05/21/08

Over the next decade, economic zones will be a significant driver for telecommunications revenue growth across the Middle East and North Africa (MENA) region. Economic zones are designated areas in which residents and companies are exempt from certain laws and taxes, and they are used around the world as an incentive to boost local business. The trend in some countries in the MENA region, especially among Gulf Cooperation Council (GCC) members, is to use these zones to decrease dependency on the oil sector by attracting new types of tenants that will spur economic diversification. Such zones can contribute to the establishment and growth of new, globally competitive industries such as finance, high technology, and other service industries.

More than 55 specialized economic zones have been established in the GCC area in recent years, and the number is increasing. Some countries, embracing the trend on a dramatic scale, have extended the traditional concept of zones to “economic cities.” The Kingdom of Saudi Arabia, for example, announced in 2005 that it would build King Abdullah Economic City, with projections of 2 million people living and working there by 2020.

The Importance of Infrastructure

Developers of many economic zones and cities want to provide advanced information and communications technology (ICT) infrastructure and services in order to attract leading tenants. State-of-the-art offerings include high-capacity, high-speed network infrastructure; reliable access to advanced ICT facilities and services; and provision of comprehensive ICT management services. As more GCC states diversify through the development of specialized economic zones, they compete to become the regional leader in certain industries—and therefore in ICT facilities and service offerings. To ensure that advanced facilities are available, some developers are now getting directly involved in rolling out infrastructure and services for these zones.

But developers can face regulatory barriers in the self-provisioning of telecommunications infrastructure and services. Challenges can also come from existing operators that are unable to roll out networks in the zones within the necessary time frame, or unable to meet the standard demanded by developers’ plans. If success is to be assured, it is necessary for all stakeholders—developers, operators, regulators, and policymakers—to address those barriers that affect ICT infrastructure and service development.

Rolling Out ICT: Management Models for Economic Zones

Stakeholders can consider four general models for the rollout of telecommunications infrastructure and the provision of commercial services for ICT users in economic zones:

1. Private. In this model, the developer has full control of the operation of infrastructure and the provision of commercial services to the residents of the zone. This model would be controversial and difficult to implement; it conflicts with market liberalization and does not optimize sector development.
   
2. Exclusive. In this model, the developer selects the infrastructure operator and commercial service provider and gives them exclusivity within the zone. This model presents challenges similar to those of the private model; however, in the few MENA markets that are still closed to competition, it might be viable.
   
3. Managed. In this model, regulatory limitations are placed on access to an infrastructure operator but not on commercial service provision within the zone. This model is feasible as long as the property remains under the ownership of the developer; however, under liberalized market conditions, regulations could require the developer to allow access for other network providers.
   
4. Open. In this model, any licensed network operator and service provider can roll out infrastructure and compete for users; no distinctions are made among economic zones or between zoned and nonzoned areas. Users are free to select whatever provider best meets their needs. This model is in line with market liberalization and fair competition, and it encourages greater economic efficiencies than models based on exclusivity.

The common denominator among all four models is that in countries with liberalized telecommunications markets, no special treatment or regulatory exemptions are given for economic zones. (Exemptions would be counterproductive and would, in practice, be the inverse of the purpose of the zone, which is to enable more liberalized commercial environments.) Some regulatory changes, however, may be necessary: For instance, regulatory environments may need to be opened further to allow developers and other investors to manage networks and provide services within zones. Economic zones should be vehicles supporting greater telecommunications liberalization, especially in enabling fair and value-creating competition within the market.

In the GCC alone, economic zones are expected to generate more than 15 percent of telecommunications revenues by 2018. To capture this potential growth, development of cutting-edge infrastructure and services in these zones is vital. Developers, operators, policymakers, and regulators all have key roles to play in supporting zones’ ICT development.