The "Globes" interview with Zahi Khouri opened with ambulance sirens in the background. They were carrying the wounded from the latest bus bombing in Jerusalem that killed 17 and wounded scores of people. "This really pains me," he says, as he receives SMS updates on his cellular telephone about IDF helicopter counterstrikes in Gaza.
As it happens, Khouri is the man responsible that his telephone is able to receive SMS messages at all. He is the chairman of PalTel (Palestine Telecommunications Co.) (PSE:PALTEL) and Palestine Cellular Communications, which operates under the Jawwal brand, as well as chairman and CEO of the National Beverage Co. the Coca Cola licensee in Palestine. He has become the largest private employer in the Palestinian Authority (PA), and the largest employer after the PA government. His companies employ 2,300 people, and with unemployment in the PA at over 50%, working for Khouri is considered a great prize.
"Terrorism cannot be justified," says Khouri. "but despair creates fertile ground and abets the recruitment of suicide terrorists. Collective punishments and occupation go together. They're bad for the Palestinians, and worse for the Israelis."
"Globes": Do you pin any hopes on the hudna (truce)?
Khouri: "It's important for both sides that the hudna lasts. I think both peoples are weary and they must consider the good of their children. Too many innocents on both sides have been killed. We must forgive and forget."
Will the Green Line separate fence contribute toward that end?
"The fence is a declaration of war. It is not being built along the international border, or along an agreed-upon border. Building a wall on Palestinian land inside the West Bank is utterly unacceptable. Israeli and Palestinian economic stability is the paramount key to peace, and the wall destroys both."
Do you think that PA Prime Minister Mahmoud Abbas (Abu-Mazen) can change anything?
"Abu-Mazen favors a free economy, but economics isn’t his priority. He is currently focusing on the peace process with Israel and has three economics ministers: the minister of finance, minister of planning, and minister of industry and trade."
There are longstanding complaints about PA government officials' interference in business activities.
"I don’t like it when government officials interfere with business. The minister of finance has already notified the government and its employees that 'They have no business being in business'. Personally, I haven’t encountered corruption."
PalTel is more advanced than Bezeq
Khouri, 65, is a scion of a leading Palestinian family whose wealth primarily came from citrus crops and exports. He is a member of the Greek Orthodox Church, and has American citizenship. He is a polite and affable man who travels every month between Jerusalem and the US East Coast, where he has business interests and is chairman of Orlando-based Intram Investments.
Khouri's Jerusalem home has a breathtaking view of the Old City. About his living room stand framed pictures taken with dignitaries, including billionaire Warren Buffet, Pope John Paul II, and of course PA chairman Yasser Arafat and other officials.
Khouri returned to the PA in the early 1990s. "I came with a group of businessmen who believed in the Oslo Accords and building a Palestinian state," he relates. "The policy at the time favored free markets, and the government asked us to take the local telephone company, develop industrial zones, hotels, etc. We also established a modern stock exchange in Nablus, on which 30 companies are listed (the Palestine Securities Exchange Al-Quds Index).
PalTel was founded in 1997 on the ruins of the scant Bezeq (TASE:BZEQ) infrastructure in the territories built in the years prior to the Oslo Accords. "A customer could wait a decade for a telephone line during the military administration, and getting the line largely depended on his relations with the army," says Khouri. "With PalTel, if the regional director does not provide a customer with a telephone within 24 hours, he's fired immediately."
Khouri says PalTel had a 400% growth rate reaching 270,000 subscribers before the outbreak of the intifada in September 2000. The subsequent security situation slashed growth, and even caused a contraction in activity. PalTel posted a net profit of $7 million on $102 million in revenue in 2001, compared with a profit of $12.5 million on $96 million in revenue in 2000.
PalTel usually publishes its annual financial reports mid-year, but it has not yet published its report for 2002. Khouri says it will be published in September, blaming the delay on conditions in the PA. He claims, "The 2002 results will be 50% below our forecasts in the absence of the intifada." He is proud that PalTel is one of the few independently-founded communications companies in the world, has no government involvement, and its Alcatel (NYSE:ALA; Paris:CGEN) and Nortel Networks (NYSE:NT) optical technology is "more advanced than Bezeq's."
Jawwal was spun off from PalTel in 1999. PalTel owns 65% of Jawwal and a government investment company owns 35%. Jawwal currently provides cellular services to 250,000 Palestinians, and while it has been seriously affected by the intifada, Khouri claims its billing figures could be the envy of any Israeli cellular operator.
Although Jawwal is a private company that does not publish financial data, Khouri claims that 90% of its revenue comes from pre-paid cards, with the remainder contributing to 40% of its ARPU (average revenue per user).
