Wireless in Iraq

With wireless infrastructure virtually nonexistent in post-war Iraq, wireless vendors around the world are clamoring for a piece of this lucrative pie during a time when infrastructure contracts are few and far between. But whether major firms such as Ericsson, Lucent Technologies, Motorola or Nokia will ever have a chance to bid on any commercial wireless contracts in Iraq is questionable.

Analysts peg the potential value of the Iraqi telecom infrastructure market at between $900 million and $1 billion. UBS Warburg estimates that the initial build out opportunity for wireless in Iraq could reach $250 million. The only wireless network operating in Iraq is based on digital trunking technology and controlled by the Kurds in the north.

Pyramid Research indicates there is strong pent-up demand for both fixed and mobile services, even in the slouching economy of Iraq under sanctions that the United Nations recently lifted.

Despite the U.N. sanctions, people living in the wealthier parts of Baghdad and other Iraqi cities have strengthened the reception of their home cordless phones up to two miles to use them as mobile phones.

“A post-sanctions Iraq would stand to raise the inflow of currency to the country and eventually boost income levels, further boosting demand for telecommunications services across the border,” Pyramid Research reported in a recent study.

It is that opportunity that has piqued the interest of virtually all telecom firms, and there have been plenty of vendors aggressively — and secretly — lobbying the U.S. government for a chance at providing wireless infrastructure in Iraq, according to government sources.

Wireless firms were hoping to score commercial contracts earlier this spring until the Bush administration decided against awarding any lucrative telecom infrastructure awards. Instead, the job of installing commercial wireless infrastructure will be left to the new Iraqi government.

“There will be powerful interests that will try to get the administration to change that position,” said a source close to the situation.

Those familiar with the dealings on Capitol Hill say the pressure is on from wireless firms who now see big opportunities in light of the United Nations lifting the 13-year-old economic sanctions against Iraq.

Lobbyists point out that telecom infrastructure is a vital component to building a new government for everything from ordering materials to accessing the Internet. Satellite systems are inadequate to handle large call volumes.

Moreover, Vodafone plc reportedly is operating a commercial GSM network in the southern region of Iraq in conjunction with its Kuwaiti joint venture with permission from British armed forces. Vodafone did not answer requests for comment.

“There is enormous demand for telecommunications in Iraq,” said Joseph Braude, senior analyst with Pyramid Research and author of the book, The New Iraq. “A lot of people are unhappy. They want to tender a temporary license so there is something to use.”

Government contracts for commercial networks would help stimulate the economy and bolster the lagging telecommunications market, but the wireless infrastructure issue became too complicated for the Bush administration earlier this spring, according to sources.

In particular, U.S. Rep. Darrell Issa, R-Calif., declared that CDMA technology should be the technology of choice for new wireless networks in Iraq, which sparked anger from the GSM community. Then CDMA proponents complained when they learned that Motorola was on the cusp of winning a sole-source GSM mobile infrastructure contract from the State Department, according to people familiar with the negotiations.

Motorola said there never was a contract on the table.

“From what we can tell, the top priority is not putting cell phones in the hands of the Iraqi civilian population,” said Norman Sandler, director of global strategic issues for Motorola. “We have been as interested as anyone else in seeing how some of these other questions are addressed in terms of the process.”

The Defense Department has indicated that telecom initiatives associated with re-establishing security and safety in Iraq is the top priority. The Department of Defense recently granted Motorola a wireless contract valued at between $10 million and $25 million, depending on the options exercised, to provide radio communications for Baghdad security forces. MCI received a contract to provide an interim wireless solution for U.S. and Iraqi authorities. The contract is valued between $24 million and $34 million. The service is expected to provide full capability by July with service for up to 10,000 phones.

“Eventually there is going to be some sort of arrangement between the U.S. AID (Agency for International Development) and the Iraqis on how to proceed [with a commercial system],” said Air Force Lt. Col. Kenneth McClellan, spokesman for the Defense Department. “What we need is an interim government solution then everyone will be clamoring for a national solution. The MCI contract may or may not be involved.”

The DOD contract with scandal-plagued MCI is raising eyebrows, given MCI’s lack of wireless experience and its history with investor fraud. The company has offered paging and messaging services but has never been a traditional voice carrier in the wireless market beyond some resale efforts.

Senate Governmental Affairs Chairman Susan Collins, R-Maine, has launched a probe into whether MCI should be allowed to compete for federal contracts. McClellan noted that MCI already has experience establishing similar wireless systems in Afghanistan and Haiti.

McClellan said he didn’t know whether additional contracts might be awarded down the line. Lucent said it has been approached by government officials seeking information about wireless infrastructure construction. In May, InterWave, a provider of compact GSM wireless systems, said it would open an office Baghdad. InterWave has publicly indicated the decision was driven by the urgent nature of requests made by many consortia in Iraq and robust demand for its rapid deployment wireless networks. InterWave did not answer requests for an interview.

“The U.S. government has set priorities as to what needs to be done and when,” said Mike Iandolo, vice president of CDMA product management with Lucent. “Establishing order and providing critical humanitarian aid are clear priorities. Telecommunications can certainly help facilitate those efforts. We stand ready to provide assistance to the government when it turns its attention to rebuilding Iraq’s communications infrastructure.”

Many telecom vendors say they have been confused about what agencies are involved in making telecom contract decisions. U.S. AID, the new Pentagon Office of Reconstruction and Humanitarian Assistance as well as the State Department all have roles in Iraq’s reconstruction efforts.

In addition, the White House recently overhauled the reconstruction effort, placing L. Paul Bremer III in charge of rebuilding Iraq.

“I think part of the problem is that there is some uncertainty in terms of roles and responsibilities,” Motorola’s Sandler insisted. “This is reflected in the fact that the whole operation in Iraq was overhauled.”

APCO Worldwide, a global communications consultancy, recently announced its intention to help existing and potential clients navigate the complicated bureaucratic terrain of contracts and subcontracts from the U.S. government to rebuild Iraq. Former U.S. Ambassador to Morocco, Marc Ginsberg, is coordinating the effort. Ginsberg could not be reached for comment.

And there is another twist that could impact any future wireless infrastructure contracts. Previous contracts the Saddam Hussein-controlled Iraq had brokered with infrastructure companies in Turkey, France, China and others to build a mobile network could be recovered. According to Pyramid Research, these projects were cancelled, rejected or delayed by the United Nations.

In 2001, Chinese vendor Huawei secured a $28 million deal to set up Iraq’s first mobile network, but the deal was thwarted when the U.S. accused China of providing Iraq with dual-use equipment that could be used for both military and civilian communications. By the time the American objections had cooled and the United Nations agreed to the project, Huawei pulled out of the deal.

Since pre-war Iraq was in heavy debt with France, Russia and China, it’s possible the United States could renegotiate the debt by allowing firms in these countries to recover their contracts, said Braude. For instance, French firm Alcatel had a $76 million fixed overhaul contract pending that was shelved once the U.S. invaded Iraq.

“Telecoms and oil are two of the most politicized contracts because there were outstanding contracts signed with the previous government and other companies,” said Braude. “We may find France or Russia trying to leverage this debt and agree to forgive the debt in exchange for recovering contracts. We’re already seeing evidence that Russia has been doing this in its negotiations with the U.S. That’s why it’s so difficult to tender a contract.”