Mobile operators prepare for competition in Egypt

11 August 2013

With Egypt set to award 4G licences in the near future, state-owned fixed-line operator Telecom Egypt is looking to expand into the mobile market, meaning increased competition in an already mature sector

Egypt’s telecoms operators are manoeuvring for advantage as the country looks to award fourth-generation (4G) licences, perhaps as early as next year.

The military’s overthrow of Islamist president Mohamed Mursi has left the political outlook uncertain, but industry observers believe the interim government could seek to accelerate the liberalisation of the telecoms sector as it pushes to revive the economy. Analysts are expecting greater competition in place of the protective attitude towards national fixed-line operator Telecom Egypt (TE) that prevailed under the one-year Mursi administration.

Opening up the fixed-line market to the three mobile operators – Vodafone Egypt, Etisalat Egypt and Mobinil – is one option. While the use of fixed-line telephones is fairly stagnant, there are big opportunities for growth in fixed-line data transmission, where the mobile players currently have to lease capacity from TE.

Greater reform

Greater market diversification and reform could also offer opportunities for TE, as the company’s chief executive officer, Mohamed el-Nawawy, has recognised. He has set out an ambitious strategy to extend the base of his business. In part, this means broadening the scale of services provided on a wholesale basis to other operators. TE has just agreed a deal – valued at £E200m ($28.6m) a year – to allow Etisalat Egypt the right to use transmission services across its network.

The future [for Egypt’s telecoms sector] is mobile data; fixed-line broadband will grow, but slowly”

Maria Samir, Beltone Financial

But TE also wants to expand the services offered to business and retail consumers. “TE operates fixed-line services at present, without a mobile arm,” says Nadine Ghobrial, telecoms analyst at the local EFG Hermes. “It also owns Egypt’s internet backbone, leasing capacity to internet service providers [ISPs]. It has an ISP arm, TE Data, which has a 60 per cent stake in the retail data market. Now, it wants to preserve its subscriber base by offering a range of services, starting with mobile telephony.”

Mobile operators expect this to increase competitive pressure in an already aggressive cellphone market. “The telecoms ministry has come up with a compromise,” says Ghobrial. “It plans to grant TE a universal licence, which would allow it to start its own mobile services, while also allowing the mobile operators entry to the fixed-line market at a later stage.”

Vodafone Egypt and Mobinil recently renewed their agreements with TE for international and transmission services, giving them huge discounts on interconnection provided by TE, which owns one of Egypt’s two international gateway licences. Etisalat Egypt has its own international gateway, which it bought along with its mobile licence in 2006.

TE owns a 45 per cent share in Vodafone Egypt and Ghobrial says it will eventually have to decide whether to sell the stake or seek majority control of Vodafone and fully consolidate it.

“All these issues are being played out against the context of possible 4G licences,” says Ghobrial. “The government had talked of issuing these as early as next year. The timing is now uncertain because of the recent political changes, but in the long term it seems likely that 4G will go ahead, and TE wants a share of that market. This is why it is making a push to get into the mobile market now.”

The overall context for such competitive positioning is a market where only 10.7 per cent of Egyptians have a fixed-line connection and the market is declining. Broadband fixed-line penetration is 3 per cent. By contrast, market penetration for mobiles continues to rise – from 112 per cent in 2012 to 116 per cent this year – which amounts to 94.6 million subscriber accounts. The mobile sector is growing by 6-7 per cent a year, says Maria Samir, telecoms analyst at the local Beltone Financial. “The future is mobile data; fixed-line broadband will grow, but slowly.”

Distinct offering

With the market already well catered for, TE will have to offer something distinctive. Rather than trying to challenge existing mobile providers by targeting the low-income mass market for mobile services, Samir expects TE to concentrate on its more affluent customers.

“[TE is] entering as the fourth player in a full market, so they want to offer their current customers a package deal with mobile and broadband data,” says Samir. She believes TE will probably use price discounts to tempt these customers into taking up the extra service options.

Rather than investing in its own mobile infrastructure, Samir expects TE to initially lease capacity from existing providers, thereafter developing its own network or perhaps buying Vodafone Egypt to secure control of its assets.

The speed with which TE develops in the mobile market will be shaped by its pricing strategy. “The more affordable services are, the higher the growth will go, because the majority of people don’t have much money,” says Samir.

The current operators realise they will not be able to dissuade the government from allowing the fixed-line giant into the mobile market, but they are looking for something worthwhile in return. International access has been one of the issues at play.

In numbers

116 per cent: Market penetration rate for mobile phones in Egypt in 2013

6-7 per cent: Annual growth in the country’s mobile sector

Sources: MEED; Beltone Financial

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