Al-Ahram Weekly   Al-Ahram Weekly
11 - 17 May 2000
Issue No. 481
Published in Cairo by AL-AHRAM established in 1875 Issues navigation Current Issue Previous Issue Back Issues

Naguib Sawiris
 
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Private initiatives

In an exclusive interview, electronics magnate Naguib Sawiris tells Amira Howeidy about Orascom Telecom's 'big plans' for expansion inside Egypt, in the region -- "our limit is Pakistan" -- and Africa. Much needs to be changed in government policy, he insists however, if the IT sector and the economy as a whole are to take off

Orascom Telecom's (OT) chairman and CEO Naguib Sawiris is in the news every day. This week, OT will announce its introduction of the WAP service to the MobiNil mobile network (the WAP is a wireless application protocol: an open, global specification that empowers mobile users with wireless devices to access and interact with information and services instantly and easily). MobiNil will be the first GSM network in the region to introduce this advanced technology. Two weeks ago, OT clinched an historic deal on the local Internet market by buying 60 per cent of Intouch -- Egypt's largest Internet Service Provider (ISP). OT was already a shareholder of 40 per cent of Intouch, and now owns approximately 99.9 per cent of the company. Last July, it took a 51 per cent stake in Link Egypt, another major ISP. OT has also been expanding across Africa and towards Asia by buying Telecel, the African network, and almost 30 per cent of the Pakistani mobile network. Moreover, it is obtaining operation licences in several Arab countries.

After the Intouch deal, and the Link one before that, it would seem that OT now owns over fifty per cent of the local Internet market. What do you plan to do with it?

Orascom Telecom is a very ambitious operator with big plans for the region and Africa. This is fact one. Fact two is that the Internet today is developing in a way that makes it one of the most important elements of the economy in the world. It has created new jobs, new venues beyond any expectation, so just from that point of view it is important for us to be in that area.

But then the specific issue here is that mobiles and the Internet are merging, so that the third generation of telephony will feature an Internet aspect. If you also take into consideration the fact that we need to expand regionally because of the vast requirement for human resources, then the answer is very clear.

We wanted to have Intouch in full so that we could use the human resources it has created over the past years for further expansion without any -- let's say, opposition from other shareholders. It wasn't just to increase our market shares, because we were already partners in Intouch and we were founders in early 1994. This just gave us the complete reason to move regionally.

Into the Internet?
Yes, of course. Because when we need to go regional with the mobile, we need to go regional with the Internet too. We must have ISPs in all the countries we're moving into, and we must develop a portal relationship. We must have the ISPs that will connect to that portal.

Does that mean that you intend to convert Intouch into a portal?
No. We are using Intouch to spread the geographical presence in the region.

No one seems to know just how much the Intouch deal was worth. It was shrouded in secrecy, yet it is common practice elsewhere in the world to make the details of such deals public.
(He shakes his head)

Is a merger between Intouch and Link possible?
Yes.

Soon?
Yes.

And this merger will be a prelude to the regional expansion scheme?
Yes.

Are you talking about WAP?
Yes.

Can you elaborate on that?
The third generation is coming, and it will use the mobile to become the most important element.

But can you specify the services MobiNil will introduce?
I think there will be a conference in the coming few days announcing our WAP service. I don't want to disclose that because we didn't want to talk about it before we had it. But it's happening now. It's still a trial network. The WAP is still not that widespread even in Europe.

How many current Internet subscribers, users and potential subscribers are there?
There are 60 ISPs and approximately 60,000 paid subscribers; maybe 250,000 users.

Will you, via the Link-Intouch merger, work on increasing that number?
Yes.

Do you have a target figure?
At the current rate, things are not going to change very much unless the government really fulfills its promise to reduce customs duties on the equipment, PCs, modems and software. And then the second level is the use of leased lines.

The government also promised that it will convince Telecom Egypt to reduce rates for data use. But they're still very high. All these elements will be decisive in allowing the market to expand.

It is surprising that despite the portal trend sweeping the local Internet market, you will not be converting Intouch into a portal. Why is that?
Of course we will have a portal, our own portal. But it is going to be an independent one. Whether we do it via Intouch or alone -- this hasn't been decided yet.

OT recently invested $50 million in the Pakistani mobile network Mobilink after purchasing 26.8 per cent of its stakes. Previously, you bought Telecel, which has 14 operating licences across Africa. You've also been an advocate of an Arab telecommunications consortium. Is the creation of such a body imminent? And what are OT's regional expansion plans?
[The Consortium] isn't imminent. We've been on the same path from the very beginning. We have a plan to become the African and Arab telecommunications operator of the region. We've demonstrated that through our presence in Egypt, Jordan, Syria and finally in Yemen, where we won the final licence, one of the two mobile licences.

