Industry sources say the strongest candidate to join forces with TE is Austria's Mobilkom, which is understood to be conducting a due diligence exercise. TE is being advised by Credit Suisse First Boston.

Five companies submitted bids in mid-2002 for the equipment supply contract. They are Alcatelof France, Ericssonof Sweden, Motorolaof the US, Canada's Nortel and Germany's Siemens.

TE acquired its GSM licence for £E 1,975 million ($420 million) and is entitled to start operations from 1 December. However, the service is now unlikely to be launched until mid-2003, at the earliest.

The two incumbent operators - Egyptian Company for Mobile Services (ECMS)and Vodafone Egypt - each have over 2 million subscribers. The continued profitability of the market is evident from ECMS' results for the third quarter of 2002. The company's total revenues for January-September rose by 9.7 per cent year-on-year to reach £E 1,948 million ($418 million), and net profit rose by 38.4 per cent over the same period to £E 371 million ($80 million).

The major issue facing TE is whether it will be able to secure sufficient numbers of high-value subscribers to compete effectively with the two incumbents.