The rapid advances in technology that are transforming the way we communicate are having other radical effects. Top-quality telecoms are now seen as essential for economic growth and governments are pressing for urgent improvements. This can present a major challenge in cash-strapped countries and a golden opportunity for the private sector.

In the Middle East, tight state control is easing in some markets. Governments are still providing most of the basic services and funding network expansions. But it is now common for private operators to launch mobile systems and the private sector is eating into other areas that were once a state monopoly. Yet, the region has still not accepted the idea of wholesale privatisation of telecoms and the changes are driven more by commercial need than ideological conviction.

Although privatisation is a major issue throughout the region's telecoms industry, expanding the basic network to meet the huge growth in demand is a far more pressing issue. And, from the huge capacity additions in Saudi Arabia to the launch of new satellites the regional market is an active one. Below, MEED writers profile the main Middle East markets with details of current expansion projects, structural changes and future plans.

BAHRAIN has had a partially privatised network since 1981 when the Bahrain Telecommunications Company (Batelco) took over the national network from the UK's Cable & Wireless. The UK company still has a 20 per cent stake in Batelco and works closely with its management.

The company is profitable, recording a net profit of BD 24.4 million ($66 million) in 1994, and plans to invest BD 100 million ($265 million) during the next five years on further technological improvements.

Batelco has spent more than $450 million on network expansion and improvements since 1981, tripling capacity to 150,000 lines. There are 36 digital exchanges and a mobile system of 20,000 lines. Telephone density is 23 per cent, compared with an Arab world average of 4 per cent.

The international network comprises three satellite earth stations, two digital international exchanges, one fibre optic cable to Saudi Arabia, and one submarine co-axial cable to Qatar and the UAE.

Batelco has several expansion projects, including a $17 million commercial centre in central Manama to house new digital facilities. It will be completed by August 1996. France's Alcatel has a $4.3 million contract for a new 30,000-line digital exchange which will come into operation in 1995. Sweden's Ericsson is supplying and installing a global standard for mobiles (GSM) network, which will be operational by May. It will provide 15,000 lines which subscribers can use throughout the GCC. Marconi was awarded a BD 1.5 million ($4 million) contract in mid-1994 to supply synchronous digital hierarchy (SDH) technology, a network management system, by mid-year. Batelco is also reviewing bids for an Asynchronous Transfer Mode (ATM), or switch network technology, which is also planned for 1995.

Bahrain is participating in the $80 million GCC submarine fibre optic link project between Bahrain, Kuwait, Qatar and the UAE. Bids have been received from three companies and an award is due in May or June.

EGYPT'S telephone system has come a long way since the 1970s when long- suffering operators would spend days trying to establish a connection between districts within Cairo. Aid-financed investment in the 1980s has resulted in major improvements, and Egypt now boasts an adequate, if often frustrating, telephone service.

In terms of telephone density, Egypt is a fairly representative low-to- middle income developing country, with about 50 telephones per thousand inhabitants, or 2.8 million lines. Plans are in hand to increase that to about 3.3 million in five years, and the service is being upgraded with several fibre optic networks being established countrywide.

The 500,000-line expansion is being financed by a $200 million grant from the US Agency for International Development (USAID), $80 million of which has been confirmed. The remaining funds will be allocated subject to the National Telecommunications Organisation (Arento) carrying out agreed administrative reforms. These mainly involve modernisation programmes already well under way. Invitations to bid for the first two packages of the expansion scheme went out to US contractors at the end of March (MEED 31:3:95).

Arento is also studying offers from five companies for the supply of equipment for a GSM system. This project has been offered for tender in various guises during the past two years, and there is not great confidence that it will go ahead soon. Privatisation of Arento is not now on the agenda.

GAZA/WEST BANK Confusion over the award of a contract has prevented work starting on developing the telephone system in the West Bank and Gaza Strip. Two companies hold contracts to rehabilitate and expand the telephone network, but no one has been paid and work has yet to begin.

The Cayman Islands-based International Technologies Integration, which is part-owner of the Palestinian Telecommunications Company (Patelco), was awarded a contract by the Palestinian National Authority (PNA) last October. Patelco, which took over responsibility for the communications infrastructure in the Palestinian self-rule areas from the Israeli firm Bezeq, and subsequently signed a contract with the US communications company MCI for the provision of international telephone lines. MCI says work will begin on the contract once Palestine has been given a country code by the International Telecommunications Union.

