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The licenses to operate
Iraq's three cell phone companies are running out
and potential new operators are assembling in the
United Kingdom this week to sort out the risks and
rewards involved in what is one of the world's most
dangerous, but lucrative business opportunities.
The risks are clear. Employees at the three existing
Iraq cell phone operations have been kidnapped,
according to published reports, and U.S. military
forces have had to jam service to prevent insurgent
cell phones from detonating bombs along convey
routes. But the operations are profitable and offer
unbridled growth possibilities to companies willing
to take the risk.
"You can actually make handsome returns in Iraq
despite the risks," said Jonas Lindblad of Pyramid
Research in an interview Wednesday. "There's a lot
of money chasing around a few deals in the [Middle
East] region. In one way or another, they are linked
to oil money." Lindblad, senior analyst Middle East
for Pyramid, believes the initial licensees probably
have already made money on the existing franchises.
"This is a very rare occurrence--three brand new,
fresh licenses," he said, noting that cell phone
services and infrastructures have been built in most
populated parts of the world. Saddam Hussein had
banned cell phones, but after his demise three
monopoly cell phone licenses in separate regions
were awarded.
There was initial controversy over the awards two
years ago, because they went to operators using the
European GSM standard, excluding the U.S. CDMA
standard developed by Qualcomm. Congressman Darrell
Issa (R-Calif.) protested the favoritism granted to
the GSM suppliers, but the awards nonetheless went
to GSM suppliers. Lindblad, who noted that most cell
phones in the Middle East operate under the GSM
aegis, said it is unlikely that advanced CDMA
technology could be installed in Iraq, given GSM's
strong toehold in the market there.
A query to Qualcomm on the situation in Iraq was
not answered.
Lindblad believes the auction--expected to be
completed by the end of the year, when the current
licenses are scheduled to expire--could attract
bidders in addition to the current operators.
Asiacell has the license in the northern, relatively
safe part of Iraq dominated by Kurds. Atheer
operates the cell phones in the southern part of the
country, while Iraqna has the central portion, which
includes Baghdad.
Iraqna, majority-owned by Egypt-based Orascom
Telecom, is the largest. Iraqna reported a 60
percent EBITDA margin for its first quarter, fueling
speculation that the profits could attract
additional bidders to the auction.
Lindblad believes that equipment suppliers could be
interested in the auction, because Iraq's cell phone
infrastructure is scheduled for a massive build out.
Several U.S. firms including Motorola and Lucent
Technologies already participate in infrastructure
build out there.
Even companies from countries that didn't join with
the U.S. in the Iraq war have been able to a piece
of the cell phone pie in Iraq. For instance,
Germany's Siemens AG and France's Alcatel have
supplied equipment to the networks.
"Any new operators would have to bring in their own
people," said Lindblad. "Some will get killed. The
major issue is still security."
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