CHAPTER 6

TelecommunicationsTechnology Transfers

Contents

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Page

. . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

TELECOMMUNICATIONS IN THE MIDDLE EAST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

Telecommunications Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186Manpower Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190Telecommunications Systems in the Middle East. . . . . . . . . . . . . . . . . . . . . . . . . . ........: . 191Perspectives of Recipient Countries and Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211Perspectives of Supplier Countries and Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227

IMPLICATIONS FOR U.S. POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237APPENDIX 6A. – TELECOMMUNICATIONS PROJECT PROFILES IN

SELECTED MIDDLE EASTERN COUNTRIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238Saudi Arabian Project Descriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238Egyptian Project Descriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240Algerian Project Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242Iranian Project Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242

Tables

Table No. Page51. Market Shares of Telecommunications Equipment Exports to Saudi Arabia

From OECD Countries, 1971, 1975-80 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19452. Selected Telecommunications Contracts in Saudi Arabia . . . . . . . . . . . . . . . . . . . . . . . . . . 19453. Market Shares of Telecommunications Equipment Exports to Kuwait From

OECD Countries, 1971,1975-80 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19854. Selected Telecommunications Contracts in Kuwait . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19855. Market Shares of Telecommunications Equipment Exports From

OECD Countries, 1971, 1975-80 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20256. Market Shares of Telecommunications Equipment Exports to Algeria From

OECD Countries, 1971,1975-80 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20457. Market Shares of Telecommunications Equipment Exports to Iraq From

OECD Countries, 1971, 1975-80 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20658. Selected Telecommunications Contracts in Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20659. Market Shares of Telecommunications Equipment Exports to Iran From

OECD Countries, 1971, 1975-80 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20860. Saudi Arabian Telecommunications Budgets As Compared to Total Budgets . . . . . . . . . 21261. U.S. Competitive Position in Telecommunications Markets in the Middle East

Between 1974 and 1982 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233

Figures

l0. Apparent11. Apparent12. Apparent13. Apparent

PageTelecommunications Sector Breakdowns-Saudi Arabia, 1974-82 . . . . . . . . . . . 195Market Share, Saudi Arabia, 1974-82 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196Sector Breakdowns-Kuwait, 1974-82 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197Market Share-Kuwait, 1974-82 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200

CHAPTER 6

Telecommunications Technology Transfers—. — ——.

I N T R O D U C T I O N

The countries of the Middle East realize theimportance of modern, efficient telecommuni-cations systems to their future developmentand security. Middle Eastern leaders consid-er telecommunications as important a part oftheir infrastructure as roads and ports. Thisis reflected in several of the 5-year plans andbudgets of Middle Eastern nations. Kuwait,in particular, wants to become a regional andinternational financial center and has devel-oped telecommunications capabilities neces-sary to reach this goal. The centrality of tele-communications to development planning isalso reflected in cooperative regional effortssuch as Arabsat, a regional satellite commu-nications system.

There is today great disparity in telecom-munications systems in the Middle East.Some countries, like Kuwait and Saudi Arabia,have extremely modern, efficient systems;others like Egypt have comparatively datedequipment and systems which are much lessreliable.

With the notable exception of Algeria (andin a few cases, Egypt), the countries understudy have opted for the most advanced tele-communications systems available-whethermicrowave transmission networks, satellitecommunications, or automatic electronicswitching. Kuwait and Saudi Arabia in par-ticular have used their financial resources topurchase state-of-the-art technology. This hasallowed them to “leapfrog” conventional tech-nology, becoming testbeds for some technol-ogy so new that it is not installed anywhereelse in the world. Iran and Iraq found someof the most sophisticated systems as bestsuited to their needs. Algeria, in contrast,opted for more conventional technologies inorder to lessen dependence on foreign exper-tise and to promote indigenous equipmentmanufacture.

Middle Eastern countries, through theirPTT’s (post, telephone and telegraph) minis-tries have made major investments in telecom-munications infrastructure during the pastdecade. In many cases, subscribers have onlyrecently begun to feel the impact of telecom-munications, yet the experience has generateda set of rising expectations and further de-mand for sophisticated equipment and serv-ices among business and industry, govern-ment agencies, the military services, andresidential users. A number of factors havecontributed to this growing demand for tele-communications, among them the perceivednovelty of the improvements, prestige asso-ciated with telecommunications as a sign ofmodernity, and the utility of improved com-munications in achieving other developmentgoals.

The rapid expansion of national and regionaltelecommunications systems in the MiddleEast has made the region a major new mar-ket for equipment sales, operation and main-tenance, consulting services, and training.This continuing transfer of technologies hasincreased the capabilities of these countries toexpand their commercial and industrial bases;to improve domestic communications; and toexplore possibilities for regional and interna-tional cooperation. On the other hand, con-tinuing dependence on foreign suppliers, andthe use and control of the systems, are some-times controversial issues associated withthese technology transfers.

This chapter first examines the present sta-tus of the telecommunications systems in eachof the six study countries and in the region.Perspectives of recipient and supplier coun-tries and firms are then discussed. U.S. sup-pliers have won sales of all types of telecom-munications equipment and services incountries such as Saudi Arabia and prerevo-

185

186 ● Technology Transfer to the Middle East——.-—————— ——

lutionary Iran, but overall, U.S. firms have not In assessing competition among suppliers andbeen a dominant force in telecommunications implications for U.S. policy, special attentiontrade in the region. In the world telecommu- is paid to the role of supplier government fi-nication market, U.S. firms have lost ground mincing in competition for sales of telecommu-to Japanese suppliers during the past decade. nication technology.

T E L E C O M M U N I C A T I O N S I N T H E M I D D L E E A S T

T E L E C O M M U N I C A T I O N SS Y S T E M S

Telecommunications systems generally in-clude: 1) telephone and telex equipment, 2)transmission equipment, 3) mobile radio, 4)video and radio broadcasting equipment, and5) data communications equipment. Duringthe past decade, telephone and telex have beenthe major imports of the Middle East, mak-ing up well over 50 percent of total importsof telecommunications equipment and servicesfor most countries. Transmission equipmentimports have been the second largest, valuedat 20 percent of total telecommunications im-ports in some cases. The following sectionbriefly explains the application of the majortelecommunications technologies in each ofthese categories.

Telephone and Telex Equipment

A standard telephone set consists of an ap-paratus that includes a telephone transmitter,receiver, and switchhook. Other types of tele-phone equipment used onsite by a subscriberare coin telephones, answering machines, in-tercoms, call restrictor devices, and stationaccounting systems. A telex is a direct-dialtelegraph service wherein subscribers can com-municate directly through circuits of the pub-lic telegraph network. Teleprinters (instru-ments with a typewriter keyboard and printer)send and receive messages through thesystem.

Both telephone and telex use switchingmechanisms to interconnect the circuits ofthe equipment. Manual switching requires as w i t c h b o a r d s t a f f e d b y a n o p e r a t o r , w h i l eautomat ic swi tching can be performed e lec t ro-

mechanically or electronically. Electromechan-ical switching uses analog technology, whereinmechanical (dialing) and voice signals aretransformed into a continuous signal of vary-ing frequency and used to activate theswitches. Electronic switching uses electronicdevices to connect circuits and usually in-volves computer-controlled (software) circuit-ry. It can operate using analog or digital tech-nology (see box A) .

Digital technology converts dialing andvoice signals into discrete electrical pulses thatform computer-understandable streams of in-formation. Because it uses the power of a com-puter, digital switching technology can offeradditional subscriber services such as abbre-viated dialing, call transfer, conferencing,speed calling, call cost readouts, and reliablebi l l ing . Technical ly , d igi ta l technology is ani m p r o v e m e n t o v e r a n a l o g e q u i p m e n t b e c a u s ei t r e s u l t s i n l e s s d e t e r i o r a t i o n o f t h e t r a n s -m i t t e d s i g n a l , h i g h e r s p e e d , a n d s i m u l t a n e o u st r a n s m i s s i o n o f m u l t i p l e c a l l s . A t t h e s a m et i m e , b e c a u s e d i g i t a l t e c h n o l o g y i s m o r e s o -phis t ica ted , use by loca l personnel in develop-i n g c o u n t r i e s m a y b e m o r e d i f f i c u l t . I n d e e d ,s o f t w a r e e n g i n e e r s f o r d i g i t a l s y s t e m s a r e i n

s h o r t s u p p l y w o r l d w i d e , n o t j u s t i n d e v e l o p -i n g c o u n t r i e s .1

Almost all of the world’s telephone plantsevolved using analog transmission; most ofthem will remain so for years to come becauseof the billions of dollars invested. However ,i t i s probable tha t i f te lecommunicat ions com-panies were to s tar t anew, te lecommunicat ionschannels would be a lmost ent i re ly d igi ta l , wi ththe poss ib le except ion of the loca l “ loops” be-

‘Information provided by Continental Page, December 1983

Ch. 6—Telecommunications Technology Transfers ● 187

Box A.—Analog v. Digital Transmission

There are two basic ways in which information of any type can be transmitted over telecom-munication media: analog or digital.

Analog transmission entails transmittal of a continuous signal in a continuous range of fre-quencies. Sound consists of a continuous spread of frequencies from about 30 to 15,000 Hz (Hertz,or cycles per second), or at most 20,000 Hz for persons with excellent hearing. (Sound cannotbe heard by humans below 30 or above 20,000 Hz.) Although it is technically possible to transmitacross this large range over the telephone wires, the telephone companies, conscious of costs,transmit a range of frequencies that may vary only from about 300 to 3,000 Hz, a range wideenough to make a person’s voice recognizable and intelligible. When telephone signals travel overlengthy channels, they are packed together, or multiplexed, so that one channel can carry as manysuch signals as possible. The multiplexed signals have different frequencies so that they do notinterfere with one another, but they are still transmitted in an analog form.

Digital transmission means that a stream of on/off pulses is sent, such as occurs in comput-er circuits. These pulses are referred to as bits. It is possible today to transmit at extremely highbit rates such as 4,800, 9,600, and 56,000 bits per second.

An analog and digital transmission signal are shown below:

analog:

A transmission path can be designed to carry either type of transmission: this applies toall types of transmission paths, whether wire pairs, high-capacity coaxial cables, microwave radiolinks, satellite, waveguides, or fiber optics. Any type of information can be transmitted in eitheran analog or digital form. For example, the telephone channel is generally an analog channel,but computer data can be sent over the telephone lines by using a modem (modulator/demodulator),which converts the digital data into a continuous (analog) range of frequencies. In a similar man-ner, any analog signal can be converted to digital signals for transmission. Codecs are circuitsthat convert signals such as speech and television into a bit stream and convert such bit streamsback into the original signal.

SOURCE: Adapted from James Martin, Future Developments in Telecommunications (Englewood Cliffs, N.J.: Prentice Hall, Inc., 1977), ch. 4.

tween a subscriber and the nearest switchingoffice. Some developing countries, such asKuwait and Saudi Arabia, are installing pulsecode-modulated (PCM) systems in which voiceand o ther analog s ignals a re conver ted in to as t r e a m o f b i t s t h a t l o o k l i k e c o m p u t e r d a t a .

The economic factors favoring digital overanalog transmission stem from two aspects ofthese technologies. First, it is becoming pos-sible to build channels of high bandwidth,

those with high information-carrying capac-ity. Thus, many existing wire-pair channels,which represent an enormous financial invest-ment, could be made to carry much more traf-fic. Second, whenever the signal is amplifiedin analog transmission, the noise and distor-tion is amplified with it. As the signal passesthrough its many amplifying stations, noiseis amplified and cumulative. With digitaltransmission, however, each repeater stationregenerates the pulses and new clean pulses

188 . Technology Transfer to the Middle East

are reconstructed and then sent to the nextrepeater. Thus, the digital pulse train is moreimpervious than the analog to distortion in thesignal.

Several factors are thus pushing the eco-nomic calculus in favor of digital transmission:

1. the trend to much higher bandwidth fa-cilities;

2. the decreasing cost of logic circuitry,which is used in coding and decoding thedigital signals and in multiplexing andswitching them;

3. the increase in capacity that results fromuse of digital repeaters at frequent inter-vals on a line;

4. improvements in codec design, enablingspeech to be encoded into a smaller num-ber of bits;2 and

5. the rapidly increasing need to transmitdigital data on the networks.

Facsimile systems transmit information ona written page by scanning the page electron-ically and more rapidly than one character ata time. Their benefits include more rapid trans-mission of written material than via telex, theelimination of typographical errors, and thepossibility of transmitting graphics. Facsimilemachines are gaining popularity in the Mid-dle East, where difficulties have been encoun-tered in transferring Arabic script to electronickeyboards. Current choices in facsimile sys-tems involve low-, medium-, or high-speedmodels and analog or digital equipment.

Transmission Equipment

Transmission equipment enables transmis-sion of information within the exchange areaand on short- or long-distance hauls. Thetransmission can involve physical connectionsbetween two points (“wire”), or transmissionwhich occurs through a space (“wireless”). Itcan involve analog technology that enablesonly one telephone conversation per circuit, ordigital technology that enables many tele-phone conversations to be transmitted simul-. — .

2 See Box A for definition of cock. Bits are binary digits whichcan take on one of two values, typically written as ‘‘O or ‘‘ 1.

taneously on one circuit. The advantages ofdigital over analog technology include higherreliability, better reception, and the transmis-sion of voice, data, text, and video over thesame circuit.

Transmission lines include wire and cable fortrunk lines that connect subscribers betweentwo central offices or switching exchanges.Also included are coaxial cables which aretransmission lines consisting of a small cop-per wire insulated from another conductor oflarger diameter (usually a copper braid). Coax-ial cable is often more desirable than wirelesstransmission equipment in that it is more se-cure for transmitting sensitive informationand it provides high-quality service unaffectedby changing weather conditions. Other trans-mission lines include wiring within the ex-change and cable laid underwater (submarinecable).

High-frequency radio (other than mobile) in-volves wireless transmission and is often usedfor military applications. Microwave useshigh-frequency, highly directional radio sig-nals (above 890 megacycles per second) totransmit multiple communications channels(broadcast or video circuits between twopoints that have relay stations). The qualityof transmission is comparable to that of coax-ial cable. Repeater or relay stations receivesignals through antennas, amplify them, andretransmit the signals to the next station.

Two types of microwave systems are avail-able, line-of-sight and over-the-horizon. Line-of-sight systems permit transmission in relaylinks of about 30 to 35 miles on average, al-though single links of 100 miles may be pos-sible if ground terrain permits. Transmissioncan extend to distances of 3,000 to 4,000 mileswith many links. In comparison to cable trans-mission, attractive features of line-of-sight sys-tems are high and flexible channel capacity,easy expansion of capacity, shorter installa-tion time, and better adaptation to difficultterrain. Over-the-horizon systems often usetropospheric scatter technology to span longerdistances (up to 700 miles) without relay links.Signals are diffracted in the atmosphere. Be-

Ch. 6—Telecommunications Technology Transfers . 189— —-.—-———————— . .

cause of the long distances, these systems areuseful for transmitting across large bodies ofwater. They require very large antennas andvery high-powered transmitters and thus tendto be costly and sometimes unreliable.

Fiber optics are composed of fine glass fibersthat transmit information by converting dig-ital electrical impulses into light beams. Theinformation is carried through the fibers,which physically connect sender and receiver.These fibers are smaller and lighter than con-ventional copper wires and can carry muchmore information than a typical metal cableusing digital signals. A single optical fiber, forexample, may carry thousands of telephonecalls. Optical fibers can carry a mix of signalssimultaneously—telephone, cable television,radio, video, and data. They can also transmitsignals four times farther than metal cableswithout repeaters to amplify the signal.

The fibers are manufactured with glass ofhigh silica content and few impurities. The rawmaterials used in making glass fibers, unlikecopper, are among the world’s most plentifulsubstances. 3 They also do not conduct electri-city and are not subject to electromagnetic in-terference, which means less “noise” in datacommunications. Fiber optic transmission isdifficult to intercept or interfere with and isadaptable to hazardous conditions, making ituseful in many military applications. Thistechnology is, however, still comparatively ex-perimental for long-haul distances and costsare higher than for other transmissionmethods.

There are three types of multiplexer, whichenable the simultaneous transmission of sev-eral channels on a single circuit. There arethree types. Frequency division multiplextransmits two or more signals on a commonpath by using different frequency bands foreach signal. Those with large capacity cancarry, for instance, one television channel and600 to 900 telephone channels on a singlemicrowave carrier. Time division multiplextransmits two or more signals on a common

path by using different time intervals for dif-ferent signals. This technique is less expensiveto implement than frequency division multi-plex, but is not compatible with frequency di-vision multiplex systems and is not suitablefor a large number of channels. Finally, pulsecode modulation obtains a number of channelsover a single path by modulating each chan-nel on a different frequency and demodulatingit at the receiving point.

Satellite transmission uses a satellite placedin geostationary orbit4 to communicate tele-phone, radio and television, and data signals.The satellite operates essentially as a micro-wave relay in the sky, receiving microwave sig-nals and retransmitting them to Earth. TheEarth station is a dish-type antenna that re-ceives and transmits.

Mobile Radio

Mobile radio involves radio service betweena fixed station and one or more mobile sta-tions. Land mobile radio includes conventionalmobile radio and mobile telephone (mobile sta-tions hooked into a central public telephoneswitching network). The new cellular type ofmobile telephone system allows a higher user—. . .———. —

4 A geostationary orbit is that of an object traveling aboutthe Earth's equator at a speed matching the Earth's rotation,thcrcby maintaining a cOnstant relat,iOn to c(’rtain point+ onthe Earth.

190 ● Technology Transfer to the Middle East

density in a geographic locale but requires so-phisticated computer control. Paging systemsare small frequency-modulated (FM) one-wayradio receivers which page individuals. Manypagers can occupy a channel if receiving onlydata messages rather than voice. Currentchoices include tone only or tone and voicepaging. Marine radio involves radio transmis-sion between two units at sea or between seaand land, and air-ground communications in-volve radio transmission between aircraft andthe ground for navigation and communica-tions purposes.

Video and Radio Broadcasting Equipment

Closed circuit television (CCTV) includescameras, monitors, receivers, control consoles,scan converters, and lines interconnecting thesystem with the receivers. Radio broadcasttransmitters and studio equipment includeamplitude-modulated (AM) and FM transmit-t e r s , a n t e n n a s , l i n e s , c o n s o l e s , a n d r e c o r d i n ga n d p l a y b a c k e q u i p m e n t . T e l e v i s i o n b r o a d c a s tt r a n s m i t t e r s i n c l u d e v e r y h i g h f r e q u e n c y( V H F ) a n d u l t a - h i g h f r e q u e n c y ( U H F ) t r a n s -m i t t e r s , a n t e n n a s , L i n e s , c o n s o l e s , r e c o r d i n gand p layback equipment , cameras , and mobi lev a n s . 5

Data Communications Equipment

Data communications equipment connectscomputers to the telephone network. Up to4,800 bits per second of data can be trans-mitted on regular voice telephone lines. Mod-ified lines enable faster data transmission.This equipment includes concentrators, mod-ems, multiplexer, and data communicationsswitching.

M A N P O W E RR E Q U I R E M E N T S

From the perspective of Middle Easterncountries importing telecommunications tech-nologies, a central concern is with manpower

“a Very high frequency” refers to a band of radio frequenciesbetween 30 and 300 megahertz. “Ultra-high frequency” refersto a band of radio frequencies between 300 and 3,000 megahertz.

requirements for operating and maintainingequipment. Contracts for supply of equipmentalmost always include requirements that thesupplier maintain the equipment for someyears. As the discussion that follows shows,some of the most advanced telecommunica-tions technologies require less maintenancethan traditional equipment. Telephone oper-ations (the center of these systems) remain,however, labor-intensive.

Because skilled manpower shortages are amajor factor constraining effective absorptionof telecommunications technologies in manyof the countries under study, it is importantto note that modem analog telephone systemsare more people-intensive than digital electron-ic systems. As a rule of thumb, approximately150 employees are required for every 10,000lines of analog equipment, compared with 135to 145 employees for digital lines. The skill mixalso differs, with more college-trained techni-cal personnel and computer and programingspecialists required for digital systems.

An advantage of electronic switching sys-tems (ESS) compared to electromechanicalswitching systems (EMSS) is that EMSS re-quires 10 to 20 inside plant personnel per10,000 lines in order to maintain (continuallyoil and adjust) the switches. The work forceconsists primarily of semiskilled laborers. Inthe electronic system, only one inside plantperson per 10,000 lines is needed; the systemis almost unattended. The central operationand maintenance center has a computer mon-itor that keeps track of the system. If a faultoccurs in a line, it is registered and reportedon teletype. The system identifies the faultyprinted circuit card, and a skilled worker (whohas a supply of all needed types of circuitcards) is then sent to replace the card. The re-pair is thus a card-changing procedure, not a“work-bench” operation. The faulty card isreturned to the manufacturer for repair ordisposal.

Servicing and maintaining telecommunica-tions equipment is a major issue in the Mid-dle East, and particularly in Saudi Arabia andKuwait. Saudi nationals are generally not

Ch. 6—Telecommunications Technology Transfers ● 191— — . —

trained in maintenance functions; these tasksare left to foreign nationals. In Kuwait, theJapanese consortium that installed and con-ducted initial servicing on the telephone sys-tems was called back after 3 years of localmaintenance; the local maintenance reportedlyleft the system in need of major overhauls.’

All of the major suppliers provide extensivetraining programs. U.S. firms that were inter-viewed, however, noted that nationals oftenlack motivation and that supplier personnelnormally are required to perform maintenance.With foreign contractors involved in servic-ing and maintenance, the installed equipmentreportedly functions well. Analysis of con-tracts in the six nations under study indicatesthat much of the equipment purchased sincethe early 1970’s is still serviced by foreign sup-pliers.

The harsh physical environment of the Mid-dle East further hampers maintenance of tele-communications equipment. Digital systemsrequire air conditioning and special modulesto protect equipment from dust and sand.Where required, these elements are always in-cluded by suppliers as part of the equipmentpackage. These special applications furthercomplicate maintenance procedures and nor-mally prolong dependence on the supplier.

These problems associated with mainte-nance clarify the preference of Middle East-ern leaders for some of the more advancedtechnologies. Digital switching, for instance,is less expensive to maintain then analogswitching. Similarly, microwave relays canoften last thousands of hours between repairs,while cable networks require almost dailymaintenance.

Manpower requirements in telecommunica-tions are geared heavily toward clerical andcraft workers. As a point of reference, in theUnited States the telephone subsector of com-munications clerical workers comprise 45 per-cent of the total work force, and craft work-ers 33 percent.7

—— . . . . -——‘” ‘, Japan ‘1’[l(’c’~Jtl>l ]lunic:itiIJrls 1<1 ngint’crin~ and (’t)n~ult)ng

(,J ‘1’f”~ (‘ I -– Kuwait i{[luc’t,2int [’art rl~, r, \licfdle 1<.’a.st F;(’ono[r]ic”

f)f~est, oct. 1.>. 19X2, p !)().[ S llur(au of I,al)rjr Stat istic~. I)ull(tin ::20h6, \pril 1981

Telephone equipment provided to Egypt underU S Commodity Import Program

Telephone operations tend to be veryintensive. The more advanced the telecommu-nications technology, the higher the propor-tion of professional, technical, and managerialpersonnel required and the fewer total work-ers required. The skill mix also differs, withmore college-trained technical personnel andcomputer and programing experience requiredfor digital systems operations. Skilled man-power shortages have been a major factor con-straining effective telecommunications tech-nology absorption in the Middle East. InEgypt where unemployment has been a prob-lem, decisions about telecommunications tech-nologies have been made to take account ofbroader social goals. The result has been thatoperations are less efficient, judged by inter-national standards.8

,, !,:

the

labor-

T E L E C O M M U N I C A T I O N SS Y S T E M S I N T H E

M I D D L E E A S T

Saudi Arabia

Saudi Arabia has taken the advanced-tech-nology route to telecommunications. Working

.8 For example, ARENTO in Egypt employs more personnel

than are needed in order to help solve the country’s highunemplo~ment problem. The 1 W! 1 statistics show that f+;g~pthaci ot’er 1,000 emplo~’ees per 10,000 lines (,AT&T I,ong I.ines,7“ht1 t{’orfd ‘.s Telephones, itlorris f}lains, N,tJ.. 1982), which issix or se~’en times greater than the ratio deemed adequ at[’ forefficient operations,

192 ● Technology Transfer to the Middle East— — -—

closely with foreign firms, the country hasbuilt an extremely efficient telecommunica-tions network.