Our limit is Pakistan from a geographical point of view. We find a lot of similarities with Pakistan from a cultural point of view, population and so on.

We have a very simple motto: this area has been used to sitting and waiting for these multinationals to come in and help operate our networks. Its our belief that this expertise is available locally. Some of the richest people of the world are in the area; they just need to be convinced to invest in the area. That's what we were urging them to do when we called for an Arab partnership. We should have our own regional Arab telecommunications operator. Every country has its own. There's Saudi Telecom, Bahrain Telecom (Batelco), Ittisalat (Emirates), Egypt Telecom.

Our vision in OT is to be regional so we can create an international body that can at some point in time compete in the international arena. We feel this is our right.

We shouldn't always be recipients in this part of the world. We sit here and then we complain that we don't have an IT industry. How can you have an IT industry when the biggest expenditure, which is on telecommunications, always goes to those not from the area. They are going to provide jobs for their people. We want to provide jobs for ours.

What kind of investments does OT have in Syria?
In Syria we operate one of the two networks right now under the name Syriatel.

What about expansion in Iran and the Gulf?
These markets are not open yet, but should they be opened, we will go for it.

So is OT's regional expansion replacing this Arab partnership? Are you going solo?
No, some of the major investors in OT right now are Arabs: there are Kuwaiti, Jordanian, Lebanese and Palestinian investors. From your point of view, what is causing the current recession? The government's policy. Its policy was to reduce the deficit and curb inflation. So you can only argue that the symptoms were correctly diagnosed and the medicine was correct. But the dose had to be measured. So at a certain point you need to stop the cure and start uplifting.

The reasons why the government did that were clear. But it's also clear that the government had to interfere quickly and reverse the wheel -- otherwise you choke. Take it as a patient whom you have to treat with very measured doses. If you increase the dose, you kill the patient. And you're giving him cures, but you're actually killing him.

Can you be more specific? How was this implemented on the ground?
The government limited the banks' ability to lend, and postponed large payments to many crucial elements of the economy. It imposed many constraints on imports. There was great resistance to the construction industry, which is one of the biggest movers of the economy. Building licenses and permits were delayed. There are also the Central Bank regulations imposing limitations on loans.

Observers offering a reading of the cash squeeze partially blamed the bills of the mobile telephone service, which, they argue, amounts to one third of the average income of subscribers. How do you relate to that?

It's not a point against me. I don't think this was a criterion. It's one of the expenses people have. I'm sure they used their telephones at home and half of this income goes to Egypt Telecom. It goes back to the government in any case. I don't think this is a reason for the liquidity problem.

You don't think that paying one third of one's income on a mobile phone bill contributed in any way...
If your bill is one third of your income, you have to be really crazy. If you use the phone that much, you just have to be crazy. Then it's a luxury. If it's a necessity why don't you stay with pre-paid cards? Then you have no monthly fee. But at that point, something must be wrong. Are people who pay one third of their income on cigarettes reasonable?

Even now, on the mobile operations, we're experiencing this liquidity problem. Our first quarter results this year weren't as positive as the previous quarter. So projected net profits were far, far less. When you analyse that you will find that it stems from the fact that people are talking less, not more. And they're talking less because of the liquidity problem they have, although prices have dropped.

We feel it as much as the country does. And the competition is getting very fierce while prices are going down, because operators are panicking that they will not be able to achieve their targets.

Critics also blame the government, which has recently been issuing laws tailored for large businesses, such as OT for example, while barely recognising small or medium businesses. In other words, the government has not been very aggressive in pursuing small business opportunities.
I guess this is true. I think it is correct to say that jobs are actually better created through small businesses than bigger business because of the elasticity. It's very simple mathematics. For example, a million small businesses and 10,000 big businesses. Assuming every big business adds ten people -- employment opportunities -- you end up with 100,000. Assuming the small business adds just one employee, you have a million jobs.

So simple mathematics shows you that you are correct: small businesses add more job opportunities and are vital to the economy. So I agree with you. The government didn't have a clear plan. But then they would argue that there is the Social Fund.

Do you believe the government will pay small businesses more attention?
I don't see any kind of change in that direction.

