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Perspective Karim Sabbagh

Bahjat El-Darwiche
Jonathan Fiske
Chady Smayra

The Rise of
Economic Zones
In the MENA Region
A Telecommunications
Perspective
Contact Information

Beirut
Bahjat El-Darwiche
Principal
+961-1-985655
bahjat.eldarwiche@booz.com

Chady Smayra
Senior Associate
+961-1-985655
chady.smayra@booz.com

Dubai
Karim Sabbagh
Partner
+971-4-390-0260
karim.sabbagh@booz.com

Jonathan Fiske
Senior Associate
+971-4-390-0260
jonathan.fiske@booz.com

Originally published as:“The Rise of Economic Zones in


the MENA Region: A Telecommunications Perspective,”
by Bahjat El-Darwiche, Jonathan Fiske, Karim Sabbagh,
and Chady Smayra, Booz Allen Hamilton, 2008.

Booz & Company


The Rise of Economic zones, which are designated areas in which residents
and companies are exempt from certain laws and taxes, have been
Economic
used around the world as an incentive to boost local business.
Zones in the The trend in some countries in the Middle East and North Africa
MENA Region: (MENA) region, especially Gulf Cooperation Council (GCC)
A Telecom­ members, is to use these zones as vehicles for spurring economic
munications diversification and decreasing dependency on the oil sector.
Such zones can attract new types of tenants with skills and other
Perspective
resources to contribute to the investment and establishment of
new, globally competitive industries, especially service-based
industries. Some countries are developing grand plans that extend
the traditional concept of zones to economic cities.

Developers of many of these new in countries with liberalized


zones want to provide advanced telecommunications markets, there
information and communications are no regulatory exemptions or
technology (ICT) infrastructure and special treatments for zones.
services in order to attract leading Exemptions would be counterproduc-
tenants. As more Gulf states strive to tive and would, in practice, be the
adopt similar diversification ambi- inverse of the purpose of the zone,
tions, there is greater competition to which is to enable more liberalized
be the regional leader in some indus- commercial environments. Some
tries and therefore in ICT facilities and regulatory changes, however,
service offerings. To ensure advanced may be necessary: For instance,
ICT facilities are available, some regulatory environments may need to
developers are considering taking a be opened further to allow developers
hands-on role in rolling out infra- and other investors to be authorized
structure and services for these zones. to manage networks and provide
There are a number of ICT develop- services within zones. Economic zones
ment and management models that should be vehicles supporting greater
could be considered by policymakers, telecommunications liberalization,
regulatory authorities, and developers. especially in terms of enabling fair
The common denominator among and value-creating competition within
all of the models, however, is that the market.

