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New telecom operator prepares to walk the line

CAIRO: Reflecting a trend that has swept through the Middle East over the past several years, Telecom Egypt will soon see the end of its century-old monopoly on fixed-line telecommunications in Egypt. Twelve companies have announced intentions to bid for the license by the July 29 deadline. The winner will offer new fixed-line services, enhanced …


CAIRO: Reflecting a trend that has swept through the Middle East over the past several years, Telecom Egypt will soon see the end of its century-old monopoly on fixed-line telecommunications in Egypt.

Twelve companies have announced intentions to bid for the license by the July 29 deadline. The winner will offer new fixed-line services, enhanced internet capabilities and WiMax technology.

The competing companies are an eclectic group, ranging from local and regional telecom leaders to financial investment firms. Industry analysts, however, give Orascom Telecom, Etisalat and France Telecom the competitive edge.

The company that wins the license will have its hands full with establishing a business that can compete with state-owned Telecom Egypt. The company will likely lease a portion of Telecom Egypt’s infrastructure while it hurries to build its own network, which will likely take years.

For the company that wins the new license, finding its niche in the market could be a complicated endeavor. Egypt has one of the cheapest fixed-to-mobile calling rates in the world at LE 0.30 per minute, and the new company would have difficulty competing on those grounds.

“In terms of tariffs, said EFG-Hermes Equity Research Associate Marise Ananian, “I don’t think [competitive pricing] will have any direct impact on the consumers, as fixed-line tariffs in Egypt are already one of the lowest in the region.

For the new company to gain a competitive edge in the market, Ananian suggests, it will have to win exclusivity bids and target corporate interests that might be lured by superior ADSL services.

“They will have to have exclusivity rights on some of the newly developed areas in Egypt, Ananian said, citing Sixth of October City as an example. “Maybe they will focus on business or corporate areas.

Though whichever company wins the bid is likely to target markets geographically, consumers at large should benefit from having a second fixed-line operator. The new company is expected to vigorously pursue new technologies such as Triple Play – which offers state of the art voice, data and video services – as well as WiMAX, which many countries have embraced as a means for offering long-range wireless internet.

The new operator will also be in a position to offer competitive overseas calling rates since the new license will include an International Gateway License.

“The second operator as you mentioned will . be allowed, as of day one, to sell international [calling services] to customers, said Telecom Egypt Chairman and CEO Akil Beshir in a conference call with Daily News Egypt. “However, after certain coverage obligations that are met, [the company] will then be allowed to sell international [services] to other fixed-line customers, our customers, so all fixed-line customers will have carrier selection options.

Though the move to offer a second fixed-line license is seen as a bold step by the Ministry of Communication and Information Technology (MCIT), it comes only after a multitude of Middle East countries have taken similar steps. The UAE sold a second license for fixed-lines, mobiles and internet to telecom company Du.

Other Gulf countries, including Qatar, Bahrain and Saudi Arabia, have also opened up their telecom markets.

In addition to following international trends, the Egyptian government was probably motivated by the surge in revenue it will experience once the deal is complete since the license is expected to fetch a substantial sum.

Plus, noted Ananian, the fixed-line industry is opening up in part because of similar trends in the internet and mobile sectors.

“It’s part of the liberalization process of the sector, Ananian said.

Ananian also predicted that Telecom Egypt will flourish in the short term as a result of the licensing agreement.

Though the government has slashed some prices for fixed-to-mobile communications, the National Telecommunications Regulatory Authority (NTRA) decided last month to increase the price of fixed-line to fixed-line calls from LE 0.02, after the first minute, to LE 0.03, a rise of 50 percent.

Telecom Egypt decreased fees for installing new lines as well as the cost of direct-dial inter-province calls at peak times.

This, explained NTRA Executive Chairman Amr Badawi at a press conference announcing the price changes, was aimed at offsetting any negative impacts on Telecom Egypt by the second fixed-line operator.

In recent years, Telecom Egypt has diversified its holdings, with a 45 percent ownership share in mobile leader Vodafone and a 55 percent market share of ADSL.

Telecom Egypt’s business has moved increasingly away from retail, instead offering more wholesale services, including interconnection, line-leasing and international calling.

The company that wins the license will need to lease infrastructure from Telecom Egypt, a deal which will substantially boost Telecom Egypt’s wholesale revenue.

The revenue from the leasing contract, said Ananian, “will be reflected in the wholesale revenue of the incumbent operator.

In the long-term, she added, she does not “really expect a significant impact on Telecom Egypt.

Telecom Egypt has over 11 million fixed-line subscribers – a number that continues to grow.

Though the second fixed-line operator will pose a challenge, unique in its history, to Telecom Egypt, it remains to be seen how the telecom industry will continue to evolve with increased competition. It also remains unclear whether a new operator marks a broader step in the liberalization of Egyptian markets. Industry watchers will have to wait until July 29 before they start getting answers.

Topics: FJP

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