However, the US' AT&T states it signed a protocol of co-operation with the PLO in Tunis in mid-October to run the Palestinian telephone network on a build-operate-transfer (BOT) basis. AT&T says the agreement was endorsed by the Palestinian Economic Council for Development & Reconstruction (PECDAR), which is responsible for co-ordinating the Palestinian development programme.

To add to the confusion, the Palestinian Investment and Development Company (Padico) has also expressed an interest in operating the phone system. Despite the award of the other contracts, Padico officials say that the Palestinian authorities have still to make a final decision over who should carry out the work.

IRAN has in the past year stretched out its telephone network expansion programme from three to five years and raised its target for additional lines by 15 per cent. The new plan, imposed as a result of hard currency shortages, also calls for higher local content and privatisation.

The Telecommunications Company of Iran (TCI) is aiming to have 11.1 million lines by the turn of the century, implying the addition of 7.1 million lines over the next five years.

The target was raised in late 1994 when TCI invited bids for 1.1 million lines for small exchanges in rural areas. The exchanges would have capacities ranging from 256 to 3,000 lines. Bids were submitted in November, and a decision is expected before summer 1995.

This year should also see belated decisions on a number of other, previously announced schemes for an aggregate 6 million lines.

These schemes include 1.2 million lines in large exchanges and 2.4 million lines in small exchanges. Bids have yet to be invited for another package for 2.4 million lines.

In addition to the 11.1 million fixed lines by 2000, 500,000-1 million mobile lines are planned in the coming years. Tehran has a 10,000-line mobile centre installed by Finland's Nokia. Bids were submitted in March to raise capacity to 100,000 lines. Earlier bids for mobile centres for seven cities have yet to be evaluated, and TCI plans to invite bids for a separate scheme for six cities.

The telecommunications market has changed radically since 1994 when hard currency started to dry up in Iran. The changes centre on more involvement by local firms and the opening of parts of the network to operation by the private sector.

The bid invitations for 1.1 million lines for small rural exchanges were restricted to local firms, although most of these firms operate with foreign partners.

Leading local firms are: Iran Telephone Manufacturing Company which has licensing agreements with Alcatel-SEL and Siemens, both of Germany; Iran Communications Industries Incorporated; Parstel, which is understood to have a licence from South Korea's Daewoo Corporation; Paya, under licence from South Korea's Lucky Goldstar; Iran Telephone Industries which is believed to be using old US technology without a licence; and Kyatel.

The local private sector is also being invited to set up and operate parts of the system on a build-operate-transfer (BOT) basis. Nine licences have been issued so far.

Involvement by the private sector will initially be limited to mobile phones and small rural exchanges of up to 2,000 lines. Privatisation has generally been welcomed; however, experts say TCI will have to be careful not to allow a proliferation of systems which might not be compatible.

KUWAIT The national network, operated by the Communications Ministry, is in the enviable position of having spare capacity. The network has 500,000 lines, of which only 400,000 are in use. Upgrading rather than expansion is the main focus in projects and about 90 per cent of the exchanges are digital. Much of the conversion work has been carried out by Ericsson of Sweden. In 1994, the company signed contracts worth KD 5.4 million ($18.3 million) to upgrade 15 local AXE exchanges and upgrade and expand the international exchange.

The ministry also intends to digitise the 70,000 lines that still rely on analogue exchanges using cross-bar switching. Plans have been finalised, and approval of financing for the scheme is expected following publication of the state budget for 1995/96.

Privatisation plans are well advanced. Technical studies by ministry committees have gone to the Finance & Planning Ministry for approval, and the government is keen to see the programme move forward. The World Bank has recommended the transfer of the assets of the Communications Ministry to a new company, Kuwait Telecommunications Company, followed by the sale of all its shares to the private sector.

The bank believes that the highest sale price is likely through the sale of a controlling block of shares to a foreign telecommunications company, with the balance sold through a public share offering. The ministry has recommended the sale of 52 per cent of shares to Kuwaiti nationals, a further 25 per cent to a foreign partner, with the balance to be retained by the government.

