Subject: [NEXTEL-1] Telecommunications Reconstruction in Iraq - Part II

From: [email-masked]
Date: Thu, 11 Sep 2003 15:10:22 -0400

September 2003
Market Development : Country Analysis

Telecommunications Reconstruction in Iraq - Part II

http://pulse.tiaonline.org/article.cfm?id=1066 - Part I

DoD Breifing -
http://usinfo.state.gov/xarchives/display.html?p=washfile-english&y=2003&m=August&x=20030804183202namfuaks1.531619e-02&t=xarchives/xarchitem.html

Telecommunications reconstruction in Iraq was first featured in the Pulse June
2003 edition. Since then, there have been numerous developments in the Iraqi
telecom arena.
The State of Telecommunications in Iraq

While telecommunications overall is still in a horrible state for the Iraqi
people, notable improvements have been made in establishing communications
capabilities for the military and the Coalition Provisional Authority (CPA).
At an August 1 U.S. Department of Defense (DoD) briefing, Principal Deputy
Assistant Secretary of Defense for Networks and Information Integration Linton
Wells described the status of telecommunications in Iraq.
According to Wells, the military is still largely operating off the tactical
communications it brought with it to
fight the war. The internal communications of the Coalition Provisional Authority
(CPA) were described as insufficient, but improving.

Wells said that a particular problem is regional connectivity. In his briefing,
Wells outlined a number of the following DoD contracts that are intended to
increase communications capabilities significantly for the military and CPA:
Raytheon “CPA Mobile and Van Communications” contract provides the internal CPA
communications.  Northrop Grumman “Internet in a Box” contract provides
installation and support of satellite terminals and support computers to be
situated at the various provinces and key Baghdad locations.

MCI “Baghdad Cellular System” contract provides a cellular system for internal and
interim Iraqi government use in Baghdad.
ARTEL “Iraqi Forum” contract provides IT and equipment support for the Forum
location in support of Ministry personnel.
In terms of the Iraqi civil sector, Wells said the objective is to return the
Iraqi telecommunications system to its pre-war capability to enable government
operations, but also to introduce advanced technologies.

Currently, there are limited wireline telephony services in most major Iraqi
cities, and Baghdad itself has minimal telecommunications. Major switches were
damaged, but they are under repair. Fiber optic lines connecting the cities are
being repaired, but there is an ongoing problem with sabotage that's being
addressed as it occurs, according to Wells.
Bechtel (one of the world's leading engineering, construction and project
management companies) has been involved with most of these repairs as part of the
company’s amended U.S. Agency for International Development (USAID) contract. The
original $680 million capital construction contract did not include
telecommunications, but the contract was recently revised by USAID to dedicate $45
million of the total $680 million for emergency repair and rehabilitation of the
telecommunications network. Bechtel has since been active repairing inter-city
connections and doing emergency repairs in Baghdad that allow utilities,
hospitals, government offices, schools, etc., to communicate.

Bechtel will subcontract much of the emergency repair and rehabilitation work. The
first major deal recently went to Lucent
Technologies, valued at $25 million. Lucent begins work in September to repair the
network of Iraqi Telephone and Post Company (ITPC), which is the dominant
telephone provider in Iraq. Lucent and Bechtel will replace 12 switches in
Baghdad, restoring service to 240,000 lines and bring the city’s total number of
lines back to pre-conflict levels. Bechtel also subcontracted Globecomm Systems to
implement an International Gateway in Iraq to provide voice, fax and data services
via satellite. This satellite gateway will restore approximately 50 percent of
Baghdad’s international phone service. They will work to repair and reconstitute
the main north-south fiber optic backbone that will telephonically reconnect
approximately 70 percent of Iraq.

The Wall Street Journal recently reported that U.S. officials in Baghdad have
decided to increase Bechtel’s USAID reconstruction contract by $350 million, which
exceeds the original $680 million by more than 50 percent. This increase to the
Bechtel contract is said to be in response to the underestimated cost and
complexity of rebuilding Iraq, in part due to the security conditions (see
“Security, Sabotage and Looting” below). As of September 2, U.S. officials had not
confirmed this increase, and it is not known what portion of this, if any, would
go towards telecommunications.

Mobile Licenses

At the time of writing this article, the mobile licensing process was close to
being complete, with the bids all having been submitted on August 21 and the CPA’s
assessment of proposals to be completed by September 12.

On July 18, the CPA announced that up to three licenses would be awarded, one each
for the northern, central and southern regions. Each applicant would be required
to bid for at least two regions to encourage a rapid build-out of the main
population centers. Bidders were to propose their minimum build-out and service
levels at two months, six months, 12 months and 24 months. Following the bidders
conference held in Jordan on July 31, adjustments were made in response to
concerns expressed by numerous bidders that certain conditions precluded their
participation or were unduly onerous. The most significant change was to increase
the possibilities of participation in licensing by companies owned in part by
foreign governments. Prior to the bidders conference, companies owned more than 10
percent by a foreign government could not participate. Under the new requirement,
they may participate, so long as total foreign government participation in a
bidding entity does not exceed 10 percent. This change opens the bidding process
to most companies worldwide, even if they are wholly state-owned, provided that
company’s ownership of a consortium does not exceed 10 percent.