The network was greatly expanded in thelast decade, with the number of exchange linesquintupling between 1976 and 1981. In 1982there were 789,000 telephone subscribers, or11.2 lines per 100 inhabitants, just over theworld average of 10.5 lines.9 This coverage isquite extensive by Middle Eastern standards,given that the World Telephone Zone 9 (Mid-dle East and Southeast Asia) average is 1.1lines per 100 inhabitants. Much of this tele-phone expansion began in 1978 with theawarding of a contract to L. M. Ericsson ofSweden and Philips of the Netherlands to in-stall 480,000 new telephone lines.

Of the six countries under study, Saudi Ara-bia has the second highest percentage of auto-matic telephone operation, with 99.4 percentbeing automatic switching system control(97.1 percent electronic control [ESS] and 2.3percent electromechanical control [EMSS]).Saudi Arabia is also the only country whichhas private telephone operations, which en-compass 12 percent of the total telephones.With regard to telephone use in the Kingdom,70 percent are for residential use (60 percent-main, 10 percent-extension) and 30 percent arefor business use (20 percent-main, 10 percent-extension).

Several large-scale projects have been com-pleted to enhance the transmission network.The Backbone Telecommunications Projectconsists of 1,420 kilometers of east-west coax-ial cable between Taif and Dammam via Ri-yadh and a 160-kilometer microwave link be-tween Jeddah to Taif via Buhr, Mecca, andal-Hada. The work was performed by Sartelco,a Saudi Arabian-based subsidiary of Sirti(Italy), using cable from Philips.

The Intra-Kingdom Microwave Communi-cations Project enhances long-distance trans-mission for telephone and television and cov-ers 10,000 kilometers. It links Al-Ain with

9 AT&T, Long Lines, The World Telephones, Morris Plains,N. J., 1983. See also Robert Bailey, “Telecommunications,” Mid-dle East Economic Digest, Nov 18, 1983, p. 14.

King Khalid City, Hofuf, Salwo, and Dawa-heen, and Riyadh with Dormah and Zolam.The system was implemented by WesternElectric International of the United States andincludes 300 microwave towers with a 35,000 -line capacity. Microwave links have also beenestablished between Saudi Arabia and Sudan,with a capacity of 300 telephone lines and 92television channels. A smaller, local digitalmicrowave system was implemented by Telet-tra of Italy in Riyadh to link governmentbuildings with certain government officialresidences.

Saudi Arabia’s domestic satellite communi-cations network, Domsat, links 11 cities—Jeddah, Riyadh, Medina, Hayel, Abha, Bor-ayda, Tabik, al-Bahah, Jizan, Najran and al-Jawf. Harris Corporation of the United Statessupplied the mobile Earth stations with 11-meter antennas to link with Intelsat satellites.As of 1979, three Earth stations for usethrough Intelsat were installed by MitsubishiElectric Company of Japan—two in Riyadhand one in Taif-with a total of 569 circuits. 10

Saudi Arabia has begun to experiment withdomestic optical fiber transmission systems.A 45-kilometer, 6-fiber cable has been installedby Philips in Jeddah and Riyadh. The ex-changes have a capacity to handle 1,920 tele-phone calls per fiber. ”

By 1980, 1,200 public pay telephones hadbeen installed in 23 towns and cities. By 1982,2,000 mobile telephones had become operation-al, having been integrated into the exchangesinstalled earlier using Ericsson technology. Inaddition, a fully electronic, multiplex-exchangetelex system was completed in 1979. Using sixcomputers, it has a capacity of 15,000 linesand serves 100 cities and towns. It was devel-oped by a Saudi Arabian prime contractor,Hajji Abdullah Alireza Group, in cooperationwith Fredericks Electronics Corporation(U.S.).—— —— —

‘“J. Chamieh (cd.), Saudi Arabia Yearbook (1.ebanon: The Re-search and Publishing House, 1981 ).

1 I International Trade Administration, U.S. Department ofCommerce, “Market Survey: The Telecommunications and Elec-tronic Data Communications Market in the Middle Flast, ”Washington, D. C., 1982.

There are currently 12 telex machines per10,000 inhabitants in Saudi Arabia, which, onaverage, is the highest ratio in the world.12 Fac-simile terminals and other data transmissionequipment are also being imported. Facsimilemachines are popular in the Middle East, sincethey scan and transmit an entire page elec-tronically and thus are ideal for communicat-ing information in Arabic.

Saudi Telephone is managed by Bell Canadaunder contract. Bell Canada has also assistedin establishing eight repair service centers—in Riyadh, Jeddah, Dammam, Abha, Taif,Mecca, Medina, and Borayda. Ericsson has es-tablished four computerized operation andmaintenance control centers at Riyadh, Jed-dah, Damman, and Taif to trace faults in thesystem. An engineering department has beenset up with recent Saudi engineering gradu-ates, assisted by Bell Canada staff. Also, twopermanent 32-room training facilities in Ri-yadh and Jeddah with two mobile trainingunits have been established. Bell Canada con-ducts training, averaging 60 hours per stu-dent, in Arabic and English with advancedcourses provided in Canada.13

Saudi Arabia has adopted advanced technol-ogy in all telecommunications sectors-switch-ing, transmission networks, mobile telephones,and telex. Partly because of this, Saudi Tele-phone has improved productivity and reducedits manpower ratio by 10 percent to 43 em-ployees per 1,000 working lines. During thisrapid expansion period, despite continuingsystem enhancements and increased usage,service is reportedly satisfactory. In 1980,more than 1 million international calls permonth were completed by 500,000 subscribers(annual average of 24 calls per subscriber); 58percent of these calls were made directly bythe subscriber.14 In 1981, total internationalcalls topped 17 million, with the most calls go-ing to (rank ordered) the United States, Ku-wait, Great Britain, and Bahrain.15

12 Ibid,

1‘,\liddJ( Ea.sf J;conomir l~igest, Sept. 1 /+. 1981.“ltobert llaile~r, “Saudi Arabia, Telecommunications, L;leL-

tronic’s, and the Nliddle f’last—Special Report, .tfiddle EastI;conomic Digest, ,Januaqr 19%1: International Telecon~munica-tion Union ( ITU), I’earbook of C’Ommm Carrier Tekwrm]um”ca-tion Statistics, Geneva, 1980.

‘ ‘AT&T, op. cit., 1983.

Ch. 6–Telecommunications Technology Transfers ● 193

The system in Saudi Arabia is highly re-sponsive. Bell Canada reported that: 1) 94 per-cent of customers in Riyadh receive operatorservices within 10 seconds, 2) 75 percent of na-tional long distance calls are answered with-in 10 seconds, 3) almost 80 percent of direc-tory assistance calls are answered within 10seconds, and 4) nearly 50 percent of calls tointernational operators are answered within 10seconds. The system is also reliable: 90 per-cent of all calls are successful, and 98 percentof subscribers receive a dial tone within 3seconds. 16

During the 1970’s, imports of telecommu-nications equipment underwent tremendousgrowth-from OECD countries it went from$17.4 million in 1971 to $740.6 million in 1980(in nominal dollars).” The beginning of the Sec-ond Development Plan in 1976 ushered in arapid increase in telecommunications imports.Also, a large influx of population in the citiesbetween 1974 and 1980 increased demand onthe existing infrastructure and spurred majortelecommunications expansion projects, car-ried out primarily by Ericsson of Sweden andPhilips of the Netherlands. During 1970 to1980, the volume of telecommunications im-ports amounted to 2 percent of Saudi Arabia’stotal import volume and almost 4 percent ofworld imports of telecommunications equip-ment. A slight retrenchment in telecommuni-cations import spending began in 1980, owingto an increased focus on agriculture, industry,and health sectors in the Third DevelopmentPlan and to completion of some major seg-ments of the networks.

Three supplier countries are prominent inSaudi Arabia’s telecommunications market, asshown in table 51. Table 52 shows selectedtelecommunications contracts awarded bySaudi Arabia. Firms from the Netherlands andSweden together have accounted for morethan half of the contracts, in terms of dollarvalue, in recent years. U.S. firms had a 16 per-cent share in 1980, which represented a ma-jor shift from the mid-1970’s, when they hadapproximately a 30 to 48 percent share of theSaudi Arabian telecommunications market.

— — — . .16 Saudi Arabia Yearbook, op. cit., 1 WI.17SITC #764, 7249. See table 51.

Table 51 .—Market Shares of Telecommunications Equipment Exports to Saudi Arabia From OECD Countries, 1971, 1975-80 (SITC 764 or 7249)

United West United Total exportsCanada States Japan France Germany Italy Netherlands Kingdom Sweden (in 000 U.S. $)

1971 . . . . . . . . 0.3 15.1 2.4 11.1 1,4 2.2 0.0 55.9 10.4 17,4061975 ....., . . 0.4 21.4 8.5 2.9 8.2 7.9 0.7 18.5 14.1 92,8141976 . . . . . . . . 6.5 28.0 3.2 1.6 3,8 5.4 2.3 36.5 10.6 134,7561977 . . . . . . . . 2.8 47.9 4.7 6.3 5,2 5.3 0.6 14.8 10.8 288,2461978 . . . . . . . . 1.5 33.9 4.2 1.8 4,1 4.0 21.5 9.4 18.5 568,9621979 . . . . . . . . 1.4 17.7 4.3 2.3 2,7 4.3 31.6 13.3 19.7 883,8361980 . . . . . . . . 0.8 15.9 4.9 4.0 4,4 0.7 44.0 7.1 16.0 740,561NOTE Market shares calculated as value of exports reported by exporter as a percentage of total telecommunications exports to recipient reported by all OECD exporters

SOURCE Compiled for OTA from Organization for Economic Cooperation and Development (OECD), Trade of Commodities Market Summaries Exports (1971 1975-80)

Table 52.—Selected Telecommunications Contracts in Saudi Arabia—

AmountSupplier country Year Supplier Description (millions of dollars)

Canada . . . . . . . . . . . . . . 1978 Bell CanadaNorway . . . . . . . . . . . . . . 1977 TeleplanUnited Kingdom. . . . . . . 1978 Preece, Cardew, and RiderFrance/Saudi Arabia . . . 1982 Cegelec Contracting Co. (joint

venture company)Italy/Saudi Arabia ., . . . 1981 Sirti/SartelcoJapan. . . . . . . . . . . . . . . . 1982 Nippon Electric Co. (N EC)

Netherlands/Sweden/ 1977 Philips/L. M. Ericsson/South Korea/Norway . . (6 phases) Dong Ah/NorconsuIt

United States . . . . . . . . . 1979-82 Litton Industries (Sub: Aydin(4 phases) Corp. and Karkar Electronics)

SOURCE Compiled for OTA from selected issues of the Middle East Economlc Digest

Management of Saudi telephone systemManagement of telephone network expansionDesign and supervision of telecommunications networkConstruction and maintenance of communication network

Installation of telecommunications system in YanbuSupply of fiber optics communications system linking Ras

Tanura with Barri and Abgaig with DhahranIncrease telephone network from 200,000 lines to 1.2 million

by installing world’s first stored program control (SPC)system

Improve military communications systems, provide nationalair defense communications network, provide digitalmultiplex equipment

1,00018522.314.3

6516

4,400

1,720

—

Ch. 6— Telecommunications Technology Transfers . 195—.— — —

Saudi Arabia invested between 1974 and1982, approximately 62 percent of telecommu-nications expenditures for telephone and telex,20 percent for transmission, 15 percent forvideo and radio, 2 percent for mobile radio, and0.1 percent for data communications (see fig.10). For telephone and telex (1974-82 total ex-penditures of $8,035 million), the largest allo-cations were made in the switching and totalcommunications subsector. U.S. firms main-tain slightly more than 30 percent of this mar-ket, with firms from Sweden and the Nether-lands holding about 20 percent shares each.In transmission equipment sales, firms fromSouth Korea captured 49.2 percent of thesales, due to their role in expansion of theSaudi cable network. In video and radio equip-ment sales, U.S. firms had a minor share of7.6 percent, while those from France had 70percent and dominated this market. U.S. firmshad an over 90 percent share in mobile radioand data communications, but these repre-sented only about $290 million total expendi-tures by Saudi Arabia from 1974 to 1982 (seefig. 11).

By far the major growth areas in Saudi tele-communications over the last decade havebeen in development of integrated communi-cations systems. The Philips-Ericsson-DongAh-Norconsult-Bell Canada consortium has re-ceived the major share of this market and haseffectively closed off the market to other sup-pliers. U.S. and U.K. firms have been supply-ing communications systems for specialized

Figure 10. —Apparent Telecommunications SectorBreakdowns—Saudi Arabia, 1974-82

Mobi le radio—2%

.

I

Telephone and telex—62%

SOURCES: Complied for OTA from Intel-Trade: Inbucon. 1980: MEED Tele-communications

applications such as air traffic control and mil-itary and industrial communications.

Kuwait

In 1981, Kuwait’s telephone exchange ca-pacity reached 286,200 lines, a 100 percent in-crease over 1979. The number of lines in ac-tive use numbered 171,427, with 231,640telephones connected to these lines. Thisamounts to about 15.8 telephones per 100 res-idents, the highest ratio among the six coun-tries in this study. Despite this relative abun-dance of capacity, forecasts of populationgrowth and business demand have lagged be-hind actual growth. As a result, while someexchanges have excess capacity, others can-not meet the demand. In some newly devel-oped areas, businesses and residences report-edly must wait 2 to 3 years for a telephone,owing to shortages of lines and equipment. Al-most two-thirds of all telephones are residen-tial; the rest serve business.

The system is 100 percent automatic: 89.9percent EMSS and 10.1 percent ESS. Allswitching equipment installed between 1980and 1982 is fully electronic digital systems.There are 16 local telephone exchanges and alltelephone operations are government-run.Three Earth satellite stations are linked toboth the Atlantic and Indian Ocean Intelsatnetworks. Domestically, a mobile telephonesystem is in place, with 4,019 mobile units inuse as of 1981. In 1979 an electronic telex en-change of 7,500 lines was completed by Oli-vetti of Italy.

Kuwait had only one TV broadcasting sta-tion in 1979, but a second channel was to beavailable later that year. The station range in-cludes Bahrain and parts of Iraq and SaudiArabia. Estimates of TV receivers number375,000, and radio receivers number 1 million.

The Kuwait telecommunications system hasgenerally been a reliable network. Recently,however, there have been localized problems.Kuwait’s development began earlier than thatin most neighboring countries and many dif-ficulties can be traced to the strain imposedby explosive population growth on systems be

196 ● Technology Transfer to the Middle East—.— ——— —

Figure 11 .–Apparent Market Share, Saudi Arabia, 1974-82

Total telephone and telex—$8,035 + million Switching equipment—$6,369 4 + million

United Kingdom— 10.6%

Norway— 2.9%

West Germany— 1.92%

ltaly— 0.82% —

/Saudi Arabia— 0.1%

Belgium— 0.2%

Japan— 0.2%France— 0.6%

Training, maintenance, consulting— $1,3971 + million

United States— 6.0%

Sweden–- 2.3% -

Saudi Arabia— 0.2% -

Total video and radlo - $2,000.7 + million

United States— 7.6%

Unknown—2.2%

Saudi Arabia— 0.9% -

Finland— 0.7% I/

United Kingdom— 12.7% Netherlands-24.40/0

Italy— 1.0%-

France— 0.2% i Sweden-24.7%

Japan— 0.1% u

Saudi Arabia— 0.1%United States—38.8%

Total transmission—$2,596.2 + mill ion

United Kingdom— 3.9% Italy-11.4 ”/0 United States-

31.6%Japan-– 2.22% _

Saudi Arabia—0.2%

Sweden— 0.2% ,

South Korea—49.7%Netherlands— ‹0.1% [ I

Total mobile radio—$266.5 + miIlion

Norway— 3.4% 1

Japan— 3.3%, .

Saudi Arabia— 0.3% c —

Ch. 6—Telecommunications Technology Transfers ● 197—. — —.—— . . — . —

Figure 12.— Apparent Sector Breakdowns—Kuwait, 1974-82

Mobi le radio—4

Video and radio—4%€´

Telephone and telex—75’%

SOURCES: Compiled for OTA from Intel-Trade: U.S. State Department cables

ginning to age. The Communications Minis-try has adopted two sets of measures to dealwith the problem—several contracts for rehab-ilitation of the cable network, and more reli-ance on microwave links and other technolog-ically advanced equipment. Its majorshortcoming is in keeping up with localized de-mand, which requires accurate planning for ex-changes that require excess capacity in orderto support future increased needs. One of theworst problems for Kuwait’s telecommunica-tions users has nothing to do with outmodedor overburdened equipment, but with routineloss of service due to cutting of cable by con-tractors working on roads and buildings. Toalleviate this problem, a utility managementsystem will be installed by a Japanese consor-tium at a cost of $28 million. This system willinclude computerized mapping of all under-ground utility networks in the 500-square-kil-ometer city.l8

Kuwait’s average of telephones per 100 in-habitants is 15.8, well above the world aver-age of about 10.5. Moreover, usage of the sys-tem by subscribers is the highest among thecountries under study—an average 20.4 inter-national calls per subscriber during 1980.While Kuwait’s telephone system is the small-

est of the six countries, it provides the great-est amount of capacity to its population andis the most heavily used.

Given Kuwait’s small population and geo-graphic area, its recent development of themost extensive and most used telecommunica-tions network among the six countries reflectsits desire to become a world business and fi-nancial center. This requires an excellent com-munications system, especially international-ly. Kuwait’s extensive satellite transmissionfacilities and data transmission capabilities,and its recent purchases of high-technologyequipment to expand its telecommunicationsnetwork are evidence of the commitment tothis goal.

Early expansion of oil production capacityof Kuwait in the 1950’s resulted in large de-velopment expenditures throughout the late1960’s and 1970’s. Expenditures in the tele-communications sector reached almost 3 per-cent of all Kuwaiti imports in 1970. Importsof telecommunications equipment, parts, andaccessories from OECD countries rose from$7.7 million in 1971 to $90.1 million in 1980(in nominal dollars) as shown in table 53 andrepresented from 0.2 percent to 0.7 percent ofworld telecommunications imports. Table 53also lists the market share of telecommunica-tions equipment exports to Kuwait from OECDcountries in 1971 and 1975 through 1980.

As shown in the table, Japanese firms havecontrolled between one-quarter and one-thirdof Kuwait’s telecommunications market dur-ing the 1970’s. Kuwait’s ties with its formercolonial ruler Britain are still strong, as evi-denced by a large volume of British exportsin this sector to Kuwait. Over the last decade,Swedish firms have had several large con-tracts in telecommunications, but failed tomaintain a stable foothold. Firms from WestGermany and the United States have suc-ceeded in gaining about 15 percent each of Ku-wait’s market. Table 54 shows selected tele-communications contracts awarded in Kuwait.

Kuwait investment in the telecommunica-tions sector from 1974 to 1982 was approxi-

Table 53.—Market Shares of Telecommunications Equipment Exports to Kuwait From OECD Countries, 1971, 1975-80 (SITC 764 or 7249)

United— —

West United Total exportsStates Japan Belgium France Germany Italy Netherlands Kingdom— .

1971 . . . . . . 4.3 38.5 4.9Sweden Switzerland (in 000 U.S . $)

0.8 4.8 0.0 0.6 15.6 10.9 1.5 7,7001975 . . . . . . 11.8 15.7 2.4 12.5 7,3 4.6 0.4 10.6 30.4 2.2 16,7421976 . . . . . . 26.8 20.0 0.5 18.2 10.1 3.0 0.1 6.1 10.8 0.5 52,7011977 . . . . . . 20.2 22.0 0.4 4.8 3.3 4.2 0.1 21.3 16.8 4.8 55,3151978 . . . . . . 5.8 23.1 1.2 3.8 5.8 1.0 0.6 28.4 17.9 9.1 68,5061979 . . . . . . 5.6 35.6 0.7 2.2 10.3 0.7 0.9 11.7 28.6 1.41980 . . . . . . 14.3 26.8 0.5 1.7 15.5 0.8

68,5343.2 23.1 10.8 0.5 90,084

NOTE Market shares calculated as value of exports reported by exporter as a percentage of total telecommunications exports to recipient reported by all OECD exporters. —

SOURCE Compiled for OTA from OECD, Trade of Commmodities Market Summaries Exports (1971, 1975-80)

Table 54.—Selected Telecommunications Contracts in Kuwait

Supplier country Year Supplier

France . . . . . . . . . . . . . . 1980 CIT-Alcatel andCables de Lyon

United Kingdom. . . . . . 1981 Pye Ltd.United Kingdom. . . . . . 1980 Pye TelecommunicationsSweden . . . . . . . . . . . . . 1979 L. M. EricssonKuwait . . . . . . . . . . . . . . 1980 Abdel-Aziz Abdel-Mohsin

al-RashidKuwait . . . . . . . . . . . . . . 1981 Kuwait Prefabricated Buildings

CompanyJapan . . . . . . . . . . . . . . 1980 Nippon Electric Co.

Japan. . . . . . . . . . . . . . . 1980 Japanese TelecommunicationsConsulting and Engineering

Japan. . . . . . . . . . . . . . . 1981 NEC

United States . . . . . . . . 1979 Ampex international

—Amount

Description (millions of dollars)Coaxial cable linking Kuwait and Safwan, Iraq - 5.0

Complete communications system for Kuwait police 10.8Telecommunications network maintenance 5.9Telephone exchange extension; AXE type equipment 15.0Underground cable installation

International telephone network extensions—Salmiya Exchange

Satellite ground station installation; repairs on NEC stationcompleted in 1966

Telephone network consultancy for management improvement,planning of repairs, preparation of specifications forinternational tenders, provision of training

7.0

7.5

4.4

7.4

SOURCE Compiled for OTA from selected issues of the Middle East Economic Digest

Install one central microwave station and six auxiliary ones. Design 13.0is by Kuwait Ministry of Communications

Supply of mobile television unit with auxiliary equipment 1.5

Ch. 6—Telecomrnunications Technology Transfers ● 199——

mately 75 percent in telephone and telex, 17percent in transmission, and 4 percent each inmobile radio and video and radio (see fig. 12).As figure 13 shows, in contrast to the situa-tion in Saudi Arabia, Swedish firms have beendominant suppliers of telecommunicationequipment in a number of categories.

Egypt

The number of telephone lines in Egypt in1981 was estimated at 375,000 lines for be-tween 400,000 and 500,000 telephones.19 Ap-proximately one-half of the telephones are res-idential and one-half commercial, yieldingabout 1.2 lines per 100 inhabitants, a very lowratio. Telephone service availability varieswidely by geographical location, as large ur-ban areas have a telephone density of 4.35 per100 population while other areas have a den-sity of 0.36 per 100 population.20 In 1978 thewaiting list of subscriber applications num-bered 200,000 with only 48 percent of regis-tered demand being met.21 The telephone sys-

tem is operated by the government and is 89.2percent automatic.