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The Developers believe that meeting these
needs will help attract leading tenants
that current practices are sufficient
enablers. However, authorities should
Challenge that can boost spending and enable be cautioned against exempting
at Hand the introduction of globally
competitive industries, investments,
telecommunications provision within
zones from the national laws and
and growth to each country in which regulations applied outside the zones.
ICT-enabled zones are introduced. This is for the simple but significant
As more countries in the region reason that most countries have
adopt the concept of economic initiated or undergone liberalization
zones, the need increases to provide already. Instead, authorities need
Economic zones have existed for
the best facilities and environment to consider whether further
many years across the MENA
to attract premier residents1 and liberalization is necessary across
region. Initially, such zones were
visitors. This is especially the case the sector, which in turn would
free ports for customs duty benefits.
where countries have competing benefit the zones.
More recently, some GCC member
objectives, such as to be the regional
governments began adopting
hub for specific sectors. The objective of this paper is to
economic zones that have evolved
consider the key factors for enabling
beyond simple concepts such
To implement advanced ICT advanced ICT infrastructure and
as a customs zone near a port,
infrastructures, some developers are service provision within economic
implementing more widespread
considering taking control of their cities and special zones, from the
incentives and creating important
construction and rollout, as well as perspective of developers,
vehicles for driving economic
service provision, to tenants in these operators, regulatory authorities,
diversification policies.
zones—a role that would normally and policymakers. In this paper,
be played by telecommunications economic cities and economic
Gulf countries have recognized
operators. However, developers zones are regarded as offering
the need to develop their national
run the risk of coming up against important enablers in fostering
economies beyond dependency on
regulatory barriers in implementing economic development. Among
the oil sector. Many new zones
this approach. These barriers, these enablers are regulatory
are being introduced, which are
depending on the country’s regulatory certainty and the opportunity
centered on ICT, financial, and other
framework, could include a lack of for developers to have a role in
service sectors. The policy objective
authorization or clarity of rights telecommunications infrastructure
is to build new national economic
in regulatory regimes for non­ and service provision. However, the
platforms based on specific concepts
telecommunications operators to provision of exemptions or special
or industries for promoting growth,
construct or provide infrastructure treatment for telecommunications
attracting new types of visitors
or services within a defined area such would be contrary to the progressive
and residents, and enabling
as a zone. liberalization practices being
employment opportunities.
introduced. It is important to provide
To support the realization of greater choice and opportunities for
Planners, developers, and national
advanced ICT infrastructure incumbents and for new entrants.
policymakers in the GCC want
and delivery, it is necessary that At the same time, developers need
to have state-of-the-art ICT
national telecommunications to be given a chance to be providers
infrastructure and services in their
authorities consider reassessing or managers of infrastructure and
zones, including the following:
existing regulatory frameworks service provision.
and obligations. Authorities may
• Availability of high-capacity,
conclude either that the authorization
high-speed infrastructure
regime could be further liberalized or
• Reliable access to advanced
ICT facilities and services

• Provision of comprehensive
The term “economic zones” is quite
ICT management services broad because there are different
types or variations of zones.

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Introducing Economic zones are designated areas
in which residents and companies are
few Eastern European countries.
As an indication of the scale of these
Economic exempt, in whole or in part, from zones, the World Bank claimed
Zones and selected laws and rules. Traditionally,
these exemptions have included
in 2004, “Thirty years ago, 80
special economic zones (SEZs) in 30
Cities ordinary taxes and limitations on countries generated barely [US]$6
ownership and trade. The term billion in exports and employed about
economic zones is quite broad 1 million people. Today, 3,000 SEZs
because there are different types or operate in 120 countries and account
variations of zones. for [US]$600+ billion in exports and
50 million direct jobs.”3 Since these
The Organisation for Economic figures were published, there has been
Co-operation and Development continued growth in economic zones,
(OECD) studied economic zones and most notably in the MENA region.
defined three main types, as follows:2
Whereas economic zones are often
Free Economic Zones. This category areas attached to established cities,
covers the ground from free ports to a newer type of zone is emerging in
export processing zones. FEZs are countries that have the geographical
generally accessible to investors but capacity to develop new zones as
do not go as far as offering a tailored independent, all-encompassing urban
regulatory environment. centers. These can be classified as
economic cities, constituting a fourth
Special Economic Zones. SEZs are type of economic zone. However,
basically ring-fenced, customs-free this term is liberally used, as there
areas with a regulatory environment are examples of economic cities
of their own. They are mostly backed being small developments or zones
by a piece of legislation establishing a designated for specific purposes.
governing council for each individual
SEZ and mandating it to enact rules “City” is commonly used to identify
that shall apply to investors within a distinct, highly populated urban
the zone. settlement. However, the term can
also indicate a special administrative
Industry Zones. IZs are basically or legal entity. In some countries,
free zones but targeted at specific cities have legal foundations through
sectors or economic activities. They formal establishment by a charter
may restrict the access of companies or by being incorporated. Most
in nonpriority sectors, and their often these are run by a political
infrastructure is mostly tailored entity separate from, but possibly
according to their sectoral targets. subservient to, any other form of
government. In other words, a
The common element of all forms political body, separate from a
of zones is that they are typically used central or regional authority, would
to encourage spending, investment, be responsible for running only
and development. the city. However, the expression
economic cities has often been used in
Presently, there are examples of a broader sense that is more closely
economic zones in Asia, Latin associated with “development” or
America, the Middle East, and a subdivisions of a larger development.

