Jordan initiated reforms in 1994 aimed at improving the overall efficiency of telecommunications services in the country. This sector restructuring was significant not only because it represented the Middle East region’s first such reform program, but also because the policy dialogue, which was the catalyst for reform, had a high level of participation and consensus-building. The project was designed to:

• create an independent regulatory structure and a market-oriented policy;
• corporatize and subsequent privatizing of Jordan Telecommunications Corporation;
• enhance service quality and expanding network capacity and coverage; and
• promote private investment.

The program has increased the quality and reliability of these services, increased network coverage for remote and underserved areas, and reduced tariffs. Sector reform is expected to have economy-wide benefits for Jordan, by stimulating new foreign investment, creating new employment opportunities, and generating substantial government revenues.

The transition to a competitive market structure for telecommunication services is far from finished and poses several challenges for Jordan’s government, which is still grappling with issues of independence of the Telecommunications Regulatory Commission, competition in the provision of public switched telephone networks services, and the licensing of the newly formed Jordan Telecommunications Company.

Performance of the Telecommunications Sector Prior to Reform

The state-owned Jordan Telecommunications Corporation (TCC), as the country’s monopoly service provider, was consistently unable to meet market expectations for telecommunications services. As the sole operator for the country since its establishment in 1971, TCC was able to dominate the policymaking, regulation and operations within the sector, effectively preventing private participation, competition and economic pricing.

As a consequence, the overall performance of the sector was weak with low customer satisfaction and poor service delivery. In 1994, main telephone lines in operation numbered 305,470, giving Jordan a penetration rate of 7.24 lines per 100 population. Approximately 72 percent of the lines served the greater Amman area, yielding a teledensity of 14.7 per 100 population. The waiting list for main lines was 120,000, but due to unexpressed demand, this figure was most likely considerably higher. Waiting time for a telephone line was close to nine years.

Not surprisingly, the performance of Jordan’s telecom sector was poor compared to high- income countries and others in the region. As recently as 1995, the latest year for which statistics are available, telephone penetration was about 7.3 lines per 100 population — low compared to the 41.8 in neighboring Israel and the 53 line average for high-income countries. The waiting time for a connection in Jordan is almost 10 years versus less than three years for other countries in the region and, at most, a few days wait for high-income countries. Jordan’s 86 faults per 100 main lines per year compares poorly to the average of 8.5 for high income countries. Meanwhile, revenue per line in Jordan, at US$702 compares favorably to revenues for other countries in the region.

Beyond the poor delivery of and existing unmet demand for basic services, there was growing demand for more advanced services and information systems required by businesses to become competitive in regional and global markets. These services included data communications, cellular mobile and satellite-based services. Prior to the sector reform, very limited data communications, paging, public payphone and analogue mobile services were available, a situation that was viewed as an obstacle to the nation’s economic development.

In spite of these shortcomings, TCC was a profitable entity and an important foreign exchange earner for the Government. Revenue per connected telephone line was US$718 in 1994, due in large part to high international tariffs and monopoly service provision. Total revenues earned were in the order of US$200 million in both 1993 and 1994. This "strong" financial performance of the overall telecommunications sector in Jordan, however, concealed TCC’s lacked of financial independence. TCC was required to transfer all revenues to the Ministry of Finance. This lack of autonomy meant that TCC was unable to plan for and invest in the rehabilitation and expansion of its networks. During the period 1990-1994, its capital investment was limited to a few million dollars annually.

The unsatisfactory performance of the telecommunications sector can be attributed to several factors. The first factor is the lack of TCC’s corporate autonomy. TCC was tied to the central Government budget, with little authority to manage its own financial resources for operational and development purposes. This contributed to poor commercial management and inadequate capital investment. Another implication of this lack of autonomy was that TCC could not freely manage its own human resources, but was required to adhere to civil service recruitment practices, salaries limits and employment benefits.

