Limited scope for further increasing mobile penetration amongst Egypt’s massive 80m-person population has intensified competition in terms of both tariffs and products between Egypt’s three GSM operators – Vodafone, Mobinil and Etisalat – who may soon be joined by the country’s first virtual network operator.
Egypt had 91.32m mobile subscriptions at the end of January, according to the Ministry of Communications and Information Technology (MCIT). This suggests a penetration rate of 112.3%. The high figure reflects the fact that many people have two or more SIM cards: some have several telephones, while others rotate SIMs depending on whom they are calling.
Subscriptions held by visitors and SIMs used for laptop data connections also boost the figure, and there is also a degree of “churn” in the market, or customers switching operators regularly to benefit from the latest deals.
Nonetheless, there is little doubt that the mobile market is nearing saturation in terms of SIM ownership. Karim Khadr, the head of research at HC Securities & Investment in Cairo, told OBG that, discounting the very old, very young and very poor, there are around 55m Egyptians who realistically could be expected to own mobiles. Among this demographic (approximately two-thirds of the population), he estimates that real penetration is around 100%.
As a result, competition between the operators has intensified dramatically and the sector has increasingly been characterised by battle for market share, with one of the most significant shake-ups the wake-up of the country’s third major GSM operator. Etisalat, majority-owned by the UAE national telecoms company of the same name, entered the market in 2007, and its aggressive pricing policies had an immediate impact on overall tariffs, though its subscriber base is still slightly more modest than that of Mobinil and market leader Vodafone.
This sort of competition has obviously benefitted the consumer, but has also cut average revenue per user (ARPU) considerably. Khadr estimates that ARPU now ranges between LE23 ($3.80) and LE27 ($4.45), depending on the operator. This has squeezed margins, prompting operators to try and expand usage of value-added services, particularly mobile internet data.
According to the MCIT, there were 10.71m mobile internet users in Egypt in January, 12.84% of all mobile subscribers. The number of regular users is likely to be somewhat lower, however, as some people have handsets with internet capability, but rarely or never go online with them.
The flipside of relatively low data penetration, however, is the scope for growth, and operators have seized on this potential. The rapid growth of social networking, stimulated by the Arab Spring has been a factor, but the underlying fundamentals of a growing population of young and tech-savvy Egyptians, as well as rising incomes, are the driving forces for long-term growth.
“Data plans from all the operators have become very competitive, which has boosted content usage,” said Mathia Nalappan, the general manager for Nokia North Africa. “Social networking, education and entertainment data applications have all been areas of growth in Egypt.”
Indeed, it is likely that competition on data and services, rather than just pricing of voice connectivity, will encourage greater cooperation between operators on sharing network infrastructure, particularly transmission towers. With thinner margins but an increasing need to enhance network capacity and connection quality, pooling resources on capital-intensive equipment makes commercial sense.
To date, there has been little movement in this direction, partly due to the rivalry that exists between the operators. But the potential emergence of state-owned, fixed-line operator Telecom Egypt as a mobile virtual network operator (MVNO) offering mobile services through existing infrastructure, may force greater collaboration on network-sharing.
The potential for sizable data growth, in spite of the competitive pricing environment, mean that all three operators and their shareholders are willing to make additional investments to grab a step or two on their rivals in new data-heavy services. Those that are able to successfully establish a sustainable portfolio of data-based products and services now will be best placed to support margins in the long term.
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