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Growth of Economic zones are quickly being
adopted across the Gulf region
The UAE’s Jebel Ali Free Zone
expanded from a port to a location
Economic to promote diversification of for numerous industries and now has
Zones in the countries’ economies away from oil
and to enable greater employment
around 6,000 companies from 120
countries. Dubai’s Technology and
Middle East opportunities for nationals. Media Free Zone was established in
2003 and contains the regional offices
United Arab Emirates. The UAE of leading broadcasting companies
was an early adopter of economic (e.g., AME Info, MBC, Reuters,
zones. Since introducing the concept CNN, and the BBC), as well as IT
in 1985, it has established or is in and telecommunications vendors
the process of developing at least (e.g., Microsoft and Siemens). In
31 economic zones, ranging from addition, there are numerous other
media and entertainment to industrial large developments planned and
to IT research and development being built.
(see Exhibit 1).

Exhibit 1
UAE Economic Zones Establishment Time Line

DATE ESTABLISHED

1985 1987 1995 1996 2000 2001 2002 2003 2004 2005 2006 2007

- Jebel Ali - Shariah Airport - Ras Al - Dubai Metals - Dubai Biotechnology - International
Free Zone International Khaimah & Commodities & Research Park Media
Dubai - Free Zone Free Zone Centre - Dubai Energy Zone Production
- Fujairah Hamriyah - Aiman - Dubai Cars - Dubai Internet City - Dubai World Central Zone
Free Zone - Free Zone Free Zone & Automotive - Dubai Media City - Dubai Logistics City - Silicon Oasis
- Ahmed Bin Shariah - Dubai Airport Zone - Dubai Maritime City - Dubai Studio City
Rashee Free Zone - Knowledge Village
- Free Zone Dubai
Umm AI - Dubai Health Care
Quwain City

- Dubai International - Dubai Academic City


Financial Center - Abu Dhabi Airport
- Industrial City of Free Zone
Abu Dhabi - Abu Dhabi Ports Company
- Dubai Outsourcing - International
Zone Humanitarian City

Note: This list is not intended to be comprehensive. The list and dates are for indicative purposes only. Many zones and cities established in the past five years are still under development.
Sources: http://www.uaefreezones.com; Zawya; Booz & Company

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Kingdom of Saudi Arabia. KSA is Other Middle Eastern countries have • Qatar plans to construct a
another example of a country with increasingly been adopting zones development called Energy City
plans to extend zones to the scale of to achieve similar diversification Qatar (ECQ), which will aim
full-fledged urban centers. In 2005, objectives. Here are some examples: to attract leaders in oil and gas
the kingdom announced its intention production. It is also planning
to build the King Abdullah Economic • Bahrain is developing the Bahrain a zone called Lusail, which
City, where approximately 2 million Investment Wharf (BIW), in is intended to attract major
people would live and work by addition to its current two ports businesses and entertainment.
2020. This city would be divided and industrial zones (Mina Sulman Other planned zones include
into six areas: the sea port, industrial and North Sitra Industrial Estate). near the Doha Airport, Doha
zone, central business district, resort The BIW is expected to cost Industrial Area, and the Mesaieed
district, educational zone, and around [US]$1.3 billion. The Industrial City.
residential communities. goal is to attract international
investments to support the To date, more than 55 economic
KSA has since announced plans for country’s industrialization. cities or economic zones have
further cities, including the Prince been established or are under
Adulaziz bin Musaid Economic • Oman has a zone called the development in the GCC region.
City, Knowledge Economic City, Knowledge Oasis Muscat There are also nearly as many
and Jazan Economic City, as well (KOM) and plans to build a large-scale developments, and the
as developments in Tabouk and multidisciplinary city called Blue investment climate indicates that a
the Eastern Province. The plans to City, focusing on residential and number of additional developments
create a number of new economic high-end tourism facilities with are under way.
cities include an expectation to the necessary supporting technical
create 1.3 million new employment and social infrastructures. The
opportunities by 2020. The Saudi estimated development costs are
Arabian General Investment Authority [US]$1.8 billion. Oman is also
(SAGIA) expects the economic cities planning two other developments:
to contribute [US]$150 billion to the Salalah Free Trade Zone (FTZ)
KSA’s GDP by 2020. and the Sohar Port.

