Iraq Awards Three Wireless Licenses

Three Arab-owned telecommunications consortiums won coveted licenses Monday to launch wireless service in Iraq as early as this month. However, initial pricing may make cells phones an unaffordable luxury for most Iraqis, many of whom have been without basic telephone service since the war began.

No U.S. companies were among the winners, who will spend a total of more than $250 million to build mobile networks throughout the country.

The licenses represent one of the biggest private-sector foreign investment deals since President Bush declared major combat over in May. They were awarded as U.S. and Iraqi officials struggled to attract businesses from around the world to participate in reconstruction. The country’s cell phone market is expected to generate as much as $1 billion in revenue over the next five years.

“This is an impressive demonstration of belief by the international business community in the future of Iraq and its prospects for building a robust economy,” said Haider Ebadi, Iraq’s communications minister.

Under terms set by the U.S.-led Coalition Provisional Authority, or CPA, licenses were awarded in three parts of the country. Cairo-based Orascom won the license for Baghdad and surrounding areas; Asia Cell, a consortium including Kurdish-owned Asia Telecom and Kuwaiti-based Wataniya Telecom, will serve the north; and AtheerTel, a Kuwaiti-dominated partnership including Mobile Telecommunications Co. of Kuwait, received the license for the city of Basra and the south.

The winners are required to set up their territories within 12 months, but will probably finish earlier because of the demand. Then they will be permitted to expand nationwide in competition with one another.

“The race is now on,” Ebadi said.

Announcement of the awards, originally expected by early last month, was delayed as officials sorted through 100 bids by 35 groups. The CPA also provided extra time for Ebadi, appointed last month, to review the choices.

Though CPA officials said they would not give preference to bids by Iraqis or Iraqi-based companies, each of the winners agreed to sell between 10% and 50% of their local operations to Iraqis, Ebadi said.

Prices have not been set, but phones are expected to start at about $50 and calls will cost 8 to 10 cents a minute, Ebadi said.

In a bustling Baghdad shopping district on Monday, merchants and consumers said they eagerly awaited cellular service, but fretted over the cost.

“Of course I want one, but I’m barely making enough money to bring home bread for my family,” said Tarik Abdul Rahm, 38, who runs a yogurt stand.

Land-line telephone service, which was damaged during the conflict and has yet to be fully restored, costs an average family less than $5 a month.

Nevertheless, merchants say customers inquire every day about when cell phones will be available, leading them to predict a flood of buyers, particularly among business owners and foreigners working on reconstruction. Even everyday Iraqis will probably buy phones, though they may not be able to afford to use them.

“When something is kept from you for so long, you just want to have it,” said Aked Muslim, owner of the Al Mohahib electronics store.

Cell phones were outlawed under Saddam Hussein, though small networks operated in the Kurdish-controlled north, including one run by Asia Telecom that serves 55,000 customers.

Diar Ahmed, chief information officer at Asia Telecom, said companies probably will adjust prices to meet demand. “We want prices to be affordable enough so people can get phones,” he said, “but we don’t want the prices of calls to be so low that the networks are overworked.”

The selection of mostly foreign companies renewed complaints that the CPA and the U.S.-appointed Iraqi Governing Council are selling off the nation’s business and financial infrastructure to foreigners. “I want to buy from Iraqi companies because this is my country,” said shopper Mustafa Adnan, 33.

Last month, the council said it would permit 100% foreign ownership of any non-oil industry. Initially, the cell phone contract banned participation by any consortium that included a company whose stock was more than 5% controlled by a foreign government. But the restriction was relaxed after complaints from several companies in the Middle East and Europe, where telecommunications companies are frequently government-controlled. Under the revised rule, no more than 10% of a participating consortium may be controlled by a foreign government.

Several well-known Iraqi family businesses bid for the contract, including Al Bunnia Trading Co., but rivals complained they were using fortunes built during the old regime. CPA officials said they carefully vetted the winning bidders to ensure none had ties to Hussein.

In a blow to many U.S. firms vying for the business, the new Iraqi networks will be based on the GSM standard commonly used in the Middle East and Europe. U.S. companies such as MCI, Motorola, Sprint, Oracle and San Diego-based Qualcomm had watched the bidding process closely even though the U.S. uses a rival technology known as CDMA. U.S. firms could still play a role as suppliers.

One of the losing U.S. bidders, which had promised to sell half its stock to Iraqi investors, expressed disappointment Monday that the council selected large telecommunications companies from other Arab nations.

“This is sending the message that Iraq is the big fat cow for everyone but Iraqis to milk,” said Asaad Alnajjar, chief strategy officer for Zagil Wireless, a consortium founded by a group of Iraqi Americans at VoEx Inc., based in Grand Rapids, Mich., and Zagil Integrated Telecom, based in Silicon Valley.

Security will be a challenge for the winners, who will be responsible for protecting their own towers and equipment.

Just as oil pipelines and transmission towers have been attacked, cellular networks could face sabotage. During a July telecommunications conference in Jordan, an Iraqi businessman threatened to attack towers if his group’s bid was not accepted, a meeting participant said.