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January 14, 2001
Israel: a distant connection Wiring up: Palestinians work to join the online community.
By Jessica Steinberg
From the September 2000 issue
A drive into Ramallah, the epicenter of the Palestinian National Authority, offers an instant snapshot of the emerging Palestinian economy and its contradictions. Young, upper crust Palestinians race by on the pothole-ridden road in brand-new Range Rovers, speeding through a ramshackle Palestinian army checkpoint as they speak animatedly into mobile phones. The uneven sidewalks, in front of office buildings under construction, are filled with squatting Arab women selling green grape leaves and prickly pears. And just overhead, giant billboards advertise Marlboro cigarettes; an Israeli laundry detergent; and Jawwal, the new cellular network created by PalTel, the budding Palestinian Telecommunication Company.
While many Palestinians are scrounging to make ends meet; the leaders of the emerging Palestinian economy are trying to jump on the global communications bandwagon. With average annual income of some $1,500 in the emerging nation, few locals own mobile phones; most don't even have a regular telephone line. But thanks to the peace process with their Israeli next-door neighbors that may be beginning to change.
It makes sense that a Palestinian with a computer and access to the Internet is more likely to believe in peace, prosperity, and happiness. But still, this nation is far from the global information superhighway. When you consider that the newly formed quasi country is trying to battle mass
unemployment and build up a basic infrastructure, getting Palestinians wired has some hefty competition for funding. But with such a highly developed neighbor as Israel, it's an issue not overlooked by any means.
Some 20,000 Palestinians are currently online, and this number will probably reach capacity at 50,000 subscribers, according to the Information Technology Unit at Birzeit University, north of Ramallah. With some 3 million Palestinians living in the region, that doesn't seem like a lot. But it's not bad, considering that only 7 percent of households in the West Bank and Gaza Strip have PCs.
SMALL TALK This small local market has less than a dozen ISPs, most of which cater to several hundred subscribers each. "Everybody here loves information technology companies and wants to have an IPO and make millions, so they open an ISP," says Riyad Amin, a biochemistry professor who started Planet, the Birzeit University ISP, and who now owns the ISP Palestine Online.
Most local entrepreneurs agree that Palnet Communications, a privately held startup, seems to have the most subscribers. It also seems clear that the rest of the Palestinian ISPs aren't making money from keeping Palestinians in the West Bank wired. Weighing the measly $25 per subscriber against the $10,000 or so to put in the necessary ISP equipment, these startups aren't going public any time soon.
It's a tough road ahead, too. Add up the costs -- a $25-a-month access fee, $1,250 for a desktop computer and printer, plus an average $200 monthly phone bill -- and it's clear that many Palestinians simply can't afford to go online. To combat this problem, some ISPs are pushing local banks to offer long-term loans for PCs and Internet subscriptions. But that initiative will need some time to take root, because Palestinians lack a banking culture. They make huge down payments when buying a house because their banks don't offer mortgages; they don't have mutual funds or IRAs; and they aren't into online trading. Very simply, cash flow is not a part of their vocabulary.
Several Palestinian ISPs are considering offering subscription packages, like a PC plus Internet usage, in order to lure new customers. Others, like Planet, offer budget-minded Palestinians prepaid rates. The startup says it doesn't want to frighten potential customers with unlimited service, so it has subscribers pay in advance for their online time.
"Palestinians know that in today's world, if you're not on the Internet, you're a nobody," says Maan Bseiso, the smooth-talking founder of Palnet, which is currently talking to investors about going public. "But not knowing how much they'll owe at the end of the month scares them."
NET WORKING PalTel would like to help them overcome that fear. The Palestinian national Phone Company was established in 1997, after the Oslo Accords established that Israel would transfer any telecommunications infrastructure it had installed in the West Bank and Gaza Strip to the Palestinian National Authority, as the quasi state is called.
So PalTel became responsible for connecting this jumble of copper wires. With $96 million from an initial group of investors, including 10 percent from the government and a 22 percent chunk from Padico, the largest Palestinian holding company, PalTel has connected 95 percent of Palestinian towns and villages with telephone lines. PalTel went public on the Palestine Securities Exchange and has the highest trading volume on the fledgling exchange. Last year, PalTel introduced Jawwal, the Palestinian cellular network, and the company recently received its own country code, 970, replacing the Israeli 972 code, which did not appear in the phone systems of many Arab countries.
But it's not easy to set up a telecom system in a Swiss-cheese strip of land divided by Israeli-controlled territories. With 50 percent of PalTel's potential customers living in rural areas, the company is serving up some odd sales calls. An accountant-and-technician team knocks on villagers ' doors, and after drinking the traditional thick Turkish coffee and baklava pastries given to guests, the PalTel accountant offers to figure out a telephone budget with the head of the household while the technician installs the line on the spot. More often than not, there's no electricity in these villages, so PalTel has to pay for generators to plug in the line.
