Global Investment House – Egypt Economic & Strategic Outlook - Egyptian Telecom Sector –
The telecom industry in Egypt has undergone extensive changes in recent years and is one of the fastest growing markets in the Middle East and North Africa region. The development of the sector in recent times was due to efforts of Ministry of Communications & Information Technology (MCIT), which was established in 1999. MCIT launched several initiatives to drive up the growth rate of the sector. To bring transparency into the sector, MCIT established the National Telecommunication Regulatory Authority (NTRA) to take charge of licensing issuances, frequency allocations, tariff rebalancing and consumer rights protection. The NTRA board is headed by the minister of communications and is made up of several government officials as well as industry professionals.
In the fixed line telecom segment, Telecom Egypt (TE) is currently the sole player. The domestic fixed line market has been liberalized since 1998, but there haven’t yet been any interested bidders. This is mainly because of high up-front costs for building a nationwide fixed line network and lower growth in the segment since market in nearing saturation. TE was originally established as Arab Republic of Egypt National Telecommunications Authority (ARENTO) and in the year 1999, the company was transformed into a public joint stock company. In December 2005, the government sold 20% of TE through Egypt’s largest IPO so far, raising LE5.1bn. There was a huge demand for the stock.
In the mobile segment, there are currently two players MobiNil and Vodafone Egypt. Egypt’s cellular market was started in May 1998, when MobiNil launched first GSM mobile network. After six months, Vodafone Egypt entered the market as the country’s second GSM provider in November 1998. Recently a third license was awarded to a consortium of the UAE-based Etisalat, Egypt Post, National Bank of Egypt (NBE) and Commercial International Bank (CIB). The new company will start its operations in 2007.
Total telecom revenues (fixed line & mobile) grew at a CAGR of 17.2% over the four year period from 2001 to 2005 to reach LE19.4bn. During the same period, the total number of subscribers grew at a CAGR of 22.6% to reach 23.22mn in 2005. Overall telecom penetration (fixed line & mobile) more than doubled during the period, increasing from 15.3% in 2001 to 32.6% in 2005. The growth during the period was driven by mobile telephony, whose revenue and number of subscribers grew at a CAGR of 26.7% and 37% respectively during the same period. The growth in telecom industry continues in 2006 also, which is reflected from the fact that the total number of subscribers had reached 24.9mn in 1H06.
Fixed line segment revenues grew at a CAGR of 8.9% over the four year period from 2001 to 2005 to reach LE8.5bn. During the same period, the total number of subscribers in fixed line segment grew at a CAGR of 11.8% to reach 10.4mn in 2005. Revenue growth has been slower than subscriber growth due the downward tariff rebalancing causing reduced ARPLs (Average Revenue per Line) as well as the migration from fixed to mobile. Another reason is that TE is facing illegal trafficking of international calls leading to a sizeable loss of revenue. During 1H06, the number of subscribers of fixed line has increased to 10.6mn.
Mobile segment revenues grew at an impressive CAGR of 26.7% over the four year period from 2001 to 2005 to reach LE10.9bn. During the same period, the total number of subscribers in mobile segment grew at a CAGR of 37% to reach 12.8mn in 2005. In fact the year 2005 saw maximum growth in the number of mobile subscribers i.e. close to 69%. The penetration of mobile telephony has increased from 5.4% in 2001 to 18% in 2005.
Though started only in 1998, the revenues of the mobile segment have crossed that of fixed line segment in 2004. The contribution of mobile segment to the total telecom revenues has increased from 41% in 2001 to 56% in 2005. Similarly the share of mobile subscribers in the total telecom subscribers has increased from 35.4% in 2001 to 55.2% in 2005. Factors like increased convenience, low cellular penetration rate compared to the peer countries, better service quality, the introduction of innovative tariff plans, higher disposable income due to lower tax rate and GDP growth are driving high growth of mobile segment. During 1H06, the number of subscribers of mobile telephony has increased to 14.3mn.
We believe the entry of the new player in to the mobile segment will further stimulate the market. Both the existing players might push the market aggressively trying to make it difficult for the new player which is targeting 30% market share in 3-5 years. The new player might cut tariffs for the sake of market share leading to price war and further reduction in ARPUs (Average Revenue per User). The mobile segment of the Egyptian telecom sector will maintain its high growth rate in coming years on the back of rising economic growth and investment and comparative lower mobile penetration rate.