By all reports, in recent years Egypt tele-phone system has been generally antiquated(some parts dating back to 1929) and in poorrepair. A 1978 master plan developed by Con-tinental Telephone International of the UnitedStates recommended major rehabilitation ofand extensions to the Egyptian system, uponwhich the government acted by awarding amajor contract to a European consortium in1980. Small exchanges in remote villages oftenconsist of manual switchboards. These con-

——19 U.S. Department of Commerce, “Marketing in Egypt, ”

O;rerseas Business Report, 81-31. 1981.“’AT&T, op. cit., 1983.“R. J. Saunders, ,J. J. Warford, and B. Wellenius, Telecom-

munications and Economic lle~’efopment, JHU Press, publishedfor The W“orld Bank, July 1983.

trast with the larger, multiexchange, crossbarautomatic switching equipment used in Cairoand Alexandria.

In 1979 an Alexandria exchange was reno-vated by CIT-Alcatel (France); their E-10 dig-ital electronic exchange equipment supplied10,000 lines. Ericsson of Sweden supplied20,000 lines at Al-Mazha in Cairo in 1979. Ex-tensive cable and microwave linkages (sup-plied by Raytheon of the United States) con-nect the smallest exchanges to Cairo, wheremost of the international traffic flows. Otherinternational switchboards exist in Alexandriaand Port Said. International calls are handledby two submarine cables with 480- and 230-channel capacities or via an Earth satellite sta-tion linked to the Intelsat Atlantic Oceannetwork.

For training purposes, CIT-Alcatel has in-stalled an E-10 model exchange in the ArabRepublic of Egypt National Telecommunica-tions Organization (ARENTO) training center.Continental Telephone and Arthur D. Littleare both being funded by the U.S. Agency forInternational Development (USAID) under-its$200 million loan and grant program toARENTO to supply managerial and technicaladvice.

Two telex exchanges operate in Cairo andAlexandria, and mobile telephone service hasbeen established in the Cairo area. In addition,special microwave transmitters, using tropo-spheric scatter technology, have been estab-lished to facilitate communications betweencities, oil terminals, gas plants, and offshoreoil complexes.22

—— ———-.—*’Tropospheric scatter technology involves use of radio fre-

quency waves reflected off the troposphere and received at adistant station on Earth.

35-5137 0 - 84 - 14 : QL 3

200 s Technology Transfer to the Middle East— — - — . . —

Figure 13.—Apparent Market Share—Kuwait, 1974.82

Total transmission — $754 + million

Kingdom–- 0.8%,India— 0.2% ,

Radio and television broadcasting is well de-veloped. A network of 24 radio transmittershave the capability of reaching the entire pop-ulation. Fourteen transmitters have short-wave range and the 10 others are medium-wave. Between 6.6 million and 6.8 million radioreceivers exist, according to 1979 estimates.Twenty-eight television transmission stations,some with color capability, reach 1.3 millionreceivers and 7 million people.23

The 1978 Continental Telephone study as-sessed the efficiency of the Egyptian commu-nications network. Study participants foundthat only 23.9 percent of all calls dialed inCairo were completed, emergency telephone

Switching equipment — $269.3 + million

U n i t e d K i n g d o m — 2 . 8 % +

Unknown— 2.2% _

Japan— 0.8% —

West Germany— 0.6% -

lndia— 0.1%(Ericsson)

)

Total video and radio—$15.5 + million

France-9.70/01

numbers were frequently inoperable, and 50percent of all service vehicles could not beused, owing to lack of spare parts. Moreover,the report concluded, Egypt’s current prob-lems could be attributed, in part, to the manydifferent types of equipment in the systemsupplied by many different firms. Mainte-nance and interoperability problems couldarise in the future, the report warned, if simi-lar procurement strategies are followed in re-habilitating and expanding the system.

Attempts have been made recently in theEgyptian telecommunications sector to makeits administration more efficient and cost ef-fective. Outside consultants in the late 1970’sstated that some of the major problems plagu-ing the Egyptian telecommunications opera-

Ch. 6— Telecommunications Technology Transfers ● 201

tions stemmed from the inclusion of telecom-munications in the public sector. As a result,1) realistic rates and tariffs could not be setfor telecommunications service or equipmentinstallation, 2) employees could not be easilyhired and fired, and 3) all money went into andcame out of a central revenue fund, allowingfor no fiscal autonomy. The consultants rec-ommended that telecommunications be madean autonomous public entity, much like EgyptAir or the Suez Canal Authority.

Egypt’s response was to pass law No. 153in 1981, which established the National Orga-nization for Wire and Wireless Telecommuni-cation, whose shares are 100 percent ownedby the government. The organization still re-ports to the Ministry of Communication butis otherwise autonomous. Although it is stilltoo early to gauge the long-term effects of thischange, tariffs and installation charges haverecently risen to more realistic levels, and thenew organization can retain its own earnings. 24

Redundant labor will continue to be a prob-lem, however; attrition has not eased the bur-den. The problem will become more severewhen the electromechanical switches in theEgyptian system are converted to electronicswitches, displacing many semiskilled work-ers.25 For many reasons, major layoffs of thesepersonnel are not expected.

By far, Egypt’s telephone system is theleast extensive of the six countries in thisstudy. It reaches just over 1 of every 100 in-habitants. As for system usage, 1977 statis-tics show low international usage (an averageof 1.1 international calls per subscriber in1977) but high domestic use (an average of50.0 national calls per subscriber that year).26

Imports of telecommunications equipment,parts, and accessories from OECD countries

went from $11.9 million in 1971 to $180.4 mil-lion in 1980 (nominal dollars).27 Telecom-munications equipment comprised about onepercent of the Egyptian budget and from 0.2to 0.9 percent of world imports in telecom-munications during these years.

As shown in table 55, France’s position inthe Egyptian telecommunications market hascontinued to grow. CIT-Alcatel and Thomson-CSF are major French firms, along with WestGerman and Austrian companies, doing busi-ness in Egypt. Thomson-CSF won a major$1.8 billion contract to overhaul and expandthe Egyptian telephone network. Great Brit-ain and Sweden have also held sizable and fair-ly stable market shares.

The share held by U.S. firms has expandedsubstantially over the last decade, from 2.6percent in 1971 to 17.9 percent in 1980. Thiswas due partly to Egypt improved relationswith the United States. USAID grant andloan programs to rehabilitate the Cairotelephone system have provided major oppor-tunities for introducing U.S. telecommuni-cations firms into the Egyptian market.

Telephone and telex was the major area ofinvestment in the telecommunications sectorby Egypt from 1974 to 1982, accounting for83.5 percent of total telecommunications ex-penditures. Transmission accounted for 11.7percent, while video and radio, and mobileradio accounted for 4.5 percent and 0.2 per-cent, respectively. Of the over $2,300 millionspent on telephone and telex, France had a 36percent share; West Germany, 26 percent;Austria, 26 percent; Sweden, 5.5 percent; andthe United States, 5 percent. Of the $324 mil-lion total spent by Egypt from 1974 to 1982on transmission, U.S. firms dominated, witha 48 percent share. Those from West Germanyhad a 28 percent share; Japan, 10 percent; andGreat Britain, 9 percent. The major shares ofthe video and radio expenditures of $123 mil-lion from 1974-82 went to firms from Great

‘“OF;CII 7’rade of (’ommoditr’e.s: .Ifarket .Sumn]aries. i;xport, s,1971, 1975-80, see table 55,

Table 55.— Market Shares of Telecommunications Equipment Exports to Egypt From OECD Countries, 1971, 1975-80 (SITC 764 or 7249)

United West UnitedStates Japan France Germany Italy Netherlands Kingdom Sweden Switzerland

1971 . . . . . . . 2.6 2.0 16 25.9 3,0 0 . 2 13.0 43.6 1.21975 . . . . . . . 2.7 17.8 26.3 8,5 0.7 0.4 15.2 21.9 2 21 9 7 6 4.2 9.5 25,6 9.3 3.7 0.8 30.4 13.5 131 9 7 7 . . . 14.4 2,5 23.7 10.0 0.6 0.5 31.6 12.9 1.81978 . . . . . . 16.8 5.3 26,0 10.8 3,7 1,0 14.9 14.4 1.21 9 7 9 . . . . , 14.4 9.3 36,3 8.6 3.2 1.0 11.2 12.1 0.41980 ., ... , 17.9 8.5 31.2 4.4 3.9 4,3 14.7 10.7 0.6NOTE: Market shares calculated as value of exports reported by exporter as a percentage of total telecommunications exports to recipient reported by all OECD exporters

SOURCE Compiled for OTA from OECD Trade of Commodities Market Summaries Exports (1971, 1975-80)

Total exports(in 000 U S $)

11,88659,47970.37797,262

141,882183.286180.440

I

i

I

Ch. 6— Telecommunications Technology Transfers s 203— . — . — . — . — —— —

Britain (47 percent), Japan (29 percent), theUnited States (17 percent), and France (6percent).

Algeria

The number of telephone lines in Algeria isapproximately 606,000. The telephone systemis government-run and involves only 63.1 per-cent automatic switching. About two-thirdsof registered telephone demand has been met.28

Twelve satellite ground stations have been inexistence since 1979 for domestic telephone,telex, and television transmissions, connecting14 Saharan towns with major population cen-ters. An international Earth satellite stationconnects Algeria to the Atlantic Ocean Intel-sat network. All major towns are connectedto Algiers by telex, and several have their owninternational telex linkages.29

Television and radio broadcast centers arelocated in Algiers, Oran, and Constantine.Radio transmissions operate on medium andshort wave, covering territory well beyondAlgeria’s borders. Microwave linkages withFrance ensure reception of European televi-sion broadcasts. By 1982, there were over 2million radio receivers and 350,000 televisionreceivers in the country.

Despite the rather limited coverage of thetelephone system—3.3 telephone lines per 100inhabitants—domestic usage by subscribersis relatively high, with an average of 31.2 do-mestic calls per subscriber in 1979. To dealwith geographic difficulties in network trans-mission, Algeria opted for advanced satellitesystems for part of its domestic operations.Algeria’s telephone service is, however, fre-quently unreliable and slow, with long-dis-tance service usually surpassing local service.

Algerian imports of telecommunicationsequipment, parts, and accessories peaked in1976 at about $140 million. The 1976 figurerepresented slightly less than 3 percent of Al-geria’s total imports. In recent years these im-

-’U.S. I)epartment of Commerce, “\larketing in Algeria,’”()~(’rwvi.v Bu.sines.y Ii(’port, 82-07, 1982; AT&T, op. cit., 1983.

‘II 1, Nelson (cd,), Algeria; .4 Ccwnt~Tr Stud:” (J!”ashington.1). (’,: The American Uni\ersitjr, 1979).

ports have made up about 1.5 percent of thetotal. Algeria represented from 0.3 (1970) to1.7 (1976) percent of world imports of telecom-munications equipment, parts, and accessoriesfrom 1970 to 1979.

During the 1970’s, Algeria’s national plansemphasized investment in heavy industry anddevelopment of natural gas resources. Asso-ciated development of a satisfactory telecom-munications infrastructure was critical toachieving these investment goals. Algeria’sextensive use of satellite technology for muchof its domestic transmission network has fa-cilitated communication linkages to the ma-jor population centers from natural gas fields,mining areas, and industrial production com-plexes across vast areas of sparsely populateddesert.

Table 56 presents the market shares of tele-communications equipment exports to Alger-ia from OECD countries in 1971 and 1975-80.France has historically been a large supplierto Algeria. By 1980, French firms held 28 per-cent market share, much reduced from their79 percent share in 1971. Algeria has attemptedto diversify its technology purchases for po-litical reasons and to improve its position innegotiating prices for its liquefied naturalgas. 30

U.S. firms have maintained their marketshare in the Algerian telecommunicationsarea. This share has, however, fluctuated no-ticeably. Some observers believe that Algeria’ssupport for the Palestinian movement and itsnonalignment policy may serve to stimulatediversification of suppliers, rather than exten-sive purchases from U.S. firms.

Telephone and telex represented 68 percentof the Algerian telecommunications marketfrom 1974 to 1982; transmission, 30 percent;and video and radio, 2 percent. Total telephoneand telex expenditures during this period wereapproximately $456 million, with Spain win-ning 70 percent of this, Sweden winning a 27percent share, and the United States, 2.5 per-

30 Martin Roth and Michael Frost, “ Algeria W’elcomes Japa-nese Export Drive, Middle East Economic Digest, Aug. 28,1981, pp. 4-5,

I -.

i Qs

Table 56.— Market Shares of Telecommunications Equipment Exports to Algeria From OECD Countries, 1971, 1975-80 (SITC 764 or 7249) I ~~ 2

,United West United Total exports IStates Japan Belgium Denmark France Germany Italy K In g d o m Spain Sweden Switzerland (In 000 U.S. $)

1971 . . . . :.I

0.8 0.3 0.2——

0.0 790 7 4 2.3 5 9 11 0 0 28 13.3381975 . . . . . . 5.4 3.0 0 3 0.3 377 15.4 1.0 4 3 145 161 17 120.062 I1976 .., . . 3.0 4,2 0.5 0.2 26.0 9 4 14 4 0 170 329 11 138.3011977 . . . . . . 9.2 8.7 2 7 0.3 228 100 2.3 6.6 131 227 1.6 94,9081978. , . . . 8.9 11.9 0.9 3.3 156 215 2.0 6 8 9 5 168 11 101.0481979 .., ., 8.2 3.1 11 2.3 180 223 1.5 5.8 200 73 8.7 128.918 I

1980 . . . . , 4.8 2.6 5.6 3.4 278 17.4 15 12.7 7 5 7 6 6.1 100.068 INOTE Market shares calculated as value of exports reported by exporter as a pe,.e~tar~e L’ t(]tal tde~ornrnurl, at((,,~ r. ~ t. tn reri~ ,en,

— — —~fJpo-tPc b} ,31 I OECD ~ x .Jo~tP~~-

SOURCE Compiled for OTA from OECD Trade of Comrnod/t/es ~ar~et SUrnrnarles Exports (1971 1975-80)

I

I

Ch. 6—Telecornrnunications Technology Transfers ● 205—. .———

cent. Of the total transmission expenditures further civilian expansion in the telecom-of $200 million from 1974 to 1982, Japan had munications area.a 53 percent share; France, 39 percent; and theUnited States, 6 percent.

Iraq

Statistics on Iraqi telecommunications arelargely unavailable. The number of telephonesin Iraq numbered approximately 320,000 in1977, which amounts to 2.6 telephones per 100inhabitants. Existing facilities include cross-bar automatic telephone switching equipmentwith new exchanges installed in Baghdad,Nineveh, and Tamim, and microwave net-works between major cities. Two Earth satel-lite stations exist at Dubail for use in inter-national communications; they were built byTelspace, a subsidiary of CIT-Alcatel, ofFrance.’] A telex system located in Baghdadhad 1,462 lines in 1980, but a contract hasbeen awarded to triple this number. The num-ber of radio receivers in the country is esti-mated at 2 million.

Based on rather scarce information, it ap-pears that rapid progress was being made pri-or to the war with Iran to build the capacityof the Iraqi system. Major upsurges in govern-ment spending, begun in the mid-1970’s, re-sulted in a near doubling of the number of tele-phones. Iraq has chosen crossbar switchingand advanced digital systems, although usagein Iraq is still low—among the lowest of thesix nations in this study.

Large-scale importation of telecommunica-tions equipment by Iraq did not begin until1975, when expenditures on OECD importsreached $65.5 million. Imports of telecom-munications equipment, parts, and accessoriesfrom all suppliers represented over 3 percentof Iraq’s total imports and over 1.1 percentof the total world imports of telecommunica-tions equipment for these years.32 Shrinkingoil exports, beginning in 1982, and the pro-longed war with Iran have, however, dampened

——-—— ——“‘ ‘Telecommunications, I’electronics, and tht~ hliddle I’;ast—

Special Report, ” )Iliddle F;a.st Economic Digest, Januar>’ 1981.‘&[ h“. J“eartmok of International Trade .Statis[ics, op. cit.,

1982.

Table 57 lists the market shares of telecom-munications equipment exports to Iraq fromOECD countries in 1971 and 1975-80. Withmore than a 49 percent market share in 1980,France was dominant. Since the mid-1970’s,Iraq has sought a leadership role among theThird World nonaligned nations and reducedits technology trade with the Soviet bloc coun-tries. As a result, Japan, Britain, and theNetherlands made minor inroads into the mar-ket. U.S. firms won less than a 1 percent mar-ket share. Table 58 includes data on represent-ative recent telecommunications contractsawarded by Iraq.

By telecommunications sector, telephoneand telex have taken the major share of Iraqiexpenditures (58 percent). Transmission hastaken a 19 percent share; video and radio, 17percent; and mobile radio, 6 percent. Of thetotal $1,170 million spent on telephone and tel-ex between 1974 and 1982, Japan garnered 62percent of the market; France, 13 percent; Yu-goslavia, 11 percent; and Sweden, 2 percent.

Of the total transmission expenditures of$380 million during this time period, 45 per-cent went to Sweden, 25 percent to Japan, 11percent to Italy, 7 percent to Great Britain,6 percent to France, and 5 percent to unspe-cified suppliers. Swedish firms were particu-larly strong in wire and cable and land mobileradio, while Japan and Italy were both strongin microwave systems. Total video and radioexpenditures from 1974-82 were over $340 mil-lion, with France having a 54 percent marketshare; Japan, 27 percent; and Switzerland, 8percent. Japan was dominant in television(with 75 percent) and France was dominant inradio (84 percent). Total mobile radio ac-counted for $115 million in this time period;Sweden had 93 percent of the market and Ja-pan and Great Britain had minor shares.

Iran

By 1979, Iran had 1,234,000 main telephonelines (95.8 percent automatic–92 percentEMSS, 3.8 percent ESS), which is approxi-

Table 57. —Market Shares of Telecommunications Equipment Exports to— . — . — — — . —

United WestStates Japan Belgium France Germany Italy. — — — . — . — — — —

1971 . . . 3.8 4.6 2.8 26.3 - 0.8 1.91975 . . . . . . 2.4 26.9 1.6 19.4 7.7 3,31976 ... , . . 7.6 21.3 2.4 14.3 11.6 2.61977 ., ... 2.0 9.9 0.8 51.5 4.6 0.61978 . . . . . . 0.5 14.0 0.3 42.3 2,7 0.21979 . . . . . . 0.4 13.4 1.0 43.4 4.1 0.71980 . . . . . 0.8 8.2 0.3 49.4 2.3 1.8— — — — . — — . — — — — — — —

Iraq From OECD Countries, 1971, 1975-80 (SITC 764 or 7249)

United Total exportsNetherlands Kingdom Sweden Switzerland (in 000 U.S. $)— — . — — — — . —

0.2 24.90.4 22.70.1 31.80.1 22.6

11.8 20.414.1 9.67.8 16.7—.

32.7 0.36.7 5.23.7 1.33.6 1.51.8 4.24.8 6.36.1 1.1

NOTE Market shares calculated as value of exports reported by exporter as a percentage of total telecommunicatlons exports to recipient reported by alI OECD exporters

SOURCE Compiled for OTA from OECD Trade of Commodities Market Summaries Exports (1971, 1975-80)

Table 58.—Selected Telecommunications Contracts in Iraq— —

Supplier country Year Supplier Description

France . . . . . . . . . . . . . . 1981 Thomson-CSF Provide 27 microwave telephone exchangesFrance . . . . . . . . . . . . . . 1980 Thomson-CSF Turnkey construction of telephone networkWest Germany . . . . . . . 1977 Siemens Reinstallation and expansion of telephone exchangeHungary . . . . . . . . . . . . 1977 Elektroimpex Supply 2,500 color television setsItaly . . . . . . . . . . . . . . . . 1982 Telettra Set up two microwave systemsJapan. . . . . . . . . . . . . . . 1979 Nippon Electric Co. and Construct four computerized telecommunication and video control

Mitsui Co. systemsJapan. . . . . . . . . . . . . . . 1981 Sumitomo Construction Co. Supply and install telecommunications facilityJapan. . . . . . . . . . . . . . . 1979 Furukawa Electric Co. Supply 17 telephone networks in Baghdad and surrounding areas,

providing an additional 200,000 telephone linesThe Netherlands . . . . . 1981 Philips Install telephone networkSweden ., . . . . . . . . . . . 1981 SRA Communications Install mobile telephone systemSweden ., . . . . . . . . . . . 1981 L. M. Ericsson Supply and install telephone cablesUnited Kingdom. . . . . . 1980 Cable & Wireless Expand international exchange linesSoviet Union . . . . . . . . . 1981 NA Construct telecommunications centerYugoslavia . . . . . . . . . . 1980 Energoinvest Construct two transmission linesNA—not applicable

SOURCE Compiled for OTA from selected issues of the Middle East Economic Digesf

4,79765,51370,68676,131

185,410193,784254,860

Amount(millions of dollars)

152.0144.5

0.61.0

42.019.1

64.559.3

11.182.2

166.73.93.3

21.0—

Ch. 6— Telecommunications Technology Transfers . 207

mately 3.4 lines per 100 inhabitants. Iran’ssystem is completely government-run. Eighty-one percent of the lines are residential, andabout one-half of them are located in Teheran.The 1979 waiting list for subscribersamounted to 750,000, meaning that only 62percent of registered demand had been met.Data from 1976 indicate that 8.9 million na-tional calls were made that year comparedwith 1.1 million international telephone calls.33

The major long-distance transmission net-works in Iran employ microwave systemsrather than multichannel cables, owing to thecountry’s difficult terrain and other technicaladvantages of microwave systems. As of 1977,this microwave network consisted of four seg-ments: 1) the CENTRO cross-country net-work, which traverses 2,300 kilometers andhas 45 relay stations, beginning at Tabriz andserving Porn, Kashan, Isfahan, Nain, Yazd,Kerman, Barn, and Zahedan; 2) the Teheran-Assadabad large-capacity network; 3) the Isfa-han-Shiraz network linked to Teheran; and 4)a nationwide microwave network encompass-ing six major routes, covering 3,560 kilome-ters, and having a capacity of 960 telephonechannels. In addition, a ground satellite sta-tion is located at Assadabad near Hamadanto facilitate international traffic.

There are direct dial facilities to 27 foreigncountries and 74 operator-assisted switch-boards at the international telephone ex-change. To deal with its vast geographic area,dispersed population, and rough terrain, Iranopted for microwave transmission in the rnid-1960’s and continued to expand this networknationwide. Despite rapid growth in exchangecapacity during the 1970’s, the number of linesper 100 inhabitants (3.4) is well below theworld average of 10.5. Moreover, usage sta-tistics by subscribers as of 1976 were amongthe lowest of the six countries in this study–an average of 1.6 international calls and 13 do-mestic calls per subscriber in 1976.

In 1979, Iran had over 2,980 telex lines andautomatic computerized telex centers in sev-

eral cities. One hundred and fifty cities wereequipped with modern teletype and teleprint-er systems, which replaced the old telegraphnetwork. Under the Shah, three televisionchannels and four radio networks were oper-ated. Estimates of radio receiver ownership in1976 were 4.3 million households; of televisionreceivers, 1.6 million households. 34

Iran developed its telecommunications infra-structure earlier than the other countries cov-ered in this study. In its Fourth DevelopmentPlan (1968-72), Iran focused extensive invest-ment funds on building its nationwide micro-wave networks, meeting existing demand forcommunication services and anticipating re-quirements for the future, During this period,between 3 and 6 percent of all Iranian importsinvolved telecommunications equipment, andIran became a major world market for suchitems, acquiring 4.5 percent of world importsof telecommunications equipment in 1971.However, in 1972 and 1973, owing to a worsen-ing balance of payments and capital shortageproblems, investments in this sector declined.

The rapid oil price increases of 1973 and1974 at the beginning of Iran’s Fifth Devel-opment plan resulted in a major revision, dou-bling investment allocations. Expenditures ontelecommunications projects again increased,reaching a peak in 1976 of $330.5 million. Bud-get deficits caused by lower oil revenues in 1975and 1976 resulted in a leveling off of spendingby the end of the plan period. Figures on tele-communications imports since the 1979 revo-lution are not available but, based on OECDexport figures, such imports probably fell inthe early 1980’s to about one-quarter of the1978 trade total.