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Delivering Developers can face regulatory
challenges in the self-provisioning
for authorizing market entry. Most
countries in the region limit the
Advanced of telecommunications infrastructure allocation of fixed network licenses.
ICT and services. These challenges
include authorization barriers to the
However, although mobile depends
on the availability of spectrum and
Infra­structure construction of networks, manage- thus can support only a certain
and Services ment of networks, and service
provision. Challenges might also
number of operators, managing the
number of fixed network providers
come from existing operators unable is driven by the eagerness of
to roll out networks in the zones policymakers and regulators to avoid
within the necessary time frame or market fragmentation and sustain
to the standard demanded by devel- healthy growth and profitability for
opers’ plans. Therefore, it is necessary licensed market players. Developers
for all stakeholders—i.e., developers, that want authorization to enter the
operators, regulators, and policy- market need to be aware that it is
makers—to address the barriers that common practice in such emerging
affect ICT infrastructure and service and developing markets to impose
development. conditions on the authorized operator
(e.g., geographical coverage). Some
Developers. Telecommunications authorization conditions might lie
in all MENA countries are subject outside the developer’s objectives.
to laws and regulations. Developers
can no longer expect exclusivity Alternatively, the status of private
for ICT provision in selected networks could be a loophole to gain
geographical areas. Although there control or some exclusivity for an
are examples of such arrangements area. Typically, providers of networks
in the past (e.g., Dubai allowing and services to users on a commercial
monopolistic privileges in selected basis (i.e., at a price) require a public
developments), these existed prior telecommunications license. However,
to sector liberalization. In fact, the position of private landowners
such privileges are being revoked in granting exclusive access to
to comply with practices enabling network providers can conflict with
market competition. Developers the principles of telecommunications
therefore need to consider their frameworks and the intention to
objectives in the context of an provide consumers with a choice of
open, albeit regulated, telecommuni- providers. Some regulatory regimes
cations sector. may not be clear on what private
networks are, or even if these are
In principle, such open and com- allowed. It is therefore important
petitive environments should meet to define the status of private
developers’ needs. Zones can attract networks and the description of how
providers with a contained and lucra- they differ from public networks in
tive group of customers. Network and regulatory frameworks.
service providers would want to be
the first to gain competitive advan- International practices have been
tages through early entry. mixed as a result of the degree
In fully liberalized markets, providers of empowerment of regulatory
of telecommunications facilities authorities. In some instances,
and services typically require regulatory authorities did not have
authorization. In the MENA region, the power to require that private
many countries have adopted a landowners grant building access
managed approach in their evolution on a nondiscriminatory basis to
toward full liberalization, and still operators.4 In other examples,
have restrictive regulatory practices property owners may operate in-

