Link's dot-com power play

Linkdotnet’s bid to become a truly regional ISP continued with its acquisition of nine fellow Egyptian internet companies last month.

  • E-Mail
By  David Ingham Published  June 6, 2002

The changing ISP market|~||~||~|In January of this year, Egypt’s authorities fundamentally changed the playing field for the country’s internet service providers (ISPs.) Up until that point, internet users had paid two charges to go online: a subscription fee of LE50-100 per month to an ISP and a phone bill calculated at a rate of LE1.2 per hour to Telecom Egypt.

Under the new model, users no longer pay a subscription fee to their ISP. Instead, they simply pay for their phone calls, with 70% of the LE1.2 per hour going to the ISP and 30% to Telecom Egypt.

The government’s goal in making the changes was to encourage wider internet usage in the country, but for Egypt’s ISPs the maths is very simple. Guaranteed monthly access fees are gone; keeping a user online longer is what now makes an ISP more money.

This is one of the main reasons why LinkdotNet, believed to be Egypt’s top ISP, last month announced that it was gobbling up no less than nine of the country’s dot-com businesses in a single swoop. Acquiring these companies is all about gaining a diversity of content that will entice users to spend more time online, and thus boost Link’s revenues.

“These companies can help us create content that will make users stay [online] longer and make us more money,” Khaled Bichara, CEO and president of LinkdotNet, told Arabian Business. “In Egypt, this can really change the balance between making and not making money.”

Out of the nine companies being acquired, CareerMidEast.com, an online recruitment portal, will be the one best known to users outside Egypt, but there’s also Masrawy.com, one of Egypt’s most popular portals; Arabfinance.com, a finance and e-brokerage site; plus the online shopping sites, Otlob.com and Nilemart.com. Completing the mix are a real estate site, E-dar.com; a gaming site, El3ab.com; a music site, Mazika.com; and Internet Egypt, an ISP.

Whilst most of these sites may continue to exist in their own right, Link the ISP will become a single front door into all of them. Link hopes that this abundance of content will keep users online longer, clocking up airtime, and that those users may also buy a few things whilst they’re online, chalking up e-commerce revenues for Link.

“One year ago, making a customer stay [online] another thirty minutes would have been a bad thing for me as Link, because I used to sell a LE100 [per month] subscription for unlimited access,” explains Bichara. “The less you stayed, the more money I made. Today, the longer you stay online, the more money I make.”
||**||Gearing up for a regional push|~||~||~|
The acquisitions, which all involve straight equity swaps, are not just about reinforcing Link’s position in Egypt, however. The company also wants to strengthen itself for its continued push into other Arab markets. “Take Arabfinance, which is already integrated with the Egyptian stock market and stockbrokers,” says Bichara. “Moving that to the UAE and Jordan is possible. With E-dar [online real estate], we can do the same thing.”

The company is already present outside Egypt in Jordan. Algeria, Pakistan, Syria and Saudi Arabia have all been earmarked for expansion. “We really hope to be the number one online service in the region, not only in Egypt and Jordan,” says Bichara.

Bichara believes that Saudi Arabia’s recent ISP merger activity can only be good for Link, since ISPs there have been woken up to the idea of consolidation. Market conditions in KSA might also be favourable for expansion, particularly through mergers & acquisitions. Tough market conditions in Egypt, and the encouragement of investment bankers that owned stakes in many of the acquired companies, certainly helped move along these recent deals.

Consolidation does, of course, bring with it plenty of challenges. LinkdotNet is absorbing nine management teams and says that keeping hold of the most talented people at the acquired companies is one of the key objectives of the acquisitions. “If, in a year’s time, from the 18-20 managers we’re getting on board we have two, we know we’ve failed,” says Bichara.

However, at the same time that it tries to keep management on board, it also has to ensure that everyone is ‘singing from the same song sheet.’ There was an ominous sign of just how difficult that might be when news of the transaction leaked to the Egyptain press days before it was formally announced.

To try to avoid any merger related skirmishes, Link and the management teams of the acquired companies have formed four committees. These will take care of four aspects of the merger, which are described as: technical integration, marketing & brand integration, customer experience integration and operational integration.

No valuations have been placed on the deals since they involved only equity, according to Bichara, and Link is not listed, but Bichara says that the internal valuation of the company is now LE355 million. For the management of the acquired companies, the value of their stakes in Link will only be unlocked fully by an IPO.

That’s not part of the plan currently, given market conditions, but according to Bichara this “makes sense” in principle. In the meantime, Link’s bid to become a truly pan-Arab Internet company will continue.||**||

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code