During the 1970’s, firms from the UnitedStates and West Germany shared the Iraniantelecommunications market almost equally,about 25 percent each, as shown in table 59.The positions of firms from Japan, Italy, andthe United Kingdom fluctuated rather wide-ly from year to year but maintained an aver-

“ ITU, op. cit., 1980.

.—“ M. Tehranian, “Communications Dependence and Dualism

in Iran, Intermediary, vol, 10, No. 3, 1982, pp. 40-44.

Table 59 .—Market Shares of Telecommunications Equipment Exports to Iran From OECD Countries, 1971, 1975-80 (SITC 764 or 7249)~m

Canada

1971 . . . . 6.51975 . . . . . 4.31 9 7 6 6.91977 . . . . 4.61978 . . . 0.9

UnitedStates

15.223.838.027.0226

Japan

21913,97 79.0

127

Belgium France

1.2 3.92.1 7.80 4 5.70 8 11.80 7 7.5

WestGermany

22.126.824724421.1

Italy19.7

9.27.49891

Netherlands

0.30.40.20 594

—United

Kingdom Switzerland

5.6 2 58 0 106 3 1.29.5 0.7

13.2 18

Total exports(in 000 U.S $)

91,859207,965330.461252.898315,323

1979 . . . . 0.0 219 7.2 0.2 4.9 29.8 187 104 5.0 13 139.420 I1 9 8 0 0.0 0.0 173 0.2 2.0 32.6 32.7 14 9.5 21 75,069NOTE Market shares Calculated as value of exports reported by exporter as a percentage of total telecommunications exports to recipient reported by all OECD exporters —

1SOURCE Compiled for OTA frem OECD Trade of Commodities Market Summaries. Exports (1971, 1975-80) I

I

Ch. 6—Telecommunications Technology Transfers “ 209. — — — — — —

age of only about 10 percent of the marketeach.

Market shares, as could be expected, haveshifted since Iran’s revolution. With theUnited States effectively out of the picture,Japan and Italy have been the beneficiaries,assuming 17.3 and 32.7 percent of the market,respectively, in 1980. West Germany strength-ened its position to 32.6 percent of OECDtelecommunications exports to Iran by 1980.

Telecommunications sector breakdowns inIran between 1974 and 1982 were approxi-mately 70 percent for telephone and telex, 27percent for transmission, and 3 percent forvideo and radio. Supplier market share in eachof these sectors has changed dramaticallysince the revolution. As a historic referencepoint, telephone and telex shares in 1974 wereUnited States, 74 percent; Japan, 13 percent;Sweden, 6 percent; and the United Kingdom,7 percent. U.S. firms had an 85 percent shareof transmission equipment exports to Iran.For video and radio, France had a 77 percentshare, the United Kingdom had 14 percent,and the United States had 8 percent.

Regional Telecommunications Development

The Middle East has focused attention onimproving telecommunications among neigh-boring Arab countries. Several regional proj-ects are under way, many having receivedtheir impetus from a telecommunications de-velopment plan for the Middle East drawn upby the International TelecommunicationUnion (ITU) in 1978.35

The largest regional project being plannedis Arabsat which promises to bring significantbenefits to countries of the region through im-proved communications. The system as plannedwill provide the capability for expanded andmore efficient communications not only amongcountries in the Middle East, but also betweenthem and other parts of the world. Therefore,on the one hand: the technology may be usedto promote free flows of information. On the

“The ITU is a specialized agency of the United Nations, com-prising varitJus for-a which plan and administer the details ofinternational telecommunications.

other hand, the benefits of the system will de-pend upon who controls it and how it is used.In light of the different approaches these coun-tries have taken to television broadcasting andtheir different political stances, they will bechallenged to produce joint broadcasts. Fur-thermore, decisions taken by leaders in eachcountry about what types of broadcasts shouldbe shown could limit information available tolocal viewers. Thus, the advanced technologyembodied in Arabsat’s planned system couldbe used to expand or restrict informationflows, depending on how the broadcasting ishandled.

The first Arabsat satellite is now scheduledfor launch in November 1984 on a EuropeanSpace Agency (ESA) Ariane launcher. The sec-ond was scheduled for launch by NASA’sshuttle STS-25 Atlantis in May 1985.36 A thirdwill be kept as a spare. Each satellite will havean operational lifetime of 7 years. s7 The mainground control station will be in Riyadh, andan auxiliary station maybe located near Tunis.

The concept of Arabsat grew out of a 1953Arab League agreement to develop effectivetelecommunications links throughout the Mid-dle East region. This agreement led to thecreation of the Arab TelecommunicationsUnion (ATU) in 1958 and its affiliated ArabSatellite Communications Organization(ASCO). ASCO is made up of five permanent

“’’’Space Shuttle Payloads and Experirnents, ” S1’S Itlissions,1 through 81, Rockwell International, December 1983. This willbe the first flight for Atlantis.

‘-’’ Arabsat: A Giant Step for the Middle East, ” ,Iliddle }+~astF~corIonic Digest, oct. 15, 198’2, p, 84: “Ford Aerospace to Bui]dArabsat, ” At”iation W“eek and Space 7’echnolo~, June 1, 1981,p. 24; Illiddle East ~;conomic Dikrest, Special Report — Tele-communications, October 1983. p. 8: Ali A1-M ashat, ‘‘I)ata Con]-munications Ser\’ices in the Arabsat S\’stem, paper presentedat the 2nd Gulf Computer Conference—Dubai, Dec. 14-15, 1982.‘1’o illustrate the potential that the s?’stem presents for control-ling information , Arabsat has reportedl~’ considered encryptingtclmision broadcasts so as to ensure that the~’ can be recei~’edonl}’ b}’ appropriate members and that signals cannot be in-tercepted. See ‘‘Arabsat Satellite’s Control Signafs \$’ill Be F~n-cr}pted, ” .4 \iation \$’eek and Space Technolok?-, hla~’ 21, 1984,pp. 1 76-177.

210 ● Technology Transfer to the Middle East—. — —— . . . ——

members (Saudi Arabia, Libya, Iraq, Kuwait,Qatar) and four members elected by the gen-eral assembly for 2-year terms. The generalassembly consists of the member countries’Posts and Telecommunications ministers andis the governing body of the organization. In1969, the Arab States Broadcasting Union(ASBU) was formed.

In 1972 several of the governments of theMiddle East asked the United Nations Devel-opment Program (UNDP) for assistance in set-ting up a telecommunications network in theMiddle East and the Mediterranean. TheUNDP asked the ITU to study technical as-pects of such a plan. In the first 5-year phaseof the study, ITU drew up a master telecom-munications plan for the region, compiled fromdetailed local surveys. It focused on creatingand improving satellite, land, and submarinetelecommunications links among the severalcountries (28 sponsoring governments ap-proved the master plan in 1978—Iran, how-ever, was not one of them). ITU estimated thatthe expenditures for just the international por-tions of the work would reach $3,000 millionby 1990. Egypt, Iraq, Kuwait, Lebanon,Oman, Saudi Arabia, and the United ArabEmirates (UAE) will contribute 35 to 40 per-cent of the cost; UNDP will contribute a sim-ilar share, and the rest will come from non-Arab Mediterranean States.

In the second 5-year phase, ITU conductedsubregional feasibility studies with an empha-sis on improving communications in the RedSea area by using microwave and submarinecables. The third phase will look at the groundnetwork and the training of Arab nationals intelecommunications and broadcast engineer-ing and management.

38 The master plan alsosuggested diversifying the telecommunica-tions routing so as to increase reliability. Plansare also being made for an intra-Gulf coaxialcable linking the UAE, Qatar, Bahrain, andSaudi Arabia, with a later extension toKuwait.

In 1976, Comsat, of the United States, wasgiven a $100 million contract to provide tech-nical consulting for the Arabsat program. Po-litical issues delayed the program. The con-tracts for building the three satellites wereawarded in May 1981 to Ford Aerospace(United States) and Aerospatiale (France). Thefinal U.S. export license approval was notgranted to Ford Aerospace until February1982. Aerospatiale was reportedly named asthe prime contractor because Ford was on theArab boycott list. However, Ford received 59percent of the total contract value ($79 of $134million) and has the largest share of the work.Ford provides the antennas, propulsion units,power converters, communications subsys-tems, and altitude control systems.

Another $40 billion telecommunicationsmaster plan—MEDARABTEL–formulatedby ITU and funded by the U.N. DevelopmentProgram and participating countries, is nowbeing implemented. In June 1982, Telettra(Italy) and Thomson-CSF (France) obtained an$18 million contract based on this plan for amicrowave link between Saudi Arabia, Northand South Yemen, Djibouti, and Somalia. Theplan also includes extended telecommunica-tions links with Europe and national and in-ternational transmission routes for radio andtelevision broadcasting.

Other regional projects under way orplanned in the Middle East include: 1) inter-national sea navigation satellites; 2) trans-Gulfcable links; 3) an intercontinental submarinecable between Saudi Arabia, Singapore, Indo-nesia, and Sri Lanka, costing about $500 mil-lion; 4) a coaxial cable link between Algeria,Tunisia, Morocco, and Libya; 5) a coaxial cablelink between Kuwait and Iraq in which CIT-Alcatel of France and BICC Telecommunica-tions of Great Britain are involved; and 6) atelephone network being built by Philips of theNetherlands along a l,200-kilometer highwaylinking Syria, Jordan, and Kuwait viaBaghdad.

There are few discernible trends yet in technol-38 Middle East Economic Digest, Oct. 15, 1982; Times of Lon- ogy trade for projects awarded for regional work.

don, Feb. 2, 1981. Arabsat, the ITU plan, and MEDARABTEL

Ch. 6—Telecommunications Technology Transfers ● 211.

should create a great deal of business in ex-panding transmission networks, includingEarth stations, submarine and coaxial cables,and microwave systems.

Stress has been laid on expansion of thetransmission network. By far the largest sub-sector of expansion has been satellite systems,with U.S. firms holding 76.5 percent of themarket and French firms the remainingshares. In microwave systems, the Italian firmTelettra captured a 65.4 percent share.France’s Thomson holds 34.6 percent of thatmarket. Overall, in the transmission sector,which represented $283 million in expendi-tures from 1974 to 1982, the principal actorshave been U.S. firms with 63.2 percent of themarket, followed by French firms, with 23.9percent.”

P E R S P E C T I V E S O F R E C I P I E N TC O U N T R I E S A N D F I R M S

Saudi Arabia

The rapid expansion of the Saudi telecom-munications network has resulted in one of themost modern systems in the world. The Posts,Telegraphs, and Telecommunications Minis-try (PTT) has not been averse to introducingadvanced technologies-they have installedthe world’s first nationwide stored programcontrol telephone system, used electronic dig-ital switching, employed microwave and sat-ellite transmission extensively, and experi-mented with fiber optic transmission. Giventhe size of the projects, the rapidity of imple-mentation, and the sufficient funding of theprogram, it is likely that the firms, as well asthe technologies involved will gain increasedcredibility in the international market.

The highest levels of expenditure in themost recent Saudi Arabian 5-year plan are formunicipalities, electricity, education, civilaviation, health, roads, and desalinization.Telecommunications allocations are next onthe list, representing about 3.7 percent of totalexpenditures, or $8.7 billion. Most of this

amount is set aside for finishing ongoing proj-ects, such as the Telephone Expansion Pro-gram and the Intra-Kingdom MicrowaveProject.

The telecommunications budget for the 5-year plan and the first three yearly budgetsare presented in table 60. Expenditures havefluctuated on a yearly basis since the begin-ning of the plan and appear to be ahead ofschedule. Between 1980 and 1982 alone, over$6.8 billion was allocated in yearly budgets.While the value of contract awards in telecom-munications throughout the Middle East fellfrom 13.9 percent in 1982 to 4.2 percent in1983, Saudi Arabia increased its purchases inthis sector from $570 million in 1982 to $1,726million in 1983.40

Demand for telecommunications equipmentin Saudi Arabia is expected to continue to riseduring the next 5 to 10 years as the telecom-munications modernization program is com-pleted. Government ministries and public cor-porations have accounted for about 85 percentof the purchases of equipment and services;of this, 80 percent is purchased by the PTTand the Ministry of Information. Other min-istries are building new headquarters and havea need for large private automatic branch ex-change (PABX) systems.

To conduct business with the Saudi Arabiangovernment, a local agent and office is re-quired. Joint ventures with Saudi interests arealso encouraged. In evaluating responses totenders, Saudi ministries reportedly give pref-erence to 100 percent Saudi-owned firms over51 percent Saudi-owned joint ventures. Thesefirms are, in turn, favored over agent-repre-sented foreign companies. In business, SaudiArabian customs reportedly emphasize trustand personal contact as the basis for consum-mating business deals.

The largest purchaser in the private sectoris ARAMCO, which operates an independent27,000-line phone network, but demands willincrease from other purchasers as hotels, uni-

41‘1’1, op. cit., 19~2

212 ● Technology Transfer to the Middle East—

Table 60.—Saudi Arabian Telecommunications Budgets As Compared to Total Budgets (in millions of U.S. dollars)

1980-84Plan 1979-80 1980-81 1981-82 1982-83

T o t a l b u d g e t . . . . . . $237,100 $48,500 $71,418 $86,868 ‘$91 .357Telecommunications. . . . $ 8,700 $ 1,429 $ 2,574 $ 2,154 $ 2,080Video and Radio ., ., NA NA NA $ 459 $ 461P e r c e n t o f t o t a l . . . 3.7 2 9 3.6 3.0 2.8SOURCE J Shaw and D Long Saudi Arabian Modernization The Impact of Change on Stability The Washington Papers New York Praeger 1982); Edmund O'Sullivan

Saudi Budget Shifts Emphasis From Infrastructure to Human Resources Middle East Economic Digest Apr. 30 1982, pp 1618

versities, airports, office buildings, and indus-trial facilities are completed.

Minimum requirements for all equipmentare the norms recommended by the ITU’sCCITT and CCIR.41 U.S. modifications tothese standards appear to be acceptable.42 Pri-vate equipment connected to the public sys-tem must be approved by the PTT’. For broad-casting equipment, important long-termsupplier decisions are made when particularcontracts are awarded, since European andAmerican systems are often not compatible.Often, the detailed requirements for specificprojects are drawn up by foreign consultantsto the PTT. This is true in Saudi Arabia, whereArthur D. Little, Norconsult, Swedetel, ITU,and Preece, Cardew, and Rider have workedon the plans and requirements for large tele-communications programs and then served onthe bid evaluation committees.43

The telecommunications subsector likely toreceive the greatest attention over the nextdecade is that of telephone and telex. Withgoals to once again double phone capacity andto increase telex capability, large projects arelikely to be awarded. Established supplierswho have won the confidence of Saudi Arabianofficials and who have long experience in themarket are in the best competitive positions.This means that Ericsson and Philips in theswitching and user equipment area and Cableand Wireless for telex may benefit particularlyfrom the projected expansion.

.—41 The International Consultative Committee for Telegraph

and Telephone (CCITT) and the International Consulting Com-mittee for Radio (CCIR) are two of the ITU's largely auton-omous permanent organizations.

42 Intel-Trade, May 15, 1979.43 U.S. Embassy, Riyadh, Market Research of Telecommunica-

tions Equipment, February 1980.

Growth in capacity often reveals hidden de-mand. So it is with subscriber usage of the ex-panded telephone system in Saudi Arabia. In1977, with only 200,000 subscribers, the aver-age number of international messages per sub-scriber was 5.8 calls. In 1980, with 700,000lines in operation, each subscriber initiatedover 24 international calls.

While there appears to be relatively highusage by current subscribers, the physical ca-pacity of the network commissioned may ex-ceed the expected demand through 1990 byabout 500,000 lines. Saudi Arabia is, however,building now in anticipation of future demand,given projected rates of urbanization and in-dustrial growth.

One indicator of the ability to absorb tele-communications technology is the number ofemployees per 10,000 phone lines. For a par-ticular quality of service, the fewer persons re-quired the more efficient the operations. In1980, the total number of employees was givenas 12,571, or 284 per 10,000 lines; an estimatefor 1981 showed an improvement with 189 per10,000 lines.44 By comparison, AT&T used102 employees per 10,000 lines in 1982.45 Thesefigures also compare favorably to the estimateof 140 employees per 10,000 digital lines forinside and outside plant operations.

Although the figures describe a Saudi sys-tem in transition, they show increasing effi-ciency by employees in operating and main-taining the equipment. The numbers aresupported by other information on Saudi Tele-phone (Sauditel). While 62 percent of Sauditel

44D. Fargo, “World Telecoms Tell Their Plans for Growth, ”Telephone.}’, Sept. 24, 1979, pp. 88-111.

45 AT&T, Statistical Report, AT&T, Basking Ridge, N. J.,1981.

Ch. 6—Telecornmunications Technology Transfers “ 213— — . — — . —

employees were nationals in 1981, the propor-tion of Canadian supervisors was being re-duced. The employment goal for the companyis 80 percent Saudi nationals.46 Nationals holdall public interface positions and many man-agerial roles. Saudi Arabian personnel aim totake over parts of the training program them-selves.

Saudi nationals, once trained, reportedlyhave good ability to operate telecommunica-tions equipment. While some with prior edu-cation in the United States are alreadyoriented to Western technology, those who areproducts of the Saudi Arabian educational sys-tem have reportedly sometimes faced difficul-ties in moving from rote learning to programscentered around understanding causes and ef-fects of operations.

Planned growth in telecommunications ca-pacity takes into account anticipated growthin demand in conjunction with Saudi Arabia’srapidly growing population.47 At the sametime, the country has been experiencing alarge influx of population into the cities since1974. The average population growth rate inurban areas was 7.6 percent annually between1970 and 1980. In comparison to the overallnational rate of growth, this urbanization ef-fect is extreme and may present future prob-lems in that certain exchanges may be over-crowded while others are underutilized.

With an estimated 70 percent of its 2.5 mil-lion work force being foreign, Saudi Arabia seta goal of reducing the growth of the foreignwork force. Projections indicate that the over-all labor force may continue to grow throughthe year 2000.4’ Shortages exist within themanagerial, professional, technical, and skilledlabor categories, which all affect the labor sit-uation in the telecommunications sector. Esti-mates suggest that non-Saudi labor encom-passes more than one-half of the work force

“-’ Rij’adh (’ailing–12ast and F; fficientlj.’ ,Ifidd)t l.’as[ Kf”~j-nornic’ Difyl.st, .$pe~’ial Report on Saudi Arahi:i, .1 ul~ 19h 1, p. 27.

‘-SeCI (h. 4 for a discussion of ~aric)us e+t irnates of Saudipopulation,

“’’Saudi Arahia-1’h[’ !tIanpovwr Controt’ers?’, ” .Iliddl(’ fi~a.stF,’conomic Digest, Apr. 24, 1981, pp. 40-41,

in these categories, vital to effective absorp-tion of telecommunications technologies.”

Computer training programs have been es-tablished at Sauditel’s data center and by theNational Guard. Telecommunications andbroadcasting training institutes have alsobeen conducting programs in Riyadh and Jed-dah since 1971. However, these programs havenot attracted the number of trainees originallyenvisioned and have reportedly experiencedhigh dropout rates.50

Most contracts for telecommunicationsequipment currently include training (in Eng-— —. ——

‘ ‘Industrial Studies and Dcw’elopment (’enter, .4 (;uide to ln-du.~tria] IX’\wlopnmnt in Saudi .4r4hii), ~ii~’adh, 1 97’7,

“,$liddle 1.;:]s[ b;conon]ic l)i~yst —Spmi:i] ii(~port on Saudi..\r:~bia, ,Ju1}T 19S 1: ITA, op. cit., 1982.

At ARAMCO’S Ras Tanura Industrial Training Shop, astudent tests electronic circuitry

214 ● Technology Transfer to the Middle East—

lish and Arabic), operations, and maintenanceprovisions. The training goal is often to bringnationals to a level of operational proficiencyrather than preparing them to take over all as-pects of maintenance, which is usually handledthrough joint ventures. This has been the casewith the Intra-Kingdom Microwave Project,where Western Electric training in manage-ment and operations and maintenance was ac-complished by Western Electric personnel forthe first 12 months after installation and bySartelco personnel (an Italian-Saudi joint ven-ture) subsequently. Maintenance work is del-egated to foreign contractors; thus dependenceon suppliers continues. As discussed in theSaudi Arabian project profiles (included inapp. 6A), U.S. firms bidding on the telephoneexpansion contract in 1978 had high cost esti-mates for operation and maintenance. Theseestimates may have been instrumental in lossof the contract.

Saudi Arabia encourages foreign investmentthat results in domestic assembly plants andmanufacturing facilities for import substitu-tion. To date, there have been limited attemptsat local manufacture in the telecommunica-tions field. The Saudi Cable Company, a jointventure with Philips, plans a major expansion.Telephone Industries Co., Ltd., a joint venturewith Ericsson, was established in 1976 to man-ufacture telephone equipment, apparatus andcable. It was licensed by Ericsson to producecable, 50,000 lines of automatic exchangeequipment, 40,000 lines of PABX systems,and 12,000 phone sets per year. By 1979, how-ever, production had not begun. In addition,a Finnish company established a factory toproduce TV tubes in 1977. Without plans forextensive local development of a telecommu-nications equipment manufacturing industry,Saudi Arabia will remain dependent on foreignsources.

Increased usage by the residential, business,and government sectors has revealed a pent-up demand for telecommunications equipmentand services. One particular application ofCCTV has had a major impact on education

“The Economist Intelligence Unit, Quarterlov Economic Re-~iew, I,ondon, April 1981.

in the Kingdom. By custom, women have beensegregated from men at all levels in the educa-tional system. This has also extended to therequired use of female instructors to teach fe-male students. Because there have been short-ages of female instructors, educational oppor-tunities for women have been stymied.However, the introduction of CCTV into theclassroom has enabled male instructors toteach women.

As the telecommunications network reachedthe small towns and villages in the Kingdom,it has provided local businessmen and traderswith easy access to the national economy. Thenetwork thus has increased local employment,and brought increased prosperity to the outly-ing regions. Increases in telecommunicationscapabilities have also enabled the constructionof refineries, industry, and exploration sitesin remote areas of the country.

Expansion of both the civilian and militarytelecommunications networks in the Kingdomalso has had national security implications.The government has acted to integrate thesenetworks and thus improve its command andcontrol capabilities. Litton Industries, of theUnited States, is participating in this projectto integrate the networks.

While Saudi Arabia’s telecommunicationsinfrastructure has grown rapidly, capacity toabsorb technology effectively has increased ata slower pace. Accounts of Sauditel accom-plishments are impressive. Nevertheless, man-power shortages in managerial and skilledtechnical areas present continuing problems,despite efforts to establish training programs.Absence of a domestic telecommunications in-dustry means that Saudi Arabia will be de-pendent on foreign suppliers into the foresee-able future. On the other hand, there is nodoubt that Saudi Arabia can operate andmaintain an efficient telecommunications sys-tem, because the country can afford to pay foroperations and maintenance assistance.

Kuwait

Kuwait has aspirations to be an importantregional and international financial center. A

Ch. 6—Telecommunlcatlons Technology Transfers ~ 215——-— . . —

reliable and advanced telecommunications net-work is a prerequisite. Kuwait’s extensive in-ternational investments and foreign assistanceprograms also require modern telecommunica-tions facilities. In addition, Kuwait PetroleumCompany (KPC) has plans to establish itselfas a major integrated international oil com-pany. Such an operation requires extensive in-ternational communications to support man-agement, production, and distribution.Advanced technology transfers will also en-able the Kuwaiti government and business toestablish links with databanks overseas.

