Global Investment House - Kuwait– Egypt Economic & Strategic Outlook – Telecom Sector-March 2008- The Egyptian telecom sector witnessed significant changes in 2007, impacted by the emergence of the third mobile operator, Etisalat Misr, in a duopolistic mobile market governed by Mobinil and Vodafone Egypt. In July 2006, the consortium headed by UAE’s operator (Etisalat) won the bid on the third mobile operator license in Egypt at a total consideration of LE16.7bn (US$2.9bn).
The winning consortium is 66% owned by Etisalat, 20% by Egypt Post, 10% by the National Bank of Egypt (NBE) and 4% by Commercial International Bank - Egypt (CIB). In Addition to the LE16.7bn, Etisalat will pay 6% of the operator’s annual revenues to the National Telecommunication Regulatory Authority (NTRA). Moreover, the license duration is for 15 years, after which a five-year renewal contract with new terms will be signed. The new operator launched its 2G and was the first to introduce the 3G mobile services in May 2007, under the brand name of Etisalat Misr. The entrance of the third mobile operator, Etisalat Misr, has altered the structure of the mobile market, as well as intensifying the already existing competition, in a low penetrated market.
The Egyptian mobile business is currently run by three operators, the two well-branded operators, Mobinil and Vodafone and the newly entrant Etisalat Misr. Mobinil was the first operator in Egypt, being operational in May 1998, followed by Vodafone which started providing the mobile service by the end of the same year. Both companies were operating under the 2G-based network, where Mobinil and Vodafone market shares were 51.6% and 48.4%, respectively in 2006. Etisalat Misr market share reached 4.8% in September 2007, and it plans to capture 30% market share in the next 3 to 5 years.
As Etisalat Misr introduced the 3G technology in Egypt, Vodafone Egypt and recently Mobinil acquired the license. Both operators acquired the 3G license at a total value of LE3.34bn (US$610mn) each, as well as paying 2.4% of total annual revenue to the NTRA. It is worth mentioning that Etisalat Misr license’s conditions stipulated that the 3G services stand for 20% of the total license value (LE16.7bn), which is equivalent to LE3.34bn (the amount paid by Vodafone and Mobinil) and 40% of the annual revenues (6%), which stands at 2.4% (the rate agreed on with Vodafone and Mobinil).
Vodafone and Mobinil’s main reason behind providing the 3G service was to free up the populated 2G network. The 3G technology is not only a high speed data carrier but also it expands the network capacity and improve the quality of the voice and data transfer. Actually, Vodafone realized this fact earlier than Mobinil, which believed that the huge investment costs needed to acquire the 3G service is not rewarding. However, Mobinil recently was convinced, after it witnessed a spectrum shortage in its network, to acquire the 3G service license and is expected to provide the service by May 2008. The 3G new services, such as video calling, internet connectivity and television streaming, is expected to attract a limited segment of the market. The majority of the Egyptians cannot afford the costs of the 3G service, as well as the extremely expensive mobile handsets, which apply the 3G technology. In view of that, the impact of the 3G technology on the operators’ revenues cannot be realized unless the 3G tariffs became affordable, along with the availability of cheap 3G handsets.
In 2006, the mobile subscribers soared by 40%, reaching 18mn compared to 2005. During the same period the mobile revenues rose by only 28%, reaching LE 14.5mn, on the back of lower call tariffs by the competing service providers. The existing players were presenting reduced and discounted offers to maintain their subscriber base from shifting to the new operator. In September 2007, the mobile subscribers reached 27mn, with a penetration rate of 36.2%.
Upon the entrance of the third mobile operator, the average revenue per user (ARPU) went down, as a direct result for the harsh competition between the three players, which came mainly from the new operator, causing the decline of ARPU from LE 82 in 2005 to LE 74 in 2006. The ARPU dropped again in 2007, after Etisalat Misr started operations to reach LE 58 in September 2007. Obviously, the entrance of the third operator has reduced prices and pressured the existing operators to further lower their tariffs. The prime factor for clients to switch between the current operators is thought to be the lower tariffs. Another factor lies in the quality of the services offered, including the network coverage and the voice quality. Having three well-built mobile operators will definitely result in a higher quality and better service to prevail in the mobile market during the next year.
The government moved forward to liberalize the sector and terminating the current monopoly in the international calls, as well as the fixed line service. In October 2007, NTRA approved granting the mobile operators the international voice gateway license, where the licensed company will provide the service to its subscribers only. The value of the license will be based on the number of subscribers, where LE 100 will be paid for each existing subscriber, with a preset minimum of LE100mn, to be paid once. In addition, the mobile operator will be required to pay LE 20 for each new subscriber at the beginning of every year. Etisalat Misr was granted the international gateway license in late 2007, whereas Mobinil and Vodafone announced that the decision to obtain the international license will depend upon the results of their ongoing negotiations with Telecom Egypt (TE) over reviewing the interconnection agreements between them.
