1 Dr. Kamal Shehadi, Chairman and CEO Telecommunications Regulatory Authority of Lebanon Telecom Finance- London 27 th January 2009 Building the Telecom Highways for Economic Prosperity in Lebanon

2 Although reform has started with the establishment of the TRA, most telecoms markets in Lebanon are growing slowly and suffer from lack of competition Current Indicators 35% Mobile Market Fixed Market Internet Market ADSL Market 2 2 Penetration Number of SP Private / State- owned Level of Competition State-Owned Monopoly 63% (*) 63% (*) 1 1 State-Owned Monopoly 32.5% (*) ~ 16 Private Competition ~ 7.7% (*) ~ 8 MoT / Ogero Private (bitstream, line sharing) MoT / Ogero Private (bitstream, line sharing) Limited Competition

3 The telecommunications market is still underdeveloped when compared to other countries Fixed Line Penetration vs. GDP per Capita (2005) PSTN Penetration GDP per Capita (USD/ Year) Mobile Penetration Internet Penetration Mobile Penetration vs. GDP per Capita (2005) Internet Penetration vs. GDP per Capita (2005) GDP per Capita (USD/ Year) Sources: Economist Intelligence Unit, interviews with industry With its GDP per Capita, Lebanon should be at around 55% penetration rate in Fixed Lines. With its GDP per Capita, Lebanon should be at around 60% penetration rate in Mobile Lines. With its GDP per Capita, Lebanon should be at around 22% penetration rate in Internet.

4 The TRA has assessed the strengths and opportunities of the telecommunications market in its reform and liberalization process Pent up demand for Mobile services High Mobile revenues (ARPU over US$ 65/month) High charges Lag behind in terms of new technologies Low market penetration Limited choice in mobile bundled tariffs packages Shortage of adequate investments Relatively competitive Lucrative segment New wireless technologies deployed Pent-up demand for data and internet services Shortage of international bandwidth Access controlled by the MOT High intl bandwidth prices, and non optimal allocation of bandwidth among providers Incomplete Regulatory framework Relatively good copper infrastructure Regionally competitive price per minute De jure MoT monopoly Low incentive to upgrade the infrastructure and introduce new technologies Low penetration rate Stagnant growth High pent-up demand and important growth potential in all telecom markets Growing economy with a stable financial system Appropriate regulatory framework to attract investors Consumer behavior/early adopter of telecom services Liberal political and social environment Dynamic private sector Fixed Voice Mobile Data Mobile Data

MobileNetwork Operator Virtual Network MNVOs PSTN/ Basic Telephony Network Operator Resale Broadband Access National (core, metro and access) International Gateway Voice and Data Facilities Based Provider Data Only Facilities Based Provider Voice and Data Resellers 3 (4) (1) The privatization of the mobile sector will depend on the regional and international financial markets conditions (2)Two mobile operators and Liban Telecom (3)Two National Broadband Licensees and Liban Telecom (4) Two mobile operators and Liban Telecom (5) Two National Broadband Licenses, subject to CoMs decision (5) (2)(1) License Award Open licensing Market Review ? ? (3) TRA is planning for the liberalization of most telecom services in 2009

6 TRA is aiming to have infrastructure-based competition in the provision of broadband services Currently the Only provider of National Internet and Data Transmission Needs major upgrade of National and International capacity Allow CS/CPS whenever the market permits Fixed MoT Infrastructure Provide a best in class alternative National Networks (core, metropolitan and access), enabling the National Transmission of Data and provision of High Speed communications National Broadband Licenses Unleash competition on the access level and provide more choices to consumers ( including by incumbent data service providers) Broadband Access Licenses competition

7 The TRA plans to issue, following an international auction, two national broadband licenses for international, core, metro, and access networks The TRA plans to issue two types of Broadband Licenses National Broadband Licenses (NBLs) with: Rights to build/offer (fixed and spectrum based) Access, National Backbone and International network/services Obligations to meet access and national backbone rollout conditions with minimum build for fiber Exclusivity period to interconnect new sites of other BAL providers via its national backbone Broadband Access Licenses (BALs) : National or regional With or without spectrum, Existing Data Service Providers continue to use their national Microwave backbone to backhaul existing sites BALs originally rely on the NBLs for new site connectivity Broadband Deployment Timeline Draft RFA for Consultation (including BB License) NBL Auction Broadband Policy Statement Broadband Deployment Timeline Spectrum Re-farming & RTU fees ROW & Duct s Decree Jan 09 July 09 December 09