The Ministry of Communications projectsa doubling of telecommunications capacity be-tween 1980 and 1985, as follows:52

1980 1985 1990Telephone capacity 269,000 381,000-500,000 1,100,000Telephone subscribers 160,000 345,000 900,000Telex capacity 6.000 15,000 naTelex subscribers 2,400 5,500 7,500A major goal is to rehabilitate the telephonesystem. Major repair expenses are being in-curred for telephone cables; $1.38 billion hasbeen allocated to replace damaged under-ground telephone cables with waterproof ones.Kuwait has imposed large fines on contractorswho damage these cables during construction,but the fines have not resulted in an elimina-tion of this problem.

Actual construction expenditures for tele-communications grew as follows:

1978 $ 72.2 million1979 80.6 million1980 79.1 million1981 105.7 million1982 152.4 million

During 1982-83, allocations by the PTT fellslightly from $212.9 million in 1981-82 to$201.6 million.” The Ministry of Communica-tions is the major consumer of telecommunica-tions equipment. Other major governmentpurchasers are the Ministries of Defense andPublic Health. Sales are by tender and are al-ways carried out through a local agent.

52 Kuwait Ministry of Communications, “Present and FutureTelecommunications in Kuwait,” March 1981.

‘rI’h[’ I“;conc)nlist Intelligence [Jnit, Qum-ter)j’ F,’conomi(’ R(L~i(’}{, I,ondon. Nlarch 1982.

Mid-range electronic PABX equipment (10to 100 lines) can be only sold to the Commu-nications Ministry, which then provides it toprivate users. Smaller and larger private ex-changes can be sold directly to end-users.Most other equipment is marketed directly toprivate companies and individuals, such as theKPC, shipping agents, newspapers, andbanks.

Kuwait continues to import the latest andmost advanced telecommunications systems.Europe and Japan have come to dominatemany key segments of this market, whereAmerican firms have lost bids owing to theirhigher prices.

The number of local telephone exchanges isexpected to double over the next decade, aswill the number of international trunk lines.Sophisticated subscriber equipment, includingautodialing, and electronic PABX’s, are pop-ular among businesses. Over the next decade,Kuwait is planning to spend $1.5 billion on ex-pansion of special telecommunications net-works at ports and transportation centers andalong highways.

In the transmission field, demand for satel-lite technology has been generated by the datatransmission requirements of banks and finan-cial institutions. Additional microwave link-ages and uses for fiber optics will probably beidentified over the next 10 years. Since thereare no plans to develop a domestic telecom-munications equipment manufacturing indus-try, Kuwait will continue to be dependent onimports into the foreseeable future.

In 1981, there were 347 telecommunicationsemployees per 10,000 lines in Kuwait.54 Thiscompares with an estimated 140 employeesusually required to operate and maintaindigital equipment. It is also significantlyhigher than the employee-to-line ratio in SaudiArabia and Iran.

Based on data reported by the ITU (1980),Kuwait annual expenditures for maintenanceand repair have been erratic. Through 1973,

54 AT&T Long Lines, op. cit., 1982

35– 507 0 - 84 - 1 ~ : QL 3

216 ● Technology Transter to the Middle East

the costs were low–$3,000 to $6,000 per 1,000main lines per year. The costs in 1974 and 1975were very high in comparison-$75,000 per1,000 main lines. Expenditures since then de-clined, but rose slightly again recently.

These costs may be related to two factors.First, the use of many types of equipment andmany suppliers during initial implementationof the telecommunications network is makingit difficult to maintain sufficient inventoriesof spare parts and obtain replacements. Sec-ond, there have been problems in equipmentmaintenance. Overall, while there appears tobe high demand for a variety of telecommuni-cations services, the capacity of local Kuwaitisto operate and maintain the network efficient-ly has been limited.

With a high rate of population growth anda large expatriate population, Kuwait’s de-mand on international trunk lines is likely tobe high. Due to the large population shifts andchanging needs of subscribers, it has been dif-ficult to predict and match demand and ex-change capacity. The waiting list for telephonesubscribers has been large, fluctuating be-tween one and five percent of the total popu-lation.

Kuwait faces manpower shortages that lim-it technology absorption in the short term. Inthe 1975 census, there were a total of 298,415people classified as economically active. Ofthese, only 29 percent were Kuwaiti nationals.This situation has created a strong dependenceon foreign contractors.

For example, a Japanese consortium of Nip-pon Telegraph and Telephone and KokusaiDenshin Denwa (KDD) planned, designed, andinstalled the telephone system between 1965and 1975. Three years after the system wasturned over to Kuwait, the Japanese wereasked back to renovate, maintain, and oper-ate the system, which had reportedly deterio-rated. The new Japanese consortium, JapanTelecommunications Engineering and Con-sulting (JTEC), that accepted the job rejecteda contract renewal offer. Citing payment with-holdings and difficult working conditions,JTEC allowed another foreign contractor to

take over the role of operator, maintainer,trainer, and consultant for the Kuwaiti PTT.55

The Kuwait Telecommunication TrainingInstitute was established in 1966 to train na-tionals in maintenance, operation and super-vision of telecommunications systems.Courses cover a broad range of subjects, in-cluding English, switching and transmissiontechnologies, broadcasting and training meth-ods. In response to rapid expansion of telecom-munications services in Kuwait and limitednumbers of Kuwaitis interested in the train-ing, enrollment was recently expanded to asmall number of non-Kuwaitis.56

In the construction field, Kuwaiti firms areapparently becoming large and capable, win-ning many civil works contracts. Except forKuwaiti trading companies that procure tele-communications equipment from foreign sup-pliers for the government, local firms are oftennot capable of fully absorbing the advancedtechnology installed.

Egypt

As its telecommunications facility is mod-ernized and as Beirut has been the site of pro-longed civil war, Cairo is likely to emerge asa major regional commercial center. Already,it is serving as a cultural center in the Arabworld, exporting television and radio pro-grams from its large broadcast studios.

Radio and microwave transmission facilitieshave improved communications for Egyptianoil companies between headquarters, oil wells,and refineries. Improved and more reliabletransmission will probably create a new com-puter and data-processing industry, produc-ing a demand for indigenous computer pro-grammers. The increased investment in thetelecommunications network may help slowthe outflow of technically trained and experi-enced workers from Egypt to elsewhere in theArab world.

“’’Japan Telecommunications Engineering and Consulting(JTEC)– Kuwait Reluctant Partner, ” Middle East EconomicDigest, Oct. 15, 1982, p, 90.

“Telecommunications Training Institute, Prospectus– Tele-communications Training Institute, TTI, Safat, Kuwait, 1983.

Ch. 6—Telecommunications Technology Transfers . 217—. —— .— ——— — — . ——.

Satellite links also have enabled more relia-ble and timely communications between theForeign Ministry and Egyptian embassiesabroad. Moreover, Egypt has been a majorpurchaser of military communications equip-ment from France and other suppliers. TheBritish, for instance, have a joint venture inEgypt to manufacture military radio products.

The 1978 master plan for telecommunica-tions developed by Continental Telephone In-ternational has apparently been adopted asEgypt’s official 20-year plan. That plan andthe initial budget figures for the 1980-84 de-velopment plan in the transport and commu-nications sector allocated $2.4 billion to pro-ject investments over a 5-year period.57

The basic goals are to: 1) increase the num-ber of telephone lines from 700,000 to 1.6 mil-lion by 1985, 3.0 million by 1990, and 4.5 mil-lion by 2000; 2) attain a telephone line densityof 3.7 per 100 inhabitants by 1985; 3) install12,000 new telex lines by 1985 and 26,000 by1990; 4) install new and replacement coaxialcable linkages between major cities, submarinecable between Egypt and Saudi Arabia, andmicrowave linkages between Upper and LowerEgypt and to the Sinai; and 5) establish newbroadcasting stations and towers and reno-vate or replace existing equipment.

Eighty percent of all contracts in this fieldare with the public sector—ARENTO (ArabRepublic of Egypt National Telecommunica-tions Organization), ministries, or 11 otherpublic-sector organizations. In the public sec-tor, agents are required to represent foreignfirms, financing is essential, and political cloutis reportedly useful.

The private sector, in comparison, has great-er access to funds and can buy directly fromsuppliers. In fact, one source indicates that thekey factor in making a successful sale to thegovernment is the availability of favorable fi-nancing; the technology chosen is a direct re-sult of the best financial package.58 Decisions—

57 Charles Richards, ‘Egypt Embarks on Crash Moderniza-tion Program, .Jliddle Ijas[ Economic Digest, oct, 15, 19R2,~, H’7,

of convenience rather than technological plan-ning may have resulted in the purchase of alarge variety of equipment types that mustnow be made compatible.

The standard for electrical current in Egyptis 220 volts, which benefits European suppli-ers over American firms. There is no formalstatement concerning telecommunicationsstandards; ARENTO and its contractors havedeveloped them as the need arose.”

The estimated cost for the 4.5 million newtelephone lines by the year 2000 is $17.4 bil-lion. Feasibility of the telecommunicationsplan largely rests on the availability of financ-ing from suppliers, donor countries, and inter-national organizations. Even if the projected700,000 new telephone lines are successfullycompleted by 1985, there will still be an esti-mated shortfall of 400,000 lines. This pent-updemand helps explain the likely focus of re-quirements over the next 10 years. Telephoneand telex equipment will be the largest sectorfor expansion, mostly in switching and sub-scriber equipment. While most of the currentexchanges are of the crossbar type, fully elec-tronic digital equipment is expected to be usedincreasingly.

There is a shortage of telex capacity in Cairoas a result of increases in the number of busi-nesses opening offices there. ARENTO is plan-ning to spend $17.2 million to install addition-al telex exchanges, telex traffic is expected toquadruple by the year 2000, placing furtherstrain on capacity.

The transmission network is in great needof renovation and replacement. The majormarket will be in coaxial cable and carriertrunks. Enhancements to microwave systemsand high-frequency radio are secondary mar-kets. In addition, as digital transmission takesover there will be a developing market forTime Division Multiplex (TDM) equipment.

ARENTO is forced to employ more person-nel than needed in order to help alleviate thecountry’s high unemployment. This has led tounderemployment, problems in supervision,

‘mU. S. I)epartrnent of Commerce. (’communications l+;quipmrn[ _in the .~irat) Hepuhlic of I.’~’pt, Lfrashington. D.C., 1980. 59 Ibid.

218 ● Technology Transfer to the Middle East—-.——- .— . — . —

and a resulting poor quality of workmanshipand service.

Annual expenditures for maintenance andrepair of the telephone service slowly escalatedfrom a 1970 level of $62,651 per 1,000 mainlines to $81,580 per 1,000 main lines in 1976(in constant 1979 dollars). This gradual re-sponse to an apparently rapid deterioration ofthe network was a major contributor to poorservice. In 1977, major increases to the main-tenance and repair budget–reaching $146,961per 1,000 main lines--signalled the beginningof of the “quick fix” approach to restoringquality service.60

The major domestic source of telecommuni-cations equipment is the Telephone Appara-tus Company, which is government-owned.Previously a joint venture with Ericsson andnow under license to that company, this facil-ity produces 35,000 lines of crossbar ex-changes, 7,000 lines of PABX systems, and35,000 phone sets per year. Annual sales in1978-79 were $12.9 million. The factory ap-pears to be well managed. It produces manyof the technical components and is not merelya subassembly operation. However, becauseit is a state-owned factory, pay is on a low,government scale, and good technical staff arereportedly lost to private enterprise. Egyptalso has a radio and TV production plant. Thelabor force at this facility totals 200 and istrained in manufacturing, management, qual-ity assurance, and design.

Among Middle Eastern countries, Egypthas a comparatively large population and afairly high percentage of its population aged20-24 enrolled in higher education-15 percentin 1978. In 1978-79, there were 11,117 grad-uates and 72,306 students enrolled in engineer-ing, science, technology, and electronic cur-ricula in Egyptian universities. These numbersincreased rapidly during the 1970’s, whichsuggests that a growing base of technicallyqualified manpower will be emerging shortly.One problem will be to keep them employedwithin Egypt.

60 ITU, op. cit., 1980.

Egyptian fitters and technicians are report-edly capable. But at the same time, theseskilled laborers go abroad, depriving Egypt ofexperienced technicians. As a result, there isa lack of experienced skilled workers to oper-ate and maintain the telecommunications net-work. Much of the existing network is main-tained by foreign contractors.

Under USAID funding, Continental Tele-phone and Arthur D. Little are providing ex-tensive training in craft skills such as tele-phone installation and cable splicing. They arealso attempting to transfer broader technicalknowledge to the more advanced employees.Training sessions are held at ARENTO’s Tele-communication Training and Research Insti-tute in Cairo. The training, which is providedin both English and Arabic, includes formalclassroom as well as on-the-job learning ex-perience.

Thomson-CSF is commissioned to trainEgyptian technical staff to take over opera-tion of the enhanced network within a 3-yearperiod. Apart from this training, the Ministryof Interior has established a separate instituteof telecommunications training. This ministryis responsible for fire, police, security, emer-gency services, and traffic functions-and thushas very special communications needs. Train-ing at all levels—from technician upward andfrom telex machine repair to microwave cir-cuitry design-is conducted.

Although skilled manpower shortages rep-resent one major constraint to absorption, itmay be possible to overcome this problem inthe short term by retaining in-country skilledtechnicians who are emerging from the univer-sities and training programs. The most diffi-cult constraint to absorption, however, is theavailability of sufficient capital to pursue theplanned development of the telecommunica-tions network.

Algeria

The planned expansion of the telephone andtelex networks has enabled Algerian nationalplanners to begin to address the needs of otherindustries. The growth of LNG production,

Ch. 6— Telecommunications Technology Transfers ● 219.—

liquefaction plants, and export markets willrequire increased domestic coordination andinternational linkages through telecommuni-cations. Planners are also encouraging small-to-medium private enterprise and decentraliz-ing industry from Algiers and the coastalplain; both efforts will entail better telecom-munications facilities.

The expansion of the telecommunicationsnetwork is likely to integrate the rural areaswith the political and social mainstream of thenation. At the same time, the urban popula-tion explosion and planned increase in hous-ing construction will put greater demands onthe capacity of the telecommunicationsnetwork.

The 1980-84 Algerian development plan al-locates $2.5 billion, or 2.5 percent of totalallocations, to telecommunications. Overall,one-quarter of the funds are devoted to com-plete projects currently under way, and the re-mainder to new projects. The breakdown ofprojected investment is (in millions of U.S. $):61

Switching $TransmissionBuildingsNetwork plantImproving quality of serviceSupport equipmentOther servicesRadio and TV

757.7453.0363.2342.3

68.948.054.3

400.0Total $2,487.4

As occurred with previous developmentplans, it has been impossible to spend the al-located plan funds within the expected timeframe, owing to manpower shortages, con-struction delays, and insufficient installationcapability.

Very little, if any, telecommunicationsequipment or services are purchased by pri-vate industry in Algeria. National ministriesand state-owned companies do all the tender-ing, selection, and procurement, even for pri-vate concerns. The Posts, Telegraphs, and Tel-— .—

‘>’ N1 ichael Frost, “Algeria: ‘1’elecommunicat ions k;xpansionU rider W’ay, Jliddle hlast l<conomic Digest. Apr. 24, 1981, p.6; Konsulterna, ‘ ‘The Market for Communications I+; quipmentand Systems- Algeria, U.S. Department of Commerce, August1981.

excommunications Ministry (PTT) isresponsible for about 75 percent of purchasesfor the public networks; the Radio and Televi-sion Agency procures radio and video equip-ment; Sonatite, a state company, obtainsequipment for private end-users (PABX’s andphone sets); and mobile radio equipment ispurchased by each ministry and national com-pany individually. Standards for Algerianequipment are based on French, and therefore,ITU norms.

The Algerians are committed to convention-al technologies— analog transmission andcrossbar switching produced locally. Thus, Al-geria’s approach is quite different from thattaken by Saudi Arabia and Kuwait, and moresimiliar to that of Egypt. Price is usually themost important criterion in awarding a tele-communications contract. In fact, most min-istries and network companies are mandatedby law to grant contracts only to the lowestbidder. Technical competence of the contrac-tor and the reliability of equipment, as dem-onstrated by installations elsewhere, are alsoimportant decision factors. Since the Algeri-ans have also been trying to rid themselvesof an overdependence on French imports, non-French suppliers have been in a good position.

The largest expansion will probably be inswitching and transmission, especially in lightof plans to increase line density in urban areasand expansion to rural areas. Firms from Swe-den, Spain, and France are likely to be predom-inant in the switching and subscriber equip-ment areas. Japan is likely to becomedominant in the transmission area, since itsupplied cable and microwave networks andis a front runner in supply of additional Earthstations.

A substantial amount of telecommunica-tions equipment is currently being producedlocally. While these plants may have been de-signed to produce the equipment from startto finish, most are assembling componentsstill imported from Spain or the United States.Moreover, these plants are not yet up to full-capacity production and probably will not beuntil late in this decade. Therefore, there is still

220 ● Technology Transfer to the Middle East— —— —. -— . . . —

an import market for crossbar and subscriberequipment, cable, and TV and radio receivers.

There are three major local sources of tele-communications equipment production. Thefactory built by Standard Electrica-ITT(Spain) at Tlemcen in 1975 was designed toproduce 100,000 lines of public telephonecrossbar switching equipment, 20,000 lines ofPABX switches, and 140,000 phone sets peryear. The plant is only today beginning toreach this capacity level, because of employeeturnover and the difficulty in training employ-ees. Currently, the factory is assembling com-ponents imported from Standard Electrica inSpain; but it was originally designed to enablecomplete local manufacture.

Two cable factories have a capacity of10,000 tons per year of multipair pressurizedcable. Production can be shifted to jelly filledcable as well. The national company in chargeof these factories is contemplating microwaveand multiplex production later in thedecade.

Another facility, built by General Telephone& Electronics (GTE) (U. S.) under a 1976 con-tract, is a TV and electrical production plantthat is still being supplied by GTE. It has thecapacity to produce 130,000 TV sets and400,000 radio receivers annually. At capaci-ty levels, the plant was designed to have astaff of 4,000 Algerians.

By 1990, it is likely that local production willbe able to handle a substantial portion of thedemand. By one estimate, local manufacturewill be able to meet 55 percent of domesticswitching needs and 90 percent of the multi-pair cable requirements.62

The telecommunications network is exten-sively used by subscribers. In 1979, each sub-scriber made an average of 31.2 domestic calls.This compares favorably with an average of13.0 domestic calls in Iran and 15.5 in Iraq.

Algeria has a high average net growth rateof population—2.9 percent per year. Estimated

—— ——62Konsulterna, ibid.

at 18.9 million in 1980, its population by 1990should grow to 25.2 million. This places a con-tinuing pressure on the telecommunicationsnetwork capacity. For example, the waitinglist for telephone subscribers has grown at anaverage annual rate of 41.8 percent over thepast decade. The current push to provide morecapacity will narrow the gap between supplyand demand, but if Algeria fails to continueto expand the phone system beyond the 1985goals, the result may be a low density of 3phone lines per 100 inhabitants in 1990.

Another pressure on the network is the veryrapid population growth of urban areas-al-most twice the projected overall growth rateat 5.7 percent per year. Capacity in alreadycrowded urban exchanges will have to be ex-panded at a much faster pace than in ruralareas.

One goal of the current plan is to decreasethe extent of foreign assistance required inmanufacturing and installing additional capa-city. To that end, the three local manufactur-ing plants have been designed to be self-suffi-cient. National companies are also takingcharge of installing exchanges and transmis-sion equipment. However, attracting, training,and maintaining sufficient manpower has beena problem in both production and installation,resulting in the need for continued foreigntechnical assistance into the foreseeablefuture.

Although technology transfer is a nationalgoal, the capacity of local personnel to carryout this goal has been questioned by some U.S.firms that have worked in Algeria. It is theiropinion that while some Algerian trainees areconscientious in learning how to operate andmaintain their segment of the telecommuni-cations network, a large proportion is unmot-ivated to do so and unable to handle the tech-nology efficiently even after extensivetraining. Moreover, attempts to develop high-er-level training in telecommunications tech-nology with the university in Algiers and theestablishment of technical training schoolswere unsuccessful, owing to government fund-ing cuts.

Ch. 6—Telecommunications Technology Transfers . 221.

Exacerbating this manpower problem, themodern analog telecommunications technolo-gy being installed in Algeria is more labor-intensive than digital technology. Given a con-servative rule of thumb of 150 inside and out-side plant personnel per 10,000 analog lines,Algeria will require a minimum of 15,000 tel-ephone employees operating and maintaininga l-million-line network by 1990. Judging frommanpower requirements for telecommunica-tions systems elsewhere, approximately 9 per-cent of the employees will need college degreesin engineering and management. Eighteen per-cent will have to be technical school graduatesin electronics to serve as technicians in switch-ing centers. Sixty-six percent will need someelectrical repair training to serve as outsideplant installers and repairers. The remaining7 percent will have to be literate to serve asoperators and clerks.

Of the six countries in this study, Algeriahas the lowest percentage of the relevant agegroup enrolled in higher education (4 percent)or in secondary school (31 percent). These sta-tistics, plus the large proportion of the eco-nomically active population working abroadin France, suggest that Algeria may face theconstraint of insufficient skilled manpower tofully absorb the telecommunications technol-ogy it is purchasing. As a result, Algeria willprobably have to depend significantly on for-eign technical help beyond 1990.

If current trends and plans for developmentand export of liquid natural gas materialize,the necessary capital for telecommunicationsefforts should be available. However, there isinsufficient high-level management and tech-nical personnel to operate the telecommunica-tions factories and the growing network.Training efforts for technician-level telecom-munications personnel must compete with re-quirements of other industrial establishmentsfor available manpower. These training effortsare, however, critical to more effective utili-zation of telecommunications technologies.

Iraq

Iraq’s telecommunications network hasbrought with it efforts to expand the techni-cally trained work force, but in the short termincreased dependence on foreign technical sup-port has resulted, Moreover, in purchasing ad-vanced computer-based technology, Iraq maylimit maintenance problems now, but expandforeign dependence later, if sophisticatedtraining is not pursued. Iraq’s motivation toexpand its telecommunications networks isalso, in part, to serve its requirements for im-proved military preparedness. At present,with oil revenues reduced and the war withIran continuing, projects in the telecommuni-cations field are putting an increased strainon Iraq’s balance of trade.

Iraq planned 525 new projects to developthe telecommunications infrastructure in thecurrent 5-year plan. Among the goals were:63

1. Increase telephone capacity to 1 millionphone lines by 1985 and to 1.8 million by1990.

2. Increase phone density to between 7 and10 phones per 100 inhabitants by 1985.

3. Increase the number of telex subscribersto 6,000 by 1985 and to 10,000-18,000 by1990.

There is an absence of information on spe-cific objectives in the telecommunications areaand no cost breakdowns of planned develop-ment in Iraq’s 5-year plan. As a standard forcomparison, the previous 5-year plan allocated$1 billion to telecommunications programs. Itwas estimated that almost one-half of thesefunds were used to establish military commu-nications networks.

Major government contracts are usually putout to tender for international competition.Sales in telecommunications equipment and

‘i] Intel-Trade, Mar. 30, 1979: ITU, op. cit., 1978, MEED Con-sultants, op. ci~., p, 7.

222 . Technology Transfer to the Middle East

services are often made to ministries directlyor to state trading organizations. Local rep-resentation for foreign firms is often useful inenhancing sales.

Over the long term, Iraq intends to expandits telecommunications network in both ruraland urban areas, using the latest digital trans-mission systems. An east-west microwave sys-tem has been contemplated to support inter-national trade of food and agricultural products.Other areas likely eventually to see increaseddemand are PABX systems, mobile radio tele-phone networks and data communications net-works, for state organizations.

West European firms from France, GreatBritain, and Sweden already dominate inmany sectors. Japanese companies tend to bepredominant in switching and wireless net-works. It is likely that they will continue theirmajor presence in the Iraqi telecommunica-tions market. The Eastern bloc-Hungary andthe Soviet Union—have made only minor in-roads in this market. U.S. firms, likewise, havehad a very limited presence.

