Better and better

The already buoyant telecommunication sector is to be boosted even further by privatisation and a third mobile network, writes Sherine Abdel-Razek

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Communications and Information Technology (CIT) is one of the fastest growing sectors worldwide, and Egypt is no exception. The industry is booming with improvements in fixed telephone services, best reflected in the now smooth process by which new landlines are acquired, and a rapid increase in the number of people having access to the Internet and mobile lines. These are backed up by a number of government initiatives to bolster and liberalise the sector.

While it was only in the late 1990s that the sector was given a strong push after forming an independent Ministry for Communication and Information Technology (MCIT), it soon matured to become one of the best performing sectors in the economy. CIT's growth rate has been estimated at between 30-35 per cent in 2004. According to the Information and Decision Support Centre (IDSC), the number of companies working in the sector reached 1,350. The number of fixed telephone lines is 11.7 million with teledensity of 13.5 per cent compared to 10.5 per cent at the end of 2001.

As for the newer communications -- mobiles and the Internet: the number of mobile phone users reached 7.09 million and that of Internet subscribers now stands at 3.5 million.

Recent statements on the imminent privatisation of the sector's crown jewel, Telecom Egypt (TE), by the end of 2005 is but one more advance. By doing so the government is ending its monopoly of fixed line services, an essential factor in accelerating improvements in performance. While the 13 per cent penetration rate of fixed line telephony represents a three per cent increase on 2001 figures, and is on a par with north African countries Libya and Morocco, it is low when compared to other regional countries. For example, it represents less than a quarter of that of neighbouring Israel.

According to telecommunications laws, a maximum 49 per cent of the company can be sold to the private sector. In May 2001, TE selected a team to advise it on a strategic sale of a 20 per cent to 34 per cent stake in the company. However, the plan was shelved due to the then unfavourable market conditions.

Another important evolution was CIT Minister Tareq Kamel's statement at Davos earlier this week concerning a third mobile network. "The procedures for establishing Egypt's third mobile network will be revealed in three weeks," Kamel said. It was rumoured that a Canadian company was interested in acquiring the licence of this newest mobile network. It is not yet known whether the network will be a GSM or a third generation.

In late 2003 TE applied for and bought a third mobile licence from the National Telecommunication Regulatory Authority (NTRA), soon after the four-year exclusivity period of the current two mobile network operators ended. However, the plan was put on ice after a study showed that a third network was not economically feasible. The two mobile operators, MobiNil and Vodafone Egypt, have each paid LE1 billion to TE to acquire the frequency it bought.

TE has one leg in the mobile market through its 25.5 per cent stake in Vodafone Egypt. However, MobiNil remains Egypt's dominant mobile operator with 3.29 million customers. Vodafone Egypt remains close behind with just over three million subscribers as of June 2004. The market has enormous growth potential with a penetration rate of just eight per cent.

As for the Internet, it is still relatively fledging in Egypt. According to Business Monitor International, growth in Egypt's Internet market increased by about 20 per cent during 2003, but the overwhelming majority of access points are through cyber cafés. Home PC ownership remains limited.

A number of warmly received government initiatives were launched during the last few years. In 2002 it announced a subscription-free Internet according to which web surfers would pay only the price of a local call instead of the monthly subscriptions to Internet Service Providers (ISP)s. The initiative is based on a revenue sharing scheme between Egypt's national fixed line operator TE, and leasing ISPs. The move led to a significant increase in the number of online users.

Another initiative aiming at availing the technology to those of limited income was the "pc for every home" programme. PCs are sold on instalments without collateral except for a fixed line bill. The expenses of owning a computer at home was the primary reason for the lack of computer use in the Egyptian economy. The expansion in Internet cafés in remote and rural areas also helped in giving the public better access to the web. The number of Internet cafés is now 618.

Voice over Internet Protocol (VoIP) technology is soon to be introduced. This allows users to make phone calls, whether local or international, through the Internet. As of now, all international calls must be made through the traditional legal gateway. If TE gives the green light, it will represent a revolution in the Egyptian telecommunication industry.

Capitalising on the growth potential of the market, the listed IT companies are together cornering a big chunk of capital market transactions. They are the main market movers and shakers. Orascom Telecom (OT), together with its sister company MobiNil, and Vodafone Egypt constitute 22.7 per cent of overall market capitalisation. OT's expansion plans gives it three-digit growth figures in sales, profits and even share value. As for MobiNil, the main asset is its 52 per cent local market share together with its ties to its 17 per cent owner OT, which strengthens its position among regional players. Also, Vodafone Egypt is making good use of the expertise and state-of-the-art technology as that of its parent company, British Vodafone.

However, the picture is not all that bright. The ICT market accounts for just 2.3 per cent of Egypt's GDP and exports do not exceed LE500 million.

According to a Fitch IBCA report, there are several weak points in the sector. The monopoly status of the fixed-line sector, together with further delays in the privatisation of Telecom Egypt, are curbing growth in the sector. Political uncertainties in the region could also lead to limited direct foreign investment.