Three's a crowd
Postponing the launch of Egypt's third mobile company may have the country's two incumbent players rejoicing, but it may also jeopardise the future of Telecom Egypt's privatisation. Niveen Wahish writes
Over a year ago, Telecom Egypt (TE) went through the ordeal of publishing adverts for the supply and installation of equipment for its expected mobile subsidiary. Last week, and with no prior warning, news was leaked that Telecom Egypt might postpone the launch of its mobile operator. It is now in discussions with the Egyptian Company for Mobile Services (ECMS), also known as MobiNil, and Vodafone-Egypt who are offering it LE2 billion to stay out of the market for the next five years. During this time MobiNil and Vodafone-Egypt hope to prolong their monopoly over the market, which was due to expire in 2002. MobiNil and Vodafone- Egypt enjoy a combined subscription base of around 4.5 million people. Together they have expanded the mobile phone market significantly. In 1998, there were less than 100,000 mobile phone users in Egypt.
While the various parties have admitted to discussions taking place, none of the details have been disclosed. Akil Beshir, chairman of TE, in a display of candour, said that it was one of the options on the table. Ironically, just a few weeks ago, the minister of telecommunications and information technology had said that a third mobile company was on its way.
A statement by ECMS has also confirmed that there are discussions underway between the different parties. However, the company added that it, "cannot comment on the specifics or outcome of discussions at this time."
Many questions surround the deal, should it take place. For one thing it is not known who will receive the LE2 billion being offered; the National Telecommunications Regulatory Authority, the body in charge of granting licenses to operators, or TE. TE received its licence in 2001 for a sum of LE1.975 billion, the same amount paid by MobiNil and Vodafone-Egypt.
It is also not clear how the two mobile operators will finance the deal. According to Hassan Samir, head of sales and trading at Prime Securities, the incumbent mobile operators will be paying too high a price. Should each company pay LE1 billion of the LE2 billion, the price tag on the deal would amount to annual payments of LE200 million. "That would be a huge proportion of their annual profits, if they finance [this deal] using profits," he said.
However, a study by EFG-Hermes focussing on the effect of the deal on MobiNil, showed that an alternative would be for MobiNil to finance the payment to TE through the issuance of debt. This, "would partially offset the effect of higher taxes resulting from the increase in the company's taxable income".
The EFG-Hermes study also said that delaying the entrance of the third operator for another five years would result in an increase in forecast revenues for MobiNil, "given the absence of price wars and higher net subscriber additions". "Both operators would be able to continue rebalancing their tariff structure more efficiently to realise the best economic returns," the study added.
The repercussions for TE also remain unclear. According to Samir, postponing the introduction and entry of TE's mobile operator will likely affect its valuation on the market, as well as its efforts to attract a strategic partner. TE has been looking for a strategic partner since its plans for an Initial Public Offering (IPO) were suspended because market conditions were not encouraging. TE's mobile company was seen as a major attraction for potential strategic investors in the company. It is not yet known whether the failure to find a strategic investor may have encouraged TE to consider the offer by the two existing mobile companies, and whether this move will mean putting the company's privatisation on hold.