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building, noninterconnected systems The alternative will be that order to minimize this risk and benefit
and, until recently, were not permitted competitors will gain the advantage from monopolistic privileges.
to aggregate traffic, install switches, or there will be greater pressure on
or otherwise engage in the resale regulators to license new entrants, Operators need to consider various
of telecommunications services.5 among which could be the developer. regulatory scenarios and their
However, some regulators are implications, but these should be
changing practices in order to enable Operators not only face the prospect within the context of existing and
tenants to have a choice of providers of further competition but even ongoing liberalization initiatives.
on a nondiscriminatory basis.6 run the risk of exclusion. Some They need to recognize and take
developers might seek the right to advantage of the demand for
Clarity is therefore needed on the control access to the zones they advanced ICT infrastructure and
legal position of property owners of develop; for instance, through a services, but will need to work with
economic zones. It must be clear as to request for the exclusive right to both regulators and developers to
whether or not telecommunications manage who provides or manages the ensure they can deliver and benefit
providers can access premises to infrastructure as well as possibly what from these opportunities. Failure
install, maintain, and provide service providers the zone residents to proactively do so risks losing
services. It also must be clear whether use. Exclusive rights could extend regulatory and commercial ground
owners can restrict or apply selective to the developer being the de facto to competitors, including the
access to their buildings, despite the telecommunications provider. developers themselves.
fact that there may be a number of
tenants with little or no common tie. The idea of exclusivity is attractive Operators therefore need to take
to any operator. An operator that a proactive interest in the ICT
Where the environment does not gains exclusive access to zones objectives of developers for these
allow private networks to manage potentially derives some of the zones. There are commercial
and offer services on a commercial benefits of a monopolist. However, advantages to be had, but
basis, developers could discuss operators need to consider carefully also regulatory risks that may
opportunities to become licensed before advocating for exclusivity. require mitigation.
operators and service providers with Operators might be given exclusivity
the regulatory authority. Regulators but with a regulatory price, including Regulators and Policymakers.
should welcome interest from full unbundling of the network to Economic zones and economic
developers in rolling out advanced alternative network service providers cities may give rise to challenges
ICT infrastructure and services, since and full access to any service provider. for both regulatory authorities
many governments are concerned and policymakers. Although heavy
about the generally low penetration However, there is also the risk advertising or promotion of the
of broadband. Developers may be the that exclusive rights could go to zones or cities may exert pressure
necessary stimulus toward changing a competitor. For example, a new on regulators and policymakers to
this situation. entrant may be preferred, even by offer them special treatment, a first
policymakers, as a way to help it gain challenge might concern whether
Operators. Some significant voices in market exposure and a revenue base. these entities deserve, or could
the market are stating what they want legitimately be allowed to have,
and are indicating they are willing to Exclusivity of zones also introduces special treatment.
self-develop and deliver these needs. the risk for operators that any
It is therefore important that authorized right they hold to provide Despite the ambition of developers,
operators step up investments and national coverage is, in practice, and the publicity surrounding
offerings to ensure they can meet reduced—if not lost. Operators may these zones, such areas do not need
these customers’ demands. want to partner with the developer in to be given special treatment by
telecommunications policymakers
and regulatory authorities.

Zones can attract providers with Regulatory bodies must balance


between promoting economic

a contained and lucrative group development inside zones and


promoting the development of the

of customers. telecom sector, one of the main

Booz & Company 7


economic pillars in the region. zones is in line with some of the market to competition by lowering
Furthermore, special treatment may principles of market liberalization by unnecessary barriers to entry (e.g.,
be effectively illegal under some relaxing high market-entry barriers to licensing fixed networks, enabling
countries’ telecommunications trade and investment. The objectives full-service competition, and
legal frameworks. of telecommunications market liberalizing the licensing regime to
liberalization and competition should enable new entrants). This enabling
Exclusivity, other special treatment, not be undermined. Such actions role should be neutral, without
or obligations to provide services would challenge the credibility of the resorting to exclusivity or exemptions,
are often reserved for areas in which policymaker and regulator. which can lead to market distortions
telecommunications coverage and However, in markets in which there is and, ultimately, can disadvantage the
service provision is inadequate. a lag in the rollout of advanced ICT communications user.
Remote and sparsely inhabited areas infrastructure and services, regulators
tend to experience this. The reason and policymakers may want to assess Authorities should also work
is economic: It is less profitable to how development can be accelerated with developers and operators in
roll out and maintain a network in and whether these zones can help the improving infrastructure sharing.
such places compared with high- process. In many instances, this may This includes designing and
density areas. be accomplished simply by reducing constructing access-friendly ducts;
any excess regulatory management of requiring operators to share passive
Economic zones and economic market participation. infrastructure (ducts and towers),
cities, by contrast, will be unlikely working with other authorities to
to experience such market failure in The only barrier to ensuring the better enable right of access to
network rollout and service delivery. maximization of advanced networks public property and, if necessary,
In fact, these areas are more likely and efficient services is the regulatory enabling developers the right to
to experience a high degree of regime itself. Policymakers and construct and manage and ease
competition. Operators and service regulators should regard demands by passive infrastructure.
providers are most likely to try to be developers as signals from consumers
the first to roll out in a development, about their needs and consider Policymakers and regulators should
using the latest technology to capture whether these demands are the result therefore consider the state of
highly lucrative customers. There of the market being restrained in market liberalization, opportunities
will also be higher levels of services delivering them. to open markets, and infrastructure
and offerings. sharing, as well as the status of
Regulators have a role in enabling private networks, to identify the best
Policymakers and regulators need participation in the markets. They approaches within existing mandates
to recognize that the purpose of free should act by further opening up the and frameworks.

