Earlier this month, Minister of Post and Telecommunications Marwan Hamadé announced that DSL was to be introduced in March or April, at long last dragging Lebanon out of the dial-up era. The ministry stated that it had signed a memorandum of understanding (MoU) with local internet service providers (ISPs) and data operators which would allow private firms to install and operate DSL services.

The initiative is apparently being overseen by Ogero, the state-owned fixed telecoms operator which the government has for some years intended to privatise and rebrand as Liban Telecom. The current head of Ogero, Abdel-Munim Youssif, told the local press that customers would not pay more than $50 for a monthly subscription with unlimited access time. This is in addition to a one-off connection charge of $100.

Such rates still remain higher than those in Europe, however, where monthly fees often range between $15 and $20 for a much quicker connection than that proposed in Lebanon. DSL users in Beirut, where the project is being piloted, will have access to a connection speed of a maximum 512 k (though in practice this may be slower), whereas European or American users can often harness at least 2 MB of bandwidth.

Despite this, most agree that the albeit vastly delayed introduction of DSL will make a real difference to the IT sector and related businesses. The former is currently estimated to be worth only $260m, or 1.3% of GDP, though given the educated workforce in Lebanon, it holds significant potential to develop.

Few concrete or recent figures are available on the sector, although a February 2005 survey produced jointly by SRI International, USAID and Lebanon's Professional Computer Association (PRA), suggests that the sector was in fair health - at least until the political turmoil of last year. The survey found that just over half of respondents had achieved year-on-year (y-o-y) sales growth of 11-25%, with another 18% of companies surveyed having increased sales by 50-75%.

As with the rest of the economy though, many firms reported a painfully sharp downturn in the first half of 2005, although some report that the latter half of the year performed better than the same period in 2004. If political stability can be sustained and more effective improvements to infrastructure made, then the outlook is positive.

As with the wider sector, there are no official figures on internet penetration rates in Lebanon. Estimates suggest that there are around 700,000 internet users and some 250,000-300,000 actual subscribers to ISPs, of which there are three major players fighting for large chunks of the market. This puts Lebanon, with its population of under 4m, amongst the top performers in the Arab world in terms of internet penetration rates.

PC ownership is also on the increase, and is currently estimated to be around 8-12% of households. A number of public-private sector initiatives have been launched to encourage the wider home use of computers, including the student/teacher PC programme which offers cheap loans and affordable computers to those involved in education. This was introduced in September 2005 and according to Leila Serhan of Microsoft, one of the scheme's sponsors, has so far delivered 700 PCs to students and teachers.

Another such initiative is the Unity PC for all project, which was launched in late 2004. So far we haven't seen a flood of PCs from the scheme, Serhan told OBG, but we hope that it will be a big success within the next year.

Public-private partnership like this is encouraging, especially in a sector which is almost entirely driven by private initiative, given tiny government budgets which mean that the state often ends up endorsing projects as opposed to actually funding them. Others cite sluggish bureaucracy and the perennial influence of politics in almost any attempts at economic reform in Lebanon as severe obstacles to private sector development in the IT sector.

Others point to the lack of a single, purpose-built government entity to oversee and regulate the IT sector. Currently, it is the Office of the Minister of State for Administrative Reform (OMSAR), which is partly funded by the UN Development Programme (UNDP), which has been in charge of developing a government strategy towards IT reform.

One of the major issues to be pondered is the regulation of VOIP services, such as Skype, which allow voice calls through the internet and replace traditional telephones. Although quite widely used, such services are actually illegal in Lebanon (as they are in most of the Arab world), as the state fears the loss of revenue from expensive international calls. But providing faster access speeds through DSL lines would encourage an even more widespread use of VOIP services, begging the question of whether the market should be fully opened up.

Many challenges remain then, although it is clear that Lebanon's IT sector has bags of potential to grow. What seems vital now is greater co-operation between the public and private sector. The latter feel quite strongly that they are being hindered by the slow nature of state-driven change, yet for the government, the possibility of losing a rich stream of income will always be a sensitive one.