Winds of change

After many years of delay, on May 26 the invitation to tender for 3Gspectrum closed in Jordan, representing the first concrete step in issuing spectrum. Jordan has always been a vibrant market characterised, though this year is set to be characterised with a number of significant developments, extending from the issue of 3Glicences to the departure of Jordanian telecoms stalwart Mickael Ghossein from Orange Jordan, and the merger between Paltel and Zain Jordan

Mickael Ghossein stood down as CEO of Orange Jordan, having been instrumental in creating one of the region’s first integrated operators

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The issue of 3Glicences has always been contentious issue in Jordan, with the county’s mobile operators suggesting the spectrum ought to have been awarded years ago, and that the delay in doing such has affected innovation in the industry and impacted investment in telecoms. From the regulator’s perspective, it has had to solve a myriad of issues with respect to the allocation of a contiguous band of spectrum.

There were also grapples with respect to cost of the spectrum with the country’s four mobile operators, and most obvious candidates to bid on the spectrum advising the regulator not to look to cash-in on the issue of spectrum, but rather to see it as a necessary tool to continue the development of the Jordanian telecoms market and price it accordingly.

In the end, the Telecommunications Regulatory Commission (TRC) settled on a reserve price of JD25 million (US$35.3 million) for a paired block of 5MHz spectrum, and does not include the evacuation charges and annual returns. It is an amount outgoing Orange Jordan CEO, Mickael Ghossein describes as potentially being a good deal for incumbents.

A ten-month ‘separation period’ of exclusivity will apply to the winning 3Gbidder, after which 10MHz of 3Gspectrum will be offered to the existing operators that did not win the bid, at the price of the winning tender bid.

A concurrent and separate tender will also take place for 2Gspectrum. The reserve price for 2Gspectrum will be 130 per cent of the winning price paid for the 3Glicence. Therefore, the minimum fee to acquire 2Gwill is JD32.5 million for a pair of 5MHz spectrum.

The TRC advised it will request the Council of Ministers to grant the winners of the 3Gand 2Gtenders exemption from custom duties for a period of four years, in the same way it was granted to mobile operators previously.

“TRC will impose roll-out obligations on the licensees to secure the provision of services in at least the capital cities of each governorate in the kingdom within a reasonable timescale,” the TRC’s chief commissioner and CEO Ahmad Hiasat at the commencement of the official licensing process late last year.

“During the first year, the winning bidder is required to make available the services in certain allocated areas, such as west Amman, and then the coverage will expand by the second and third years to cover most of the governorates.”

“I am not going to confirm at this point whether Orange submitted a tender document at this point,” said Ghossein. What I will say is that I think if the regulator licences 3Gin a proper way, may be a good deal for incumbent operators.”

Ghossein, who has been instrumental in the creation of the converged, integrated operator that Orange Jordan has now become, has always been a vocal industry leader with respect to the manner in which the market is regulated, and the aim to create the most competitive market possible, while still protecting the investments of network operators.

“Liberalisation has to have some control,” Ghossein said while speaking in Abu Dhabi at the end of May. “I think the regulator needs to continue to take more care with the market and ensure the needs of the majority of investors are met,” he added.

Ghossein will be moving on as CEO of Orange Jordan in June, a move that is definitely likely to remove one of the most outspoken characters in the Jordanian telecoms industry from the market. Ghossein is a France Telecom veteran who was appointed Orange Jordan CEO in September 2006, having headed mobile operator MobileCom until December 2005, and then having been appointed executive vice president of Jordan Telecom Group prior to becoming CEO of the integrated operator.

It has been suggested that Ghossein will be moving across to head up Orange’s operations in Kenya, where the operator has been focusing on the convergence of its Kenyan offering through its 51 per cent stake in Telkom Kenya. The acquisition was completed in December 2007 and the French telco has slowly been undertaking a transformation of the business, which resulted in the introduction of the Orange brand in Kenya in September 2008.

Telkom Kenya launched GSM mobile services in September becoming the country’s first integrated provider of mobile, fixed-line and Internet services.

Orange Kenya signed a national roaming agreement with the country’s largest mobile operator Safaricom, while broadband Internet was initially available in the cities of Nairobi and Mombassa.

Prior to the launch of Orange’s mobile services in Kenya, and according to Mobile World database, Safaricom and Zain Kenya collectively counted 14.3 million subscribers as of June 2008, representing a penetration rate of 39 per cent. A fourth company backed by Econet Wireless launch earlier this year.

Orange’s emphasis for its Kenyan network in 2009 is to offer simplicity through such services as customer care to educate end-users and to demonstrate services. However new dealer commission structures implemented this May, may threaten some of the operator’s distribution channel reach.

Back in Jordan, the market continues to assess the implication of the merger between the country’s leading mobile operator by subscriber numbers Zain Jordan and Palestinian Telecommunications Company (Paltel). In an official signing ceremony held in Amman in May, Zain and Paltel entered into an agreement for a share-for-share exchange, which will see Zain take a majority interest in Paltel with an equity shareholding of 56.53 per cent in exchange for Paltel owning 100 per cent of Zain Jordan. Paltel is a publicly-listed entity on the Palestinian Stock Exchange and Abu Dhabi Securities Exchange. The merger will set the current Paltel shareholders equity position in both Paltel and its newly acquired subsidiary, Zain Jordan at 41.43 per cent.

Jordan has always had a telecoms landscape that is in constant motion, and the year 2009 is set to further epitomise this

The share-swap transaction involves an exchange of a total of 58.57 per cent of Paltel’s shares for 100 per cent of the shares of Pella Investment Company (Pella), the holding company of Jordan Mobile Telephone Services Company (Zain Jordan). Zain’s equity in Pella, at 96.516 per cent, will be exchanged for 56.53 per cent of Paltel’s equity whilst the balance of equity held by the other shareholder in Pella, 3.484 per cent, will be exchanged for 2.04 per cent of Paltel. Paltel will own 100 per cent of the shares of Pella, and its underlying subsidiary, Zain Jordan.

Through this transaction, Palestine will become the 24th territory in which Zain will have a commercial footprint. The mobile operation in Palestine currently known as ‘Jawwal’ will be rebranded to Zain by the end of this year. This mobile operation will also join Zain’s ‘One Network’ platform, bringing to 19 the number of countries that benefit from the roaming offering.

The combination of both Zain Jordan and Paltel will produce a business group that will generate over US$1 billion in revenues, US$450 million in EBITDA and US$300 million in net income in 2009.

“A merger of this nature, with immediate opportunities for synergies between the two leading operators in Jordan and Palestine, will create substantial value for shareholders and enable us to create a strong operating platform for our businesses in the Levant and beyond,” said Saad Al-Barrak, CEO of Zain Group.

Paltel has a base of 1.5 million active mobile customers and over 363,000 fixed line customers, as well as approx 78,000 ADSL customers as of March 31, 2009. Zain Jordan counts over 2.35 million active mobile customers.

“This merger makes life that much more difficult,” was Ghossein reaction to the development. “How the regulator then copes with this type of development and how the two operators then look to develop one network, are all factors that will need to be looked at.”