8 Booz & Company


Rolling There are a number of models that
can be considered for the rollout of
• Provide telephony and Internet
services, including voice, data, and
Out ICT: telecommunications infrastructure TV services.
Management and the provision of commercial
services for ICT users in economic This model would be controversial
Models for zones. These can be narrowed down and difficult to implement because it
Economic to four: private, exclusive, managed,
and open.
conflicts with market liberalization
practices and does not guarantee
Zones optimal sector development.
Private. In this model, the developer
has full control of the operation If the private model were allowed,
of infrastructure and provision of a number of regulatory problems
commercial services to the residents would occur. A government
of the zone (see Exhibit 2). The attempting to exclude zones from
developer would: national telecommunications laws
and regulations would, in fact, be
• Construct the telecommunications— undertaking regressive actions to the
fixed and/or wireless—and IT detriment of telecommunications
infrastructure users and the overall liberalization
objectives of the government.
• Manage the operations of the
telecommunications network

Exhibit 2
Benefits and Challenges of the Private ICT Zones Management Model

Benefits Challenges

- Developer can self-determine: - Limited consumer choice


- Quality of the infrastructure to be installed - Conflict with licensing structure of telecommunications regulatory regime
- Operational model of the network - Opportunity for anticompetitive practices, high prices, and inefficient operations
- Services to be provided and provision of services
- Quality of the services to be provided - No guarantee of quality of network operations and service provision
- Developer can manage infrastructure and service modernization as demanded - Conflict with market liberalization objectives and principles
- Developer can generate additional returns from telecommunications services

Source: Booz & Company

Booz & Company 9


Zones are typically used as a The exclusive model faces similar Network operations are exclusive
means to offer more liberalized challenges to those cited for the to an operator or a consortium
conditions for zone residents; private model. However, the exclusive of operators, which oversees a
telecommunications open to model might be possible in markets single network.
competition are already achieving that are still closed to competition.
these objectives. Very few MENA countries are still in All licensed telecommunications
such a position. service providers have the right to
Exclusive. In the exclusive model, offer commercial services to any
the infrastructure operator and Managed. A managed model has user in the economic zone over the
commercial service provider are regulatory limitations placed on access provided network.
selected by the developer and given to an infrastructure operator but
exclusivity rights within the zone not on commercial service provision The managed model might be
(see Exhibit 3). within the zone (see Exhibit 4). feasible, as long as the property

Exhibit 3
Benefits and Challenges of the Exclusive ICT Zones Management Model

Benefits Challenges

- Because it determines the provider, developer can influence: - Limited consumer choice
- Quality of the infrastructure to be installed - Conflict with market liberalization objectives and principles
- Operation of the network - Opportunity for anticompetitive practices, high prices, and inefficient operations
- Services to be provided and provision of services
- Quality of the services to be provided - Asymmetrical treatment of consumers within and outside of zones:
- Operators and/or service providers bring in expertise - Obstructs zone consumers from the benefits of personal choice of providers
- Risk of benefits being prescribed at a central level rather than determined
by individuals

Source: Booz & Company

Exhibit 4
Benefits and Challenges of the Managed ICT Zones Management Model

Benefits Challenges

- Because it determines the provider, developer can influence: - Risk of enabling anticompetitive practices in network provisioning
- Quality of the infrastructure to be installed - Risk of long-term contracts due to infrastructure cost-recovery need
- Operation of the network - May limit effectiveness and quality of service provision
- Services to be provided - Conflict with a liberalization-based telecommunications regulatory regime
- Quality of the services to be provided - Inhibition of efficient operations and service provisioning
- Allows for service competition and therefore choice for users in offerings and price - Risk of slower liberalization

