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Egyptian prepaid newcomer targets duopoly

NTCC, the latest entrant into Egypt’s calling card sector, aims to drive growth through price competition and, when allowed, VoIP.

Competition is hotting up for Egypt's prepaid telephony providers. But going on the success they’ve had so far with relatively basic services and marketing, there is plenty of life left in the sector.

In Egypt, calling card adoption is wider than in many countries, where they are used mainly by expats as a cheap way to phone home.

One possible reason is the 'mobility' they offer, particularly in a country where GSM services are beyond many users’ reach. Telecom Egypt’s (TE) three-monthly billing system for fixed services has also prompted many users to ditch their '0' access and go with pay-as-you-go in a bid to exert more control over their spending.

“Usually, [in places] like Saudi Arabia, prepaid cards are mainly used by foreigners who work there,” says Abdelrahmin El Gamal, assistant MD, Huawei Egypt. “In [these] cases, [around] 90% of revenues come from international calls. But in Egypt, cards are mainly used by the Egyptian people themselves. Revenue comes [primarily] from national and mobile, then international calls," he adds.

Although TE is expected to introduce monthly billing at some point, increases in prepaid usage are still expected to continue. Hence, a new player, National Telecom Cards Company (NTCC), was awarded a licence to enter the market in January this year. It launched its service, branded 'Moftah El-Zero', in May, to take on TE's 'Marhaba' unit and Tele-Card, a private player set up in 1999.

NTCC plans to compete with the existing players primarily on price, saying that there is potential for tariffs to come down. Although no independent figures are available on Egypt's prepaid market, the sector is believed to be generating between 10% and 11% of total fixed line traffic, representing around US$50 million in annual revenues. NTCC projects that increased volumes could drive this to around US$130 million within five years.

“The prepaid sector in Egypt is currently a premium market, but should be a discount market, like in the rest of the world,” says Amr Gohar, CEO and MD of NTCC. “[Prices] are above those of regular fixed line tariffs. They are therefore a point that we're trying to tackle aggressively. We’ll work on building our market share through volumes,” he adds.

Both players reacted quickly, however, once it became clear that a third entrant would come in. TE, for example, recruited Huawei last year to consolidate its two intelligent networks (IN) onto one platform. The vendor also worked alongside TE to improve its marketing and distribution of cards, which at the time were only on sale in its exchanges.

But while Tele-Card is perceived to have an edge over TE in distribution, there is still seen to be room for further improvements in that area that would help drive growth. NTCC, for example, plans to focus heavily on building up its retail channels. One plan is to team up with firms that provide home deliveries. "Distribution for prepaid cards is still not good," says Huawei’s El Gamal. "In many places, you can't find [them but] this means that the market is still fresh and can boom easily," he adds.

Another development that would give the market a boost would be usage of voice over IP (VoIP). NTCC has plans to adopt the technology, although there has been no formal declaration of when this will be allowed. "It’s not clear how it will be opened up," says Gohar. "But we're looking at providing telephony over VoIP media, which would lower costs for consumers. [Depending on] quality, we could also provide it for national and international calls," he adds.

It also seems natural that as TE expands its fixed infrastructure, the providers will be able to address a wider market and drive further growth. But they could also face additional competition when Egypt’s telecoms sector is fully liberalised. "After 2005, TE’s monopoly will end and the fixed network will be open for new operators," says El Gamal. "Any of them could participate in the prepaid sector, perhaps offering telephony over DSL. This would be a normal evolution," he adds.

Down the line, however, NTCC says it can build new revenue streams from value added services (VAS), offsetting any decline in volume increases or new entrants. "Growth will come from increasing the overall pie," says Gohar. "The market is very basic and we're still educating consumers on how to use cards. But I look forward to bundling VAS and introducing services for corporate users, such as account services and loyalty programmes,” he adds.

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