Telecommunications in the Middle East is a world of extremes. Call a leading company in the Gulf and a smooth recorded message in Arabic and English will invite you to dial the extension you require or press zero for operator assistance. Language and accent apart, you could be calling the US or the offices of a multinational anywhere in the world.

But placing a call from a rural area, even to a nearby town, can be a different story. A poor connection or no line at all may be your lot. Small, highly urbanised countries - Bahrain, Kuwait and the UAE, for example - enjoy elevated teledensities, while access to a phone in the more populous Saudi Arabia, Iran or Egypt is far more restricted. In many Middle East countries, teledensity has yet to reach 10 lines per 100 inhabitants; in high income countries the norm is closer to 40 lines per 100.

Massive investment

Despite decades of state development, the region requires massive further investment to upgrade and expand telecoms capacity. According to Mohsen Khalil of the International Finance Corporation: 'About $8 billion worth of investment in the telecoms sector is needed annually in the Middle East and North Africa.' Speaking in Beirut in late February at Arabcom, a congress of telecoms officials from the region, Khalil said that liberalisation and privatisation were now essential as governments could no longer afford such huge investments. 'The biggest driving factor is capital. The public sector can no longer meet current or future requirements.'

More Middle East governments are getting that message and privatisation is gathering speed around the region. Anxiety about losing control or sacrificing revenue can inhibit enthusiasm but conditions are loosening up. Saudi Arabia is preparing for privatisation and the latest GSM tender in Egypt shows how valuable private deals can be to national telecoms authorities that are prepared to let go a little (see page 10). On a less encouraging note, the big revenues generated by GSM are giving some state- owned telecoms companies a taste for retaining a stake in mobile phone services (see page 12).

But technology is already outstripping the ability of governments to control communications and there is an understanding that restrictions can stifle development. 'Losing control in technology will soon become the norm. This is part of the inevitable,' Jordan's former communications minister Jamal

al-Sarayrah told the Arabcom conference.

Not an issue

Progress towards privatisation remains patchy nevertheless. In the smaller GCC states where networks are run by privately incorporated companies, such as Batelco in Bahrain, Q-Tel in Qatar or Etisalat in the UAE, privatisation is not a serious issue. A sale of shares to the public may be considered as a way of spreading wealth - the companies are highly profitable - but is not essential to improve teledensity or service levels, which are relatively high. Within the GCC, only Saudi Arabia has launched a privatisation process and the first stage, incorporation of a private operating company to take over from the Ministry of Posts, Telegraphs & Telephones (PTT), is due by mid-year (see page 9). Oman is set to follow suit (see news).

The need for investment after the civil war made Lebanon, of necessity, a private sector pioneer. The result is a mobile system of more than 200,000 lines, which is part foreign-owned, and the highest teledensity in the region. Major investment has restored the fixed network and a further 250,000 line expansion is under way for completion this year. However, private investment has only been allowed in the mobile sector and there are no plans to sell off fixed services.

Politics and the credibility of governments are hindering privatisation elsewhere. A sale of Turk Telekominkasyon has been talked about for more than 20 years by a succession of Ankara governments that have vowed to roll back the state sector. The proceeds from a sale are even included in the state budget year after year. Although the principle of private operators and competition has been accepted for mobile services, there is still no sign of privatising the fixed network.

It is another long-running saga in Pakistan where the sale of a stake in Pakistan Telecommunications Company (PTC), first proposed in 1995, has made slow progress. At present the government has 88 per cent of PTC's shares; it plans to sell a portion on the Karachi Stock Exchange and a strategic stake to an investor who will assume management control. In February, the Privatisation Commission shortlisted Goldman Sachs, Credit Suisse First Boston and UBS as potential financial advisers for the sale.

Morocco has similar plans to part-privatise the state telecoms company and allow a private mobile operator to compete with the existing state GSM service.

Similar proposals are expected in other countries where privatisation is now integral to economic planning, but implementation is certain to remain a tortuous process as vested interests defend their fiefdoms.