Telecom Egypt’s investment in infrastructure is starting to pay off
Despite Egypt’s ongoing political turbulence, Telecom Egypt (TE) has enjoyed a degree of commercial resilience in the past year. Its broadband subsidiary exceeded 1 million subscribers for the first time and crossed the £E1bn mark in revenues. Its retail segment has been hit hardest by the political unrest and its negative impact on economic sentiment. Since January 2011, local call revenues, the largest component of TE’s retail income, have come under significant pressure.
With Egypt’s businesses still struggling, the political instability has acted as a short-term drag on the fixed-to-international calls segment in particular. Last year, retail revenues declined 11.9 per cent to £E4.74bn. Total consolidated revenues in 2011 fell to £E9.9bn, from £E10.2bn in 2010. Net profits declined 6.8 per cent to £E2.9bn. In addition to reduced demand as a result of slower economic activity and fewer tourists, TE has suffered from an increased tax burden. The corporate tax rate was raised from 20 per cent to 25 per cent in 2011.
The upside in 2011 came from the company’s brisk performance in wholesale services. This accounted for more than 52 per cent of group revenues of £E5.2bn, a 6.6 per cent increase compared with 2010.
TE’s investment in infrastructure is starting to pay off. The firm’s newest business line, selling infrastructure for submarine cables, generated $841m in revenues in 2011.
The challenge facing TE in 2012 is to ensure the retail business, which is most exposed to Egypt’s ongoing economic crisis, does not impact overall performance. For that, it will require regulatory decisions to be taken in its favour, including the granting of the controversial virtual mobile operator licence.
If TE succeeds in extending its reach into a broader range of value-added services, it should be able to mitigate revenue losses on the retail side. In the medium term, TE’s position as Egypt’s sole fixed-line provider will ensure it continues to maintain a dominant position.