Another area of concern for the bidders that did not change is that each license
will be valid for only 24 months. After that time, the Iraqi government then in
place will have to decide whether to continue, start over or buy out the license.
The CPA recognized from the outset that 24 months is considerably shorter than
normal for a mobile telecommunications license but said it reflects the special
circumstances in Iraq. The CPA also believes that this period will provide
operators with sufficient opportunity to recover their investment while enabling a
future Iraqi Authority to take responsibility for key decisions in relation to the
long-term development of the sector. Whether or not companies can recoup their
investments in two years is certainly questionable, leading a number of bidding
companies to partner with Iraqi firms in hopes this would increase their odds of
remaining once the new Iraqi government is in place.

The Regulatory Environment

The CPA is working to place ministers at a number of Iraqi Ministries, including
the Ministry of Transportation and
Telecommunications (MoTC), which has been up and running for months now, at least
nominally. The June 9 CPA Order gave MoTC the authority for licensing all
commercial telecommunications services in Iraq. Furthermore, the ministry is to
control, plan, administer, manage and license the radio frequency spectrum.

The CPA outlines in its strategic plan principles the primary objective for MoTC
as “re-defining the Ministry’s goal of dispensing its services to the Iraqi people
through a free market economy policy orientation focusing in the short-term on the
improvement of each sub-sector, and in the longer term on the cost-effective
development of the transport infrastructure and services in accordance with the
following principles:

1.Transport modes bear entirely their socio-economical costs, including those for
their infrastructure maintenance and development;

2.Communications, being a profit-generating sector, will be administered according
to strict commercial principles without competition-distorting cross-subsidies;

3.The general principle applying to all MOTC sectors is: “as much competition as
possible; as little regulation and controls as strictly necessary". The CPA
retains control of the ministry and will continue to do so for the next fifteen
months. The leading CPA officials at MoTC are Darrell Trent, who is the senior
advisor and essentially the acting minister, and Dan Sudnick, who recently
replaced David Leech as the communications director of MoTC. These advisors are to
be “shadowed” by their eventual Iraqi replacements who are currently being put in
place by the CPA.

Security, Sabotage and Looting

The security conditions in Iraq are terrible and proving to be an area of
tremendous expense. The amount of security necessary and cost of providing
security for both personnel and assets while undertaking reconstruction appear to
have been significantly underestimated.

Contractors such as Bechtel rely upon the military to provide “permissive areas”
in order to conduct operations. However, the provision of individual security for
employees is the contractors’ responsibility and costing much more than expected.
All non-Iraqi people and assets are potential terrorist targets and require
round-the-clock security. However, the military remains the largest target. While
the contractors rely in part on military protection, employees distance themselves
as much as possible from “looking” military themselves. This includes not wearing
fatigues or using military-like equipment.
Looting and sabotage of remaining/new telecommunications facilities and equipment
have reached epidemic proportions.

According to those officials and contractors on the ground, looting and burning
are responsible for as much damage as that done by bombing. Anything perceived to
have value is taken -- cables are ripped out of the ground, copper is stripped,
etc. Attempts to stop the looting of cables in the ground include getting the
military to provide tanks around the facilities to guard the equipment, but often
these efforts are made too late and distract the military from their primary
duties.

In terms of overall public safety -- in addition to the protection of critical
infrastructure -- the coalition forces are working to help the
Iraqi police and security forces play a larger role. In an August 31 press
release, U.S. Central Command (Centcom) reported on efforts to train and equip
police and security forces in the northern city of Mosul. According to the
release, the 101st Airborne Division (Air Assault) recently purchased 49 hand-held
radios for the Mosul Police Department. The radios will be used to help the newly
trained police force communicate throughout the Ninevah Province. Additionally,
the 101st is helping the
Iraqi Public Safety

Office draft a contract for $10 million in communications assets to go to
ambulance services, fire departments and the Ministry of Civil Defense, as well as
other police officers. The communications systems are intended to help the Iraqi
public safety organizations rebuild their infrastructure and will allow them to
play a larger role in providing a safe and secure environment in Iraq.

In light of security needs and the costs involved in providing them, it remains
questionable whether companies will be able to enjoy any profitable commercial
operations in Iraq for the foreseeable future. This applies to those companies
that will be awarded the three mobile licenses. With the political unrest in Iraq,
Iraqi firms or consortia with Iraqi participation receiving these licenses can
anticipate a more secure network infrastructure -- free from looting and sabotage
-- compared to those companies with no Iraqi affiliation. However, in such a
volatile environment, there is no guarantee on return on investment.
For further information regarding telecommunications reconstruction in Iraq,
contact Ashley Heineman at (703) 907-7734 or email [email-masked]. For
more information on Bechtel's role in the U.S. government's Iraq Infrastructure
Reconstruction Program, visit www.bechtel.com/iraq.htm.

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