8 The regulatory framework and the public consultation process adopted by TRA aim at ensuring the success of liberalization Consumer Affairs Regulation Lebanese National Frequency Table National Numbering Plan Spectrum Management and Licensing Regulation Drafting StageDraft Ready StageConsultation Stage Final Review (TRA Board) Issued Type Approval Regulation Accounting Separation Regulation Spectrum Pricing Opinion Significant Market Power Regulation Unbundling Regulation Broadband Policy Statement Liberalization Roadmap Licensing Regulation Licensing Regulation Interconnection Regulation Decisions: VSAT, Trial IPTV Spectrum trial Allocation for MoT / OGERO Decisions: VSAT, Trial IPTV Spectrum trial Allocation for MoT / OGERO VOIP Policy Statement Pricing Regulation National Roaming * Interconnection Interim Pricing Decision Spectrum Re- farming and Packaging Plan Quality of Service Regulation Decision for establishment of call centers Universal Service CS / CPS Improving FM Broadcasting Numbering Regulation Numbering Regulation Access to Information Regulation Digital Migration Strategy for TV Broadcasting

9 TRA is promoting Infrastructure Sharing and access to Rights of Way prior to the broadband licensing to lower the barrier to entry Provision of available IS info Standard Application forms Defined period for approval Clear justification of denied requests Conditions of Use and Procedures Cost-based administration, maintenance and capital improvement fees ROW fees for New Infrastructure : existing 10% VAT on telecom bills suffices Existing Infrastructure (ducts, poles) : rental fees based on the capacity used or occupied Inspection & supervision fees shared with TRA Charges and Fees (assessed by Public Entities) TRA plays the role of a mediator between Public Entity & SP In case of disagreement, TRA will report the case directly to COM for final decision Dispute Resolution TRA Drafted Decree for COM All Existing Infrastructure * owned by ROL * All Existing Infrastructure: - Fixed Infrastructure -Mobile Infrastructure -Water, sewers, drainage -Electricity -Roads, Streets, Highways Telecom Law permits access IS/RoW for Service Providers

10 Incumbent Benefits New Entrant Benefits Broader Benefits Allowing infrastructure sharing has important benefits for all stakeholders Allows for quick recovery of new investment cost Provides new revenue stream through cost-based rent Allows for quick recovery of new investment cost Provides new revenue stream through cost-based rent Deploys network and services to customers faster Reduces cost of deploying new network for new entrant (60-70% for civil works) Deploys network and services to customers faster Reduces cost of deploying new network for new entrant (60-70% for civil works) Faster deployment Allows investors to reach less densely-populated areas by sharing deployment cost Optimize use of scarce national resources Eliminates redundant, costly, and disruptive public works Reduces environmental damage caused by constructing new data networks Faster deployment Allows investors to reach less densely-populated areas by sharing deployment cost Optimize use of scarce national resources Eliminates redundant, costly, and disruptive public works Reduces environmental damage caused by constructing new data networks

The TRA expects a decision by the Government of Lebanon to re-launch the mobile auction following the parliamentary elections (Summer 09) Scope of Mobile Licenses Provision of any service over the licensed frequencies, including 3G mobile broadband services Build-out and operation of a facilities-based international gateway Provision of all international services to their own end users Infrastructure sharing strongly encouraged as long as it does not limit competition Obligations Geographic roll-out and coverage obligations are not onerous (areas already covered) Introduction of mobile number portability Provision of national roaming to the third entrant to allow a faster development of competition Scope of Mobile Licenses Provision of any service over the licensed frequencies, including 3G mobile broadband services Build-out and operation of a facilities-based international gateway Provision of all international services to their own end users Infrastructure sharing strongly encouraged as long as it does not limit competition Obligations Geographic roll-out and coverage obligations are not onerous (areas already covered) Introduction of mobile number portability Provision of national roaming to the third entrant to allow a faster development of competition Mobile Auction Launch: RFA published Mobile Auction Launch: RFA published January 2008 Licensing Process Suspended November 2007 To+ 2 (Mths) GoL Decision to Re launch Process Auction – Announcing two winning bidders To To+ 5 (Mths) Handover completed Crucial phase that should be completed smoothly and in the specified time Handover completed Crucial phase that should be completed smoothly and in the specified time Technical & Pre-Auction Financial Bids Due To+ 3 (Mths)

12 The way forward for regulators Regulators must give higher priority to lowering the financial and physical barriers to entry to promote investments in underserved markets Infrastructure sharing, both for new and existing infrastructure, has become even more pressing Auctions are still the preferred way to go, not primarily for the revenue-generating objective, but for the fairness, simplicity, and transparency of a well-designed auction Regulators should look at revenue-sharing arrangements more positively than in the past for two reasons: As one way to ease the financing requirements of new telecom investments As a mechanism to ensure that the value of the telecom assets is carried over beyond the current economic and financial crisis