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.