Telecoms regulator the Syrian Telecommunications Establishment (STE) will enter formal talks with the country’s two mobile phone operators in December over converting their existing contracts into full licences.

MTN Syria, a subsidiary of South African telecoms giant MTN, and Syriatel, which is owned by the local Makhlouf family, have build-operate-transfer contracts that run until 2015.

The contracts require the companies to give 50 per cent of their revenues to the regulator.

The STE wants a third operator to launch mobile phone services in the country in the second half of 2009, but says a licence rather than a build-operate-transfer contract will be required to attract serious bidders.

It cannot sell a licence for a third operator without first changing the contracts for the two existing operators into licences.

“I do not think it is feasible for a third operator to build a network under a build-operate-transfer contract given the level of mobile phone penetration in the country,” says Ismail Jaroudi, chief executive officer of MTN Syria.

Mobile phone penetration in Syria has increased to about 34 per cent of the population from a low base since the STE awarded the two contracts on 18 January 2001. However, Syria remains one of the least penetrated mobile phone markets in the Middle East, with just 6.7 million out of the 19.5 million-strong population owning their own phones.

If STE agrees to convert the contracts into licences, both MTN Syria and Syriatel should be able to pay a much lower share of their revenue to the regulator, greatly increasing their own profitability.

“We should get fully-fledged licences with affordable revenue sharing, like in Iran or Saudi Arabia, of about 15 per cent,” says Jaroudi. “Before issuing a third licence, it [STE] needs to normalise the two existing licences.”

The talks with STE could “take a year”, according to Jaroudi, because of the political and bureaucratic obstacles to privatising the two mobile phone companies.

“It is not a formal commitment [to convert from build-operate-transfer contracts to licences]; it is a vision at the level of the ministry,” says Jaroudi. “It needs to be endorsed by the higher authorities, such as the cabinet or the parliament.”

MTN Syria and Syriatel have the right to operate a duopoly until 29 June 2009, under the terms of their 2001 contracts with the STE.

The STE is entitled to permit a third operator to launch mobile phone services on 30 June 2009 if it can move quickly enough. “I do not think it is possible for the third operator to launch in 2009,” says Jaroudi. “It will be 2010.”

The STE is expected to permit both MTN Syria and Syriatel to launch 3G mobile phone services, such as mobile broadband, by 20 September.