Shaping up

A fast growing population and low ARPU are fueling Egypt's ICT sector.

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By  Administrator Published  February 3, 2009

A fast growing population and low ARPU are fueling Egypt's ICT sector.

Despite some high profile setbacks such as the indefinite postponement of a second fixed line licence last year, Egypt's telecoms sector continues to develop at a rapid pace, as the country's three mobile operators and incumbent fixed operator compete for a share of a market with remarkably low penetration rates.

Indeed, Egypt's mobile penetration rate, which is estimated to be about 45% of the country's 81 million population, has helped drive fierce competition among the three mobile operators, Mobinil, Vodafone Egypt and Etisalat Misr, and incumbent fixed operator Telecom Egypt.

The competition we have in the mobile sector with the three operators is very fierce and the sector is still growing at a fast rate. - Akil Beshir, Telecom Egypt.

This has led to a significant rise in services such as 3G from the mobile operators, and ADSL internet - with about five ISPs competing with Telecom Egypt's TE Data internet arm.

Ahmed Shabbana, head of Ernst & Young's telecoms practice, says that there is "room for optimism" in Egypt's telecoms sector. On the fixed line side, he points to numerous service improvements made by Telecom Egypt to expand its business.

"There is no doubt that Telecom Egypt as the dominant player is taking some significant steps to improve the quality and the service it offers," he says.

"They are really focusing on the marketing strategy to increase the footprint and promote themselves as being the higher quality, lower cost provider versus the mobile operators, and there have been several promotions such as free installation of services, which was unheard of in the Egyptian market," he adds.

But Shabbana is more sceptical about the chances of a second fixed line operator emerging in the country, partly because there remain doubts about the business case for a second player.

"For this second operator to be able to provide better services [than Telecom Egypt] it will either have to build its network from scratch, or go into a virtual operator mode and leverage the existing infrastructure of Telecom Egypt, and both scenarios require some significant investment.

"When they [the bidders] looked at the numbers and factored in the competition from the mobile operators, the price they were prepared to pay for the licence was not in line with what the government projected. This was happening at a time when the telecom sector was starting to suffer a significant loss of appeal because of the financial issues affecting the world economy," Shabbanna adds.

While some executives at Telecom Egypt may have been relieved at the delay to the introduction of a second fixed operator, the company's chairman, Akil Beshir, is insistent that the company has already become accustomed to tough competition from the country's three mobile operators.

Indeed, Telecom Egypt's voice revenues have taken a hit from the rapid growth of the mobile sector in recent years.

"The competition we have in the mobile sector with the three operators is very fierce and the sector is still growing at a fast rate," Beshir says.

Telecom Egypt, which lacks a mobile operation of its own but does have a 45% stake in Vodafone Egypt, has responded to the competition from the mobile operators by launching new pricing structures to encourage people to take a fixed line.

Indeed, the company intends to ramp up fixed line penetration rates to an ambitious target of close to 100% in the next few years, according to Beshir. In July 2008 it staged a major "tariff rebalancing" in which it reduced several tariffs and increased two others.

"First we reduced the connection fee by 50%, reduced the fixed-to-mobile tariff by 33% and we reduced domestic long distance by 20%." Beshir adds that the company also increased the minute charge from fixed-to-fixed by one piaster - or one hundredth of an Egyptian Pound - from two to three piasters, and increased the monthly fee by EGP2.

This initiative was followed in November by a special month-long promotion during which Telecom Egypt offered free connections, which netted the company 740,000 new subscribers - about the same number of subscriptions it usually gains in a year, according to Beshir.

But while mobile networks may have taken subcribers away from Telecom Egypt, which sees average growth of between 3% and 5% in its fixed line business, another side of its business has benefited from the growth of the mobile sector.

"We benefit from the growth of mobile in three ways," says Beshir. "One is through our partnership with Vodafone. Another is through the interconnection of mobile, and the third is through the rental of infrastructure. The introduction of a third mobile operator, Etisalat, and of 3G services means we are able to sell a lot more transmission capacity to them," he says.

3701 days ago
Alex Baran

Egypt is one of US's most important bilateral trading partners. I read at in what sectors are made the biggest U.S. investments. As major infrastructure projects are constantly being made, American companies will find attractive opportunities here.

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