Climate Change

Egypt's telecoms industry has reacted to the demands of delivering new services in difficult economic times by launching an initiative to slash broadband subscription charges and restructure its mobile sector. CommsMEA attended the Cairo ICT exhibition in January to assess how players in the sector have adapted their strategies

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By  Richard Agnew Published  February 4, 2004

|~|egypt3.gif|~|Telecoms players lined up to discuss the future of the industry in Egypt|~|The industry may have hit a glitch, but the show goes on. Although the economic problems that have troubled Egypt’s telecoms sector in the last few years continued to provide the main talking point at Cairo ICT 2004, industry players also focused at the exhibition on ways it can adapt to the challenge. Over the last few years, Egypt has become known for its willingness to experiment and develop new business models to help bridge its internal digital divide. The free internet model, launched at the show in 2002, saw subscription fees for dial-up access abolished and is perceived to have helped greatly in persuading ISPs to attract new customers and add new services to increase revenues from internet usage. Along with the ‘PC-for-every-home’ scheme to help users pay for computers in stages rather than one go, the programme is believed to have been responsible for the web reaching around 800,000 households. At this year’s exhibition, despite the downturn, the Egyptian government said it is now seeking other ways to bring down prices and improve access. It may also extend the pay as you go model to other services. “We need to face up to the challenges,” says Ahmed Nazif, Egypt’s Minister of Information and Communications Technology (ICT). “We need to get over the cost element, which is still valid for access. The cost of a phone line is not a problem but the cost of a computer still might be. We’ve been coming up with solutions for that, [such as] the PC-for-every-home initiative. Pay as you use is [also] a good model for developing countries, and we need to look at that model and see how we can expand on its use,” he adds. Having set the dial-up market on an upward curve, the next item on the government’s agenda is to foster greater interest in premium rate services such as ISDN and ADSL. To achieve this, the Ministry of ICT is now aiming to drastically reduce fees set for broadband subscriptions, which are seen as prohibitively expensive for the vast majority of users. Currently, the government estimates that there are a mere 4,500 ADSL lines deployed in a country of around 70million people. So, while ADSL fees typically stand at over LE400 (US$65) a month, it is aiming to bring these down to around LE150 (US$24). Although it is not yet clear who would be willing to carry the burden for the reductions, the move has been welcomed as a potential means to increase adoption by a wider section of end-users, and to catalyse infrastructure rollout by ISPs. “Lower prices will make it more attractive for medium to heavy users of the internet to connect to ADSL,” says Jawad Abbassi, president, Arab Advisors Group. “For a country of 70million people, 4,500 lines is nothing. To put in place the coverage you need, you need economies of scale. The addition of subscribers and revenues should more than compensate for the reduction in fees,” he adds. ||**|||~|egypt1.gif|~|Ahmed Nazif, Egypt's Minister of Telecoms and IT, said the industry should face up to the challenges|~|There is seen to be considerable room for ISPs to invest further in broadband infrastructure. The four ‘class A’ providers in Egypt — TE Data, Nile Online, Linkdotnet and Egynet — which are licensed to install equipment in incumbent operator, Telecom Egypt’s exchanges, have largely held back from the investment. “None of the ISPs have full coverage of the exchanges. It’s a huge country and they are not going head-to-head because they are not filling the demand,” adds Abbassi. Another problem is that before the initiative can move forward, consensus will need to be reached between the ISPs and Telecom Egypt about who will bear the cost of the move.Typically, the decrease would either be brought about through a reduction in Telecom Egypt’s leasing charges for copper lines and exchange equipment, or a squeeze on ISPs’ margins. “Everyone agrees with the concept that the prices need to be lowered but wants the reduction to come from someone else’s pocket, not their own,” argues Abbassi. “The best scenario would be a compromise from both sides, where the ISPs sacrifice some of their own revenue as well as the government and Telecom Egypt,” he adds. There is also the question of the effect the economic situation has had on demand for ADSL services. With the currency having slipped by around 40% since its floatation, average families’ disposable incomes have been hard hit. The knock-on effect of the downturn has become very apparent in the mobile sector in Egypt — another issue which dominated talk at Cairo ICT. The show came shortly after a dramatic few weeks in which hopes of Telecom Egypt’s entrance into the sector finally came to an end. Following Vodafone Egypt’s decision to list its shares on the Cairo and Alexandria Stock Exchange (CASE) in late December, the mobile operator announced that it would accept the telco as a strategic shareholder with a 25.5% stake. In addition, Telecom Egypt and the Vodafone Group have formed a jointly-owned consortium, Wataneya, which will hold a 51% stake in Vodafone Egypt. This ensures that Wataneya will hold a controlling share in the mobile operator while the Vodafone Group retains a grip on its management by retaining a separate, 25.5% holding. ||**|||~|mobile1.gif|~|Egypt's mobile sector has been restructured|~|But beyond the wheeling and dealing, the move almost guarantees that the duopoly structure of the mobile market in Egypt will remain in place for some years to come. As part of the scheme, Telecom Egypt has returned its GSM licence — bought for LE1.9 billion (US$300 million) in 2002 — back to the National Telecoms Regulatory Authority (NTRA). This opens a theoretical option for the telco to enter the market using a different technology such as 3G, or another player to apply for a licence. But the existing operators are confident that this is unlikely. “A new entrant coming into the market will [find it] very hard to get a good return on investment from the network, whereas the existing companies can make their services available to more people over the medium term,” argues Ian Gray, Vodafone Egypt’s managing director and CEO. The move also affords Telecom Egypt a face-saving escape from the need to invest hard currency to build its own mobile network, after failing to find a foreign partner. This, the operator claims, will also free up more funds to help improve its service offering this year. “We took a hit last year, we had a few debts in foreign currency. Because of the sheer size of Telecom Egypt, the hit was significant. But we are optimistic about this year,” says Akil Beshir, the telco’s chairman. On Telecom Egypt’s agenda is the opening of its new call centre and the launch of fixed line SMS services by June. “Our call centre will [go] public [when] we have provided each customer with a PIN code. We are going to do that in the next few weeks,” says Beshir. Another major priority will be the deployment of alternative technologies to help cut waiting lists for its fixed line services. The operator is currently running a tender for equipment which will be used to expand a pilot deployment of CDMA wireless local loop technology from 5,000 lines to 100,000. Suppliers for the project, which could be eventually extended nationwide, will be selected this month. “We’ve almost doubled teledensity in the last four years but there are still some areas where we need more coverage,” adds Beshir. The mobile operators also argue that the continuing duopoly situation will allow them to extend their services, rather than forcing them to pare back expansion in response to a squeeze on their margins. While being charged LE1.24 billion (US$200 million) for the privilege, both Mobinil and Vodafone Egypt have gained access to the 1800MHz spectrum originally allocated to Telecom Egypt, as well as more favourable interconnection rates from the NTRA. They say this will allow them to improve their coverage in more populous areas such as Cairo and Alexandria where capacity limits have nearly been reached. “We have [received] access to spectrum to allow us to expand the market, and inevitably as the market grows, products are going to start appealing to lower income customers,” adds Gray. But despite the additional resources, the operators will be firmly focused on return on investment for some time. “We have to focus on the medium term. We are in a period of transition which will last at least a couple of years. The most important thing is to have broad agreement about what the industry will look like two or three years down the road,” Gray adds. ||**||

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