some demand-side promotion policies should be encouraged and adopted by the Government to stimulate growth of e-services (2/2) • Have Government Serve as an Anchor Tenant • Computerizing public information and providing public or e-government services through broadband networks is essential to increase demand for broadband services • E-government also encourages citizens to subscribe to broadband services and provides businesses with more information • Develop online Content and Media • Governments should support content and media development in local languages, with locally relevant content – (smaller issue in Lebanon) • In Korea content development policies have been a critical component of the overall approach and have evolved in line with market developments. Korea‘s online game industry grew rapidly with broadband penetration and has become a major export industry as broadband expands worldwide • Large enterprises may be the first users of Broadband but SMEs, which make up most of the private sector, often lack understanding of broadband impact or cannot afford it • Policy measures for SMEs include developing and providing free or low-cost applications, providing tax breaks for investments in ICT and Web-based services, and giving tax cuts to businesses in the ICT industry • Encourage Businesses to Use e-Services 1st June 2012 www.tra.gov.lb

24. The TRA and the MoT should collaborate to implement regulations that allows SPs to compete on the access and services layers MoT’s Current Projects Issues and Next Steps • Media City: • This city will be in Dekwaneh and media companies will benefit from TV, radio, satellite and internet access • Digital Cities: • Still at the concept phase. Will serve as incubators to small companies to encourage and support their creative ideas. R&D under the supervision of the different Lebanese universities will also be included • Applications: • This is a competition program where students from all Lebanese universities may compete for developing mobile applications and win valuable prizes • MoT is actively laying out the infrastructure and intends to allow competition in the market at the services layer • However, Service Providers should be allowed to rollout access, not just services (i.e., invest in access layer: wireless access and fixed access including FTTx should be allowed) • Whether the MoT will offer these services or Service Providers will invest in the access market, the TRA and MoT should collaborate to have the regulations that address these two layers in place www.tra.gov.lb