High Speed Hopes

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. CommsEgypt attended the Cairo ICT exhibition in January to assess whether the move could transform Egypt’s residential ADSL market, which currently has only 4500 active lines

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By  Richard Agnew Published  March 7, 2004

|~|jawad1.gif|~|Abbassi: "Lower prices will make it more attractive for medium-to-heavy users of the internet to connect to ADSL"|~|Over the last few years, Egypt has been known for its willingness to experiment and develop new business models to help bridge its internal digital divide. The free internet model, launched in 2002, saw subscription fees for dial-up access abolished and the barriers to narrowband uptake brought down. Along with the ‘PC-for-every-home’ scheme to help users pay in stages for computers rather than in one go, the programme is believed to have been responsible for the web having now reached around 800,000 Egyptian households. At the Cairo ICT exhibition in January, the government announced that it is now seeking to experiment further with the country’s model of internet provision. Despite the ongoing downturn in the Egyptian economy, it is considering how to extend the pay-as-you-go model adopted under the free internet initiative. And having set the dial-up market on an upward curve, it is also studying ways in which the cost barrier that has caused minimal broadband uptake in the country can be at least partially removed. “We need to face up to the challenges,” says Dr. Ahmed Nazif, Minister of Communication and Information Technology (MCIT). “We need to get over the cost element, which is still valid for access. The cost of a phone line is not a problem [for users] but the cost of a computer still might be. We’ve come up for a solution for that, the PC-for-every-home initiative. The pay-as-you-use model is also a good one for developing countries and we need to look at that model and see how we can expand on its use,” he adds. The next item on the government’s agenda is to foster greater interest in premium rate services such as ADSL and secure long-term revenue streams for the country’s internet service providers (ISPs). The basic idea is to generate a broadband mass market and re-create the kind of impact the free internet model had on dial-up adoption. But for it to work, the ISPs, Telecom Egypt and other players in the internet value chain will need to bring their respective prices down to a minimum, and at the same time extend broadband infrastructure to enough people to offset the loss of revenue. Currently, there are estimated to be a mere 4500 active ADSL users in Egypt. And while subscription fees currently stand at over LE400 (US$65) per month, the initiative would see these coming down to around LE150 (US$24). “Lower prices will make it more attractive for medium-to-heavy users of the internet to connect to ADSL,” says Jawad Abbassi, president of the Arab Advisors Group. “For a country of 70 million people, 4500 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. ||**||Room for Roll-Out|~|ethernet1.gif|~|ISPs have seen their margins squeezed|~|One positive sign is that there is considerable room for infrastructure expansion, as most of the Class A and B ISPs that are entitled to install ADSL equipment in Telecom Egypt’s exchanges have held back from such investments so far. “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. For the plan to work, consensus will also need to be reached between the government, regulator, Telecom Egypt, international bandwidth providers and ISPs about who should incur the cost of the reductions. “Everyone agrees with the concept that prices need to be lowered but [they] want the reduction to come from someone else’s pocket,” adds Abbassi. The ISPs, for example, say that their ongoing profitability will rely on reductions in the fees they pay for international bandwidth, splitting the subscriber line between voice and data, and local bandwidth, as well as clear signs that a mass market can be created. The situation is made more difficult as ISPs across the Levant and North Africa have traditionally found their margins squeezed, as the bulk of internet revenues go to illegal service providers, international bandwidth providers and incumbent telcos in the form of co-location charges for ADSL equipment, dial-in port rental fees, the cost of connectivity to national IP backbones and wholesale fees for leased lines. According to research group, IDC, licensed ISPs in the region collected less than US$89 million of the US$180 million internet access market in 2002. “The price currently available in the market is correct,” says Hossam Saleh, sales and marketing director of TE Data, Telecom Egypt’s datacomm and ISP arm. “If the MCIT can work with Telecom Egypt, the international carriers and ISPs to see where they can cut costs, then we will have room to bring down the price. Also, if the plan is not based on [creating] a mass consumer market, it won’t be profitable. Our plan is to optimise our operations, the workload and every department in the company to accommodate a mass market. We will minimise our margins, but in a mass consumer market we will make a greater amount of money,” he adds.||**||Awareness|~|kamel1.gif|~|Dr. Kamel: Egypt is targeting heavy dial-up users|~|TE Data has already put in place a plan to expand its ADSL coverage if the reductions are agreed. The ISP says it has installed ADSL equipment in 80 exchanges so far, with services running in 45 to 50. “If the MCIT is successful in cutting costs and giving the initiative a push, we will expand our coverage by two to three times. We will need to have mass coverage,” adds Saleh. Other Egyptian providers have also started to ramp up their investment in broadband. Linkdotnet, for example, recently announced plans to upgrade its data network to allow it to rollout ADSL and SDSL services. The Orascom-owned ISP has invested LE60 million (US$10 million) in the project to allow more bandwidth-hungry applications to be transferred between subscribers and to give it more capacity. “We have made a full-scale investment to develop and upgrade our data network and to transform it into a high-tech multi-protocol label switching (MPLS) network,” says Khaled Bichara, the ISP’s CEO. “This [network] facilitates the quick and competent transmission of data with high quality service and endures minimal traffic congestion,” he adds. It is also expected that for ISPs to attract uptake from a large number of consumers at a monthly rate of US$24 per month, awareness will be a key issue. As such, Telecom Egypt is planning a promotional campaign to push broadband over the coming months. This will also be important in persuading heavy users of the free internet model that converting to broadband will be worth their while. “We have looked at the number of free internet users that pay more than LE100 (US$16) per month and this is a community of around 30,000 to 40,000 people. They are the targets,” says Dr. Tarek Kemal, senior advisor to the MCIT. At the same time, ISPs hope that that total growth in internet connections will limit the impact on the free internet user base. “If you compare the [target] price the MCIT is talking about to a heavy free internet user, they are paying much more,” says Saleh. “Maybe the growth rate of the free internet will go down a bit, but we don’t expect a big loss. The growth rate will equalise what the broadband service has taken,” he adds. There is also the question of the effect the economic downturn has had on demand for ADSL services and the internet access market as a whole. With the Egyptian pound having slipped by around 40% since its floatation, average families’ disposable incomes have been hard hit. But the signs are that the internet market is continuing to grow. According to the MCIT, Egypt’s international internet traffic has increased from 20Mbits/s to 1144Mbits/s in the last four years. And in the longer term, ISPs should also be able to benefit if basic telecoms infrastructure can be rolled out to a wider cross section of the population in Egypt. Telecom Egypt, for example, is expected to make fixed line infrastructure roll out a priority again this year, partly through alternative technologies. The operator, for example, is currently running a tender for equipment which will be used to expand a pilot deployment of CDMA wireless local loop technology from 5000 to 100,000 lines. Suppliers for the project, which could be eventually extended nationwide, are expected to be announced shortly. “We’ve almost doubled teledensity in the last four years but there are still some areas where we need more coverage,” adds Akil Beshir, Telecom Egypt’s chairman. Additionally, awareness of broadband could also receive another boost this year with the availability of Wi-Fi licences to service providers in Egypt. The National Telecommunications Regulatory Authority (NTRA) is currently preparing a framework that will clarify ISPs’ role in Wi-Fi provision and set out the terms of licences. “We are preparing a whole new broadband strategy for Egypt,” says Dr. Kemal. “Within this strategy, we are trying to promote ADSL, Wi-Fi and other wired and wireless services. There is definitely room to reduce the prices of broadband services and increase their availability, although we haven’t yet finalised the level of pricing that we will arrive at,” he adds. ||**||

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