Cablegate: Privatization of Afghan Telecom Imminent Including Fiber

DE RUEHBUL #3887/01 3250955
P 210955Z NOV 07





E.O. 12958 N/A

REF: KABUL 03542


1. (SBU) State Department Senior Advisor, Robert Deutsch, met with
Afghan Minister of Communications, Amir Zia Sangin, on November 17
and received Afghan support for a conference fostering regional
telecommunications interconnectivity. Minister Sangin also shared
that plans for the privatization of Afghan telecom are well underway
(due in large measure to extensive and accelerated USAID technical
assistance). He said he expects a bid from UAE based Etisalat
shortly. End summary.

--------------------------------------------- ----
Regional Interconnectivity & The Fiber Optic Ring
--------------------------------------------- ----

2. (U) Minister Sangin was highly supportive of a proposal by
Deutsch to host a spring conference on telecommunications
interconnectivity in Baku, Azerbaijan. Deutsch outlined that the
conference would follow recent discussions in Almaty and allow
Afghanistan and its neighbors to take stock of current
communications networks and examine the possibilities of and
hindrances to regional interconnectivity. The trick, Deutsch noted,
would be for each country to accurately assess its current fiber
optic network and development plans. Prior to the conference, the
U.S. will provide a paper format so that each country can complete a
detailed self-assessment.

3. (U) Sangin said that the conference was needed as Afghanistan
was making progress on its fiber optic ring. When completed, the
3400 km country-wide fiber optic ring would link all provincial
capitals; key district centers; and infrastructure facilities; in
Afghanistan. The challenge remained liking Afghanistan to its
neighbors and reducing dependence on current, and expensive,
satellite connections. Sangin said that ZTE, the Chinese contractor
completing the project, had laid a good portion of the necessary
ductwork. Sangin hoped they would be able to thread cable through
those ducts in 2008. Certain quality control problems had been
addressed, including initial poor backfilling and trenching. (Note:
[0]A verbal status report by the Afghan Telecom Project Manager to
the Embassy stated 540 Km of duct would be completed by end of
November, 17% of the project. Along the 540 Km of duct there is
still manhole construction and building entrance work to complete.
End note.) The areas that had not been trenched were largely in the
South, where security issues had hindered ZTE subcontractors.
Sangin expected ZTE to be successful in its search for a new
subcontractor "that could operate in a Taliban area." The other
incomplete stretch of the fiber-optic ring was the critical section
between Kabul, Jalabad, and the Pakistan border. ZTE had not yet
determined how it would run the cable through the mountainous
terrain in a cost-effective manor. The link was critical, however,
as Pakistan's fiber-optic network was near the border and had strong
cooperative potential.

4. (U) Sangin offered that the first piece of the network (created
before ZTE had the contract) was already active, carrying
communications between Herat and Iran. However, the line was
currently used only for voice communications as the IRoA and Iran
had not yet been able to negotiate an agreement on internet (data)
interconnectivity. The regional conference would be all the more
valuable to smooth the way towards regional data sharing (albeit not
with Iran). Sangin felt that by the time of the conference, a
second piece of the fiber optic ring would be online between Kabul
and Mazar. If that were the case, Afghanistan might be able to link
to Tajikistan and Uzbekistan, depending on if those countries had
the necessary infrastructure in place to do so.

Privatization of Afghan Telecom Imminent

5. (SBU) Sangin said that given the progress on the fiber-optic
ring, the privatization of Afghan Telecom (the legacy telecom
provide that controls the ring) was imminent and would include the
fiber-optic ring to increase the value of the sale. Sangin expected
a bid very soon from UAE based Etisalat as they understood the
Afghan market and had just finished a second round of due diligence
at the request of the board. Sangin also shared that a Russian firm
had expressed "some interest" and just completed its own, albeit
lesser, due diligence. Given the likely Etisalat bid, Sangin said
he understood the importance of a "Swiss challenge" that would well
advertise the bid and provide "one month" for other investors to put
together a counter offer. Deutsch noted that one month might be a
bit short; Sangin took the point and agreed that the private sector
was the best judge of asset evaluation and that the IRoA wanted to
appear transparent and receive the maximum value possible for the

KABUL 00003887 002 OF 002

sale. (Note: Cabinet approval is needed for the sale and the
Cabinet previous rejected and offer by Etisalat to purchase Afghan
Telecom along with IRoA granting Etisalat a GSM license. The
Cabinet directed that Etisalat should only be awarded the GSM
license. Sangin made reference to this in the conversation and said
now that Etisalat has its GSM license, it was still interested and
approval was not problematic. End note.)

6. (SBU) Deutsch welcomed the upcoming sale, while cautioning that
care would need to be taken to ensure that the owner of Afghan
Telecom would not have a monopoly on long-distance and data
communications. The company should ensure everyone has fair access
and Afghan telecom should not charge competitors much higher
transport charges than the internal costs incurred by Afghan
Telecom. Sangin agreed, but said he was going to hire a consulting
firm to study the charges that the IRoA should allow on the network.

7. (SBU) Sangin concluded the meeting by noting that the IRoA
remained committed to linking the Afghan government to its
population and creating further rural access. While over 70% of the
Afghan population now had easy phone access, the other 30% were in
hard to reach rural areas. He hoped that Afghan Telecom would
continue to support the Government Communications Network (GCN), the
District Communications Network (DCN), and a possible Village
Communications Network after the sale. Even if this was not the
case, he envisioned that the Afghanistan Telecom Development Fund
(with a balance of $12 million generated from a 2.5% tax on GSM
provider revenues) would ensure that the programs remained
operational. (Note: Embassy has stressed that care must be taken
to ensure that the private owner of Afghan Telecom is not the sole
beneficiary of any subsidiaries from this fund. End note.)

8. (U) Senior Advisor Robert Deutsch did not clear this cable
before leaving post.


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