Source: Booz & Company

10 Booz & Company


remains under the ownership of the Users may select their preferred economic efficiencies than models
developer in terms of infrastructure network and service provider, service based on exclusivity. Authorities
rollout. However, regulatory regimes packages, and tariff plans, according would not incur legal challenges
under liberalized market conditions to their own needs and priorities. from existing licensees, which have
could require the developer to allow the right to provide national coverage
access for other network providers so The developer is hands-off and services but which might face
that they can reach the end user. with no means to intervene. Its geographical and customer-access
responsibility is in enabling access restrictions under other models.
Open. The open model follows the to premises for all providers,
approach that allows any licensed licensed by the responsible
network operator and service telecommunications authority,
provider to roll out and compete on a nondiscriminatory basis.
to serve users. Distinctions are not
made between economic zones, nor The open model is in line with
between zoned and nonzoned areas market liberalization and fair
(see Exhibit 5). competition. It encourages greater

Exhibit 5
Benefits and Challenges of the Open ICT Zones Management Model

Benefits Challenges

- Respond to market realities and commercially driven demands - Developers have little influence in operators’ business models
- Promote and encourage ICT infrastructure investment - Open only to licensed providers
- Enable nondiscrimination between operators and - Underdeveloped or managed regulatory environment obstructs extraction of full
service providers value of competition
- Ensure unified application of telecommunications
regulatory regime across the country
- Ensure fairness, and choice for all consumers
- Reflect market-driven needs

Source: Booz & Company

11
Lessons Operators should engage early on
with developers to support the
in enabling access to service provision
choice by tenants of their premises.
Learned for delivery of infrastructure and plan
Stakeholders their long-term investments for
the zones to meet expected
Economic zones or economic cities,
despite the publicity in some
service demands. markets, should not initially be
looked at as warranting exemptions
Operators will need to be cognizant to liberalized telecommunications
of the risk to the scope and scale of regulatory frameworks. In fact,
Economic zones will be a significant their operating and service provision these may be prohibited under
driver for telecommunications activities. Some developers may seek the country’s telecommunications
revenue growth over the next 10 special rights to provide or manage regulatory framework.
years across the MENA region. In these activities themselves, thereby
the GCC alone, economic zones restricting commercial opportunities It is critical to the growth of the
are expected to generate more than for some operators. Therefore, sector, to existing sector investors,
15 percent of telecommunications operators will need to work with and to consumers that regulations are
revenues by 2018. To capture this regulators to ensure their license not asymmetrically applied between
potential, the successful development rights are not compromised. zoned and nonzoned areas. This could
of telecommunications infrastructure result in anticompetitive practices and
and services in these zones is of In some instances, operators unfair barriers to consumer choice
great significance. might find that collaboration with within zones.
developers makes economic sense.
Developers. Either as customers In such instances, operators may Regulators need to engage with
or as potential ICT infrastructure want to ensure this is possible from developers and all licensed providers
managers and providers, developers a regulatory perspective and that, of public telecommunications
are important drivers in raising the in the meantime, such collaboration networks and services. They need
expectations for ICT service standards is not in breach of any anti­ to ensure that national ICT policies
and availability in the region. competition rules. can be successful in zones and that
various opportunities are available
However, developers cannot expect Policymakers and Regulators. to meet the demands of market
exclusive treatment, as this is not in Regulatory authorities and participants (e.g., developers)
line with market liberalization in the policymakers have a key role for advanced ICT infrastructure
telecommunications sector. Instead, in supporting ICT development and services, without obstructing
because of the size of investments in these zones through further other policy objectives, including
in many developments and the telecommunications liberalization, competition.
importance of these investments to where necessary. However, this role
national economic policies, barriers to should be viewed as being part of ICT
entry should be lowered. This would development throughout the country
allow for greater rollout opportunities rather than in isolation.
and delivery of advanced ICT services
and infrastructure. Supporting ICT development might
involve the further relaxation
Operators. Economic zones of restrictions on market-entry
and other large-scale developments authorizations and, where necessary,
occurring in the region provide the reduction of obligations such as
operators with new opportunities. geographical coverage requirements.
In light of progressive liberalization
policies, operators should take Regulators should review the status
advantage of these by deploying as of property owners in relation to
early as possible to capture the new their rights in controlling access to
customer bases that these zones premises for infrastructure installation
will bring. and management, and any obligations

