After years without a central government and an economy in ruins,  the success of Somalia’s telecommunications sector comes as something of a surprise.

For several years, the country was, to all intents and purposes, disconnected from the rest of the world.

Prior to 1991, when Somalia last had a national government, this country of nearly 10 million people had only 8,500 operational fixed lines, most of which were in the capital, Mogadishu.  

In the ensuing political turbulence, that infrastructure was destroyed, along with its Public Switch Transmission Network. This left Somalis without the means to connect to the large expatriate community of friends and relatives outside the country.   

In time, VSAT was installed by private operators and the services of international companies such as AT&T and Telia were employed to provide transit facilities for incoming and outgoing calls.

Infrastructure had to be built from scratch but the situation has developed quickly off a low base. There are now an estimated 68,000 phone lines, divided between fixed (48,000) and mobile (20,000), according to the Somali Telecom Association. Internet services have 4,500 subscribers and an estimated 18,000 users.

The International Telecommunications Union estimated the total number of lines at the end of 2000 at 15,000.

Telecoms operators have moved quickly to take advantage of the lack of restrictions and regulation made possible by the lack of a functioning central government. This environment also allowed equipment to be brought in cheaply.

Somalia currently has one of the cheapest call rates in the world, at $1 a minute on average.

Out of 74 towns in Somalia, 47 have got telephone coverage over the past eight years, the association says. 

“It is a no-man’s land. Anyone can bring in equipment and no licences are required,” says Secretary General of the Somali Telecom Association, Abdigani Jama.

Interviewed at the recent ITU Telecom  Africa 2001 show in Johannesburg where a large telecoms contingent of Somalis was present, he said the companies were 100 percent Somali. “No one else is prepared to take the risk.”

“Somalis in the diaspora have come back after seeing the opportunities in telecoms and started their own companies.”

Demand is high for contact with family and friends outside the country. Incoming traffic is almost 10 times as high as outgoing traffic.

There are four telecoms companies, down from five a few years ago. They include Al-Barakaat, the company currently battling with terrorism allegations and frozen assets (see page 45), and the Somali Telecom Group, an umbrella for a number of companies.

Both have mobile operations in addition to fixed line, while the other two, Somtel and Telecoms Somalia, are looking at setting up mobile operations. Three of the companies provide internet services.

As there is no longer a formal banking system in Somalia, much of the investment money is routed through the famous money remittance systems which are short on paperwork and big on trust.

The companies are headquartered in Dubai. Al-Barakaat is the biggest, with operations in 40 countries. Although it commands an estimated 37 percent market share with operations across Approved projects cannot be nationalised, expropriated or confiscated.

According to the ministry, a number of large multinational companies have taken advantage of this. They include Microsoft, IBM, FranceTelecom, Vodaphone, Alcatel, Nortel, Cisco, Ericsson, Oracle, Siemens and Lucent Technologies.

In the past year, the number of companies investing in Egypt has doubled while investment in the sector rose from $75 million in 1999 to $150 million in 2000.

Communications and Information Technology Minister Dr Ahmed Nazif says the government has welcomed the input of the private sector.

“As with any developing nation, we were faced with a change from a monopoly regulatory environment to an open environment to allow the stronger participation of the private sector.

“We started the process in the mid 1990s. Egypt was one of the early countries to introduce competition in mobile telecoms.” It has two mobile operators and is scheduled to licence a second fixed-line operator  by the year end.

Telecom Egypt has 8.5 million lines – one of the highest in Africa.

The new operator will work on a revenue sharing basis with the incumbent to provide services, using its infrastructure.

Nazif says any new operator coming into the market will have to, for some time, have a strong interconnectivity agreement with Telecom Egypt and piggy-back on some of its services. “This is a slow process. It is difficult to compete with decades of investment,” he says.

“There are no impediments for a new operator to build its own infrastructure but it does not make economic sense at the moment. Once the new operator starts to expand, they can look at it again. But for practical reasons, I don’t see this happening before the next three to five years.”

He says he will be watching the situation in South Africa with interest to see how it carries out its plan to add a second fixed-line operator to a market dominated by a government parastatal, a situation similar to Egypt.

“We have our own formula for it. It is going to be diversified.” He says, for example, that a company has been formed by power distribution companies to provide bandwidth and fibre optic cables. Other diversification of this nature is expected to take place.

A decision has been taken in principle to privatise the state-owned incumbent but the market conditions are not right at present for selling off shares, says Nazif. There is, as yet, no timeframe to do so. “We wanted to have it done by last year but didn’t go ahead because of the declining value of telecoms companies.

“The problem is not the price but finding a buyer. But the company is doing very well. It does not have financial problems and telephone density is at 10 percent. So we are not in a position where we have to privatise immediately.”

Telecom Egypt is planning to introduce private equity through partnerships with strategic investors, as well as to make a public offering of part of its shares. In anticipation of this IPO, the corporation invested $620 million in its infrastructure in 2000. The analogue switching system was upgraded to digital in major cities, the data backbone was enhanced and there was a more than 60 percent reduction in the cost of access.

There are 8.5 million lines in Egypt, of which 6.5 million are being utilised. Mobile penetration is at 5 percent in this country of around 65 million people.

The most dramatic changes in the sector have been brought about by the introduction of competition in mobile communications and internet service provision.