Iraq's Cell Phone Industry Thrives Despite War

BAGHDAD, Aug. 17, 2007 — -- A major milestone toward the reconstruction of Iraq's infrastructure was reached today when the Iraqi government sold three cellular telephone licenses — estimated to be worth just $5 million in 2003 — for $3.75 billion.

The three winning bids were from Mobile Telecommunications of Kuwait; Asiacell, which is part of Kuwait's Wataniya Telecom; and Iraq-based Korek Telecom. They won the rights to provide mobile service in a country that continues to rely heavily on wireless phones after war and sanctions disrupted land-line service.

The three firms, which already run networks in the war-torn country, made the highest bids in two days of auctions that ended today in Amman, Jordan, according to the Finance Ministry.

The new 15-year licenses handed out today replace three short-term contracts awarded soon after the American-led invasion. The firms will share 18 percent of their revenues with the Iraqi government and pay a 15 percent tax on profits, the Finance Ministry says.

In a surprise, Egypt's Orascom Telecom, the first company to provide full mobile phone service in Baghdad after the 2003 invasion, dropped out of the race after bidding reached $1.25 billion, a Finance Ministry spokesman says.

The company operated here through its subsidiary, Iraqna, and claimed to have about 3 million subscribers or more than a third of Iraq's lucrative mobile phone market. The company invested almost $300 million in Iraq since it first won the rights to operate here in 2003, according to Iraq's National Communications and Media Commission, Iraq's regulatory body.

Iraqna CEO Allan Richardson could not be reached for comment.

A License to Print Money?

The mobile phone industry here is one of the few sectors of the war-ravaged economy still posting positive revenues in the wake of political instability and badly damaged infrastructure.

Iraq's fixed-line network was hit by sanctions after Iraq's invasion of Kuwait in 1990 and by bombing during the U.S.-led invasion in 2003. Government officials here estimate that less than 4 percent of Iraqis have land lines while mobile use rose to 8 million at the end of 2006.

This is the first time that Iraq has held an auction to award mobile licenses. In 2003, the Ministry of Communications issued licenses for Iraqna to operate in central Iraq, as well as for MTC-Atheer in southern Iraq and AsiaCell in the north of the country. Iraqi officials say they used the auction, organized by the National Communications and Media Commission, as part of a drive to increase revenues and improve services in the country where large swaths are still not being serviced at all.

The auction system was designed to fight criticism of a lack of accountability that has plagued Iraqi administrations since the invasion. The tendering process took a year and half and left five mainly Middle Eastern bidders in the running out of the 11 firms originally short-listed. The winning firms have to offer 45 percent of their equity to the Iraqi public within four years as part of a drive by the authorities to widen public ownership of assets.