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PP RUEHAG RUEHBC RUEHDE RUEHKUK RUEHROV
DE RUEHLB #1546/01 2770815
ZNY CCCCC ZZH
P 040815Z OCT 07
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC PRIORITY 9614
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHNO/USMISSION USNATO 1669
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RHEHNSC/NSC WASHDC

C O N F I D E N T I A L SECTION 01 OF 04 BEIRUT 001546 
 
SIPDIS 
 
SIPDIS 
 
NSC FOR ABRAMS/SINGH/GAVITO/YERGER/DEMOPULOS, STATE FOR 
NEA/ELA 
 
E.O. 12958: DECL: 10/03/2017 
TAGS: ENIV PGOV PREL PTER LE
SUBJECT: LEBANON:  TELECOM SECTOR -- AS CONFUSING AS EVER 
 
Classified By: DCM William Grant for reasons 1.4 (b) and (d) 
 
SUMMARY 
------- 
 
¶1. (C) Both Telecom Minister Hamadeh and Transportation 
Regulatory Authority (TRA) Chairman Shehadi are optimistic 
about the launch of the mobile telecom sale, but Shehadi 
appears to be struggling to get the TRA up and running.  In 
earlier meetings with USG officials, Hamadeh appeared to 
support the TRA; Shehadi implied this might not be true any 
longer.  Ogero, the antiquated fixed line company, appears to 
be the subject of special treatment by the Minister, and 
received mobile telecommunications equipment as a gift from 
China.  The road show opening the sale of the two mobile 
telecom licenses could launch, but there is no marketing plan 
yet, and some details need to be resolved.  End summary. 
 
MEETINGS WITH HAMADEH AND 
SHEHADI ON PRIVATIZATION 
------------------------ 
 
¶2. (C) In separate meetings September 13 and 14 EEB PDAS 
Elizabeth Dibble, NEA/ELA Deputy Director Steve Newhouse and 
Econoffs met with Minister of Telecommunications Marwan 
Hamadeh, and Chairman of the Telecommunications Regulatory 
Authority (TRA) Dr. Kamel Shehadi and met again with Dr. 
Shehadi on September 27.  This cable reviews the status of 
the privatization of the telecommunications sector as 
outlined by Hamadeh and Shehadi in these meetings, as well as 
information from other contacts. 
 
HAMADEH POSITIVE, BUT HINTS 
OF OGERO GETTING AHEAD OF ITSELF 
--------------------------- 
 
¶3. (C) In their separate meetings with PDAS Dibble, Shehadi 
and Hamadeh were both very positive about the launch of the 
road show to sell the two mobile telecom licenses, expected 
to take place before the end of September, noting everything 
was in place to proceed (note: it did not occur.  End note). 
Both appeared firm in their conviction that the GOL had the 
political will to sell; only the emergence of a new 
government after presidential elections that rejected the 
idea of privatization might delay the proceedings.  Hamadeh 
in particular appeared to be at ease with the notion of 
privatization, fully ready to move ahead immediately and 
without any reservations about the process, the sale, or the 
TRA.  However, during the course of the meeting he 
unexpectedly referenced Ogero's mobile telecom business. 
(Note: Ogero, the antiquated fixed line company which the GOL 
plans to corporatize and then privatize in 2008, does not 
have a mobile service; the plan is to corporatize Ogero, then 
privatize the company as Liban Telecom.  Only then will the 
TRA make the decision to allow Liban Telecom a mobile 
license.  End note.) 
 
SHEHADI HAPPY WITH U.S. TRIP, 
BUT DISAPPOINTED WITH GOL 
PROGRESS ON PRIVATIZATION 
--------------------- 
 
¶4. (C) Shehadi was very positive about the reception he 
received in Washington for a series of meetings, arranged by 
U.S. Telecommunications Training Institute.  He stressed the 
opportunities for collaboration between the USG and the GOL 
regarding training, telecom regulation, and business 
opportunities.  However, he was a lot less upbeat about the 
overall privatization situation.  He was very discouraged 
about the lack of progress on the part of the GOL while he 
was away.  He described waiting in the office of Hamadeh all 
day to try to push for decisions required to move ahead with 
the sale. 
 