12 Booz & Company


Endnotes
1
The term “residents” is used to cover both companies and new construction. In the U.S., the Federal Communications
households. Commission in October 2007 voted to ban exclusive deals
2
From OECD, MENA-OECD Investment Programme, “Incentives between building owners and cable television providers to
and Free Zones in the MENA Region: A Preliminary Stocktaking,” give apartment and condominium dwellers a greater choice of
Working Group 2. pay television services. A new rule nullified existing exclusivity
provisions and prohibited any new ones. The FCC stated the
3
World Bank, 2004, James Crittle and Gokhan Akinci, http://rru. deals are unfair and prevent new competitors from providing
worldbank.org/Discussions/Topics/Topic40.aspx. service in many buildings. The regulator’s view is that there is
4
e.g., Canada no reason why consumers living in apartment buildings should
5
e.g., Hong Kong be locked into one service provider. The new rule was backed
by telecommunications companies, which have been pushing
6
In the U.K., prior to 2003, builders provided duct infrastructure into the subscription television business around the U.S. by
in new buildings. The builders then sold access to BT, which offering bundled packages of cable TV, broadband Internet, and
provisioned construction with copper pair cable under its USO digital phone services. (Source: http://today.reuters.com/news/
obligations. In 2003, new building regulations required that articlenews.aspx?type=technologyNews&storyid=2007-10-
electronic communications services be readily supplied on a 31T170314Z_01_WBT007842_RTRUKOC_0_US-CABLE-FCC.xml.)
nondiscriminatory basis from the exterior of the building in most

About the Authors Resources

Karim Sabbagh is a partner Jonathan Fiske is a http://www.arabnews.com/?page=6&section=0&article=96937&d


at Booz & Company based in senior associate with =1&m=6&y=2007
Dubai and Riyadh. He leads Booz & Company based
http://www.emiratesfreezone.com
the firm’s communications, in Dubai. He specializes in
media, and technology regulatory affairs, including http://www.fias.net/ifcext/fias.nsf/Content/
practice in the Middle regulatory management, FIAS_Resources_Conferences_EcoZonesIndia
East. He specializes in licensing, sector policy- http://www.ifc.org
sector-level development making, liberalization, and
strategies, institutional regulatory development. http://www.kom.om/index.shtml
and regulatory reforms, http://www.medibtikar.eu/spip.php?breve3706
large-scale privatization Chady Smayra is a
http://www.mipimasia.com/gb/press/client_news/dubai_world_
programs, and strategy- senior associate with
central_a_unique_urban_aviation_community_august_10_2007
based transformations Booz & Company
focused on strategic planning, based in Beirut. He has http://wzww.mocioman.gov.om
partnerships and alliances, extensive experience in the
OECD, MENA-OECD Investment Programme, “Incentives and Free
marketing, and business telecommunications industry
Zones in the MENA Region: A Preliminary Stocktaking,”Working
process redesign. acquired through various
Group 2, http://www.oecd.org/dataoecd/56/22/36086747.pdf
projects in the Middle East
Bahjat El-Darwiche and North America. http://www.sagia.gov.sa
is a principal with http://www.saif-zone.com/main/about.asp
Booz & Company based
in Beirut. He specializes http://today.reuters.com/news/articlenews.aspx?type=techn
in communications and ologyNews&storyid=2007-10 31T170314Z_01_WBT007842_
technology and has led RTRUKOC_0_US-CABLE-FCC.xml
engagements in the areas of http://rru.worldbank.org/Discussions/Topics/Topic40.aspx
telecom sector liberalization
and growth strategy http://www.uaefreezones.com
development, policymaking http://www.uaeinteract.com/docs/Dubai_Outsource_Zone_is_val-
and regulatory management, ue_for_money/22854.htm
business development
and strategic investments,
corporate and business
planning, and privatization
and restructuring.

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