International usage has been high and thishas strained the capacity of the network. In-ternational communications traffic had grownat 30 percent annually. This was probably aconsequence of the growth in business and ex-ports as well as the large number of foreignworkers in Iraq.

There are several factories devoted to elec-tronics and telecommunications equipment. Asemiprivate company has the capacity to pro-duce 50,000 telephone sets annually. A public-sector factory producing telephone wire wasscheduled to be commissioned in the early1980’s. A contract was signed in mid-1981with Thomson-CSF (France) to establish anelectronics manufacturing facility, and consid-eration was being given to developing indige-nous production of TV and radio receivers.However, given startup times for new facilitiesand current capacity limited to component as-sembly, dependence on foreign telecommunica-tions equipment imports is expected to con-tinue at a high level.

Although figures on Iraq’s manpower situ-ation are not available, large numbers of for-eign workers have built factories and infra-structure and operated and maintained Iraq’stelecommunications system.64 In part, Iraqsees purchase of advanced technology as oneway of offsetting its deficiency of skilled man-power. Most contracts for equipment stipulatethat operation and maintenance of that equip-ment by foreign contractors must includetraining that supports indigenous absorptiongoals.

Iraq’s plans for expansion of the telecom-munications system have been delayed by thewar with Iran. By far the largest share ($6.4billion of $7.2 billion) of contracts awarded in1983 were in the defense sector. Althoughauthoritative information is not available, itappears that Iraq’s telecommunication expan-sion has been concentrated primarily in themilitary sector in recent months.

Iran

Expansion of television broadcasting (reach-ing more than 65 percent of the population)and other mass communication vehicles hasbeen a major instrument of political mobiliza-tion in Iran, used to discredit the Shah andthen to legitimize the new regime.65 Telecom-munications have also been used by the Is-lamic regime to build support. The regime’spriorities suggest that future investments intelecommunications will be focused primarilyon consolidating military positions and ensur-ing readiness.

Early in 1982, a 20-year development planwas approved and in September 1982 a new 5-year plan was implemented in Iran. In thesedocuments, the regime stated its wish to avoidthe degree of dependence on foreign suppliersthat the country experienced under the Shah.The principal objective of the current plan iseconomic self-sufficiency. Staple items and

..--——— —“Jonathan Crusoe, “Iraq’s Spending Slowdown Disappoints

Contractors, ” Middle East Economic Digest, Feb. 19, 1982, p.1 ().

65Tehranian, op. cit., 1982.

Ch. 6—Telecomrnunications Technology Transfers c 223— . . . — .

strategic and intermediate goods must be pro-duced domestically.

The PTT Ministry has selected sectors thatwill receive enhanced telecommunications net-works. In order of priority they are: 1) secu-rity and defense forces, 2) ‘‘voice and visionbroadcasting,” 3) government institutions, 4)productive and agricultural sectors, 5) villages,6) trade and commerce, and 7) households.66

In addition, goals have been established to de-velop telecommunications facilities for all vil-lages of 1,000 persons or more by 1987 andall smaller villages by 1997. Some expansionand repair work is apparently proceeding. Ap-proximately 43,000 new telephone lines areplanned for installation in Teheran, Gilanprovince, and Rasht.

Reportedly, $8.3 million has been spentthrough June 1982 on reconstruction and ren-ovation of telecommunications facilities andmicrowave equipment. The telecommunica-tions budget for 1982-83 was set at $27.2 mil-lion. Moreover, an amendment to the 1982-83budget included $112 million for completionof several projects. In comparison, planned in-vestments in telecommunications under theShah amounted to $380 million (1978-83), $546million ( 1983-88), and $913 million (1988-93).Given the sketchy information available oncurrent plans and budgets, it is difficult toassess the likelihood that the goals will be vig-orously pursued.

Based on 1981 figures, Iran had a fairly lowratio of telecommunications employees (255)per 10,000 lines. This suggests a rather effi-cient operation. 67

Prior to the overthrow of the Shah, two do-mestic manufacturing plants were producingtelecommunications equipment, primarily tel-ephone sets. One factory was a joint venturewith Siemens, and the other was under a licen-sing agreement from another German firm. Itis unknown whether these plants are still inoperation. Iran thus developed a limited levelof self-sufficiency in equipment production.—-— ———

66 Akhbar { Iranian newspaper-English translation), Sept. 27.1982; Oct. 9, 1982.

‘qAT&T Imng Lines, op. cit., 1982.

Reported shortages of telecommunicationsequipment and spare parts in Iran since therevolution have encouraged expansion of localproduction and importation of materials fromfriendly countries. Although some require-ments are being satisfied by domestic sourcesof supply, the domestic cable manufacturingfacility reportedly has had difficulties meetingdemand. 68 Given Iran’s desire for greater self-sufficiency, it is likely that it will attempt toincrease indigenous production of telecommu-nications equipment and will probably drawupon West German, Italian, and Japanese ex-pertise to expand its capability.

Iran’s population is growing at an averageannual net rate of 2.3 percent. Extrapolatingto 1990, Iran’s population maybe 48.7 million.If previous trends continue, population growthin urban areas will increase at a rate of over4 percent annually. These factors will serve toput more stress on the capacity of the existingsystem. As an indicator of this push on de-mand, waiting list statistics for telephone lineshave increased exponentially between 1971and 1979—from 133,559 persons (0.5 percentof the 1971 population) to 750,000 persons (2.1percent of the 1979 population).”

Iran made strides in addressing the problemof shortages of skilled labor in the 1970’s. Sta-tistics demonstrate that between 1969 and1974, the number of engineering students re-ceiving higher education in Iran more thandoubled. In addition, the contract with Amer-ican Bell International, Inc., focused in parton developing full self-sufficiency in telecom-munications training by 1985.70 Iranian traineeswho went through the Bell training programexhibited a clear ability to master hardwareoperation because the training was practical,technical, and hands-on. Maintenance and ad-ministrative training were more difficult fortrainees to grasp. Several Iranians who fin-ished the courses successfully became instruc-tors for their colleagues.

— — — —“lTA, op. cit., 1982.“ITU, op. cit., 1980.‘[’Telecommunications, August 1979.

224 ● Technology Transfer to the Middle East———.—.—— -— — . ——.—

On the negative side, some of the Bell train-ing courses experienced a dropout rate of closeto 50 percent. Moreover, many of the manage-ment skills viewed as essential to efficientoperations were found to be too Western-bound and culturally alien. These topics in-cluded team approaches to problem solving,communications skills, and recordkeepingskills.

Like Iraq, Iran’s telecommunications expan-sion depends on the course of the war. In 1983,however, Iran reportedly awarded $20 millionin contracts in this sector, in comparison to$1.5 million reported for Iraq.71

Several common themes have emerged inthe analysis of these six nations that serve toenhance or constrain indigenous capabilitiesto absorb telecommunications technology.These are described below.

Factors that Facilitate Absorption

National Objectives to Reduce Dependenceon Foreign Suppliers.–-Almost all of the coun-tries in this study maintain as a formal nation-al goal reducing dependence on foreign sup-pliers. Algeria, Saudi Arabia and Iran have setconscious goals to increase self-sufficiency inindustrial production and in telecommunica-tions in particular. These objectives have beengenerally implemented through major train-ing programs. This was true with the Ameri-can Bell training contract in Iran before therevolution and the Bell Canada training con-tract in Saudi Arabia.

In some cases–Saudi Arabia, Kuwait, andIraq, in particular-these goals are critical forreducing the presence of large foreign workforces in-country. Saudi Arabia has estab-lished goals to enable rapid transfer of tech-nical operations to the indigenous labor force.This has involved major investments in train-ing of administrative and management meth-ods and technical skills. Saudi Arabia has em-phasized programs to improve productivityamong trained nationals as a way of reducingthe resident foreign work force.

National Security.– Iraq and Iran have ex-pressed special interest in application of tele-communications technology to improve mili-tary readiness. Moreover, each of the sixcountries has made large investments insophisticated military communications sys-tems over the past 10 years. Undoubtedly,these acquisitions and the training of nationalsin the military services to operate and main-tain the equipment have contributed to im-provements in civilian capabilities to absorbthe technology.

National Objectives to Build Infrastructure.–Each of these countries has taken the oppor-tunity, afforded by the rapid increase in oil rev-enues during the 1970’s, to rebuild a decay-ing infrastructure or to develop a base. Theyrealize that without modern transportationand communication networks, electric powergrids and other basic utilities, and a networkof health, education, and social services theywill not be able to build and develop the pro-ductive sectors of their economies. In this con-text, telecommunications systems have beenseen as essential parts of the national infra-structure. Countries such as Saudi Arabiahave seriously supported these commitments,backed them with sufficient funds, andavoided bureaucratic constraints.

Indigenous Production.—Domestic produc-tion of telecommunications equipment reducesforeign imports required. While production ineach of these countries is limited and oftenconsists of only component assembly plants,it provides a stable base of training in techni-cal skills. Domestic manufacturing has takenvarious forms. Local firms have in some in-stances operated under license to a major sup-plier, participated in joint venture with aWestern firm, or been involved in technicalcooperation with a foreign corporation. Insome cases, Algeria and Egypt for instance,domestic plants have the capacity to manu-facture the components.

At the same time, because these MiddleEastern countries invest very little in techni-cal research and development, they are often——- —— ..—

71 MEED Consultants, op. cit., 1984. constrained by the technology they originally

select for manufacture. Hence, most domes-tic production in the Middle East involveselectromechanical analog switching and rotarytelephone instruments. Ironically, private in-dustry and business that can afford more so-phisticated equipment may import electronicdigital PABX's and push button phones fromforeign suppliers, bypassing domestic produ-cers entirely, as occurred in Egypt.

Decision To Stay With Conventional Tech-nology.—Another factor that enhances the ca-pacity to absorb technology is continuity inprograms, needed to ensure compatibility oftechnology. If a country has made a clear deci-sion to adopt established technology as thestandard nationwide and does not sway fromthat decision by importing experimentalequipment, absorption will be enhanced. Byusing one type of technology, training is sim-

Ch. 6—Telecommunications Technology Transfers . 225

plified and focused. Algeria, for example, haschosen to stay with conventional electrome-chanical equipment because it is a knownquantity, has been proven to be effective, andis easier to master for trainees with limitedelectrical background.

Synergy With Other Industries.–Absorp-tion of technology is fostered by a continuingdemand for improved services from a growinguser community. The growth of domestic andexport industries in these countries, and an in-crease in housing construction, have synergis-tic effects on the growth of telecommunica-tions networks and on the indigenous capacityto operate and maintain them.

Factors That Constrain Absorption

Manpower Shortages.—Saudi Arabia andKuwait presently have work forces that lack

Photo credit Saudi Arabian Ministry of /nformation

Taif Earth station

226 ● Technology Transfer to the Middle East— . . . — . — .

the technical and management skills necessaryto operate and maintain effective telecommu-nications networks. Algeria, Egypt, and Iran,on the other hand, produce technicians butthey are attracted by higher salaries to workin the Gulf States. This drain of skilled laborconstrains absorptive capacity.

Skilled technicians and engineers who re-main in their native country are in such shortsupply that the telecommunications industrymust compete with other industries for theirtalents. Since the telecommunications net-works in these countries are owned by the gov-ernment, workers are often paid on a govern-ment scale, and job offers from privateindustry are likely to be more attractive. More

Saudi technician Inspects computerized telephonenetwork Saudi Arabia was the first country I n the

world to install a nationwide stored programcontrol telephone system

———-—— — — . — ——

over, the high dropout rates and problems inrecruitment indicate that motivation amongtrainees in these countries is often low.

Several cultural factors also constrain ab-sorption. In Saudi Arabia, for instance, cul-tural aversion to manual labor has limitedmaintenance training of nationals and focusedattention on operations. In Iran, Bell trainersfound that while apprentices were able to gaintechnical mastery of telecommunicationsequipment rapidly, administrative, manage-ment, and maintenance methods were, forthem, abstract and foreign.

Capital Availability.—Each of these coun-tries, except for Egypt, has been able to in-vest significant amounts of national revenuesin development or renovation of telecommu-nications infrastructures. Only Egypt hasbeen constrained by lack of available invest-ment funds and has relied extensively on eco-nomic assistance for funding.

If a country can afford to pay for the impor-tation and installation of telecommunicationsequipment and can afford to have foreign la-bor operate and maintain that technology, itmay choose to continue that dependent rela-tionship while investing its limited local man-power in other sectors of the economy.

Population Growth.–Another factor thatconstrains telecommunications capacity is therapid growth of population in these MiddleEastern countries, especially in urban areas.This growth continually strains capacity, re-sulting in difficulties in maintaining a highquality of service.

Inconsistent or Changing Public Policy.–Consistency in public policy is important inachieving high levels of technology absorption,especially when the government is the ownerof the technology and the major source of de-velopment funds. Some countries such as Al-geria and Kuwait have reduced telecommuni-cations and technical training budgets despitestated national objectives, as revenues de-clined or as political priorities changed. As aconsequence, efforts to develop a skilled man-power base to operate and maintain the tech-nology have been disrupted or delayed.

Ch 6— Telecommunications Technology Transfers . 227——

In Egypt, public-sector organizations havebeen mobilized to assist in solving the chronicunemployment problem. In response, thestate-operated telecommunications authorityemploys almost ten times the number of work-ers required to operate and maintain the equip-ment. This has resulted in underemploymentfor some, the placement of unqualified work-ers in other functions, overall supervisionproblems, and a poor quality of service. In thiscase, one national goal—to improve the tele-communications infrastructure-has been bal-anced against other policy goals of reducingunemployment.

P E R S P E C T I V E S O F S U P P L I E RC O U N T R I E S A N D F I R M S

The world telecommunications market isgrowing rapidly. According to some experts,sales of telecommunications equipment world-wide may double during the decade of the1980’s to $366 billion during the period.72

Total sales amounted to $188.2 billion duringthe period 1970 to 1980. Sales in 1983 alonewere about $59 billion. A significant portionof these sales will surely be in the Middle East.A plan adopted by the ITU to overhaul thepublic systems of 28 Middle Eastern and Med-iterranean basin countries called for $30 bil-lion (1978 dollars) in investments.73

Major supplier firms have several objectivesin common in pursuing telecommunicationstransfers to the Middle East: 1) marketing incountries with a recognized need, technologi-cal requirements, and ample budget; 2) find-ing new markets once their own domestic mar-kets have been saturated; and 3) building asolid reputation that can open foreign marketsfor other telecommunications goods and serv-ices. Major supplier countries also have inter-ests in recycling petrodollars to equalize tradebalances, opening markets for other types of

exports, and in providing technical assistanceto foster friendly relations with recipients.

More than 2,300 U.S. and foreign companiesmanufacture telecommunications equipment.74

The number increases further if one adds sup-pliers of telecommunications support serv-ices—consulting, training, technical operationsmanagement, and maintenance. Competitionamong these suppliers is intense, consideringthat there are only about 100 major custom-ers for public networks worldwide-i. e., the na-tional PTTs.

This section focuses on the competitive posi-tion of U.S. and other supplier firms in thismarket-what the U.S. share of the markethas been, how U.S. firms rank within the sixnational markets covered in this study, andhow they fare within each technology sector.Finally, critical factors that have influencedcompetitive success in the Middle Easterntelecommunications market are identified.

United States

Observers disagree about why U.S. firmshave not been more successful in sales of tele-communications equipment and technicalservices in the Middle East. On the one hand,businessmen see the efforts of the U.S. Gov-ernment as insufficient and not on par withthose of other governments, particularly withregard to export financing packages. On theother hand, many observers agree that U.S.sales in the Egyptian market stem directlyfrom AID loans supporting telecommunica-tions system expansion (see app. A, Egyptianproject profile) .75 Some also feel that, untilrecently, U.S. firms were not anxious to tai-lor technology to foreign markets since the do-mestic U.S. telecommunications market is solarge.

The American Businessmen’s Group in Ri-yadh has taken the position that the U.S. Gov-ernment has not provided the means to helpU.S. firms bear the large financing demands

—“.A’I’&T }\nnual ReporL, 1981.“ lnterti(~ws with represcntat i~es of US suppliers. hlarch

1983.

228 ● Technology Transfer to the Middle East

involved in doing business in the Middle East.Small and medium-sized companies find it dif-ficult to arrange adequate financing, and com-panies, large and small, cannot offer completefinancing packages as comprehensive as thatoffered by the Siemens consortium in Egypt.Through the Export-Import Bank, the U.S.Government makes loans to foreign purchas-ers of U.S. goods. However, corporations wantthe bank to do more by providing such thingsas bank letters of guarantee, guarantees fortender and performance, and advance pay-ment bonds. The Overseas Private InvestmentCorporation (OPIC) provides political risk in-surance and guarantees to U.S. firms invest-ing directly in less-developed countries, butthe countries in which OPIC operates are lim-ited by maximum gross national product(GNP) requirements.

The U.S. Government has, however, severalestablished programs in the Middle East thatparticularly assist U.S. suppliers of telecom-munications equipment. In Saudi Arabia, theU.S. Army Corps of Engineers is a consultantto the Ministries of Defense and Aviation inthe design and contracting of military con-struction work. The Corps writes specifica-tions, preapproves bidders, and evaluates pro-posals for the Saudis. In its construction jobs,there is usually a telecommunications compo-nent. The Corps plays a nonpartisan role in bidevaluations, and non-U.S. firms may be cho-sen as subcontractors.

USAID has contributed $242 million inloans and grants to Egypt since 1977, all tiedto purchases from American telecommunica-tions suppliers. AT&T, Ford Aerospace, Sim-plex, Continental Telephone, and Arthur D.Little have been the principal recipients. AID-funded contracts have included microwaveequipment, traffic control equipment, TVbroadcasting systems, navigation control net-works, telephone cables, switching systems,and radar surveillance and remote-sensingequipment.

Thus, while U.S. Government personnel donot normally seek out export opportunities orcarry on negotiations for sales of telecommu-

nications equipment and services, as do othersupplier governments,76 government-sup-ported programs such as AID’s in Egypt havebeen important mechanisms for sales. (As dis-cussed in ch. 11, there has been considerabledebate among AID officials and U.S. policy-makers concerning the appropriateness ofthese programs.)

The United States TelecommunicationsTraining Institute (USTTI) was established in1982 with U.S. Government support. The pur-pose is for private U.S. firms to share ad-vances in telecommunications technology withdeveloping countries. The establishment of theUSTTI also reflected the recognition thatmost equipment and service supplying coun-tries use training as a vehicle for entering mar-kets in developing countries.

Training is performed in the United Statesby the corporate sponsors on their own equip-ment. Nearly 20 U.S. corporations have con-tributed over $2.5 million to the program inits first year including both capital and in-kinddonations of technical personnel and equip-ment. In addition, the World Bank, the ITU,and other multilateral organizations have pro-vided scholarships to help pay transportationand living expenses of the trainees.

In the past year, 14 percent of the traineeswere from the Middle and Far East, with fivefrom Saudi Arabia, one from Kuwait and onefrom Egypt. Some have suggested that theUSTTI should collaborate with firms in send-ing personnel abroad to conduct training in de-veloping countries. This would be an impor-tant learning experience not only for theforeign trainees, but also for the U.S. firmswho seek entry into foreign markets. Otherssuggest that the training offered by the orga-nization should stress lower level technicalskill development to a greater extent.

The major U.S. telecommunications firmswith dealings in the Middle East have beenAT&T International, Continental Page, Inc.,and General Telephone and Electronics (GTE).

“Interviews with representatives of U.S. suppliers; Novem-ber and December 1982.

Ch. 6—Telecommunications Technology Transfers ● 229

France

Over the past decade, France has developedpolicies to promote the development of the na-tion’s telecommunications industry. The gov-ernment also encourages firms to target halfof the equipment they produce for export mar-kets. It has also assisted manufacturers instandardizing equipment to facilitate integra-tion and export to other countries.

France is eager to maintain a strong exportposition in the Middle East to cover its im-ports of Middle Eastern oil, particularly oilfrom Saudi Arabia. In early 1982, Francesigned a liquefied natural gas (LNG) agree-ment with Algeria that included an accord tosupply $2 billion worth of French goods andservices, including telecommunications, toAlgeria. French banks have also extendedcredits for export of telecommunicationsgoods and services to Egypt.

In addition to export credits, the Frenchgovernment provides support to telecommu-nications exports through the DGT (DirectionGenerale des Telecommunications), the tele-communications branch of the French PTT.DGT plays a diplomatic and consultative role,maintaining contacts with foreign telecommu-nications administrations and internationalbodies such as the ITU. DGT also provides in-formation and consulting services.”

The major French telecommunications firmsdoing business in the Middle East have beenThomson-CSF and CIT-Alcatel.78

.—— - -———““.lfiddle East Economic Digest, Special Report on Saudi

Arabia, ,July 1981; 7’elecommunica.tions, March 1980.“’Some restructuring of the French telecommunications in-

dustry is now occurring in order to increase exports and keepFrance competitive internationally. Thomson-Brandt willtransform its telecommunications interests. currently held byits subsidiary Thomson-C SF, into a new holding company calledThomson Telecommunications, under CGE's (Compagnie Gen-eral d‘Electricite) management. By 1987, CGE plans to mergeits subsidiary, CIT-Alcatel, with Thomson Telecommunications,thus effecti~el~ hecoming France monopoly telecommunica-tions producer. (,\T. }’. ‘1’ime.s, Sept. 21, 1983: Financial Times,Sept. 16, 19WI. See also “Telecom (;iants to ,Join Forces. ” ftfid-dle f’,’a.~t h;conomic I)igest –.Special Report on France, :\pril19H4! pp. 4-5.

Great Britain

The British government in 1980 supporteda high percentage (39 percent) of exports withofficial financing.79 British firms have, how-ever, lost ground as worldwide exporters oftelecommunications equipment, and the gov-ernment has not developed a strongly targetedpolicy similar to that of France.80 Direct gov-ernment support (including financing) for thisindustry thus appears to have been less exten-sive than in France or Japan.

In part, British telecommunications exportsmay have suffered, because British manufac-turers have over-engineered and over-designedequipment to meet the standards of the gov-ernment-operated domestic phone system.81

As a result, their products have been uncom-petitive, overpriced, and unsuitable for foreignmarkets.

In an attempt to turn this situation around,British Telecom, the government-owned phoneauthority, is cooperating with local industryto develop and market System X, a family ofdigital, microelectronic, and stored programcontrol telephone exchanges. This system isintended to boost sales overseas and improvethe reputation of British telecommunicationstechnology. In addition, British embassy per-sonnel in Saudi Arabia are reported to be ef-fective in maintaining influential contacts withthe Saudi PTT and arranging marketing meet-ings for British firms.82

Major British telecommunications firms in-volved in Middle Eastern markets are Cableand Wireless, Standard Telephone and Cable,Ltd., and Plessey Telecommunications and Of-fice Systems, Ltd.

West Germany

West Germany has provided export creditsto several countries in the Middle East. The

“Robin Day Glenn, Financing of United St;]tes k’xport~ of7Teie~-onln]uni(’ations Equipment, The International Law Insti-tute. Georgetown [Jni~ersit~ I.a~’ Center hlonograph, \$’ash-ington, DC., 1982, p. 2;3.

‘i’) Ihid., p. 11,‘17’elephonJ, Sept. lo, 1982.‘Jl’inancia] Times, ,Jan, 6. 1981.

230 ● Technology Transfer to the Middle East— —

Siemens-led consortium was probablyawarded the $1.8 billion Egyptian telephoneexpansion contract because of the financialpackage in which the West German govern-ment participated through export credits andsoft loans. Export credits have also beengranted for exports to Iraq.83

Domestically, the German government pro-vides funding to local manufacturers for re-search and development (R&D). In 1979, forinstance, the government committed approx-imately 3 percent of its total R&D budget todefray costs incurred by the electronics indus-try.84 Siemens is the major West German firminvolved in Middle Eastern telecommuni-cations.