The country has a mobile network with 120,000 lines. Two systems are in place, operated by Mobile Telephone Communications Company, a public shareholding company listed on the Kuwait Stock Exchange. The country's ETACS analogue system, with 70,000 lines, was installed by Ericsson after liberation in 1991. The US' Motorola and Siemens of Germany installed a GSM network with 50,000 lines in late 1994. All new mobile subscribers are on the GSM system, which is to be extended to 100,000 lines. The World Bank has recommended opening up the mobile market to competition from local and international companies.

LEBANON In a few weeks' time, Lebanon will have the distinction of leading the world in terms of mobile phone density. With the launch of two GSM systems of 50,000 lines each Lebanon will have one mobile line for every fixed line. This is a cachet that the Lebanese, with their love of gadgetry, will be well satisfied with. However, in reality it is more a reflection of the shortcomings of the fixed network.

Setting up an efficient telecommunications system is a vital ingredient in Prime Minister Rafiq Hariri's campaign to establish Beirut as a regional financial centre. At present, the service falls far short of requirements. But with the start up of the GSM system and the completion of the first phase of a $500 million programme to repair the fixed system, matters should improve considerably in the next few months.

The two GSM systems are operated by France Telecom Mobiles Liban (FTML) and Libancell. FTML is majority owned by France Telecom and is using equipment provided by Ericsson of Sweden and France's Alcatel. Its network has been named Cellis. Libancell is majority owned by local investors, including the Rizk-Tohmeh group. Telecom Finland International has a 15 per cent stake. Libancell is using equipment supplied by Siemens of Germany and Motorola of the US.

The operators are charging an annual subscription fee of $500 plus relatively low call charges. A proportion of their revenue will be paid to the Posts, Telegraphs & Telecommunications Ministry. The launch has been accompanied by some controversy about the precise terms of the two operators' 12-year franchises. The government plans eventually to increase the GSM system to some 600,000 lines.

The fixed network contracts are being carried out by Siemens, Alcatel and Ericsson, with each company dealing with separate geographical areas. The aim is to deliver a network of 1 million lines by the end of 1996. The companies say 75 per cent of the project will be complete in the third quarter of 1995. Only then will the complaints about the telephone service start to abate.

OMAN The General Telecommunications Organisation (GTO) hopes to have achieved a telephone density of 20 lines for every 100 inhabitants by the year 2000, up from an average of 7.5 lines in 1994. GTO's annual investment in the network is about $78 million.

The network capacity by January 1995 was 209,775 lines, of which 165,447 are in use. The mobile system, introduced in 1985, has 6,848 subscribers. The present analogue system will soon be augmented by GSM, bringing Oman into line with the other GCC states, and the GTO is evaluating bids to install it.

GTO has 563 circuits carrying international traffic via satellite earth stations. The first earth station, installed at Al-Hajar in 1975 and frequently upgraded since then, provides international communication links through the Intelsat satellite. A new digital earth station at Ibri was set up in 1993. The Al-Amerat earth station is in the process of being digitalised and is expected to be in service by the end of 1995. There are two terrestrial links between Oman and the UAE.

A fibre optic system, linking Rusail, Firq and Ibri, was commissioned in 1993. A link between Buraimi and Rabi has also been commissioned, with an extension to Sohar planned for a later date.

GTO introduced the Middle East's first global network services in 1993, giving users access to database services. The voice mail system has a 25,000-subscriber capacity. The paging service capacity was recently expanded to 55,000 subscribers; there are 37,045 pagers in service at present. The sale of paging equipment has been privatised. Other services include the recently launched digital data network, Omanet, which GTO is already considering expanding.

GTO has been fully state owned since 1980 when the government bought out the UK's Cable & Wireless' 40 per cent stake. GTO is profitable and made about $57 million in 1993. The GTO's workforce is 82.7 per cent Omani.

Government officials have discussed the possibility of some form of privatisation but no firm proposals have emerged as yet, GTO officials say.

GTO has a long list of expansion projects. The priority is to extend telecoms services to rural and remote areas. There are currently projects in the Musandam governorate, Buraimi, Dhahira, Dhofar, Dakhelia, and Al- Wusta.

