Egypt's third mobile licence went to Etisalat of the United Arab Emirates, for a whopping LE16.7 billion, reports Niveen Wahish Not in a million years would anyone have contemplated that the price of Egypt's third mobile licence would surpass the LE10 billion ceiling. On Tuesday, the United Arab Emirates telecom operator, Etisalat, surprised everyone when it outbid eight other contenders for the long-awaited licence. Heading a consortium made up of the Egyptian Post Authority, the National Bank of Egypt (NBE) and the Commercial International Bank (CIB), Etisalat is paying some LE16.7 billion (around $3 billion) to the Egyptian government, and six per cent of the annual revenue of the third operator, in royalties to the National Telecommunications Regulatory Authority (NTRA). The company, which will be allocated the (011) code, will be offering GSM technology as well as third generation (3G) services. Chairman of Etisalat Mohamed Omran admitted that this was "no small sum" at a press conference held after the announcement was made. However, he added that Egypt was a strategic market where there is great potential for growth. Etisalat represents 66 per cent of the winning consortium, while the three Egyptian partners together represent 34 per cent (20 per cent the Post Authority, 10 per cent NBE and four per cent by CIB). The third operator is expected to sign the contract within a month, and to start rolling out its services in six months. It is estimated that a third operator would acquire between 20 to 25 per cent of the market share. "There is definitely value in the Egyptian market, but not at that price," said one analyst who preferred to remain anonymous. He pointed out that the price they are paying for the third mobile licence exceeds the value of a well established company like MobiNil, Egypt's first mobile operator, together with its brand name, its subscriber base and infrastructure. MobiNil's market capitalisation stands at around LE15.5 billion. However, according to the expert, although the Etisalat consortium might have over- paid for the licence, their investment can be made up for by aggressive investment. This could take the form of lower prices, or new packages and services. The Egyptian market is currently dominated by the two operators MobiNil and Vodafone-Egypt. Both companies have boosted the market up to around 15 million subscribers. It is expected that the competition triggered by the presence of a third operator can further grow the number of subscribers to 35 million, within the span of five years. The mere news that a third operator would be allowed into the market had already induced the two companies to cut down with their prices, and increase their marketing. This has resulted in a doubling of subscribers from around seven million in 2004, to 14 million in 2005. However, the astounding price paid for the licence should not be taken lightly, the analyst asserts. "It sets different standards for licences to come in the future for the whole region." The high value of the licence will moreover reflect on the value of the 3G licence, for the existing two operators. Amr Badawi, head of NTRA, had previously announced that the value of the 3G licence will be 20 per cent of the sum paid for the third licence, and 40 per cent of the revenue- sharing formula. The LE16.7 billion was nonetheless a welcome surprise to the government. "It shows that there is confidence in the Egyptian economy," said Prime Minister Ahmed Nazif. Apart from the boost in morale, the funds will be used to finance Egypt's development plan, and to support the budget which has been suffering a lack of resources. Eleven consortia had presented technical proposals for the third licence last May, and nine from amongst them were chosen. The nine companies which technically qualified were invited on Tuesday to bid for the licence through closed envelopes. The starting price for the auction was LE2.5 billion. Three rounds of bidding took place, and the lowest offers were ruled out. Etisalat was the highest bidder throughout the three rounds. It was followed by MTC of Kuwait, and the Qatari Q-tel. The consortia led by MTN of South Africa, MTC of Kuwait, Telenor of Norway, MTS of Russia, Turkcell of Turkey, Wataniya of Kuwait all stepped out of the race, after the first round. This left Telecom Egypt (TE) and its partner Telecom Italia to compete in the second round, along with the three gulf operators. But it too was outpaced, despite its having bid at around LE11 billion. TE had been hoping to win the licence, despite the fact that it already has a foothold in the Egyptian mobile market through its 25 per cent stake in Vodafone Egypt. Following its failure to win the licence, the company's stock plummeted by 2.75 per cent to close at LE11.67. The shares of Raya Holding, a member of the consortium lead by MTN of South Africa, also suffered a 4.46 per cent drop, when it closed at LE10.28 per share. EFG-Hermes shares also suffered a drop of 3.47 per cent to close at LE27.01. EFG-Hermes was the local partner of MTC of Kuwait in bidding for the licence. The share price of Commercial International Bank, the only publicly traded Egyptian company which is part of Etisalat's consortium, saw a boost of 7.63 per cent and closed at LE64.9. MobiNil and Vodafone also received a pat on the back. Vodafone-Egypt's share price rose by 9.57 per cent, to close at LE91.16. MobiNil's share price meanwhile jumped 20 per cent, to reach LE156.02. Etisalat has been the telecommunications service provider in the UAE since 1976. It has expanded its telecommunications and mobile phone services since then into several countries including Saudi Arabia, Pakistan, Sudan, Tanzania, Benin, Gabon, Niger, and Afghanistan.
