Three may become four: A new player prepares to enters the mobile market

Over the next year, it seems likely that Egypt’s three existing mobile operators will be joined by a fourth. Telecom Egypt (TE), the majority state-owned legacy telco, has expressed a strong interest in acquiring the licence and begun negotiations with the National Telecommunications Regulatory Authority (NTRA), according to press reports. Should the licence – which was due in summer but postponed due to the political upheaval, according to statements from TE’s CEO Mohamed Amin El Nawany – be granted to TE, it will bring some important changes in the market not only by increasing competition, but also ushering in a new licence categorisation of “universal” operators.

A NEW DEAL: In July 2013, the long-anticipated launch of universal licences came a step closer when TE and Etisalat announced a LE600m ($85.4m) domestic transmission leased lines agreement. This should pave the way for the UAE-owned GSM operator to offer services through TE’s fixed-line infrastructure, while TE now may work with Etisalat’s network as it looks to launch mobile services under a mobile virtual network operator (MVNO) model, though terms have yet to be agreed. The deal between TE and Etisalat also concluded disagreements on interdependence pricing – an issue that has also affected other mobile operators.

BREAKTHROUGH: The pending release of universal licences is arguably most immediately significant for TE, which has been seeking a greater presence on the mobile market beyond its stake in Vodafone for several years. The legacy telco aims to tap into the mobile segment to offset its declining fixed-line subscriptions, which fell to 7.2m at the end of the first quarter of 2013, down from 7.9m in the same period of the previous year.

“The market is worth around LE33bn ($4.7bn) and it is still growing,” TE’s chief financial officer, Mohamed Shamroukh told the local press. “Telecom Egypt’s legal share in this market is around LE5bn ($711.5m) so that new licence will improve our market share.” The universal licence would allow TE to move into mobile operations directly, complementing its existing fixed-line and internet businesses; the latter, TE Data, is the biggest internet service provider in Egypt and has helped boost revenues while fixed-line connections have fallen. “The main appeal of TE’s mobile operator will be that it offers a triple-play package deal,” said Maria Samir, an analyst at the Cairo-based Beltone Financial. “TE can capitalise on its fixed-line brand, infrastructure, history and a name, but it needs better human resources and to modernise its outlets, which are very basic.”

MVNO & BEYOND: At the time of writing, TE was still in final negotiations with the NTRA regarding its universal licence. If and when it acquires the licence, TE plans to minimise its capital investment initially by launching its mobile operator on an MVNO model. MVNOs do not have their own network infrastructure (such as towers), but instead lease spare spectrum capacity from other operators for an agreed price. This means that MVNOs have lower capital expenditure than traditional operators and can roll-out services more quickly as they have minimal construction lead times. However, they also have less control over service quality and tend to have lower margins.

Shamroukh has said that the firm plans to operate its mobile company for two years as an MVNO, with the aim of learning as much about the mobile market as possible. During this period, the company will assess its options; launching a full network is a possibility, and Shamroukh said that the emphasis will be on delivering the “newest technologies possible”.

EFFECT ON MARKET: The impending launch of a fourth operator has caused a stir across the sector, given the existing level of competition and its impact on margins. Amr Badawi, former executive president of the National Telecommunication Regulatory Authority (NTRA) told OBG that media perception is playing into opposition to the licencing offer, as it has been portrayed as offering a mobile licence to TE alone, rather than giving all operators the option to take up a universal licence. “Mobile operators can move into fixed-line if they wish,” he said. “We have to have an even playing field.”