Turbulent telecoms
Playing in the big league comes at a price, as market leader Orascom Telecom is finding out. Wael Gamal reports
The international telecommunications sector decline, squeezed profits due to third generation licences and the bursting of the "New Economy" bubble are impeding Orascom Telecom Holding's (OTH) expansionist policies. Last week OTH completed the announced sale of its 91.6 per cent equity stake in its Jordanian subsidiary, Jordan Mobile Telephone Services Company, "Fastlink", to Kuwait's Mobile Telecommunications Company (MTC) for $423.9 million. The disposal represents the largest divestiture in the mobile communications sector in emerging markets in Europe, the Middle East and Africa in a year.
Being the largest GSM network operator in the Middle East, Africa and the Indian sub- continent, and one of the largest 50 companies in the area, OTH is one of the rare Egyptian companies that is internationally integrated. OTH manages GSM networks under 21 licences covering Africa and the Middle East.
OTH has recently faced financial liquidity and serious debt problems. Although the 2002 third quarter results announced last week indicate that total subscribers have reached five million -- an increase of nine per cent compared with the second quarter of 2002, and of 40 per cent compared to the previous year -- revenue growth was negatively affected by the poor performance of OT's African subsidiary, Telecel.
OTH Chairman Naguib Sawiris is optimistic. "We are still on the right track. It is true we are moving towards a strategy that concentrates on strengthening the large existing networks, but this does not mean we have stopped growing. We have no intention of selling any new assets," Sawiris said at a press conference Sunday.
In addition to Fastlink, OTH recently sold its shares in Sabafon in Yemen and is progressing into the sale of 10 of its 14 African assets.
"The rising share price is confirming the disposal was a success. The market corrected its evaluation because of this," Sawiris said.
OTH shares recorded the highest turnover in the market in the previous weeks, with the share price reaching LE14, exceeding all expectations.
A recent report by Dynamic Brokerage, an Egyptian financial group, concluded, however, that OTH's profitability rates have fallen. The return on sales is only two per cent and the return on assets is only one percentage point. Also, debt service and restructuring the balance sheet consumes a lot of the earnings. Sawiris told the press conference that the bulk of money from the Fastlink deal will be used to consolidate debt.
OTH's strategy of concentrating on existing networks could be facing challenges in the near future. With the entrance of Wataniya, the third mobile operator in the Egyptian market, Mobinil could be looking at a smaller market share.
"A third operator in the market may not be a challenge to Mobinil in the shortrun because it is targeting 'Class D' subscribers with lower incomes," said Sahar El-Sherbini, a telecommunications market analyst. "A, B and C class subscribers are already absorbed by the existing operators. Also, the new operator needs time to enhance its network. The three operators have a word of honour agreement that Mobinil and Click will hand over a specified percentage of the market to the new operator to avoid a competition war."
Al-Ahram Weekly Online : 23 - 29 January 2003 (Issue No. 622)
Located at: http://weekly.ahram.org.eg/2003/622/ec8.htm