PAKISTAN The imminent privatisation of Pakistan Telecommunications Corporation (PTC), which the government has promised to push through by the end of the year, dominates all discussion of telecoms in Pakistan.

The controversial sale is expected to net rich returns for the government, which has already made $898 million from the sale of 10 per cent of PTC. The company made a profit of about $460 million in 1993 and results for 1994 are expected to be as good.

The government intends to divest 26 per cent to a strategic investor who will also take over management of PTC. A financial advisor to assist the sale is to be chosen soon from a short list of about 10 (MEED 10:3:95, Pakistan). Future shares in PTC are already being traded through a vouchers system (MEED 19:8:94).

Privatisation may trigger the huge investment required to expand the network. At present, PTC provides about 2 million telephone lines for a population of around 130 million. Frustrated customers have turned increasingly to the mobile system which offers about 20,000 lines through three operators, Instaphone, Paktel and Mobil Link. A GSM network supplied by the US' Motorola started last August and is operated by the local Saifullah Group.

Pakistan has been experimenting with build-own-operate telecoms projects for some time. France's Alcatel has just completed a build-lease-transfer exchange with 182,000 lines for the Karachi area. Alcatel also opened a $6.7 million switchgear plant in Islamabad in 1994. Sweden's Ericsson is working on a 180,000-line exchange in the Punjab. Other plans include developing fibre optic links. Bids are being evaluated for a link from Peshawar to Karachi. Bids for a 45,000-line rural exchange will be invited soon.

QATAR By Gulf standards, Qatar Public Telecommunications Corporation (Q-Tel) is in a privileged position. In both the fixed line and mobile networks, capacity is more than sufficient to meet subscriber demand. Nevertheless, Q-Tel is not resting on its laurels. This year, the company is pressing ahead with expanding and upgrading the networks, as well as introducing a range of new services.

The state-owned company operates seven digital exchanges, with a capacity of 165,000 lines. Of this total, 118,000 are working lines. To cope with the 5 per cent annual increase in demand, Q-Tel is in the midst of adding a further 80,000 lines at three new exchanges at Wakra, West Bay and central Doha. It is also building a new digital exchange at Kharaitiyah, which will replace 16 remote line units in various locations in the north of the country.

In tandem with the exchange expansion programme, Q-Tel is upgrading its digital transmission links. By the end of 1995, fibre optic lines will have been laid, connecting Umm Said, Ras Laffan and Dukhan. The company will also participate in the planned fibre optic Gulf project, which will connect four GCC states. Part of the proposed submarine network will link Doha to the oil loading terminal at Halul island.

On the mobile side, Qatar became the first Gulf state to inaugurate a GSM system in early 1994. The 25,000-line network currently has 9,000 subscriber lines in service and Q-Tel plans to introduce voice mail on the system, as well as on the public network, in the future.

Another project under execution is the doubling of the pager system to 100,000 subscribers. This is required to meet rising demand for the service, which already commands 44,000 subscribers.

Q-Tel intends to be at the forefront of the communications revolution. It will soon provide subscribers with access to the internet. Its satellite broadcasting service, Qatar Cable Vision (QCV), currently has 13,700 subscribers and is being upgraded to cover the northern part of the state and to provide up to 33 channels. It also offers the public a call home direct service and an international toll-free telephone service. Further intelligent network services are planned, including televoting and virtual reality private networks.

SYRIA Persistence has finally paid off for Makram Obeid, head of the Syrian Telecommunications Establishment (STE). He first invited bids for a 700,000-line expansion of the decrepit telephone network in 1982, but was not in a position to award a contract until 1992 because of financing constraints.

Like much of the improvements to Syria's infrastructure in the past few years, the telephone sector has benefited from the effects of the operation to drive Iraq out of Kuwait. Syria's participation in Desert Storm earned it substantial development aid from Gulf states, including $130 million from Kuwait to finance the 700,000-line contract, carried out by Siemens of Germany.

The original contract has been completed, but Siemens is working on a number of follow-on contracts that will bring the total number of lines added to the system to 1.13 million by the end of 1995. The expansion is being paid for directly by STE from its own resources. It will give Syria about 2 million lines in total, or a teledensity of 12 per cent of its 16 million population.

