The battle for Egypt's third mobile licence is heating up, reports Niveen Wahish Egypt's third mobile licence has attracted the interest of 19 companies since the National Telecommunications Regulatory Authority (NTRA) requested in early February proposals for the international auction of the licence. The final date for submitting proposals is 17 April. Meanwhile, NTRA held a session last week to answer queries from investors who had already withdrawn their information booklet. The third network could be operative by mid- 2007. NTRA has said that a frequency will be allocated to the successful bidder from March 2007, after which they can start installing the network and testing it. Given the increasing numbers of mobile phone subscribers during the past two years the third licence is seen as a potentially lucrative investment opportunity. NTRA puts the number of cellular phone subscribers at 14 million, a 19.1 per cent penetration. In 2004 Egypt had just 7.3 million mobile subscribers. Medhat Khalil, chairman and CEO of Raya Holding, believes penetration rates will reach 30 per cent within three years. Raya Holding will be bidding as part of a consortium including MTN, a leading South African provider of communications services, and the Saudi-based Citistars Group. NTRA has already stated a preference for consortiums with a local partner. The Mobile Telecommunications Company (MTC), listed on the Kuwait stock exchange and a major player in the Middle East and Africa, has also entered the fray though it has yet to divulge details of its partners. "We always have local partners when we enter a country, as with our previous bids in Saudi Arabia and other countries. We will make them public if MTC succeeds with its bid," said Saad Al-Barrak, chief executive officer of MTC. NTRA requires that bidders must have been in business for more than three years and have previous experience in running mobile networks with a subscriber base of at least five million and revenues of $1 billion. Contenders that meet these requirements must submit bids including the technical aspects of their proposed roll out of the network, market and service launch plans. After examining the technical bids NTRA will call upon investors to make their financial bids, with the highest bidder winning the licence. Should two bids be equal the allocation of the licence will be decided on the basis of technical qualifications. Bids have a starting price of LE2.5 billion. This is the first time NTRA has auctioned a licence, and the aim is to maximise government revenue from the deal. The process has been subject to criticism, particularly given that the benchmark has already been set at such a high level. Egypt's two existing operators, the Egyptian Company for Mobile Services (MobiNil) and Vodafone Egypt, acquired their licences for LE1.975 billion. "With the auction the price could skyrocket," said Khalil, who believes the price of the third network should have been discounted. "When the first and second networks started operating the market was empty. The third network will be entering a market where there are already two tough operators with a large subscriber base," added Sameh Montasser, vice- president of Information Technology at Raya Holding. "Logically," says MTC's Barrak, the third licence "should be cheaper than the first and second licences in Egypt. The third operator will have to compete with two incumbent operators." He added that MTC has no intention of overbidding. "We are accountable to our shareholders and potential investors as well as our current customers and even the Egyptian population since we would rather invest in the sector and the economy itself rather than overpay." Other bidders, including Telenor, listed on the Oslo Stock Exchange and with more than 82.7 million mobile subscribers, believe the auction acceptable. Esben Tuman Johnson, vice-president for Telenor Corporate Communications, explained that the company was recently successful in a similar auction process in Pakistan. But he noted that the value of the licence should take into account that the new operator will face high levels of initial investments in establishing the best possible mobile communication service throughout the country. While the starting price may seem high NTRA has included articles that will facilitate the integration of a third operator. These include, says Montasser, site sharing -- allowing the new comer to temporarily share the services of the two existing operators against the payment of a fee. Montasser believes such site sharing will help facilitate the third operator's speedy entrance into the market, though it will be dependent on agreements with MobiNil and Vodafone. The third operator faces tough competition from the two existing providers who in recent years have offered very low entry fees. But as Barrak points out MTC has never aimed to compete solely on price. "There is also a need for better coverage and better quality of service provision," he says. Khalil agrees that a third operator can provide better quality services, arguing that, because of their long-standing duopoly the two existing networks allowed services to deteriorate. "Being alone in the market strengthens you in terms of subscribers and profits but weakens your ability to compete. Companies get used to spending a lot. It is not like starting out with a cost efficient operation. The third company will be structured to compete from day one." While acknowledging that competition will be tough Khalil believes the third operator will be able to provide competitive prices and points out many marketing schemes -- including offering a free handset with lines -- have yet to be tried in Egypt. Pyramid Research, an international research firm specialising in convergence issues for the communications market, predicts that "a third entrant will have to attract at least a portion of the existing post-paid or higher end pre-paid subscribers to survive over the long term, which is no easy task as both MobiNil and Vodafone Egypt are relatively competitive in the higher end of the market... Offering high-speed data services and attractive subsidised 3G handsets in major urban areas could be just the kind of differentiator needed in order to establish a diversified and profitable subscriber base." Which is precisely what the bidders will be looking for. "With correct marketing and understanding of local needs 3G can have a good take up in Egypt," says Barrak. "3G enhances the user friendliness of non-voice services in general and is therefore of benefit to all mobile users," says Telenor's Johnson, who sees the technology as a vehicle to offer not just more advanced services but also the quality that will attract high end users. Telenor already offers 3G services through its subsidiaries in Hungary, Austria, Norway and Sweden. Other potential contenders for the third licence include Telecom Egypt, Saudi Telecom, Etisalat Dubai, BATELCO, TURK CELL, Telecom Italia, Systema (Russia) and Teletech (Lucent/Sprint).