The second factor is the inadequate sector structure and organization. The Telecommunications Law of 1971 (amended in 1993) retained TCC as the dominant player in the sector. The law allowed TCC not only to deliver services, but also to act as regulator and de facto policymaker.

These regulatory arrangements caused a number of concerns. First, since TCC was expected to pursue its own interests as an operator in the sector, it could not be impartial in regulating other operators. This created a potential conflict of interest. Second, no separate regulatory body existed with a clear definition of responsibilities. The responsibilities to monitor tariffs, promote competition, enforce interconnection policy, manage conflict resolution, allocate, manage and monitor radio frequency spectrum, approve standards and terminal equipment, and monitor performance of operators were divided among Council of Ministries (COM), the Frequency Management Committee and TCC. Finally, COM and TCC were neither organized nor equipped to undertake this important function, particularly in a multi-operator environment, given the complexity of the issues. The prevailing regulatory arrangements at that time hindered a timely response to several applicants for licenses to provide non-basic services, notably, cellular mobile and data communications.

Progress Made

Jordan’s telecommunications sector reform was launched in 1994, after several years of false starts. The debate began in the mid-1980s when an international consulting firm was commissioned to study the viability of privatizing TCC, but the idea was abandoned because of national security concerns. In 1994, the government commissioned a second analysis of the sector. Having overcome the security and other objections, a statement of sector policy was issued by the government. As a result, a sector reform program was set in motion.

The government embarked on a comprehensive sector restructuring program with World Bank assistance. The main elements of the program included: a) preparing and promulgating a new Telecommunications Law; b) commercializing, corporatizing and privatizing the operations of TCC; and c) promoting competition and private provision of services. The sector reform program led to several important initiatives.

Issuing a new sector policy. Its broad objectives are to: a) develop the telecommunications infrastructure; b) provide the necessary legal and regulatory environment to ensure fair competition; c) develop new telecommunications services at effective prices that support Jordan’s economic, social and cultural development; and d) encourage investment in the sector, (public and private; local, national and foreign).

This sector policy was the outcome of an extensive policy debate with strong participation from public and private parties as well as from NGOs. To institutionalize the public’s participation in policy formulation, a Consultative Telecommunications Council (the Council) was established with a membership of 40 people. The newly established Telecommunications Policy Department at the Ministry of Posts and Communications is benefiting from input provided by the Council in undertaking its responsibilities.

Promulgation of a new telecommunications law. The first milestone of the reform process was the passing of the Jordan Telecommunications Law of 1995 to replace the TCC Law, in place since 1971. The 1995 Law established an independent telecommunications regulatory commission, limited the role of the Ministry of Posts and Telecommunications to sector policy issues, provided for the private sector investment and provision of services (including foreign investment to a maximum of 49 percent), and corporatized the TCC, to be followed by its registration as a joint stock company, initially wholly-owned by the Government .

Creation of a new independent regulatory commission. Another important breakthrough was the October 1995 decree issued by the Prime Minister which established the Telecommunications Regulatory Commission (TRC). Since then, TRC has made solid progress on several fronts, benefiting from assistance provided by two international consultants. TRC was able to attract and retain qualified personnel. New recruits are receiving training in several relevant areas. TRC is in the process of issuing licenses (including the JTC license, two public pay phone licenses, two trunk radio licenses, a second paging license and a second cellular license). The licensing procedures have been transparent, which is bringing credibility to the organization.

Corporatization of TCC. Several initiatives have been undertaken to prepare for TCC's corporatization. TCC has implemented a major process re-engineering program which aims at improving its efficiency and market orientation. A major retraining and skills upgrading program has also been carried out targeting not only staff, but also middle and senior management. It has also adopted international accounting standards and introduced a computer-based financial management and accounting system. In September 1995, TCC, with support from the World Bank guarantees program, was able to borrow US$50 million from international capital market through a very successful bond issue to supplement other sources of funding for its investment program.

