Murky connections hobble effort to install Iraq cell phone network

Crucial business venture falters amid allegations of corruption, ties to Hussein

December 03, 2003|By Mark Matthews | Mark Matthews,SUN NATIONAL STAFF

WASHINGTON - The Bush administration has repeatedly promoted its efforts to develop Iraq's private-sector economy as an engine of job creation and hope for the country's beleaguered population and a model for an economically backward region.

But if Iraq's experience with one of its earliest and most important private business ventures - a mobile telephone network - is any indication, progress in grafting a free-enterprise system onto what had been a state-controlled economy will be slow and rocky.

More than four months after occupation authorities invited companies to compete for the potentially lucrative cell-phone licenses, none has been finalized. And the process of picking the winning bidders is the subject of an investigation by the Pentagon inspector general amid accusations of corruption, secrecy and involvement by one or more firms with ties to the regime of Saddam Hussein.

The story opens a window into the murky world of business in Iraq, marked by fierce international competition, a strong need by the U.S.-led Coalition Provisional Authority to show progress in rebuilding the country, and reports of friction between the authority and the interim Iraqi government it appointed.

The United States highlighted the need for private enterprise when it took charge of a country where most major industries were state-controlled and where profit-making opportunities were steered to Hussein's relatives and their cronies.

"If we're going to succeed in Iraq, we have to have a vibrant private sector," L. Paul Bremer III, the U.S. civilian administrator for Iraq, told a congressional panel in September.

A reliable communications network is a crucial building block for economic growth. In Iraq, it could also be a valuable tool in combating the insurgency by giving U.S. forces quick access to varied sources of information, said Frederick Barton, an international security specialist at the Center for Strategic and International Studies, a Washington think tank.

At the time of the U.S.-led invasion, Iraq, a nation of 25 million, had just four telephones for every 100 inhabitants. Equipment was outmoded, and connections between provinces were poor. Under Hussein, mobile phones were denied to all but a tiny elite, though a separate network developed in the largely autonomous Kurdish region in northern Iraq.

Because of the time-consuming task of upgrading existing land-line service, U.S. officials looked to mobile telephones to provide an early start for a nationwide communications system.

The phone scramble

"The CPA was under time pressure to soothe Iraqi sentiment. Speed was emphasized at the expense of a reliable, transparent regulatory framework," said Jonas Lindblad, a London-based analyst at Pyramid Research, a consulting firm specializing in telecommunications.

At a business conference in Amman, Jordan, in July, Jim Davies, a CPA communications official, sounded an urgent note: "We want quick results. Iraq needs a mobile communications system and it needs it now."

The process of selecting separate licensees for the northern, central and southern sectors of Iraq set off a scramble among regional and international firms. As one of the last virgin territories for marketing mobile service in the Middle East, Iraq offers the prospect of hundreds of millions of dollars in cell-phone revenue. Questions were raised about licensing fees that analysts say were strikingly low, given the potential return.

The scramble included competition not just between companies but between technologies, pitting the American-based Code Division Multiple Access (CDMA) technology against the Global System for Mobile Communications (GSM) technology widely used in Europe and the Middle East.

CDMA proponents say their technology provides better data transmission and thus gives a key advantage to business. GSM proponents say Iraq would be isolated without their technology, though a CDMA bidder, Liberty Mobile, offers handsets that work on both systems.

Good connections

With some of the 35 applicants enlisting well-connected Washington lawyer-lobbyists and members of Congress keeping watch, the competition put the Bush administration in a delicate position. Heavily criticized this year for granting large reconstruction contracts to firms with close ties to top U.S. officials, the administration has tried to show a strong involvement by Iraqis.

The Coalition Provisional Authority allowed the Iraqi telecommunications minister, Haider al-Abadi, to announce the winning bidders. But the CPA played the lead role in planning a conference of potential bidders and in drafting and revising rules for the competition.

Al-Abadi was appointed by the Iraqi Governing Council, whose members were picked by U.S. officials. Winning bidders were selected by two CPA officials and two Iraqis, advised by a group drawn from among the provisional authority and Iraqis.

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