July 31, 2003

U.S. Bars State-Owned Firms from Iraq Mobile Tender

By REUTERS

BAGHDAD (Reuters) - Iraq's U.S.-led authority has barred partly state-owned companies from bidding for three mobile phone licenses, a move critics say could give U.S. firms an upper hand over Arab companies.

The U.S.-led Coalition Provisional Authority (CPA) is holding a tender conference on Thursday in Amman for the three Iraqi mobile phone licenses, among potentially the most lucrative contracts to be offered in Iraq.

"No government shall directly or indirectly own more than five percent of any single bidding company or single company in the consortia,'' tender documents posted on the CPA Web site say.

The move could bar Arab firms such as Batelco, which briefly offered post-war mobile service in Baghdad and is partly owned by the Bahraini government, from bidding. It is common for Arab governments to hold stakes in Arab firms.

``It seems that none of the companies in the Middle East will be able to bid in these conditions,'' Batelco Regional Operations Manager Rashid al-Snan told Reuters. ``I am sure there will be a number of companies opposing this.''

Mobile phones were banned under ousted President Saddam Hussein but sprang unexpectedly to life in Baghdad last week, delighting cellphone users.

Mobiles quickly replaced pricey satellite telephones as a major means of communicating abroad -- at least for foreign journalists and businessmen. Few Iraqis have suitable phones.

But heavy U.S. pressure forced Batelco to pull the plug on its $5 million network in Baghdad just days after starting service, ending the capital's first foray with mobile phones.

Batelco said it planned to invest $50 million in Iraq. A spokeswoman said the firm still planned to submit a bid as a joint venture with an Iraqi company.

Kuwait's MTC- Vodafone, whose roaming service had also briefly worked in Baghdad and which has said it wants to participate in the tender, is 25 percent government-owned.

MTC is a franchise partner of the world's largest mobile operator by revenue, Britain's Vodafone, which said earlier this week it had no plans to enter the Iraqi market.

The Kuwaiti government also has a stake in MTC's rival Wataniya Telecom, which also wants to take part in the tender.

Darrell Trent, senior adviser at Iraq's ministry of transportation and communication, told Reuters in Amman, Jordan that the clause was not meant to give U.S. firms an upper hand over Arab companies.

``We want a competitive system, and one of the things that we don't want is to have governments involved in control positions in the process. The five percent is not fixed in stone but is an indication of our desire to have private competition in the markets immediately,'' Trent said.

A CPA spokesman, asked about the rule, also said it was ``one of the things we are prepared to look at again.''

LICENSES LIKELY TO BE LONG-TERM

``I think the whole world will be watching to see how we open this new market,'' Trent told more than 500 businessmen at a conference in Amman.

Some investors have raised questions about the legality of granting GSM licenses before Iraqi sovereignty is restored.

The CPA said it expected the two-year regional licenses would ultimately be renewed by an Iraqi government and would turn into three competing national networks after a year.

``We believe the investments can be recouped in the 24-month period and are doing our best to ensure that arrangements agreed with licensees continue beyond that timeframe,'' said CPA telecommunications adviser Jim Davies in Amman.

Trent said the CPA wants bids by August 14 and expects to grant the licenses at the beginning of September. Companies are required to begin building networks within 20 days of receiving their licenses, CPA officials said.

``Time is of the essence. We are quite anxious to have the system up and running,'' Trent said.

The CPA spokesman said, however, that he did not see the networks up and running until mid-November.

In a move that could reassure foreign firms, the CPA said it was not enforcing laws restricting non-Iraqi businesses, which could be suspended.

Iraq has not yet decided whether to use U.S. technology or the rival, more widespread European GSM system, which is used throughout the rest of the Middle East.

A decision to use the global system for mobile communications standard (GSM) would be a blow to U.S. firms hoping to build a wireless network in Iraq based on the CDMA (code division multiple access) standard developed by California-based Qualcomm Inc.

GSM technology would allow Iraqi cellphone users to travel to neighboring countries without changing phones.

The U.S. Army and development workers now use a network in Baghdad built by WorldCom Inc, a bankrupt U.S. telecoms firm that is doing business under the name MCI, but service is barred to ordinary Iraqis.