Iraq wants $307 million for 3G telco spectrum despite turmoil - sources

By Matt Smith

DUBAI (Reuters) - Iraq wants its mobile operators to each pay $307 million for spectrum for third-generation (3G) services despite large parts of the country falling under rebel control, according to three sources familiar with the matter.

The country's three operators – Zain Iraq, a unit of Kuwait's Zain, Ooredoo subsidiary Asiacell and Orange affiliate Korek - have been waiting for several years to begin 3G services.

All three paid $1.25 billion each for a so-called technology-neutral mobile licence in 2007, which means they do not require a new 3G licence - but they need extra radio spectrum, or frequencies, to launch the technology.

However the firms are angry that the government is asking them to pay $307 million each for the spectrum when the fees would only provide frequencies for the remaining eight years of their licences, and also in light of increased operating costs due to the fighting in Iraq, said the sources who declined to be named due to the sensitivity of the matter.

"It's completely ridiculous. There are a lot of costs in building a 3G network," one of the sources told Reuters.

Zain, Asiacell and Korek declined to comment.

Islamic State, a Sunni Muslim militant group, has seized control of large sections of northern and western Iraq as it seeks to establish an Islamic Empire across Iraq and Syria.

A spate of deadly bombings in the northern city of Kirkuk damaged and temporarily shut down part of Zain Iraq's network in August, while Asiacell said 25-30 percent of its 11.6 million subscribers were "affected by the overall security situation", warning the impact "will be seen in Q3 results".

Iraq is one of the few Middle East countries still reliant on 2G networks, which allow for only the most basic online services, while fixed Internet is expensive and unreliable.

Such problems mean less than a tenth of Iraqis are online, according to the International Telecommunication Union.

The government demand for fees of $307 million appears to represent yet another change in its position on the 3G spectrum, the sources said.

In May, authorities granted mobile operators the right to use 3G frequencies - which the industry took to mean it was reversing an earlier decision to hold a multi-million dollar auction in a move that promised to end years of stalemate that has hurt the development of Iraq's largest non-oil sector.

The operators have asked to meet with the regulator, the Communications and Media Commission (CMC), to discuss the 3G spectrum fees, one of the sources said, while another said the CMC hoped to award the spectrum by the end of the October.

The CMC did not immediately respond to requests for comment.

(Editing by Pravin Char)