Sunday, July 02, 2006

The Umniah sale

The political fallout from the sale of Umniah to Batelco is ongoing. Umniah was granted a license to establish a third GSM cell phone network two years ago, and the network started working a little over a year ago. The scale of the sale (415 million US$) has raised eyebrows.

At the time that the license was issued, the existing cell phone operators (Fastlink and Mobilecom) offered the government 80 million dinars in exchange for not issuing a new license (thus maintaining their duopoly). Instead, the government insisted on issuing the new license, collecting 6 million US$ (Michael Dagher, Umniah CEO says that they spent 11 million dinars in government fees). At the time, the debate was between the politicians who suggested that it would be better for the treasury to collect 80 million dinars instead of 4 million, and the government, which felt that a more competitive telecommunications market was worth the sacrifice.

This debate is now being revived, as critics (including former finance and trade ministers) are saying that the license fee collected was too low, as is clear by the enormous profit made by the investors who set up Umniah. The profits made are tax free, which is one of the incentives offered to lure new investors into the market. MP’s are suggesting that an investigation should be launched into the affair.

Today the ministry of telecommunications issued a statement detailing the history of the issue and explains the rationale behind the decisions made. The company is expected to make 240 million dinars for the treasury over the 15 year lifetime of the license.

While the amount collected from Umniah as license fees may or may have not been too low (depending on who you ask), it is clearly better for the economy and for the consumer to have more competition. Costs of cell phone use have fallen noticeably since Umniah entered the market. I don’t think that there is anything wrong with that, although I do have reservations about exempting the sales windfall from taxes. Such an exemption, if it is indeed needed, should only apply to operating profits, and not to profits accruing from the sale of the company. This is the issue that should be looked into, and not the licensing fees.

4 Comments:

At 5:30 AM, Anonymous Moey said...

yea man but umniah also has the lowest call rates for local/international mobile calls in jordan (if not the middle east) and has 3G activated now, and batelco is successful in bahrain (well ok MTC Vodafone - Kuwait fucked them when they entered the bahraini market) bas still.. batelco is one of the best internet isps in jordan so that should be good.

 
At 8:44 AM, Blogger Basem said...

Khalaf, though I’m not sure if Umniah is exempted from taxation on the profit they make under some government incentive, but I can assure you that the TRC is making a cool 10% cut off their revenue, under the revenue-sharing scheme that’s part of the license (along with the other four operators). So they’re not entirely enjoying a tax-free investment.

 
At 3:04 PM, Blogger Khalaf said...

Moey: I agree. More competition is good for the consumer.

Basem: You are right. I think this is what the government means when it is talking about the 240 million over 15 years. People are objecting to the licensing fees and the windfall that the investors are making.

I am surprized when people complain that the government is not collecting enough money. Nobody is more concerned about collecting money than the Jordanian government.

:-)

 
At 6:15 AM, Anonymous Anonymous said...

hi,

My name is Layla and i was just doing some research on Jordans telecom until i came across ur blog.

Im an MA student in Canada and i was wondering if u can help me with one thing for my report.

Do you have info or reference to a proof that the jordaina market need to spend less money on their mobile handsets and communications?? giving the fact that prices are geting real cheap and compatative. I know the jordanian market send s 3.5 million text messages per day. so do u have any info that also proves that the jordanian market need to control thier buget?

If you can kindly reply to me, plz do to layla.najia@gmail.com

Thanks!

 

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