TRA HIRING IN QUESTION 
---------------------- 
 
¶5. (C) According to Shehadi, the biggest issue for the TRA 
currently is recruiting.  The TRA is not following the 
prescribed civil service hiring protocol, and he believes the 
Prime Minister "has been convinced" that this is illegal. 
Shehadi views his hiring process as transparent and within 
the guidelines, but believes that Ministry of 
Telecommunications Director General Abdel Menim Youssef is a 
roadblock.  Youssef is reportedly actively discouraging 
Ministry of Telecommunications (MOT) staff from joining the 
 
BEIRUT 00001546  002 OF 004 
 
 
TRA, including threatening them with legal action if they do 
join.  Shehadi is reluctant to continue hiring under these 
circumstances. 
 
TRA FUNDING IN 
QUESTION AS WELL 
---------------- 
 
¶6. (C) The second major issue is funding.  Although the 
cabinet approved the TRA's overall budget, each allotment of 
funds requires cabinet approval.  The TRA expected to receive 
the second installment of funds this week, but even that 
amount will only bring the allocated funds to less than 25 
percent of the annual TRA budget.  In order to keep the TRA 
solvent for the balance of 2007, the cabinet must issue a 
ministerial degree for an additional 25 percent of the total 
at the next cabinet meeting.  Because Parliament Speaker 
Nabih Berri has not called a session of parliament since late 
in 2006, no new laws can be passed through the normal 
constitutional process.  The only option, therefore, has been 
for the cabinet to approve issues such as new funding.  This 
can only be done if the cabinet originally approves a 
measure, say the funding of the TRA, and then, when the 
degree cannot go for parliamentary approval, the constitution 
allows the cabinet to review the same item fifteen days 
later, and if still in agreement, the item can be re-approved 
and it becomes legal.  However, if parliament, which is 
scheduled to resume October 16, resumes meeting and takes on 
its normal work in the near future, it is not clear if the 
TRA funding will be subject to the normal constitutional 
procedure or if it will have already been passed by the 
cabinet twice.  Only after one of these two possible options 
concludes will the TRA have the funding necessary to continue 
operations. 
 
CHINA AND OGERO: WHERE 
DID THE DEAL COME FROM? 
----------------------- 
 
¶7. (C) Reflecting on the lack of funding and the recruiting 
issues, Shehadi said he believes that the TRA might not have 
the full support of Minister Hamadeh.  He cited a number of 
incidents that convince him of this.  All of them involve 
Ogero, the fixed line company, and its chairman Abdel Menim 
Youssef.  Shehadi believes Youssef intends to circumvent the 
TRA in his bid to gain control of an upgraded Liban Telecom, 
the company that will result from the privatization of Ogero. 
 According to Shehadi, China is supplying Ogero with $7.5 
million in equipment and technical support to establish a 
GSM/mobile telephone system for Ogero.  Ogero and the GOL did 
not tender this purchase, and have identified it as a 
donation by the Chinese in response to Paris III.  (Note: We 
have no record of a Chinese donation of this type or 
magnitude.  End note.)  To operate this system, Youssef 
"took" ten megahertz of bandwidth for the sole use of Ogero. 
Shehadi said that Youssef backdated the documentation 
securing this bandwidth so that it appeared to predate an 
August 25, 2007, letter from the TRA freezing the 
distribution of bandwidth and attempting to identify 
bandwidth currently in use.  The control and allocation of 
bandwidth is by law a TRA function. 
 
MINUTE-BY-MINUTE RUMORS 
----------------------- 
 
¶8. (C) Shehadi later told us that the cabinet recently 
extended the term of the Ogero board, and delegated to 
Youssef specifically power to "do anything needed to launch 
Liban Telecom."  Shehadi believes that Youssef intends to 
circumvent the TRA, and Shehadi vowed to "take the GOL to 
court over this, if true."  (Note: Our contacts within the 
MOT and the Ministry of Finance (MOF) confirmed that the 
cabinet extended the term of the Ogero board, which expired 
in September 2007.  End note.) 
 
EXPLAINING THE 
CHINESE CONNECTION 
------------------ 
 
¶9. (C) A reliable source in the MOT, asked to confirm several 
of Shehadi's remarks, was unaware of any decision to award 
Youssef full control over the privatization of Liban Telecom. 
 We also received no confirmation of this decision regarding 
Youssef and Liban Telecom from anyone present at the meeting. 
 However, a Ministry of Telecommunications official was able 
to give more details about the GSM equipment from China. 
 