Jacob Perry was the big problem
Jawwal uses GSM technology and claims to have good relations with Israel's Partner Communications (Nasdaq: PTNR; TASE:PTNR; LSE:PCCD), in contrast with its unsettled relations with Cellcom and Pele-Phone. In late 2001, PalTel and Jawwal filed a $435 million lawsuit against Cellcom and Pele-Phone in a Palestinian court in Ramallah for alleged illegal activities in PA territory. PalTel and Jawwal alleged that the Israeli cellular companies violated their exclusivity in the PA, under the terms of the peace agreements.
Khouri says, "These companies are operating in the territories without a license, and operate antennae based in outposts and settlements. Were it not for the intifada and their illegal activities, Jawwal would be twice as big and provide services to 500,000 customers."
Have you tried settling the dispute out of court?
"We tried to talk in the past, but without success. The main problem was [former Pele-Phone CEO] Jacob Perry. He is a businessman, and a leading business rival. Yitzhak Peterburg has now replaced Perry, and I've heard good things about him. There might be a new opportunity now. We're open to offers."
What's happening with the lawsuit?
"The Israelis viewed the lawsuit as a political problem, and the Attorney General [Elyakim Rubinstein] rejected it. Under the Oslo Accords, Israeli operators could operate only in Israeli territory. Cellcom and Pele-Phone chose to exploit the security and diplomatic situation to broadcast from within Israeli settlements in PA territory in violation of the agreements."
Cellcom stated in response, "Despite differences with PalTel and Jawwal, we believe we can achieve a good and high-quality working relationship with the two companies. We've made several proposals for cooperation, which have not yet been answered." Cellcom adds that Jawwal and PalTel owe it considerable sums, but declines to specify figures. Cellcom also claims it has not received PalTel's lawsuit, it operates in accordance with the law, and places its antennae in approved locations.
Pele-Phone stated, "We provide services to our customers in Judea and Samaria, and we cannot comment on lawsuits and allegations through the media."
"Wertheim loses only 3-5%"
In addition to his wide-ranging communications interests, Khouri won an exclusive license from Coca-Cola Company (NYSE:KO) for the PA in 1998. He owns a third of the National Bottling Co., and serves as its chairman and CEO.
The Palestinian carbonated beverages market is currently estimated at NIS 250 million, and the non-carbonated beverages market at NIS 100 million. Ramallah-based National Bottling Co., in collaboration with Coca-Cola Company and other investors, also make quite popular Taibeh Beer.
Beverages industry source claim that Khouri won the franchise after a bruising battle with Moshe (Mozi) Wertheim, who feared losing a tenth of a potential market share to a Palestinian competitor. "For commercial reasons, Wertheim didn’t want someone else getting the franchise for the territories. He was mainly worried that we'd begin exporting low-priced goods from the PA to Israel, but we told him that we had no intention of harming his business in Israel. My word was sufficient, and we have a relationship based on mutual respect."
What is National Bottling Co.'s market share?
"We had sales of NIS 75 million a year before the outbreak of the intifada, which has since fallen by a third. Our prices are fixed, and our distribution costs have risen 50%, mainly due to the tensions.
"Transporting a truckload from the West Bank to Gaza used to cost NIS 1,000, but the long delays at the checkpoints has caused that to jump to NIS 5,000. The recession forced us to fire many employees. We now have 200 left out of 330."
In your opinion, how much has Central Bottling Company (Coca-Cola Israel) been affected?
"Soft drink consumption per capita in Israel is among the highest in the world, and Central Bottling Company used to have lower prices than in the PA. I think that Wertheim has lost only 3-5% of revenue from the loss of the PA franchise."
After September 11, 2001, many Muslim countries boycotted international brands, especially American ones. What was the policy in the PA?
"The PA is the only place in the world that did not see a decline in international brands. Sales in Gaza were unaffected because we got the message across that we were a local, not an international, brand."
Europeans are already interested
The INSEAD Israel alumni association held its 40th anniversary meeting in Tel Aviv in June. Khouri, a graduate of the INSEAD class of 1967, was invited to speak on Israeli-Palestinian political and economic relations.
INSEAD graduates are famous for maintaining a tight network, and recently began raising $10 million for a regional development fund. The EU, World Bank, and private European investors have pledged half the sum, with the other half coming from Israeli and Arab private investors.
INSEAD graduates from Israel, Jordan, Egypt, and the PA are cooperating to establish the fund. INSEAD alumni club in Israel president and owner of Prime Time Marketing Doron Nahmias is the driving spirit behind the fund. He says, "The fund will mostly invest in joint ventures in industry, biotechnology, sciences, communications, commerce, and business management. European investors are expressing interest, since they consider the fund a sound base for future investments in the Middle East."
Khouri adds, "The problems between the Israelis and Palestinians are not new. Wise people from both sides are needed to talk with each other. I intend to play a role in the fund and encourage meetings between Israelis and Palestinians in Israel and elsewhere."
Published by Globes [online] - www.globes.co.il - on August 4, 2003