Economic Impact of Mobile Communications Development on the Palestinian Economy March, 2017

The Palestinian telecommunications sector plays a critical role in the Palestinian economy, contributing approximately 4% to GDP. Currently, there are two mobile operators, and Wataniya, providing services in the Palestinian Territories1. Together, both operators employ over 3,400 employees2 and serve 3.73 million subscribers.

Deployment of new technologies, including , is considered to be a critical pillar for building the Palestinian telecommunications sector, and will significantly impact the Palestinian economy. Whereas, the enrolment of 3G services in by both operators, and the enrolment of 2G services by Wataniya in Gaza, are estimated to increase Palestinian Authority’s revenues; • Annual tax revenues payable by Jawwal are estimated to range between USD85 – 100 million in 2017 – 2018.4 • Tax revenues payable by Wataniya are estimated to range between USD15 – 18million in 2017, and between USD20 – 25million in 2018.5 • Jawwal’s remaining license fee amounting to USD130million is due in 2017 and 2018, payable in four equal installments.6 • The payment of Wataniya’s remaining license fee amount (USD214million) will be discussed following the deployment of both 2G services in Gaza and 3G services in West Bank.7

Moreover, the rollout of 3G solely, assumed in 2017, is projected to: • Increase the GDP per capita growth rate by 1.5 percentage points.8 • Increase investment by approximately USD 120 million9 by Jawwal and Wataniya. • Generate an estimated increase of USD 58 million6 in annual revenues, starting one year after the commercial launch. • Increase indirect employment by three employees for each direct employee in the telecom sector,10 or by 10,200 employees.

1 Jawwal provides 2G services in West Bank and Gaza, while Wataniya operates 2G in West Bank only. 2 Based on - 9 Months, 2015 fact Sheet and Wataniya Annual Report 2015. 3 Calculated based on the publicly disclosed 2016 financial statements; for both Wataniya and Jawwal. 4 Calculated as a sum of: 1. Royalty Tax (7%), 2. VAT (17%) and 3. Income Tax (20% on profits). 5 Tax revenues calculated based on VAT only, considering that Wataniya has a waiver on the Royalty Tax (7% of revenues) for a period of 7 years. Additionally, income taxes are not yet applicable considering that Wataniya projects to continue to have net losses due to accumulated losses and new investments in 2G and 3G. 6 According to Jawwal’s 20-year license renewal agreement signed with the PA in Dec. 2016 in return for USD260million. The first half of the license fee amount was paid on the date of the agreement. 7 Wataniya paid the first payment of USD140million in 2009, however the eligibility of the remaining amount’s payment is debatable. 8 Assumes 20% penetration of 3G (10 more 3G connections per 100 mobile connections, a 100% increase from the actual 3G penetration level of 10%8) according to a GSM Association Report. 2012 GSMA report: What is the impact of mobile telephony on economic growth? http://www.gsma.com/publicpolicy/wp-content/uploads/2012/11/gsma-deloitte-impact-mobile-telephony-economic-growth.pdf Note: after launching 3G in 2010, Jordan reached 19 percent penetration by 2013, and 43% penetration in 2014. 9 Based on estimates by telecom companies 10 Based on estimates by telecom companies and international trends

• Enable the emergence of an industry for data applications that could develop commercial activity, health, education, and government services. This will also support startups, which is an important channel to reduce youth unemployment, currently estimated at 30%.11

In addition, the enrolment of Wataniya 2G services in Gaza will have a significant impact on the Palestinian economy, where it is projected to: • Increase investment by approximately USD 40million, beyond the USD 14 million already invested. • Increase employment by 150 direct jobs and 450 indirect jobs. • Generate direct revenues of USD 60 million over the first two years.

11 Palestinian Central Bureau of Statistics, Labor Force Survey: April- June 2015. , Palestine.