Do you agree with pessimistic scenarios of a possible Asian crisis here?
No, not the Asian crisis. But some government officials are still claiming that there is no liquidity problem. I don't know why, and I find this ridiculous. If the president himself calls for a meeting and addresses the problem, then we must have a problem. So it's no good saying there isn't one and burying your head in the sand. The only way out now is how fast they move, and how fast they can fulfill their promises. In all honesty, they need to implement whatever they said and do it fast and ignore critics or the press, because if you know you're right you should be allowed to go your way.

I mean, the press opposes the decree banning the demolition of villas, so the government responds by reversing its decision. In a crisis you can't move at the same pace as in normal circumstances. If you want to get out of this crisis, you have to accelerate the privatisation process because it's going as slowly as ever. Look at the newspapers in the last six months, see the advertisements, see how many companies have been up for sale. If you exceed the number of three to five, you're lucky, maybe I missed something.

Why this slow pace -- especially on the cement issues, which were disturbing to the market? There should be a move now with a clear direction -- that we are continuing the privatisation process, that it will be accelerated. And the pricing. To claim every time that 'we didn't get the right price' -- you will never get the right price. If you auction a company three to four times and you're still not convinced that you know the price, then the mistake is not in the company. The mistake is in the decision-making. As the private sector, I have an apartment, I hold an auction, I invite people to come and buy it, once, twice, three times and I'm not satisfied with the price. I don't want to admit my apartment is only worth that much.

What they should realise is that even a company can be auctioned off more than once and still command the same price.

Take real estate, for example. A year ago in Cairo, it would have cost double its current price. This is the market economy. The problem is that sometimes governments behave like individuals who see that their land cost LE1000 per metre but today they're getting LE500, so they're not going to sell. An individual may have this luxury. But a government with a policy should not be concerned, in the first place, with the value of the actual selling. It should be concerned with job creation, privatisation and policy.

When the government sought to boost movie production and issued a law allowing businesses with a minimum capital of LE200 million to enter the field, you established Renaissance, obtaining all the privileges offered by the law, but never actually investing in cinema production.
The problem is that we finished the first phase of our plan, which was to open new theatres. We ended up with 35 across the nation. We divided them regionally and geographically. Now we found out that the available theatres are not being filled by enough films.

Our move [into this area] was actually emotional, because I love the cinema and I love the Egyptian movie industry. I wanted to do something people would thank you and remember you for. But we found that there aren't enough movies. So we are going to create a new venture, which will focus on production to fill in this gap.

The producer you recruited, Hussein El-Qala, was reported to have disagreed with the manager of Renaissance, which is why the production stage hasn't been carried out yet. Is that true?
Well, no. We are suffering from the cash squeeze. So we haven't been very successful in getting financing to help the production branch of our group.

What exactly is your stance regarding the government's decision to allow the private sector to buy shares in the Egyptian satellite channels?
The government didn't say that. It said that it's selling the skies. But the sky isn't anyone's to sell.

Look at it this way. I'm a businessman. The government says, 'I'm going to allow you to have a satellite channel.' [But] I don't need the approval of the government to do that. I can do that anywhere in the world.

So what's the big news here? The [question is] why does the government keep the monopoly of terrestrial broadcasting to itself? What harm would befall the government if they allow us to have a terrestrial channel in Assiut, for example? Someone should answer this question. Are they afraid that we're going to broadcast anti-government stuff? They can close it down. Are they questioning our nationalism? I don't know any other group that has more investments in Egypt. So are we going to be the ones harming Egypt? Where's the problem?

But they keep the terrestrial channels because these are very cheap, and they tell you go and invest in satellite. I can do that anywhere.

So you think that the government's monopoly of terrestrial broadcasting is basically for financial, not political reasons?
For me, that's all it is.

You don't think there are political dimensions?

Again, the government is still scared of opening up certain areas to the private sector. And I don't know the reasons, you should ask them. I see no reason. There's always this big slogan 'this is a strategic area'. Telecommunications was a strategic area.

You can use [the term] strategic for everything: bread, cement, water. I really see no reason for that. You should open up, you should give licences to the private sector. We should have rights to terrestrial and cable broadcasting and the government shouldn't monopolise the market as it is doing now.

We feel that this isn't right. We've seen the jobs created in telecommunications alone. Two new companies -- MobiNil and Click -- created 30,000 jobs, directly and indirectly. Billions of pounds were generated in extra income to the government in the form of licence fees, taxes, social insurance, revenue sharing and pricing for the services...

So you will only invest in terrestrial broadcasting if you get the green light?
Yes.

A group of businessmen announced they will launch a private channel, Al-Mehwar, in October. What is your comment?
Good luck to them.


Related link:

Orascom Technologies

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