Most recently, TCC corporatization and transformation into the Jordan Telecommunications Company (JTC) was completed with registration with the Ministry of Industry and Trade in October 1996. The Government of Jordan holds 100 percent of the shares with JD 250 million capital (equivalent to about US$353 million). JTC’s Chairman and Director General have been named to run JTC. A new Board of Directors has been appointed, but continues to be dominated by public sector officials.

Privatization of JTC. When the government embarked on the privatization of a long list of state-owned enterprises, JTC had a high priority. Since the policy and regulatory issues were addressed earlier, the government was able to select a financial advisor quickly to provide advise on business valuation, sales strategy, tender documentation and pre-qualification of interested bidders, and marketing JTC internationally, contracting and finalizing the deal.

An international consortium has been appointed as financial advisors for the government to offer 40 percent of JTC equity to a strategic partner. The remaining shares would be sold through an Initial Public Offering in country and abroad after the successful completion of the first phase. Proceeds from the sale of the 40 percent equity are intended for investments in public sector projects. The RFP for strategic partners was issued recently and initial bids are due by March 1998. The conclusion of the transaction is expected by June 1998.

Cellular Licenses. Jordan Mobile Telephone Services Company (JMTS) established by a group of Jordanian investors in cooperation with Motorola, which won the first private cellular license. JMTS has at this time approximately 43,000 customers. Cellular services using the GSM standard proved to be more popular than expected, promoting the government’s decision to grant additional licenses. The TRC therefore plans to license one or two more cellular operators as soon as JMTS’s four year period of exclusivity expires in late 1998.

Radio Paging Service. As part of its policy, the TRC introduced a tender for a second radio paging license in November 1996. The license was awarded to the United Saudi Communications Company (USC). The consortium of Jordanian and Saudi interests will be operating in Jordan under the name United National Group. Jordan Radio Paging (JRP), the country’s first radio paging company, was awarded an exclusive license by TCC in December 1987, prior to the restructuring of the sector. TCC’s granting JRP a 15-year exclusive license to operate paging services has been nullified amicably with JRP agreeing to end the 15-year exclusivity period in exchange for being allowed to expand its services to cover the whole of Jordan.

Licensing other services. The TRC has already licensed several data communications service providers, four of which are operational. TRC plans to license several other operators to provide payphone telephone services and trunking services. The provision of satellite-based network services is currently under discussion.

Lessons Learned and Outstanding Issues

One of the main lessons learned from this experience is that it is possible to mitigate government concerns and establish a balance with investors’ interests. The initial list of government concerns included: national security, network expansion in rural services, employment, tariffs, and revenues to government. Investors' concerns included: regulatory concerns, tariffs rebalancing and future control, and management control. Jordan has so far succeeded in establishing the required balance of objectives.

The introduction of competition for provision of public switched telephone networks services and its timing have been debated widely. The arguments for the introduction of competition have been identified to be meeting demand for basic and new services, lowering tariffs and stimulating JTC. Consideration has been given to differing structures including: a) service providers operating independently from network operators; b) a single national operator licensed for a wide range of services; c) a single national operator initially prohibited from carrying international traffic; and d) two or more operators licensed to provide various services in addition to telephony, such as cable television.

After extensive policy debate, the decision was made in favor of licensing a single additional network operator to compete with JTC. The company would be obliged to provide universal service only when it reached a suitable size. As for timing of the introduction of competition, the options considered were based on whether licensing of a second operator came before, at the time of, or after JTC’s privatization. If competition was allowed only after completion of JTC’s privatization process, an exclusivity period (anywhere from 3 to 10 years) needed to be determined.

JTC tariffs are not aligned to costs. International calls are high, while local services tariffs are below cost. JTC is under pressure to rebalance its tariffs to satisfy its customers, reduce its dependency on revenue from international calls and prepare for competition. JTC introduced new tariffs in January 1997. International tariffs were reduced by 20 percent on average. Local and national tariffs were restructured. Leased line tariffs seem to be high and require special consideration in light of the importance to other service providers who depend upon the availability of these leased lines at affordable costs.

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