Al-Ahram Weekly Online   30 March - 5 April 2006
Issue No. 788
Economy
 
Published in Cairo by AL-AHRAM established in 1875

No more idle chatter

Telecom Egypt has raised its charges in order to finance further investment in services, reports Niveen Wahish

Telecom Egypt's (TE) recent announcement that it is increasing its rates to customers has come as a shock to consumers still reeling from other utility price increases. From 1 April TE's monthly subscription will increase from LE8 to LE10 for home users, and from LE13 to LE16 for commercial lines. The number of call minutes home users receive free of charge will fall from 166 to 50 minutes, and when billing kicks in charges for local calls will be LE0.06 for the first minute rather than LE0.05 and each subsequent minute for LE0.02.

As Egypt's sole fixed line monopoly subscribers have no alternative to TE. It is a situation about which they are far from happy. The attitude of Howaida El-Amir is typical: she says her household telephone bill has already increased since the advent of mobiles, as people began using fixed line numbers to contact cell phones. Now, she says, she will have to cut down use of the phone across the board in order to keep her bills in check.

Ali Salama, vice-chairman for financial and commercial affairs at TE, says the increases are essential to finance new investment. Adding a million telephone lines per year, he points out, costs LE2 billion and "to continue to offer services and improve them we found it necessary to increase rates". Currently, he said, the LE1.5 billion in revenue generated by local calls and connection fees from fixed lines does not come close to covering the investment needed.

"If we do not increase the rates we will return to bad old days of waiting lists," he warned. In the not too distant past it could take up to 10 years to secure a land line.

TE's current subscriber base of 10.4 million represents a penetration rate of just 14.3 per cent.

While El-Amir believes that the presence of fixed line competition would automatically result in lower rates, industry experts disagree.

Salama points out that the increase in fees has been approved by the National Telecommunications Regulatory Authority (NTRA), the body entrusted with regulating competition in the telecommunications sector and granting licences for services. Local calls, he says, have long been subsidised by the company and even after the increase fees will not reflect the real value of the service. In fact, as Akil Beshir, the chairman of TE has repeatedly pointed out, the real cost of installing a line is LE2,500, while the company collects only LE500.

The NTRA has yet to contemplate offering a license for a fixed line operator to enter the market because of a simple double bind: the enormity of the costs involved in establishing a new operation would deter investors while the much higher charges necessary to pay for the new operators' roll out costs would deter subscribers.

Consumers were angry, though, not just at the increase in fees but because they were scheduled to be applied to first quarter bills due for payment this month. With consumers up in arms TE decided to back off and will apply the increase from 1 April.

The approach to billing customers has been transformed since 1998, when TE was created to replace the Arab Republic of Egypt's National Telecommunications Organisation (ARENTO). Following a major management shake-up in 2000 rates were increased and TE began quarterly billing rather than collecting fees on an annual basis.

The drive to maximise revenues has been lent impetus by the fact that the company is no longer solely owned by the government. In December 20 per cent of the company's shares were sold, attracting 250,000 new shareholders. And with two international gateway licences being offered by NTRA, TE will soon lose its monopoly as the provider of international gateway services, which generated around LE2 billion, or 27 per cent of TE's total revenue, in 2005.

But it is not only by digging into customers' pockets that TE is trying to make up for expected losses in its international connection services. It has embarked on a regional expansion programme and is part of the consortium that successfully bid for a 15-year licence to build and operate a national fixed line network in Algeria.

TE posted net profits after tax of LE1.8 billion for 2005, up from LE1 billion on the previous year.

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