Sweden

Sweden has a well-organized governmentsystem for promoting sales overseas, althoughprivate companies compete with the govern-ment for business. Televerket (TVT) is a state=owned public utility that provides telecommu-nications services (telegraph, telex, telephone,data communications, radio communications)domestically and overseas. TVT has severalmanufacturing facilities, a consulting organi-zation (Swedetel) that works primarily in de-veloping countries, and a subsidiary (Swed-com) that installs, operates, and maintainstelecommunications equipment in foreigncountries. Another subsidiary, Teleinvest, actsas an export agent to assist in financing andexport of telecommunications equipment man-ufactured in Sweden. In addition, the govern-ment provides some credit assistance for largeprojects in developing countries throughSvensk Export Kredit.

Swedish government entities sometimes col-laborate with private companies in sellingproducts overseas. TVT and Ericsson areequal owners of a company called Ellemtel,which was set up to design and develop tele-communications equipment. Ellemtel devel-oped the AXE exchange, for example. Private——.— ——

“John Y$’helan, “West Germans Win on IIigh-Tech, ” ,i!lid-dh+ East Economic Digest, Jan. 29, 1982, pp. 10-11.

84 Telecommunications, October 1980.

companies can call on Teleinvest to assist infinancing and exporting products.

In 1978, faced with trade deficits largelycaused by rising oil imports, Sweden initiatedan export drive aimed at Middle Eastern coun-tries. Banks increased their support to com-panies exporting to the Middle East, and thegovernment organized trade missions for 100Swedish companies. The Philips/Ericsson proj-ect in Saudi Arabia was reportedly won partlybecause two Swedish banks were approved asguarantors by the Saudi Arabian MonetaryAgency.85

Canada

Bell Canada is one of the world’s oldest tele-communications organizations, having startedas a telephone company in 1883. It has sincebecome Canada’s principal supplier of telecom-munications services, employing 57,000. In1983, Bell Canada Enterprises was establishedas the parent company of a family of firmsthat includes Bell Canada as the operating tel-ephone company, Northern Telecom as a man-ufacturing subsidiary, Bell-Northern Researchas a telecommunications research and devel-opment organization and Bell Canada Inter-national (BCI).

BCI was formed in 1976 in response tostrong overseas demand for consultancy serv-ices. It has performed telecommunicationsprojects of all sizes throughout the world in-cluding the five-year Saudi management con-tract awarded in 1978, which at that time wasthe largest ($860 million) communications con-tract of its kind in history. Under this con-tract, Bell Canada would organize, operate,and maintain the expanding telephone systemand train Saudis to take over the operationthemselves. This contract was superseded in1983 by a $1,297 million 3-year contract toprovide the Kingdom with operations andmaintenance service for its telecommunica-tions expansion program. Bell Canada has car-ried out other work in Saudi Arabia includingone contract for ARAMCO which has involved

85 Telecomn]unications, February 1982.

Ch. 6—Telecommunications Technology Transfers ● 231— — . -

provision of advice on management methodsand setting up a private communications net-work. They reportedly won these contracts be-cause of their proven operating track recordand extensive training experience.

The next biggest Middle Eastern market forBCI is Iraq, which has become the largest cus-tomer for the supply, installation, and main-tenance of Northern Telecom equipment. BCIfirst entered Iraq in 1976 when it installed anadvanced Northern Telecom exchange on aturnkey basis—Iraq now has 60 of these ex-changes. 86

Netherlands

The Dutch have escalated their efforts to ob-tain a larger share of the telecommunicationsmarket in the Middle East. Their major com-pany is N.V. Philips. Prior to 1978, Dutch ex-ports of telecommunications equipment to theregion were low. However, between 1979 and1980 the Dutch government took several stepsthat improved their firms’ competitive pos-itions.

The Netherlands had encouraged cash out-flows to stabilize the Dutch guilder. As a re-sult, Dutch banks expanded their foreign in-terests and have been in a better position toassist companies with financing. Dutch gov-ernment aid to developing countries, whichrepresents about one percent of gross nationalproduct, also plays a role in influencing salesto the Middle East. As part of the Philips/Ericsson telephone contract in Saudi Arabia,the Dutch government provided a guaranteefor financing.

Japan

Telecommunications operations in Japanhave been handled under Nippon Telephoneand Telegraph (NTT), a public corporationwhich is being reorganized. However, KokusaiDenshin Denwa (KDD) and private companiesare important suppliers internationally. Al-though NTT has not been allowed to manu-—. — —

86 "Bell Maintalns Momentum in Saudi Arabia,” Middle Eastf,’~onorl]i(” I)l,ges[ .’$pw>ia] lteport on (’:in:~d:l, hl a~ I 9hl, p. I 1 ,sf~f’ al w) 11 1~ 11{’(1 rnon(l. ‘‘ I)}rnanli[< [)f T[’(’tlnfJlf}~j ‘1’rahsf~r”( ‘anii~ia \f ork It) S:iudi Irtil)ia. ‘ Td(’ph(m}’, ,)fu~. 24, ] !)h ] ,pp. 30-32.

facture its own equipment, it helps Japanesemanufacturers by advancing them part of thepurchase price. This reduces costs and oftenenables them to underbid the competition.

The Japanese government has offered cred-its to some countries (Algeria for one) to pur-chase Japanese telecommunications equip-ment. In addition, the government sponsorshigh-technology research. NTT supports basicresearch in telecommunications—very large-scale integration (VLSI), optical fibers, anddigital networks–and participating firms gainaccess to research results.

Japan has entered the Middle East telecom-munications market only in the past 10 years.Many Japanese companies have become verycompetitive. In the early 1970’s, exportsrepresented only about 8 percent of Japan’stelecommunications sales; in recent years theyhave made up nearly 20 percent.

Major Japanese firms active in Middle East-ern telecommunications markets are NipponElectric Company (NEC), Fujitsu, Ltd., andHitachi. Ltd.

U.S. Competitive Position

There has been volatility in the patterns oftelecommunications exports of the major sup-plier nations. The increasing popularity of dig-ital technology and the aggressiveness withwhich some suppliers have promoted productdevelopment have had important effects. Too,aggressiveness in designing effective market-ing strategies and enlisting government sup-port for these efforts have also been evident.Market shares of major suppliers in 1980 andnet changes in worldwide market shares overthe past decade are presented below.87

Market Share1971 1980

Japan 13.6 21.4United States 18.7 15.6West Germany 14.7 12.6Netherlands 7.4 7.2United

Kingdom 11.1 7.0France 5.4 6.5Sweden 7.2 5.6

Share Po in tDifference

1971-80+ 7,83 . 1

2.1--0.2

-4.1+l.1- 1.6

232 Technology Transfer to the Middle East . —. —. ———

Major shifts in market shares over the past10 years consist of:

●

●

●

●

A major increase in Japan’s share, exceed-ing those of the United States and WestGermany.A decline in U.S. and West Germanshares.A major decline in Britain’s shares.A slight improvement in France’sposition.

Even small changes in share points are sub-stantial when translated into dollars, since thesize of the world market itself grew extensive-ly over this period.

Japanese firms have benefited in the worldmarket from the structure of Japan domes-tic telecommunications market, the deprecia-tion of the yen, and a major industrial shiftto high technology industries. The Frenchhave marketed their advanced technology ag-gressively and have made major inroads in thesale of military equipment worldwide. On theother hand, the West Germans and Britishwere late in developing digital telecommunica-tions equipment to meet world demand.

Focusing more specifically on the six Mid-dle Eastern countries in this study, the follow-ing suppliers have been dominant in the na-tional markets for telecommunicationsequipment and services. based on contract ac-tivities between 1974 and 1982:

Algeria 1. Spain2. Sweden3. Japan

E g y p t 1. France2. Germany3. Austria

Iran 1. United States (until 1979)

Iraq 1. Japan2. Sweden3. France

Kuwait 1. Sweden

Saudi Arabia 1. United States2. Sweden3. Netherlands4. France

U.S. firms were predominant in Iran priorto 1979, but their work then came to a halt.

The only other national market in which U.S.firms have had firm control is Saudi Arabia.This situation is likely to continue. U.S. firmshave also won large numbers of Arabsat con-tracts.

The positions of U.S. firms can be clarifiedfurther by analyzing market dominance at thetechnology sector level within each country.The sectors in the Middle East in which U.S.firms were strong competitors between 1974and 1982 are shown in table 61.

In Algeria, U.S. firms had strong positionsin two relatively small technology sectors—satellite and multiplex. In Egypt, the U.S.firms dominated or were strongly competitivein a variety of small sectors. The picture inIran is very different; prior to the revolution,U.S. firms monopolized all of the key technol-ogy sectors except for video and radio broad-casting. In Iraq, the United States had virtu-ally no presence, and penetration of theKuwaiti market was minimal. Saudi Arabia isthe one national market in which U.S. firmswere predominant or strong competitors in allof the major technology sectors. U.S. firmsalso dominated in the regional Arabsatproject.

It is difficult to discern any pattern in thesedata to suggest that U.S. suppliers are espe-cially competitive in certain telecommunica-tions technology sectors, except that U.S.firms have been dominant in satellite systems,both in satellite components and Earth sta-tions. The ability to win contracts in MiddleEastern markets is determined by many fac-tors, some of which are discussed below.

U.S. Supplier Advantages

Overall, U.S. suppliers have had a high tech-nical reputation. U.S. technology has beenviewed as being high in quality and depend-able and reliable. Moreover, the reputation ofU.S. telecommunications technicians and engi-neers is attested to by contracts from manynational PTT ministries to provide consultingservices to support planning, operations, andmaintenance functions. After-sales service by

Ch. 6—Telecommunicatlons Technology Transfers “ 233— . .—

Table 61. —U.S. Competitive Position in Telecommunications Markets in the Middle East Between 1974 and 1982

Dominant position.Algeria Satellite

MultiplexEgypt Cable

Microwave

ConsultingHF Radio

I r a n ( 1 9 7 4 - 7 9 ) SwitchingCableTelexSatellite

Iraq ., NoneKuwait . . . . .. . . . . . . —Saudi Arabia . . . . . . . . . . . . . . Switching

Microwave

Mobile

Other telephone

Data CommunicationMultiplex

Regional SatelliteSOURCE Office of Technology Assessment

U.S. firms was also highly regarded andviewed as dependable. U.S. manufacturerswere also considered major suppliers of ad-vanced technologies in emerging fields, suchas data communications and office automationsystems. In the six nations covered by thisstudy, however, these high-technology areaswere less important in trade than telephoneand telex sectors.

Since most new telecommunications tech-nologies involve the use of microchips, thecompetitive position of the United States,which is still one of the top suppliers of thesevalued components worldwide, has beenboosted. In fact, several foreign manufacturersof telecommunications equipment (e.g., Thom-son-CSF) were dependent on the United Statesfor these components. Until recently, U.S. tele-phone companies outside the Bell systembought their small electronic switchboardsfrom GTE, ITT, or Stromberg-Carlson Corp-oration. More recently, however, 75 percent ofsuch sales have been made by the Japanesefirms Oki Electric Industry Co., NEC, Hitachi,and Fujitsu. This suggests that one factor con-tributing to U.S. market shares in the past isnow less important.

Strong competitor—

Television

NoneTelevision

Radio

SatelIite

CCTV

—

Sector- Totalsize (millions) market

$ 11 2 $ 66691.8

230.4 2,800072.5677351

9.21,900,0 2,8000

689.91806.0

2,000.07 0 4310

6,400.0 12.90001,000.0

3964257.568519.218.918.64.2

234.0 2943

In addition to civilian communicationsequipment, many U.S. suppliers are majormanufacturers and exporters of high-technol-ogy military communications products. Mili-tary communications networks are a majortechnological component in command and con-trol, military preparedness, and national secu-rity, and thus are central to the modernizationof a nation’s armed forces. U.S. military equip-ment sales have served to facilitate the saleof both military and civilian communicationsequipment.

As discussed earlier, U.S. government pro-grams in Egypt and Saudi Arabia promotetelecommunications technology transfers tothose countries.

U.S. Supplier Disadvantages

Probably the most important difficulty ex-perienced by U.S. suppliers of telecommunica-tions equipment and services has been in es-tablishing competitive prices and in arrangingcomprehensive financing packages. Not heav-ily subsidized domestically or for export, theindustry must reduce its costs internallythrough higher productivity and lower over-head to come up with the best pricing bid.

234 Technology Transfer to the Middle East — .

U.S. suppliers have at times been at a dis-advantage in competing against firms in Ja-pan and Western Europe, where governmentsprovide complete and attractive financialpackages. Although U.S. Government agen-cies such as the Export-Import Bank andOPIC support U.S. exporters, they apparentlyhave not had the flexibility of some foreigngovernments in providing long-term softloans, extensive export credits, and barteringarrangements. For example, a West Europeanconsortium won the $1.8 billion contract formodernizing Egypt’s telephone network, re-portedly primarily because of the attractivefinancing offered with the assistance of theirgovernments. This project is described in ap-pendix A.

Most U.S. suppliers, catering primarily tothe domestic market, design their equipmentto North American standards, which are mod-ifications of CCITT norms. Except for SaudiArabia, the six Middle Eastern countries inthis study, as well as most European nations,abide by straight CCITT norms. Some haveviewed this as a problem for U.S. suppliers,but Japanese manufacturers also produceequipment for their domestic market usingmodified CCITT norms.

Until recently, U.S. firms did not activelymarket digital electronic switching technologyabroad. In comparison to the product lines ofdigital switching leaders, such as CIT-Alcateland Ericsson, U.S. modern analog offeringswere not as sophisticated or new. Moreover,U.S. prices were high for this older technol-ogy. On the other hand, some U.S. manufac-turers (GTE for instance) have been biddingon digital equipment contracts. In fact, somesuppliers offer greater flexibility to custom-ers because they do not restrict themselves tosale of their own equipment. (In certain cases,this last point may constitute an advantage.)

In addition to complaints about weak U.S.government representation of business men-tioned earlier, Government regulations andtaxation were said to impede the flexibilityand competitiveness of U.S. suppliers. Recent-ly, however, many of the obstacles for U.S.

firms operating overseas have been moder-ated. Tax laws were changed in 1981 to relieveU.S. citizens working abroad of paying taxeson the first $75,000 earned. (Workers from Ja-pan, West Germany, Great Britain, Italy,France, and Sweden do not pay taxes on sala-ries, bonuses, health insurance, or retirementbenefits earned overseas.) In 1982, revisionswere made to the Sherman Anti-Trust Act, re-laxing restrictions on companies involved inforeign trade. The Export Trading Act of 1982and the Bank Export Services Act establishedan office in the Department of Commerce topromote export trade associations and invest-ment in export trading companies.88

U.S. firms have also complained about otherlaws which have not been changed, such as theantiboycott program and the Foreign CorruptPractices Act (FCPA) of 1977. The FCPA,they say, makes little distinction betweenbribes and commission agent fees or foreignsales representatives’ bonuses. In many Mid-dle Eastern countries, they claim, these costsare the accepted mode of doing business.89

Some businessmen also claim that in Algeria,where the agent system does not operate, cor-ruption is minimal. However, OTA researchdid not uncover any cases where the FCPAwas a major factor in lost sales. The Arabboycott of Israel influenced the nature of con-tract awards, as mentioned earlier, by Arab-sat. U.S. firms were, however, able to par-ticipate.

In general, the following factors, rankedroughly, have been critical in marketingtelecommunications technology effectively inthe Middle East.

1. Low price. Despite their large revenuebase, many of the oil-producing countries areincreasingly cost-conscious. Price has oftenbeen the most important decision criterion.

— —— . —“Public Law 97-290, 1982.“’Charles Wohlstetter, chairman of Continental Telecom, Inc.,

says his company could not win a contract to install a phonesystem for Saudi Arabia because ‘‘we were unable to pay abribe. ” U.S. law, he says has kept “American companies fromproviding big systems in the Middle East,” Business Week,Oct. 24, 1983.

Ch. 6— Telecornrnunications Technology Transfers c 235— — - —

(See, for example, the Saudi Arabian telephoneexpansion project profile, appendix A.) In fact,selection of the low bidder is sometimes man-dated by law. Depreciation of certain nationalcurrencies over the past few years and the abil-ity of companies to profit from domestic sub-sidies have tended to make particular suppli-ers more attractive. go

2. Complete financial package. Ability tosupply a complete financial package with at-tractive terms to the buyer is often a key de-termining factor in a contract award.

3. Reputation. Technical competence, prod-uct reliability, and the ability to point to oper-ating installations using the supplier’s equip-ment are key selling factors.

4. After-sale support. A supplier’s willing-ness to train local personnel, provide spareparts, and operate and maintain the equip-ment it installs is a critical decision factor.This type of commitment is often exhibitedthrough establishment of a local office or jointventure.

5. Associated business deals. By offering ex-tra “carrots,” suppliers can develop uniquepackages that are attractive to the buyer. Forinstance, in addition to the telephone modern-ization work in Egypt, the Siemens consorti-um promised to conduct efforts to improverailway signaling and rolling stock, performa feasibility study on Egyptian coal resources,and establish a joint-venture consulting orga-nization. Moreover, Thomson and Ericsson ap-parently tie civilian communications sales tomilitary equipment transfers. On the otherhand, the reported attempt by U.S. suppliers

——‘ \+ stated h~ ,Jf~hn 1, k!oore in R, 1). (;lenn (op. cit., 19821,

“’1’h[~ currem’?r r(~]ation~hips m-e such that one could almost ruleL).S. ct~nlpanie+ (Jut of cornpe~ition on price, without regard toproject finance except in projects where the U.S. still has anedge on technology or mass production due to the scale ofour economy, or efficiency and certainty of meeting deliveryschedules. ‘ ‘

to link an Egyptian telephone project to athreat of withdrawing certain military aircraftsales, was not successful.

6. Early program involvement. Participationby a foreign contractor in a program’s earlystages—a pre-engineering or master planphase—is often helpful in gaining the custom-er’s confidence and in establishing an organi-zation in-country to handle the follow-on tasks.This was true in the case of AT&T in Iran and,in part (since the Siemens consortium won thelarge contract), with Continental Telephone inEgypt. Being the first to introduce a new tech-nology in a country—microwave networks,digital electronic switching, Earth stations, ormobile radio networks, for instance-has alsoassisted companies in gaining control of thosemarkets.

7. Local operations. In each of the six coun-tries except Algeria, it is necessary to oper-ate through a local agent. As discussed in ap-pendix A, the Ericsson/Philips/Bell Canadaconsortium was said to have been aided in itssuccessful bid by use of Prince Fahd’s son asan agent. In most countries, joint ventureswith local interests are given preference in con-tract award evaluations. Such joint ventures,however, may involve potentially costly risks,since suppliers have less control over their in-vestments.

8. Political neutrality. Political neutrality inMiddle Eastern issues has apparently en-hanced Japan’s opportunities to export to awide range of ideologically diverse MiddleEastern countries. In other cases, such as Sau-di Arabia and Egypt, political alliances haveserved to promote U.S. telecommunicationsexports.

9. Corporate financial soundness. In orderfor a supplier to profit in conducting businessin the Middle East, it must be able to with-stand payment delays, as well as a host ofother investment risks.

236 ● Technology Transfer to the Middle East— . . — — —

IMPLICATIONS FOR U.S. POLICY

Specific U.S. laws and policies, such as theForeign Corrupt Practices Act, taxing of U.S.workers abroad, and antiboycott legislation,although having an influence, have not beenmajor determinants of U.S. competitivenessin Middle Eastern telecommunications mar-kets. Although together they do represent ob-stacles to U.S. suppliers, the major factorssometimes negatively affecting U.S. presenceand market share have been price and financ-ing arrangements of foreign competitors.Technical reputation, reliability of spare partssupply and after-sales service, and favorablediplomatic ties follow as secondary deter-minants.

U.S. foreign policies have set the context fortrade. The United States has had great suc-cess in countries with favorable ties, such asSaudi Arabia, prerevolutionary Iran, and, in-creasingly, Egypt. U.S. supplier presence inIraq and Algeria has been minimal, and it isnonexistent in present-day Iran.

The United States is an acknowledged lead-er in state-of-the-art telecommunications tech-nologies, such as satellite systems, but thesehave often represented smaller dollar-volumesof sales in the Middle East. The more conven-tional technologies and the increasingly dom-inant digital systems are strong technologiesfor non-U.S. suppliers, technologies that areoften tailored by them to export markets andcan be promoted effectively against a strongdollar, particularly with advantageous fi-nancing.

Some options could be considered whichcould assist U.S. firms in winning sales oftelecommunications equipment and serviceswhich help promote the Middle Eastern na-tions’ development plans. They include:

1. Establishing more foreign manpowertraining programs in the telecommunica-tions field, which increases expertise and

2.

3.

4.

familiarizes Middle Easterners with U.S.equipment. As one example, the U.S. Tel-ecommunications Training Institute in-volves a number of U.S. firms working ina joint effort supported by the U.S. gov-ernment.Promoting mutually advantageous devel-opment assistance/contingent contractawards. This could be accomplished byexplicitly linking assistance and exportprograms (through use of mixed credits)91

or by expanding technical assistance pro-grams in telecommunications involvingprivate U.S. firms as well as governmentagencies. (As discussed in chapter 13,many fear that assistance goals could bedistorted by explicit linkage.)Promoting regional cooperation in tele-communications. This approach wouldonly improve the positions of U.S. firmsif their participation was central to coop-erative technical efforts, such as in atelecommunications technology transfercenter.Upgrade the technical expertise of For-eign Commercial Officers ‘and AID staffto deal more effectively with telecommu-nications-related projects.

OTA's research indicates that the compar-ative position of U.S. firms in Middle Easternmarkets stems only in part from U.S. Govern-ment policies. With the assistance of the U.S.Government, financing, commercial represent-ation and cooperative programs involvingprivate-sector firms could be improved; butthe marketing and technology transfer efforts

91 In July 1984, the U.S. Export-Import Bank announced thatit would provide 90 percent financing and 8 percent interestto support the U.S. firm Scientific Atlanta in its bid to sell asatellite communications network to Algeria. This step wastaken in an effort to counter Japan’s use of mixed credits. SeeWashington Post, July 11, 1984, p. D1.

Ch. 6—Telecommunications Technology Transfers ● 237———- — — ——-— — — —

of the firms themselves are key determinants Egypt and Saudi Arabia have certainly beenof success in contract competition. Indeed, promoted by U.S. Government policies.telecommunication technology transfers to

C O N C L U S I O N SDespite overuse of the term, there has in-

deed been a world telecommunications revo-lution in the last decade. With telecommunica-tions deregulation in the United States andpressures to deregulate in other countries,changes in the next decade may be even great-er. What was previously a necessary but notvery dynamic sector, generally run by a gov-ernmental PTT, telecommunications has beentransformed with computers, microchips, andsatellites into a sophisticated, rapidly chang-ing sector. Even firms in industrial countrieshave been pressed to keep up with recent de-velopments in automatic exchanges, fiber op-tics, data transmission, digital systems, andsatellite technology.

Technological advances in telecommunica-tions come rapidly–systems can become ob-solete before they are installed. Distinctionsbetween communication, information transfer,and processed data are no longer clear, owingto improved communication links, increasedcomputer ties, and transborder data flows.

In the Middle East, the gradual shift fromconventional analog to digital electronic equip-ment will become even more apparent, as willa shift from large public network developmentto sophisticated systems and services for pri-vate end-users. Service industries involved inrepair, maintenance, and supply of the tele-communications infrastructure can be ex-pected to develop in the private sector withinthe recipient countries. Computer and data-processing industries are also likely to emerge.Banks and financial institutions have alreadybeen among the first to push for sophisticatedtelecommunications services, office automa-tion, and data-communications features.

