Monday, February 25, 2008

Egypt - increasing competition

Egypt to Launch Second Fixed-Line Licence in June 2008

Egypt's National Telecoms Regulatory Authority (NTRA) has announced that the country's second fixed-line licence auction will start on 19 June 2008, the first step in bringing an end to the fixed-line monopoly Telecom Egypt has had.

Global Insight Perspective

Significance - The new licence will bring competition, choice and innovation to the under-served Egyptian fixed-line sector.

Implications - Growth in fixed-line services has been slow and has rapidly been overtaken by mobile services.

Outlook - Additional competition will stimulate growth in the sector; however, the new operator will have to provide a range of bundled packages to ensure profitability.

Egypt is in the final stages of fully liberalising its telecoms sector; the country now has three mobile operators, and will provide the gateway for a second fixed-line operator in the second half of the year. Bidding companies can obtain the licence specifications and conditions booklet from the regulator's headquarters from 13 March 2008. Those interested will have to pay US$10,000 for the booklet and need to submit an auction guarantee of £E10 million (US$1.8 million).

At the end of 2006, the incumbent, Telecom Egypt, had 10.8 million fixed lines and a penetration level of 14.4%, which is around half the mobile penetration level. As part of the fixed-line licence terms, the government will also offer an international calling licence to the winner. Since 2004, fixed-line growth per annum has never exceeded 8% and was 4.3% at the end of 2006. Telecom Egypt currently provides retail telecommunication services, including access, local, long distance and international voice, internet and data, and other services. It also provides mobile interconnectivity through its 44.79% holding in Vodafone Egypt, one of the three Egyptian mobile operators. Although there are 10.8 million subscribers for fixed-line services, the real demand for the home service will come from broadband and the range of services it can offer. Whilst broadband penetration is low as a percentage of the number of fixed lines in operation, it has been increasing rapidly; at the end of 2006, Telecom Egypt had 92,300 ADSL subscribers, whilst the country as a whole has 400,000 subscribers.

Outlook and Implications

The news is essential to generate innovation and service diversity within the Egyptian telecoms market. Telecom Egypt has not been able to provide adequate services at a low enough price to increase demand significantly. At the end of the third quarter of 2007, its fixed-line customer base increased 3% to 11 million, compared to 10.7 million in the first nine months of 2006.

At least threee operators have previously expressed interest in the licence: Orascom, Etisalat and Raya. Of the three, both Orascom and Etisalat have a very high chance of winning the bid. Etisalat has the greater financial resources, and has already launched the third mobile operator in the country. Etisalat is also very keen on investing in emerging markets and has already made acquisitions in the African region. The second favourite to win the licence is Orascom, which has a 28.8% stake in Egyptian mobile operator MobiNil; its influence in the Egyptian market for other services, including construction and IT products, makes it a very important player in the auction. Whilst it is uncertain which other operators will bid for the licence, it seems likely that at least eight telcos will have shown interest by the auction date.

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