BEIRUT 00001546  003 OF 004 
 
 
According to him, it is critical to make a clear distinction 
between Ogero -- the currently existing fixed-line company -- 
and Liban Telecom -- a potential and still unrealized concern 
to be formed by the privatization of Ogero.  The Chinese, 
desiring an entree into the telecom market in Lebanon, 
offered to donate $5 million in telecom equipment of any kind 
to the GOL prior to Paris III.  The GOL and specifically the 
MOT were able to choose from a variety of equipment, and 
chose GSM equipment to establish a mobile telephone system. 
Ogero does not own a mobile license, but Liban Telecom will 
have one when privatized.  Although there is no way that 
Ogero can legally operate a GSM system, Ogero is setting up 
such a system, using expertise from the two mobile company 
operators, Alpha and MTC.  After privatization, any 
intermingling of Liban Telecom and competitors Alpha and MTC 
would be a conflict of interest, and the owner supervisory 
board of the MOT would prohibit it.  However, until 
privatization takes place it cannot be forbidden.  The 
apparent desired outcome, according to our source, would be 
that Liban Telecom would emerge with an operational mobile 
telephone system, for which it paid nothing, and the Chinese 
would have a lead in bidding on the company or any future 
tenders. 
 
DETAILS ASIDE, 
ROAD SHOW IS READY 
----------------- 
 
¶10. (C) Shehadi still believes that the preparations for the 
sale of the two mobile licenses are on track, and the road 
show is ready to go.  The text of the required documents is 
almost ready, and Minister of Finance is driving the process 
within the cabinet.  The PM decided that revenue sharing will 
be either 0 percent or 10 percent.  The final decision will 
be made between the first and second rounds of bidding, and 
will depend on the results of the first round, where bidders 
will bid on both options.  Shehadi admits that Minister of 
Finance Jihad Azour might still wish to push for a higher 
percentage; he previously pushed hard for 20 percent.  The 
cabinet has not yet decided how many shares the GOL will sell 
to the companies who buy the licenses.  Potentially the GOL 
can hold back one third of the shares, to either sell later 
or hold permanently.  The cabinet must make this decision 
prior to the sale, and Shehadi believes the GOL will never 
sell those shares. Shehadi believes that a combination of 
revenue sharing and the revenue earned on the 33 percent of 
the shares that the GOL will not sell will replace the 
revenues from the mobile companies, which represent both a 
significant and the largest portion of the revenues of the 
GOL. 
 
AUCTION DETAILS 
--------------- 
 
¶11. (C) At this point, the TRA would like to open the 
"virtual data room" (VDR) which will allow the road show to 
begin, and allow potential bidders to look at the offer.  If 
the TRA could do this, Shehadi could move ahead on other 
issues.  Asked what the potential bidders might think about 
possible future nationalization of the newly formed 
companies, Shehadi thought that bidders would all discount 
their bids based on the security situation, but also believes 
that there is sufficient precedent to indicate fair 
treatment.  The GOL legal advisors, Le Boeuf, are planning 
the auction room.  They are drafting the design, which will 
require approval by the TRA and then the MOT.  After that, 
the VDR can open.  The road show should launch soon in order 
to meet the deadline of a sale prior to June 2008.  This date 
is both a benchmark date for Paris III donations (including a 
U.S. tranche) and marks the end of the current management 
contracts with the two mobile companies.  However, the GOL 
can extend these contracts on a month-by-month basis. 
 
MARKETING PLAN MISSING 
---------------------- 
 
¶12. (C) What is missing, Shehadi believes, is a marketing 
plan.  Ziad Hayek of the Higher Council for Privatization, 
who will be responsible for the sale along with the TRA, 
reportedly told Shehadi he said he has no plan or budget for 
a plan, and it will be "left to the banks" to market the 
sale.  Shehadi believes that this sale will need a special 
marketing effort to attract the right bidders, such as U.S. 
firms who will not otherwise notice the offer.  However, the 
GOL does not want a plan and does not want to spend the money 
to develop one, he said. 
 
BEIRUT 00001546  004 OF 004 
 
 
 
COMMENT 
------- 
 
¶14. (C) Tracking the status of the telecommunications sector 
in Lebanon is often like trying to tell time by looking only 
at the second hand of a watch, so progress is difficult to 
measure.  Despite all assurances that the privatization is 
progressing in a timely manner, it appears that there are 
still many obstacles to the sale of the mobile licenses. 
Even the establishment of the Telecom Regulatory Authority, 
which seemed to be secure, may be a victim of political 
wrangling, unless the funding and hiring issues are resolved. 
 End comment. 
 
¶15. (U) PDAS Dibble has cleared this cable. 
FELTMAN