Despite the stated desires of the MiddleEastern nations and the well-conceived plansfor domestic as well as regional communica-

tions, there is great disparity in the availabil-ity of telecommunications facilities, the relia-bility and efficiency of operations, and usagefrom country to country. Systems range fromthe efficient, heavily used, but possibly soon-to-be-overtaxed systems of Saudi Arabia andKuwait; to the Egyptian system, where lessthan one local call in three is completed; toIran, which recently had an average of only13 domestic calls per subscriber per year overthe 3.4 lines per 100 inhabitants. The localneed is there; pent-up demand exists across alltelecommunications sectors and represents ex-cellent future markets for foreign suppliers:potential also exists for developing indigenouscapabilities in equipment manufacture, instal-lation, operation, and maintenance.

In telecommunications, several critical fac-tors tend to facilitate technology absorptionby Middle Eastern countries: they include anational resolve to build adequate infrastruc-ture, demand for telecommunications technol-ogy from other sectors of the economy, strongnational security objectives, the existence ofdomestic telecommunications production fa-cilities, and decisions to stay with more con-ventional technology. Factors constraining ab-sorptive capacity in telecommunicationsinclude skilled manpower shortages, rapidpopulation growth (producing burgeoning de-mand), and inconsistent or changing publicpolicies regarding telecommunications devel-opment.

U.S. firms have done relatively well in ad-vanced telecommunications sectors in theMiddle East–but these, up to now at least,

represent small dollar amounts in total teIe-communications expenditures in the region.U.S. suppliers have exported many types oftelecommunications technologies to SaudiArabia and pre-revolutionary Iran, but over-

238 ● Technology Transfer to the Middle East— - —

all, the U.S. firms have not been a dominantforce in telecommunications trade in the re-gion. This has been due to many factors, in-cluding political relations between the U.S.and nations in the region, a strong U.S. dollarin recent years, and difficulties in arrangingfinancing as compared to the financing offeredby other suppliers. In addition, until recently,the large, “captive” U.S. domestic telecom-munications market was the prime concern ofU.S. equipment suppliers.

U.S. policy options for improving the posi-tions of U.S. firms and for furthering devel-opment goals of the Middle Eastern nationsinclude improving the technical capabilities ofU.S. commercial representatives in the region,allowing more flexibility to government agen-cies in arranging financial assistance to ex-porters, promoting regional cooperation intelecommunications, and increasing coopera-tive technology transfer efforts involving theprivate sector.

APPENDIX 6A.–TELECOMMUNICATIONS PROJECT PROFILESIN SELECTED MIDDLE EASTERN COUNTRIES

S A U D I A R A B I A N P R O J E C TD E S C R I P T I O N S

Telephone Expansion Programl

The Saudi Arabian Telephone Expansion Pro-gram, an ambitious program to expand the tele-phone network in Saudi Arabia from 200,000 linesto 1.2 million in a 5-year period, began in January1978. A consortium of Ericsson (Sweden), Philips(Netherlands) and Bell Canada head the projectteam. There were three serious bidders consideredby Saudi Arabia for this job–the Ericsson/Phil-ips/Bell team, ITT (U.S.), and Western Electric In-ternational (U.S.). Separate cost estimates were re-quested from each bidder for the three segmentsof the contract—urban systems, rural systems,and operations and maintenance, Overall, the win-ning contractors offered the lowest bid, as can beseen below:Bids (in billions of U.S. $)

Urban Rural Ops & Maint. TotalITT $1.25 $0.20 $2.00 $3.5Western Electric 1.47 0.23 1.20 2.9Philips/Ericsson/Bell 1,49 0.25 0.47 2.2

While ITT projected the lowest costs for the ur-ban and rural systems, it estimated the highestcosts by far for the operations and maintenancesegment of the job. Western Electric’s estimatesin this regard were also almost triple that of thenon-U. S. consortium. The high cost estimate forthis work segment may have been instrumental inthe final selection, since it portends future opera-tions and maintenance costs for the equipment

.— — — —1 R. Raggett, “Desert Project Blossoms, ” Telephon.y, July 28, 1980;

Intel-Trade April 15, 1979; World Business Weekly, June 9, 1980; Mid-die East Economic Digest, July 1981, Feb. 19, 1982, Oct. 9, 1981, March13, 1981, May 23, 1980, Aug. 17, 1979, Feb. 17, 1978.

proposed by each supplier. Another factor in thebidding that probably influenced the award deci-sion was that Philips had hired Prince Fahd’s sonas its agent in Saudi Arabia. In terms of financialarrangements, the Dutch firm arranged for guar-antees from three banks and received a directDutch government guarantee. The Swedish firmwas able to amass a $277.4 million guaranteethrough Citibank (U. S.) and 11 other Swedishbanks.

The evaluation team consisted of members ofthe Saudi PTT, Norconsult (Norway), Arthur D.Little (U.S.), and the International Telecommuni-cation Union.

The total contract has grown from $2.2 billionin 1978 to over $5.0 billion, The project’s scope in-cludes installing the world’s first national storedprogram control (SPC) telephone system. Over795,000 new lines were to be installed and 197,000existing lines on crossbar exchanges were to beconverted to computer control, In addition, a na-tional automatic mobile telephone system was tobe installed.

Philips and Ericsson agreed to split the workand revenues equally. Essentially, each firm sup-plied the following equipment:EricssonLarge-capacity local

exchangesRural container exchangesAll-tandem trunk and

international exchangesEquipment to upgrade

existing crossbarexchanges

All telephone instruments,coin boxes, and mobiletelephones

Some local cableAll network equipment

PhilipsSmall and medium exchangesContainer exchangesPCM multiplex equipmentTrunk cables and most local

cablesBuilding designsSubscriber rural radio

Ch. 6—Telecornrnunications Technology Transfers ● 239-— — —

Bell Canada’s role involved a 5-year operations,maintenance, and training function. Given its $1billion segment of the job, Bell Canada was toestablish and control Saudi Telephone under theauspices of the Saudi PTT. Its other functions in-cluded installing and maintaining subscriber lines,indicating new network installation priorities,assisting in the test and acceptance procedures,training, subscriber billing, developing phonedirectories, and building construction.

The consortium drew on 200 subcontractors tosupply equipment and services. Principal amongthem was Dong Ah Company (South Korea),whose functions were to construct, install, and pro-vide initial maintenance for the outside plant andbuildings, Norconsult and A. D. Little providedconsulting services.

The contract was based on a pre-engineeringstudy conducted by A. D. Little in 1974-75. Its re-port recommended that the Saudis update existingcrossbar exchanges with digital equipment, ex-pand the phone network, and increase the numberof main phone stations by 476,000 digital lines.

After the initial contract was signed, Philips andEricsson formed a Saudi joint venture to managethe supply and installation of equipment and coor-dination of other subcontractors. One of the firsttasks was to provide living quarters for the em-ployees. Three fixed-location villages were con-structed beginning in 1978 near Riyadh, Jeddah,and Dammam for 1,500 employees and their fam-ilies at a cost of $48 million. Compounds for 230unmarried employees were also developed in Ri-yadh and Jeddah. In addition, mobile camps forinstallation engineers in remote areas were estab-lished. Although the Dutch and Swedish employ-ee population was the largest, 43 other nation-alities were represented, including many British.Dong Ah brought in more than 6,000 Koreans andIndonesians. The crew was characterized by a verylow absentee rate and high contract renewal rate.

To meet the very tight schedules, a massivelogistics effort had to be planned and executed totransport equipment to the required sites. Over200,000 cubic meters of supplies were shippedfrom Europe by air and sea and then stored in Jed-dah and Dammam until distributed by truck. Toavoid on-site delays, exchanges were pre-assem-bled in Europe before shipping. A minicomputerwas also shipped to the consortium’s on-site head-quarters to help plan, project, inventory, and con-trol the complex production schedule. Detailedmonthly progress reports were generated in Eng-

lish and Arabic for discussion with the PTT, con-sultants, and subcontractors.

Other obstacles also emerged as the project pro-gressed. Local and municipal government officialshad to give their consent to where the trencheswere dug and where buildings could be located.Only Muslim staff were allowed into the holy cit-ies of Mecca and Medina. Subscriber hookups wereoften delayed because Muslim custom preventedtelephone technicians from entering homes whena male member of the household was not present.Moreover, the two consultants, A.D. Little andNorconsult, modified priorities over the course ofthe contract, given new developments in technol-ogy. Their recommendations resulted in the use offiber optic technology in Riyadh. At the sametime, the project team had a goal of keeping thesystems within the operational capabilities ofSaudi personnel, despite the advanced technologythat was employed.

Training occurs in Europe, Canada, and on-site.While few trainees have any technical background,they undergo an intensive program that covers theoutside plant and the inside plant (operations, sys-tem maintenance, and technician levels). Traineesget 2-3 months of field experience between coursesegments. There has been some difficulty in find-ing sufficient numbers of trainees; highly qualifiedengineers are often attracted to private companies.There has also been a high dropout rate.

So far, the system has experienced minimaldowntime and is highly responsive in providingcustomer services. There is also a high usage rateamong new subscribers, helped along by low phonerental charges and low rates for calls.

Intra-Kingdom Microwave Program’

Western Electric International Inc. (now a partof AT&T International) was awarded this $408million project in June 1977 by the Saudi PTT,based on a tender released in September 1976. Thejob entailed the engineering, furnishing, installa-tion, operation, and maintenance functions for 12months, and the training of local personnel for a6,200-mile, 46-route, 300-site microwave commu-nications project, The system was built to provide35,000 long-distance telephone circuits, as well astelex, television, and data transmission channels.In addition, a 405-phone emergency roadside sys-——-

‘K. Jackson, "Linking up with the Future, ” Telephonj, Aug. 27, 1979;Saudi Arabia Yearbook 1980-81: Middle East Econom”c Digest, August1978, Jan. ’23, 1981, (let, 5, 1979, January 1981, Aug. 27, 1982; Elec-tronics ,\Tews, Sept. 6, 1982; Intel-Trade Apr 15, 1979.

240 ● Technology Transfer to the Middle East

tern was designed and installed, as well as 10 main-tenance centers and two surveillance centers todetect faults in the system. The system was inte-grated into the national long-distance network.This project was actually begun by the Italianfirm, SIRTI, which provided microwave links be-tween Jeddah, Taif, Riyadh and Dammam. Nor-consult of Norway, Swedetel of Sweden, andPreece, Cardew, and Rider of Great Britain wereconsultants to the Saudi PTT on this project forthe SIRTI and Western Electric phases.

Western Electric, as prime contractor, was re-sponsible for overall orchestration of the project.It supplied the multiplex equipment, Rockwell-Col-lins Systems International, Inc., of Dallas, was amajor subcontractor (with a contract worth morethan $100 million), supplying the radio relay equip-ment and supervising field testing. Anixter Com-munications Systems constructed over 687 shel-ter modules; Charles Payne and Company helpeddesign and engineer the shelter building; ShafatGmbH supplied the AC generators and Harmer& Simmons Ltd. provided the DC generators.Other subcontractors were used to supply towers,antennas, and in-country construction and supportservices.

The project team faced several difficult prob-lems from the outset:

●

●

●

Tight schedule: The first eight routes werepromised to be cut into the national systemwithin 16 months, with the rest of the systemcompleted in phases by 30 months (December1979). Some estimates suggest that given theextensiveness of the work, it would normallytake at least twice as long to complete a proj-ect this size.Equipment protection: Techniques had to bedeveloped to protect the sensitive equipmentagainst a harsh environment.Transportation and installation: Problemsarose in transporting the equipment and in-stalling it in a country with limited facilitiesand limited trained technical help.

In order to meet the tight schedule, WesternElectric immediately commenced production of themultiplex equipment. Living quarters and officeswere constructed immediately in several locations.Sites for the microwave stations were inspected.An assembly and equipment testing facility wasestablished in Atlanta. To avoid on-site problems,it was decided to assemble the system componentsin a modular fashion in the United States and im-plement needed changes in the United States be-fore shipment. In line with this decision, the equip-ment was preinstalled in shelters.

Project requirements and environmental condi-tions necessitated modification of some equipmentdesign. The radio relay and multiplex equipmentat each site had to operate unattended for 4months at a stretch, with high reliability and min-imal maintenance. There was also a need to designand produce transportable, stand-alone, and self-powered buildings with an air-handling systemthat provided air conditioning and dust filtration.

Bell Laboratories was commissioned to modifyWestern Electric multiplex designs developed forthe U.S. market so that they would meet interna-tional standards. A building was developed to shel-ter site equipment to withstand desert and moun-tainous conditions, salty sea air, high and lowtemperatures, and possible earthquake tremors.Bell Labs, along with Payne, designed a light-weight, strong, and insulated shelter that doubledas a shipping container for the equipment. Theseunits were developed in a modular fashion to allowthem to be fit together in different patterns tomeet the particular specifications of each site. Themodular design was also efficient for preassembly,with power generators being shipped directly toSaudi Arabia from their European suppliers.

Western Electric provided training on the micro-wave network in system management and techni-cal operation. This was conducted at the same timethe system was being designed and installed. Al-though Western Electric maintained the systemfor the first 12 months after completion, Sartelco,a joint Saudi-Italian venture, won the subsequent$75 million maintenance contract. It will use 120Italian and 180 other technicians on its staff, sev-eral presumably being Saudi nationals.

The Saudi PTT in August 1982 awarded AT&TInternational a $377.5 million contract to expandthe microwave network and supply 150 new tow-ers. This will double the existing telephone capac-ity to 70,000 voice frequency channels and expandand strengthen the network’s radio and TVchannels.

E G Y P T I A N P R O J E C TD E S C R I P T I O N S

Telecommunications Modernization3

The modernization of telecommunications inEgypt was awarded to a European consortiumconsisting of Siemens (West Germany), Thomson-CSF (France), and Siemens Austria in September1979. No formal request for tenders was ever——— —

3 .Middle East Economic Digest, April 1979, Sept,. 21, 1979, January1981, Oct. 15, 1982, Oct. 24, 1980; Frith, Kirk, and Spinks, 1980,

Ch. 6— Telecommunications Technology Transfers ● 241

issued. However, following the completion of the20-year master plan by Continental Telephone In-ternational (U. S.) in 1978, several firms madepresentations to the Egyptian PTT describing howthey would implement it.

Major competitors included an American con-sortium consisting of Continental Telephone In-ternational, AT&T, and GTE. Ericsson, ITT, andPhilips were also serious contenders. The most im-portant factor in the Egyptian award decision wasfinancing. Egypt was looking for 75 percent oftotal financing from the supplier countries and theremainder from financial institutions. The Euro-pean consortium was the only bidder that couldprovide this type of package. Soft 15-year loanswith 5 percent interest and a 5-year grace periodwere offered by the three supplier countries in theconsortium. Moreover, supplies and export creditswere made available by France and WestGermany.

The winning team used other marketing strate-gies as well in its successful bid. While the mas-ter plan identified a $2,400 million expenditure inthe first 5 years of implementation, the consortiumestimated the cost to be only $1,800 million. Theconsortium also benefited from the interventionof Austrian Chancellor Bruno Kreisky, who, as along-time friend of President Anwar Sadat, senta personal emissary to Egypt to promise addition-al German and Austrian investments in Egyptianindustrialization. Siemens Austria promised to fi-nance the renovation of Egypt railway signalingnetwork and its rolling stock. Siemens promisedto finance a feasibility study along with Krupp ofWest Germany on Egypt’s coal resources. In ad-dition, the two companies offered to establish amanagement consulting firm along with Egyptianinterests.

The other bidders also made their interestsknown to Egyptian authorities, although theycould not match the low-cost, long-term financingpackage of the consortium. The U.S. team sent itschairmen and presidents to meet with PresidentSadat and present its proposals. European biddersheld that the U.S. team attempted to tie the saleto possible U.S. military exports to Egypt andtried to prevent open tendering. Using a less ag-gressive, but persuasive strategy, CIT-Alcatel(France), which was already under contract to in-stall digital electronic switching systems in Egypt,received permission from the French PTT to in-stall equipment originally earmarked for domes-tic use in order to meet contractual deadlines.

Although the contract was awarded in Septem-ber 1979, work startup was delayed for over 3

years, until October 1982. This delay resulted fromdetails in the agreement that still needed to befinalized. Siemens agreed to a memorandum ofunderstanding concerning the prices for equip-ment (which could be no more than 15 percenthigher than U.S. equipment provided under theAID package) and the use of local contractors forcivil works (laying cable and installing ducts).Thomson agreed to a similar memorandum onprices, engineers’ salaries, and training of Egyp-tian technical personnel. The contract and mem-oranda then had to be ratified by the Egyptianparliament.

The scope of this 5-year project includes: 1) in-stallation of 500,000 new phone lines and renova-tion of 350,000 existing lines, losing 100,000 ex-isting antiquated lines in the process; 2) supply ofanalog switching systems; 3) provision of coaxialcables in Lower Egypt and microwave systems forUpper and Lower Egypt linked to Cairo; 4) estab-lishment of repair centers; 5) provision of 3 years’supply of spare parts; and 6) training of Egyptiansto enable handing over of operations within 3years.

The Continental Telephone master plan pro-jected that additional telecommunications proj-ects through the year 2000 could amount to over$17 billion. The European consortium would ap-pear to be in the most advantageous position towin much of this additional business.

Technical and Managerial Services4

Following the submission of Continental Tele-phone’s master plan for Egypt’s telecommunica-tions system in 1978, the company put in a bid,along with AT&T and GTE, to implement the first5 years of the plan. It lost to the Siemens consor-tium. In May 1980, a contract was awarded toContinental Page Consultants (a subsidiary ofContinental Telephone) and Arthur D, Little Inter-national for $20.5 million to supply managerial andtechnical advisory services. Of the total, $17.4 mil-lion was provided by USAID. Consulting work isexpected to continue through 1985.

The work is equally divided between the twofirms. A. D. Little is focusing on improvements inplanning, management, operations, and training.Specifically, the company will design and developmanagerial, financial and data systems. Continen-tal is providing more of the technical, plant-relatedwork—rehabilitating existing equipment, design-ing and installing four electronic exchanges and

4 Telephony, June 16, 1980 comrnunic~tor, summer 19R 1

242 . Technology Transfer to the Middle East

three outside plant systems in Cairo and three elec-tronic exchanges and outside junction cables inAlexandria, and training Egyptian personnel inoperations and maintenance. The team will awardhardware contracts to U.S. firms.

In the training effort, Continental is attemptingto transfer not only specific knowledge on installa-tion and repair, but also broader technical conceptson the operation of telecommunications networks.On-the-job training is implemented along with ex-tensive formal classroom training. Owing to lan-guage barriers, Continental trains Egyptian in-structors who then teach the craft employees.

ALGERIAN PROJECT DESCRIPTION

Telecommunications Project 5

This project was awarded in 1974 to a U.S. firmfollowing a competition involving about 12 com-panies; the United States and Japanese firms werethe front runners. The apparent critical factors inwinning the contract included: 1) a desire by theAlgerian PTT to loosen its dependence on theFrench; 2) a desire for reliable U.S. technology,and, most importantly, 3) price. The American firmoffered the lowest bid.

Project specifications in the tender were writtenby another American firm that had conducted a 1-year pre-engineering study prior to the award. Thisfirm continued to provide consulting assistance tothe Algerian PTT for 4 to 5 years into the contract.

The contract had open financing, which resultedin payment delays of 2 to 3 years. No irrevocableletter of credit was issued by the PTT to ensurepayment. Apparently, Algerian ministries will notissue such letters to foreign contractors, but somenational companies will. As a result, large amountsof investment capital were put at risk by thecompany.

The project staff consisted of 42 employees atits peak, mostly American and British technicians,with nationals hired for clerical assistance. NoPTT personnel participated in the project with thecontractor’s staff; it was handled as a turnkeyoperation. The work involved installation of equip-ment, sometimes in remote sites. No major modi-fications to the equipment were required, althoughadditional engineering costs were entailed to dealwith special ventilation and sand filtration sys-

5 This description is based on interviews heId in December 1982 witha program manager at a large U.S. telecommunications manufacturerthat has done business in Algeria. Details of the technology itself havebeen omitted to retain anonymity.

terns that were necessitated by local conditions.In some locations where the equipment was in-stalled, climatic and terrain problems resulted indifficulties with the dual diesel generators.

For 3 years after installation, the firm was undercontract to operate and maintain the equipmentand train nationals. Formal training of about 40Algerians took place in the United States and Al-geria, with on-the-job training for 3 years side-by-side with American and British technicians. Thetraining was provided in French or with transla-tors. Most trainees had some form of engineeringdegree, but their formal education and practicalexperience varied widely. Most visible to the train-ers was the apparent lack of motivation by manynationals in the program. While some equipmentsites were well maintained with low downtime rec-ords, others were in poor shape.

The U.S. Government played no role in aidingthe company to obtain the original procurement.During the course of the project, the program man-ager as well as other American businessmen hadregular meetings with the U.S. ambassador to dis-cuss problems encountered in conducting businessin Algeria. Common difficulties included local tax-ation, contractual problems leading to nonpay-ment, and problems in getting contractor propertyout of the country after the project was completed.Although the ambassador listened, the business-men felt that no action was ever taken by the U.S.Government to remedy these problems or to bringthem to the attention of the Algerians on a gov-ernment-to-government level.

The last Americans involved in the project fin-ished their tasks and left Algeria in 1980, Sincethen, the Algerian PTT has issued a tender to pur-chase more of the same type of equipment. Whilethe American company that provided the originalsystems is in a dominant position relative to for-eign competitors, it has decided not to bid becauseof the investment risks and financial losses it ex-perienced during its initial contract.

IRANIAN PROJECT DESCRIPTION

Telecommunications TrainingProgram 6

American Bell International Inc. (ABII), a sub-sidiary of AT&T, began work in Iran in 1975 toevaluate existing telecommunications facilities

*Interview with supplier representative, held in December 1982; Tele-communications, August 1979.

—— Ch 6— Telecommunications Technology Transfers ● 243

and to identify future requirements. This work wasinitially conducted under contract to the U.S. AirForce, which was a consultant to the Iranian gov-ernment. A year later, a master plan for telecom-munications service was completed and ABI I wasawarded a new contract to help implement the 10-year plan, Chief among ABII‘s tasks was techni-cal consulting, integrating and supervising othercontractors, and training Iranian managers, engi-neers and technicians in the efficient operation andmaintenance of the evolving network. ABII re-ported to the managing director of the IranianPTT.

By mid-1977, the training effort began with astaff of six people. By 1979, before the overthrowof the Shah, the effort included 29 ABII trainersand over 100 Iranian trainers. Most of the train-ing took place in Teheran and several field loca-tions, although some initial formal instruction wasconducted at AT&T facilities in the United States.Training was conducted in Farsi by Iranian in-structors and translators. However, highly tech-nical hardware courses and management courseswere taught in English.

Iran’s stated goal was to establish self-suffi-ciency in training within 10 years. With this inmind, joint training policy committees wereformed so that Iranian management would feel asense of ownership in the contractor’s training pro-gram. An Iranian training organization was estab-

lished and courses were developed in coordinationwith ABII.

Hardware training dealing with maintenanceand repair was developed by several equipmentmanufacturers. Successful graduates were then totrain other employees in the field, This instructionproved to be effective in that it was practical andinvolved hands-on experiences. Courses included:1 ) telephone maintenance procedures, 2) telephonecable fault locating, 3 ) management training, 4 )record keeping for outside plant facilities, 5) cablelaying, 6) outside plant engineering, and 7) sourcesof supply.

Other conceptual and management coursestended to be more difficult for the Iranians tograsp. The management skills courses proved tobe too culture-bound and alien to many Iranians.The PTT also gave higher priority to the techni-cal courses, giving management and administra-tive courses second place. Concepts such as teamproblem-solving skills, which are common in theWest, were difficult for the Iranian trainees to ac-cept and implement. Dropout rates in some ofthese courses reached 50 percent. In retrospect,some of the ABII trainers felt that these conceptsshould have been introduced more slowly, and amore extensive cultural orientation should havebeen given to Americans before they were sent toIran.