Building the Telecom Highways for Economic Prosperity in Lebanon

1. Building the Telecom Highways for Economic Prosperity in Lebanon Dr. Kamal Shehadi, Chairman and CEO Telecommunications Regulatory Authority of Lebanon Telecom Finance- London 27th January 2009

2. Although reform has started with the establishment of the TRA, most telecoms markets in Lebanon are growing slowly and suffer from lack of competition Current Indicators Penetration Number of SP Private / State-owned Level of Competition Mobile Market 35% 2 State-Owned Monopoly Fixed Market 63% (*) 1 State-Owned Monopoly Internet Market 32.5%(*) ~ 16 Private Competition ADSL Market ~ 7.7% (*) ~ 8 MoT / Ogero Private (bitstream, line sharing) Limited Competition

3. The telecommunications marketis still underdeveloped when compared to other countries Fixed Line Penetration vs. GDP per Capita (2005) Mobile Penetration vs. GDP per Capita (2005) Internet Penetration vs. GDP per Capita (2005) PSTN Penetration Mobile Penetration Internet Penetration GDP per Capita (USD/ Year) GDP per Capita (USD/ Year) GDP per Capita (USD/ Year) With its GDP per Capita, Lebanon should be at around 55% penetration rate in Fixed Lines. With its GDP per Capita, Lebanon should be at around 60% penetration rate in Mobile Lines. With its GDP per Capita, Lebanon should be at around 22% penetration rate in Internet. Sources: Economist Intelligence Unit, interviews with industry

4. The TRA has assessed the strengths and opportunities of the telecommunications market in its reform and liberalization process Fixed Voice • High pent-up demand and important growth potential in all telecom markets • Growing economy with a stable financial system • Appropriate regulatory framework to attract investors • Consumer behavior/early adopter of telecom services • Liberal political and social environment • Dynamic private sector • Relatively good copper infrastructure • Regionally competitive price per minute • De jure MoT monopoly • Lowincentive to upgrade the infrastructure and introduce new technologies • Low penetration rate • Stagnant growth Mobile • Pent up demand for Mobile services • High Mobile revenues (ARPU over US$ 65/month) • High charges • Lag behind in terms of new technologies • Low market penetration • Limited choice in mobile bundled tariffs packages • Shortage of adequate investments Mobile Data • Relatively competitive • Lucrative segment • New wireless technologies deployed • Pent-up demand for data and internet services • Shortage of international bandwidth • Access controlled by the MOT • High int’l bandwidth prices, and non optimal allocation of bandwidth among providers • Incomplete Regulatory framework Data

5. TRA is planning for the liberalization of most telecom services in 2009 (1) (2) 3 1 ? ? (3) 3 (4) 3 (5) 2 • (1) The privatization of the mobile sector will depend on the regional and international financial markets conditions • Two mobile operators and Liban Telecom • Two National Broadband Licensees and Liban Telecom • (4) Two mobile operators and Liban Telecom • (5) Two National Broadband Licenses, subject to CoM’s decision License Award Market Review Open licensing

6. TRA is aiming to have infrastructure-based competition in the provision of broadband services competition

7. The TRA plans to issue, following an international auction, two national broadband licenses for international, core, metro, and access networks The TRA plans to issue two types of Broadband Licenses • National Broadband Licenses (NBLs) with: • Rights to build/offer (fixed and spectrum based) Access, National Backbone and International network/services • Obligations to meet access and national backbone rollout conditions with minimum build for fiber • Exclusivity period to interconnect new sites of other BAL providers via its national backbone • Broadband Access Licenses (BALs) : • National or regional • With or without spectrum, • Existing Data Service Providers continue to use their national Microwave backbone to backhaul existing sites • BALs originally rely on the NBLs for new site connectivity Broadband Deployment Timeline Broadband Deployment Timeline Spectrum Re-farming & RTU fees Draft RFA for Consultation (including BB License) Broadband Policy Statement ROW & Duct s Decree NBL Auction December 09 July 09 Jan 09

8. The regulatory framework and the public consultation process adopted by TRA aim at ensuring the success of liberalization Drafting Stage Draft Ready Stage Consultation Stage Final Review (TRA Board) Issued Significant Market Power Regulation Unbundling Regulation VOIP Policy Statement Spectrum Re-farming and Packaging Plan Liberalization Roadmap Broadband Policy Statement • Decisions: • VSAT, • Trial IPTV • Spectrum trial Allocation for MoT / OGERO National Roaming Accounting Separation Regulation Improving FM Broadcasting Numbering Regulation Universal Service Digital Migration Strategy for TV Broadcasting Licensing Regulation CS / CPS Interconnection Regulation Pricing Regulation Access to Information Regulation Type Approval Regulation * Interconnection Interim Pricing Decision Quality of Service Regulation Decision for establishment of call centers Spectrum Pricing Opinion Spectrum Management and Licensing Regulation Lebanese National Frequency Table National Numbering Plan Consumer Affairs Regulation

9. TRA is promoting Infrastructure Sharing and access to Rights of Way prior to the broadband licensing to lower the barrier to entry All Existing Infrastructure * owned by ROL Telecom Law permits access IS/RoW for Service Providers • *All Existing Infrastructure: • -Fixed Infrastructure • Mobile Infrastructure • Water, sewers, drainage • Electricity • Roads, Streets, Highways

10. Allowing infrastructure sharing has important benefits for all stakeholders Broader Benefits • Faster deployment • Allows investors to reach less densely-populated areas by sharing deployment cost • Optimize use of scarce national resources • Eliminates redundant, costly, and disruptive public works • Reduces environmental damage caused by constructing new data networks Incumbent Benefits • Allows for quick recovery of new investment cost • Provides new revenue stream through cost-based rent New Entrant Benefits • Deploys network and services to customers faster • Reduces cost of deploying new network for new entrant (60-70% for civil works)

11. The TRA expects a decision by the Government of Lebanon to re-launch the mobile auction following the parliamentary elections (Summer 09) To+ 5 (Mths) November 2007 To January 2008 Licensing Process Suspended To+ 2 (Mths) To+ 3 (Mths) GoL Decision to Re launch Process Technical & Pre-Auction Financial Bids Due Auction – Announcing two winning bidders Handover completed Crucial phase that should be completed smoothly and in the specified time Mobile Auction Launch: RFA published • Scope of Mobile Licenses • Provision of any service over the licensed frequencies, including 3G mobile broadband services • Build-out and operation of a facilities-based international gateway • Provision of all international services to their own end users • Infrastructure sharing strongly encouraged as long as it does not limit competition • Obligations • Geographic roll-out and coverage obligations are not onerous (areas already covered) • Introduction of mobile number portability • Provision of national roaming to the third entrant to allow a faster development of competition

12. The way forward for regulators • Regulators must give higher priority to lowering the financial and physical barriers to entry to promote investments in underserved markets • Infrastructure sharing, both for new and existing infrastructure, has become even more pressing • Auctions are still the preferred way to go, not primarily for the revenue-generating objective, but for the fairness, simplicity, and transparency of a well-designed auction • Regulators should look at revenue-sharing arrangements more positively than in the past for two reasons: • As one way to ease the financing requirements of new telecom investments • As a mechanism to ensure that the value of the telecom assets is carried over beyond the current economic and financial crisis