Time to pay the piper

The award of Egypt’s third GSM licence for almost US$3 billion to the UAE’s Etisalat, is the most expensive greenfield concession since the award of the second mobile licence in Saudi last year. Interestingly, it was Etisalat that was also behind the US$3.3 billion offer for the licence in Saudi, underlining the operator’s determination to enter new and significant markets in the region and beyond.

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By  Tawanda Chihota Published  July 12, 2006

|~||~||~|The success in Egypt now offers Etisalat presence in large population markets including Saudi and Pakistan, and the UAE company remains determined to raise its profile even further. Given the growth potential that still exists within many markets across the region, the valuation of such investment opportunities as the third licence in Egypt are difficult to estimate empirically, and only the final operational business will be the true acid test as to whether the up-front costs are justified by the business. The fact that Etisalat out-bid a hugely acquisitive peer in Kuwait’s MTC to win in Egypt is a development that should not be taken lightly. For its part, MTC claims that the amount offered by Etisalat goes beyond the amount that makes for a solid business case given the state of the market. It is to be expected that a losing bidder would be less than flattering regarding the success of a rival, but given MTC’s track record of pursuing opportunities with a steely determination, it is significant that the operator pulled out of the running in Egypt. What comes next is likely to follow Etisalat’s successful model of funding foreign investments in large markets. It would not be surprising should Etisalat push to IPO its Egyptian operator in the lead-up to launching commercial services, which are likely to come online early next year. Etisalat presided successfully over the IPO of its Mobily network operator in Saudi Arabia, a transaction that generated much public interest and was over-subscribed many times over. The Mobily IPO raised cash to pay off some of the loans Etisalat had secured to bid for the licence and also helped finance the network build out. A similar move in Egypt would make sense and is likely to generate a similar level of excitement in the Egyptian context. Once Etisalat enters the market, the second phase of this daunting move into the North African country will commence. Though the penetration rate remains relatively modest at less than 20%, the new entrant will be faced with competing against two experienced players that have been stung into action by the looming threat of competition. MobiNil and Vodafone Egypt have been operating in a duopoly for a number of years. As a result, charges have remained relatively high for the market while both companies have shied from introducing better value offerings for prepaid customers. Additional competition is clearly the tonic that Egypt requires to unlock its mobile market potential. Vodafone Egypt added around 1.2 million subscribers in 3Q05, a record result, as the company entered a price war with MobiNil on the prepaid front. By way of comparison, Vodafone Egypt added less than 200,00 subscribers in 2Q05. Much of the blistering growth in the third quarter of 2005 was attributed to the introduction of a new tariff package by Vodafone called Magician, which was launched in July that year. The offer connected the customer to a prepaid line for US$6, requiring a minimum top-up of about US$2 per month. Prior to the introduction of this package, the lowest priced prepaid deal offered by Vodafone Egypt cost US$17. The introduction of Magician was viewed as a counter offer by Vodafone to the highly popular Alo Magic package offered by market leader MobiNil, which reported the addition of over 730,000 subscribers in 2Q05 compared to Vodafone’s 200,000. Last October, MobiNil reduced the connection fee to the Alo Magic prepaid package by over 30% to around US$10, partly in response to the increased competitive threat from Vodafone Egypt’s Magician. At the end of third quarter, MobiNil counted 6.6 million users compared to Vodafone with 5.38 million. Mobile number portability is set to be introduced in time for the launch of the third operator, a development that is set to only raise the competitive temperature even further. ||**||

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