The improvement in the service is already evident in Damascus, which has been transformed into a phone-friendly city after the dark ages of a virtually defunct telephone system and a ban on facsimile machines.

International calls have been improved following the completion of a cable to Cyprus in December. This 140-Mbit line has a capacity of 8,000 simultaneous channels.

The next project on STE's agenda is to lay a submarine cable from Tartous to Alexandria. Bids are due by 25 April. The possibility of setting up a GSM system in Syria has been discussed, but no firm decision has been taken.

TURKEY The past decade has seen a 10 million line increase in capacity to the present total of about 14.5 million lines. The network has been transformed by digitalisation, and further enhanced by the installation of fibre optic links to replace microwave communication between the main cities.

Some 80 per cent of exchanges are digital and telephone density has leapt to 21 lines per 100 inhabitants from 2.5 in 1980. This is still less than the European average of 45, and the OECD average of 53 but Turkey ranks sixth in Europe on the basis of line capacity. In August 1994, Turkey acquired its own telecommunications satellite, with the successful launch of Turksat-1B. A second satellite, Turksat-1C, is due to be launched in July 1996.

The economic crisis in 1994 obliged the posts, telegraphs & telephones (PTT) administration to freeze its investment programme at TL 12 trillion ($340 million) and to reduce its target of 1.4 million new lines for the year to 1 million lines.

Applications are still running at more than 1 million lines a year and the PTT will have to install an average of 1.2 million new lines annually to achieve its teledensity target of 25 per cent in 2000. The PTT aims to make good the 1994 investment shortfall in 1995, but could exhaust the funds available by April.

Sweden's Ericsson and France's Alcatel head two consortia which have contracts to supply a GSM system and, in a prelude to what may become the standard under privatisation, the two groups will share in the revenue generated by the mobile service.

Abroad, Turkish telecoms companies are active in the Turkic republics of central Asia and the PTT has helped to co-ordinate two fibre optic projects linking littoral states of the western Black Sea within the context of the Black Sea Economic Co-operation (BSEC) zone.

More than 80 per cent of the telecoms equipment bought by the PTT is locally made by three joint-venture manufacturers - Netas, the local subsidiary of Canada's Northern Telecom; Alcatel-Teletas, which is a joint venture with Belgium's Alcatel-Bell Telephone; and Simko, a venture of Siemens and the local Koc Group.

The privatisation of Turk Telecom, carved out of the PTT in 1994, has been held up by political wrangling but may proceed later this year. Initial privatisation could be limited to pay phones, mobile phones and video with the main sale delayed until a much later date. Estimates of the value of the sale range from $3,500 million to $30,000 million, depending on how much is sold and when. Potential investors will need assurances that the political interference that has been a fact of life in the sector for so long will not continue.

YEMEN The telecommunications network is skeletal. The system has a capacity of 215,000 lines, but only 172,000 are in service for a population of 16 million. More than half of the lines are in the capital. Demand for new lines is high, at about 40,000.

Action is being taken to rectify the situation. The Public Telecommunications Corporation (PTC) is one of the few government bodies with funds available. In addition to its YR 1,400 million annual budget, the French government is providing a FF 50 million ($10.1 million) grant and a FF 100 million ($20.1 million) loan to expand the number of working lines in the country to 310,000 by the end of 1996. The existing analogue transmission links will be digitalised. PTC will meet 75 per cent of the cost of the scheme. The work is being carried out by France's Alcatel CIT. Completion of the first phase is scheduled for June 1995, when 34,000 lines will be installed, linking a further 20 towns to the network. PTC is also laying fibre optic cables linking Sanaa with Saudi Arabia and Taiz.

The country is well-served internationally. Operations are handled by Tele-Yemen, a joint venture between PTC and the UK's Cable & Wireless, in which PTC holds a 49 per cent share. Tele-Yemen operates four earth stations which provide direct dialling to 162 countries.

A subsea fibre optic cable linking Aden with Djibouti was scheduled to come into service in April. This will link the country with the Southeast Asia/Middle East/Western Europe international marine telecommunications network.

The launch of a mobile telephone system was halted due to the outbreak of the 1994 civil war, but a relaunch is expected soon. The Motorola UTAC analogue system has a capacity of 5,170 subscribers.