"You'd find it hard to believe what we have to do to get these people connected," says Suleiman Mashriqi, PalTel's marketing director, who previously spent eight years working for the Israeli phone company Bezeq in East Jerusalem.
Some 500 kilometers of fiber-optic and microwave lines purchased from a wide range of global telecom companies are the backboard of the PalTel network, connecting outlying villages and towns in the West Bank and Gaza Strip by wireless local loops, landlines, and connectors. In three years, PalTel has almost doubled the number of phone line installations to 138,000 from 83,000.
The results are impressive. The Palestinians started out with an antiquated, limited copper wire network and now have a modern telecommunications system that far outstrips most countries' networks. But along with the rapid growth, there are widespread complaints that PalTel lacks the basic customer service and support that Palestinians learned to expect from Bezeq. Prices are high and, not surprisingly, it often takes days before a PalTel representative shows up to fix a reported broken line.
"Bezeq offers better customer support than PalTel when it comes to advanced services," says Khaled Assali, a local ISP operator. "When I was using Bezeq, I used to call the Bezeq technicians at home."
It's the same story with Jawwal, the cellular operator established by PalTel. Before Jawwal was created, more than 80,000 Palestinians subscribed to Israeli providers Cellcom and Pelephone (a subsidiary of Bezeq). When PalTel gained a five-year license to operate a mobile service, it awarded the Swedish telecommunications group Ericsson (Nasdaq: ERICY) the contract to build a Global System for Mobile Communications network, to allow for international roaming in Palestinian-ruled areas. That also meant that the Israeli cellular providers couldn't operate legally in the Palestinian National Authority. At the time, PalTel ran announcements in Palestinian newspapers urging mobile phone users not to renew their subscriptions with Israeli companies.
While Jawwal now has a roaming agreement with Israeli cell phone provider Orange, it still isn't coöperating with the two most popular operators, Cellcom and Pelephone. But when walking down the street in Ramallah or Nablus, where PalTel's headquarters are located, it's hard to miss the blue-and-red Cellcom signs in the business districts. It seems that even with Jawwal's forceful marketing methods, Palestinians prefer the Israeli providers.
With 35,000 subscribers, Jawwal is reaching the Palestinian public, but not quickly enough. "We're trying to get the locals to say 'Jawwal' when they're referring to their cell phone, instead of 'Pelephone,'" says David Bosworth, Jawwal's American CEO. "It's just going to take time for the
Palestinians to have faith and trust in our service."
CONNECTIVE ISSUES In the meantime, most Israeli cell phones can't contact Palestinian ones and vice versa. But that's par for the course when you consider how long it has taken Israelis and Palestinians to even sit at a table together, let alone connect their wireless infrastructures.
Still, this disconnect can be extremely frustrating for Palestinians who are trying to create a new business culture.
"Every Israeli business entity we work with is based on Cellcom or Pelephone," says Sam Bahour, a local consultant. "I tell PalTel regularly that it's not a matter of nationalism that will sell Jawwal to the Palestinian public, but better service, coverage, and prices."
Given all the frustrations of the PalTel regime and the increasing suspicions that the government is playing too heavy a hand in the creation of Palestinians' telecommunication infrastructure, many of the technology entrepreneurs in the region are pushing for a regulatory agency that will keep a firm hand on the company's activities. "We can break the monopoly if we keep complaining," says Hassan Kassem, the former chairman of the Palestine Information Technology Association.
But as the criticisms swirl, PalTel has earnest plans to build a solid infrastructure. The company has already installed more than 300 leased digital circuits designed to enable Internet service, and is planning to launch frame-relay technology and ATM service by the end of the year. Clearly, with the average Palestinian grappling to make ends meet on $1,500 a year, Internet surfing isn't on the top of the grocery list. But if PalTel enters the market and pushes prices down, that could change.
The downside is that the few burgeoning ISPs in the Palestinian Authority could die a quick death. After living with Israeli monopolies for the last 30 years, the local entrepreneurs are not about to exchange freedom of choice for a Palestinian cartel. That could explain why there are ten ISPs in a region with few PCs. But in this developing democracy, it's just another example of the ironies and obstacles that confront the Palestinians -- exchanging one brand of loyalty for another.
Jessica Steinberg, a freelance business journalist living in Jerusalem, is a frequent contributor to the New York Times. Write to letters@redherring.com.
©1997-2000 Red Herring Communications. All Rights Reserved.
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