SOME economists say the condition of a country's telephone network is a fair guide to its economic and political health. And, developing nations have traditionally found themselves at the blunt end of telecoms developments.

Although there are notable exceptions in GCC countries, low investment, low line revenues and government interference have often been the rule for the developing world. Nor, worldwide, does the situation seem to be changing. Over the past 20 years main line density has actually increased in many developing countries as population growth has galloped ahead of network growth.

But there are signs that the developing world - and the Middle East in particular - may be able to benefit from the economies of scale resulting from some

of the technological advances that have made information technology one of the fastest growing industrial sectors in the developed world.

The importance of very advanced technology to the developed world's markets will become even more pronounced as telephone and cable networks are widely believed to play a crucial part in the developed world's transformation from an industrial to an information- based economy. This new role has come about after almost two decades of rapid change. The late 1970s and 1980s saw the digitisation of the telephone network - the application of computer technology to telephone exchanges and transmission equipment.

These developments have proved central to developing the range of functions the telephone network can do, and the price at which it can do it. Fibre- optics, for instance, allows hundreds of conversations to be channelled down a glass thread. And microwave systems have allowed large numbers of conversations to be exchanged as a stream of digital radio signals.

Telephone exchange equipment has been digitised, with the low-tech mechanical exchanges that have characterised telecoms since the early part of the century being changed wholesale for high-tech digital exchanges.

The new exchanges are more reliable, a major consideration for high-tech information-based businesses. However, this is less important in developing countries where some reliability might be worth exchanging for more money to spend providing low-tech lines.

The new equipment also requires far fewer people to maintain it. This element is counted by some as digital technology's most important payoff as it has enabled telecoms operators to reduce expensive staffing levels.

The new networks have also allowed developed countries' telecoms operators to offer enhanced services, such as freefone - not a major obsession in the developing world.

Liberalisation

One other element of the rapid change that took place in the 1980s in the developed world was greater liberalisation and privatisation of telephone organisations. Although only Kuwait and, to a limited extent, Jordan are so far moving along these lines, for the developing world this has meant that many countries' telecoms operators are benefiting from an arms-length relationship with their governments, and a more commercial approach.

These new attitudes, and the new commercial orientation of the global telecoms industry, is also seeing more imaginative methods for deploying appropriate telephone services.

One of the most popular is the build, operate and transfer (BOT) method, where outside capital and expertise is brought in to build and operate a new network at a profit for a specified time, after which it is transferred back to the state operator. BOT schemes were first developed to finance power projects in Turkey but are now used for all types of work.

What the developing world really requires is more lines, or at least more access to the telephone for more people. Although great strides are being taken in the Middle East - Saudi Arabia, for example, plans to add another 500,000 conventional lines soon - until now one of the least changed aspect of telecoms remains the final mile of dual-strand copper cable connecting the exchange and the customer.

But there are signs that technological development might be coming to the rescue. The task is to find ways to deliver more local loops more cheaply or find other ways of achieving the same effect by better using the telephone infrastructure already in place.

Two of the ways involve innovative use of technology originally designed to serve the top end of the developed world's telephony markets.

The first involves a concept called virtual telephony. In the developed world, the telephone companies and the telephone equipment manufacturers are very keen on the concept of the personal telephone. With this, subscribers are no longer tied to a single telephone, instead they use a combination of mobile telephone and portable telephone number, so that calls dialled to their personal telephone number will reach them wherever they are and at the most suitable terminal.

Virtual telephony borrows some of these principles and adds another high- tech wonder, the voice message/voice mail facilities now widely available in the developed world.

The cost of the computer technology behind these voice processing systems has plummeted to such an extent that virtual telephony is a viable stop- gap measure to help meet communications needs while a main line network is being built. In some cases, the virtual telephone, with its go-anywhere personal characteristics, could be a more viable solution in its own right.

The other technology coming to the rescue is that surrounding the mobile phone. The rapid advances in the global system for mobiles (GSM) in the Gulf - now a standard for the GCC - means that physical connections between the long distances separating countries are becoming less important.

Despite the fact that a mobile telephone is usually seen in the developed world as a value-added service and is priced more highly than main line services, it is much cheaper to build a radio-based network from scratch than it is to build a copper network. It is also faster.

These factors are causing many telephone operators to look at using either specialised radio local-loop technologies to provide standard services, or mobile or semi-mobile services based on handset and base station technology designed for the developed countries' cellular networks.

Like standard terrestrial telephone technology a decade ago, mobile technology is benefiting from digitisation. The new digital handsets and the base stations with which they communicate are capable of making better use of the available radio spectrum so that more users can talk simultaneously.

Their fully digital nature makes them more reliable and, most importantly, they are subject to almost endless cost reduction. Like all computer technology, a high proportion of the cost associated with a digital handset or base station relates to design and development, not just of the handset design, but of the silicon chips inside.

Digital equipment therefore favours larger markets, as the bigger a market for any digital component, the cheaper it can become - the high costs associated with developing the sophisticated technologies can be amortised across a greater number of purchases. These benefits will come soon as digital handsets become cheaper.

Flexible price

Another strength of a radio telephone network is that it can be priced to meet different needs and different disposable incomes. In a terrestrial network, each line connected to the exchange carries a high underlying capital cost to the operator, whether it is used a lot, and therefore generates an appropriate amount of revenue, or it is used hardly at all.

In a developed country where most subscribers are comparatively wealthy, the average usage of a line is enough to cover costs. In developing countries, where incomes are lower, it can be hard to justify higher line densities on cost grounds. With a radio network, however, there is no capital cost associated with taking on a new user. The only limiting factor is the radio network's operating capacity - the number of users that can be accommodated simultaneously - so it is possible to sign up an optimum number of subscribers, both intensive and intermittent users.