Lebanon’s Telecom Sector Growing with CedarCom’s 3G and DSL Services
In terms of regulations, there is a lot of hardship. The good thing is that we have a good Minister, who understands telecoms, who understands the regulations and who understands market competition. .
Interview with Imad Tarabay, CEO of CedarCom
Tell us about the communications service and IT solutions that CedarCom Group is currently offering clients ranging from the home office to corporations and multi office sites.
Cedarcom Group offers multiple services targeted to the corporate and the residential customers. In the corporate service we cater for companies by offering them dedicated internet services and hosting solutions, and offer multi branch companies data transmission solutions where we connect point A to point B to point C all in a secure method, offering high speed, availability and security features. The other sector is the residential sector whereby we offer mobile broadband services using the Mobi network and 3G services. We recently started offering fixed line broadband using DSL services.
You have been phasing in some new solutions and some new and better technology, can you give our readers a short background on that?
Our main focus right now is on the corporate side. We are concluding the swap of the 10 year old network with the most advanced fixed broadband network that offers ultra-high speed, availability, quality of service and security. We now are able to offer very high security FIPS 140-2 which is US government grade level security whereby communications between point A and B are now encrypted with 256 Kbit algorithms; no matter what happens if there is someone in the middle, they can’t grab the information. We are able to offer each connected branch with 12mbs, 20mbs, etc. up to 70mbs per second. This is something unforeseen in Lebanon. We are replicating what we did 10 years ago. 10 years ago we came to the market and said that the benchmark was 64kbs per second and so we came in at 512kbs per second. Now we are seeing that the average connection in the Lebanese market is 2mbs so we are offering 12mbs. This allows us to compete freely in the market because our competitor´s networks don’t have that capability. Now for bank users: the banks will have the capability to deploy multimedia services at their branches, for example CEOs are going to be able to do video conferencing with their branch managers rather than spending time calling them or summoning them to the head office from different locations.
Cedarcom Group offers multiple services targeted to the corporate and the residential customers.
The Lebanese telecoms market is a challenging one for the private players such as Cedarcom amid government monopolies and antique regulations, how do you operate in such a business environment bringing both solutions to your clients but also getting returns on your bottom line?
In terms of regulations there is a lot of hardship. The good thing is that we have a good Minister, who understands telecoms, who understands the regulations and who understands market competition. The bad thing is that even with all this understanding, the legal structure prohibits us from competing freely in the sense that we can´t offer all of the services that we are capable of offering, and we can’t compete on price because we have to pay 20% of revenue sharing while other competitors don’t have to.
The ups and downs in the market are totally dependent on who comes to the Ministry. To give you a brief, this Minister understands things well, we can compete today but the previous Minister was terrible and we couldn’t compete then, the one before that was good etc. Now it all depends on who comes next and what the Minister’s views are. The Minister is the sole regulator at the moment. De-regulation has not happened in a way by which the Telecoms regulator comes in and takes control of things. Therefore all the policy to do with this sector is governed by the Minister of today. As long as we have good Ministers with good comprehension we are on good terms.
To give another example idea, today we operate on data licenses that are renewed on a yearly basis which is detrimental because a foreign investor cannot understand why we do not have 10 to 20 year licenses like the rest of the world. Lebanese do because all the market expires within 1 year and obviously the entire market will not shut down and we will continue renewing year by year like what has happened in the past 11 years, why? Because every month we pay the 20% revenue sharing, so the fact that you don’t have this paper, the fact that you pay and they take your money, it´s automatically renewed!
Your group raised a lot of capital in private placement to enable rapid growth and infrastructure investment, will we be seeing another round of capital raising in the next 5 years and what are the opportunities for domestic and international investors being offered by your group?
In 2006 we did a private placement and we raised 2.2 million US for 12% in the company. It was a very successful round of investment, we offered investors a five year term to exit and I personally exercised the option and bought most investors out on the 4th year giving them over 45% returns. This was a time when Lebanon had passed through two crises and the global crisis as well. Right now we don’t need to raise any capital, we are very well financed from our internal operating cash flows and we have very good reserves. Unless they de-regulate the market completely which pushes heavy investments, we won´t need to raise any funding. International operators every now and again come and test the water here and they talk to us and other operators to see how much accessibility to the market they have. Unfortunately like I told you with the 1 year license which is auto-renewed, it tends to always be a burden. Right now we are good, we don’t need to sell. As long as we have double digit growth then we won´t want to exit.
What new types of business sectors do you see growing as quality broadband becomes more available and prevalent throughout Lebanon? A short list that I can think of is Ecommerce, IT companies, software design, medical and other categories.
Ecommerce won´t grow too much unless parts of the regulations also change to permit electronic signatures. As soon as that happens you will see good growth. Hosting and cloud solutions are at the infant stages and so they should continue growing. The Central Bank recently created a 400 million dollar fund to help entrepreneurs and start-ups. This will have a good impact on the IT and knowledge industry and you will start seeing the fruits in a year or two. We see that there is a lot of growth happening on the corporate side. Last year growth in the corporate sector was close to 35%. We see that continuing with the new Fixed Wireless network that we have put in. In our case in particular we will have a lot of growth in retail, now that we have started offering DSL and we will start packaging bundles of DSL and 3G services.
Going forward into 2014 and for the next several years what are the business and service targets for Cedarcom and what will the company look like in terms of technology and size by 2016 or 2018?
A few weeks ago the Ministry permitted us to sell 3G services on smartphones. The agreement that was signed with the Ministry in 2012 had two phases: phase 1 was for dongles and tablets and phase 2 was for smartphones. This was just approved a few weeks ago and it will go into implementation in the next few months. So in a sense we will become like a MVNO excluding voice services.
We have a very strong brand and we offer a very good customer service. The area we have to work on is the pricing to compete with the mobile operators.
Is there anything that you would like to add?
We just launched DSL services at very aggressive prices starting $8.99? There is a 4$ loss for us in dollars on every account but it is the only way for us to come into the market and capture our share.
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