Straight Talker

Alex Shalaby was appointed CEO of Egyptian market leader Mobinil in November 2005 following the departure of Osman Sultan to head up the UAE second all-service operator du. In the time since Shalaby has been CEO, the liberalisation programme in Egypt has developed rapidly, and continues to prove challenging, Shalaby asserts.

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By  Administrator Published  March 1, 2007

This month Mobinil, an Orascom Telecom company, is set to reach the 10-million-subscriber milestone, having launched commercial operations in 1998. The market is a decidedly different place to the one Mobinil pioneered almost 10 years ago, and the days of enjoying a cosy duopoly with Vodafone are fast disappearing. Competition - customer attraction and retention - is now the order of the day, and with the presence of a third operator in the form of the UAE's Etisalat, Mobinil CEO and president Alex Shalaby has to be particularly focused in order to prevent the significant erosion of his company's market leadership position.

"We do expect prices to fall (upon the market entry of Etisalat)," said Shalaby. "There will be a large element of competitive pricing in the market and we are prepared for this. We need to take advantage of our large customer base, and plan to introduce innovative services like EDGE for use by the high end of the market," he added.

In most cases the enhancement of a GSM network to EDGE would not be of significant regulatory concern, though in Egypt a storm is brewing over the regulator's decision to define EDGE as a 3G technology, which would attract the charges and fees that Mobinil opted not to pay for the award of actual 3G (WCDMA) spectrum.

"The licence condition set the value of a 3G licence (for the incumbents Mobinil and Vodafone Egypt) at 20% of the price of the 2G/3G licence awarded to the third operator," explained Shalaby. "We thought this was high and elected not to bid for 3G at this time." Etisalat bid US$2.9 billion to win Egypt's third mobile licence, making the amount required to be paid by the incumbents for 3G licences at US$580 million each.

The differing views on the definition of EDGE between Mobinil and the National Telecommunication Regulatory Authority (NTRA) have led the parties to seek international arbitration on the matter. "It is regrettable, time-consuming, but we have to do it," commented Shalaby.

Shalaby is also unequivocal in his belief that the overall price paid for the third licence by Etisalat was substantially higher than expected. "The value paid exceeded expectations, probably by a factor of two," Shalaby estimated. "However one needs to bear in mind that there's a different dynamic for Gulf investors," he added, referring to the ambitions of operators from the Gulf to push into new markets, despite the high charges being placed on such expansion. Thus it comes as no surprise that it was three Gulf operators - Etisalat, MTC Group and Qatar Telecom - that ranked one, two and three respectively for the licence in Egypt. In addition to the upfront license fee of US$2.9 billion, Etisalat will have to pay an annual fee representing 6% of its total gross revenues.

"I do not see a good return on investment period on many of the investment opportunities around, be it in Egypt, Pakistan, Iran or Turkey," Shalaby asserted.

Etisalat as the new licensee in Egypt has been granted a number of concessions in order to make its entry into the market much more straightforward in terms of the processing of permits and access to sites. Shalaby states that Egypt's commercial sector is not always the easiest business environment to operate in given bureaucratic delays, and the government is aware of this and is trying to alter it.

Up to 93% of Egypt's mobile market consists of prepaid subscribers and this is likely to be the hardest fought segment of the market. The incumbents have been wise to reduce tariffs, improve services and embark on loyalty programmes ahead of the expected entry of the new entrant before the end of 1Q07.

Average revenue per user (ARPU) is set to fall as competition grows in Egypt, and both Mobinil and Vodafone are preparing for this inevitability by optimising their networks and working on controlling operating expenditures. As part of the Orascom Telecom family, Mobinil benefits from being a part of a larger organisation that has the ability to extract value from its suppliers given the economies of scale present.

"We invested EGP1.8 billion (US$316 million) in the network last year. We are rapidly rolling out base stations to the fraction of the population that is not already covered," Shalaby said.

Mobinil's ARPU stands at around US$36, prepaid ARPU in the US$6 range, while blended ARPU for the market stood at around US$12 in 2006. The entrance of Etisalat is likely to see industry-wide blended ARPU slide to around US$8 per subscriber per month, though Shalaby remains confident that "prepaid is becoming very attractive".

Even the looming threat of the introduction of mobile number portability (MNP) does not overly concern Shalaby with respect to the prospects of massive churn to the new entrant. Even with the wider choice offered by the entrance of a new player, Shalaby is confident Mobinil will be able to retain a large proportion of its installed base.

"There will be churn from MNP, and the only way to keep customers is to provide good service at a good price," Shalaby insists. Etisalat will have other ideas. "Our position in Egypt is that we believe only the top-end of the consumer market has been targeted. The other segments have not really been developed as markets. There is a big portion of the Egyptian population that has not really been covered for consumers, only a certain level who can afford such prices," Etisalat CEO Mohammed Al Qamzi told CommsMEA shortly after having been awarded the licence last July.

Etisalat is set to commence mobile services in Egypt under the 011 prefix and is set to offer 3G services to both prepaid and postpaid users in a selection of major Egyptian cities by the end of the first quarter of the year.

According to the CEO of Etisalat Egypt, Saleh Al Abdouli, the operator will launch with 70% coverage of the population on its own network. He also expects to capture 10 million mobile subscribers by 2010, representing a 25% share of the market.

While site sharing has been encouraged by the NTRA, the country's mobile operators have not reached an agreement. With respect to network sharing, no discussions have been entered into by any of the operators, though Shalaby suspects the regulator will encourage such developments. "I do not think we would be interested in this type of arrangement," Shalaby commented.

From a regulatory standpoint, Shalaby will also be looking to what the NTRA does with respect to the regulation of prices in the market. He claims that the operators were given assurances by the regulator that once Egypt developed into a three-player market, greater pricing freedom would be allowed in the market, and the role of the NTRA would become less intrusive in this area.

The NTRA is also pushing forward with its second phase plans to introduce Broadband Wireless Access (BWA) regulation in Egypt.

Expressions of interest have been received for securing BWA 3.5GHz licences, have been received from 23 national and international operators, solution integrators and vendors, component vendors and SMEs; including Egyptian operators Vodafone-Egypt, Telecom Egypt, Orascom, Alkan, EgyNet, Nile Online and TEData as well as major international vendors Alcatel, Huawei, Motorola and Siemens. The development of broadband is a key initiative of the Egyptian government.

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