Egypt's telecommunications market is to receive yet another mobile operator; a virtual one, writes Niveen Wahish The Egyptian National Telecommunications Regulatory Authority (NTRA) last week approved in principal the offering of a single licence to a Mobile Virtual Network Operator (MVNO). An MVNO is a mobile operator that does not own its own spectrum and usually does not have its own network infrastructure. Instead, it has business arrangements with existing mobile operators to buy minutes for its own customers. NTRA said that in three months the criteria and conditions for the MVNO licence will be announced. One company that will be watching this opportunity closely is Telecom Egypt (TE). For years it has been waiting for an opening to enter the mobile phone market as an operator. "Currently we can not fully compete in the market," a source in Telecom Egypt who preferred to remain anonymous, told Al-Ahram Weekly. He explained that, "clients want a package of solutions from one company and currently TE can not offer that because it is not in the mobile business." Furthermore, according to Thomas Kuruvilla, managing director of the Middle East office of Arthur D Little, a global management consulting firm advising the telecom industry, there is an increasing global trend towards "fixed mobile substitution", whereby homes are giving up landlines and moving to become "mobile only" homes. He pointed out that between 2008 and 2011, the number of fixed line subscribers in Egypt declined at an average rate of 12 per cent, while mobile subscribers have increased at an average of 26 per cent. Telecom Egypt's voice revenue contribution has been particularly impacted, having declined from 31 per cent of total revenues in 2008 to 17 per cent in 2011. Kuruvilla believes it is vital for TE to gain a foothold to capture growth in the mobile market, which would substitute for the decline in fixed voice revenues. That foothold, he said, would additionally allow it to be the only operator offering mobile and fixed services, enabling them to provide a converged offering, which provides a competitive advantage in targeting enterprise and consumer segments. Currently TE owns a 45 per cent stake in Vodafone Egypt, which according to Abdel-Rahman El-Sawy, professor of telecommunications at Helwan University, does not give it a say in the decision making process. Moreover, the source at TE said, "It does not have a recognisable brand." Existing mobile operators might view the new licence as a threat. "It will cut into their profit margins," said El-Sawy. Kuruvilla, however, sees that it will help existing mobile companies increase the overall utilisation of their networks. He added that the MVNO would be a threat, however, if it were roaming on a competitor's network. Alternatively, mobile companies themselves can apply for the MVNO licence should the NTRA criteria and conditions allow it. According to Kuruvilla, in other developed markets it is quite normal for operators to launch MVNOs to target specific market niches or sub-segments, and doing this while avoiding dilution of the main brand. But can the Egyptian market accommodate another operator when there are already more than 90 million mobile subscribers in the country? El-Sawy believes that the 90 million figure is misleading as Egyptians often possess multiple lines. Moreover, he sees that, "the future is about data, not voice. Voice will be offered for free on data services." That being the case, he estimates that 60 per cent of the population does not yet have a telephone and 80 per cent does not have data services. "The Egyptian market is still far from saturation." El-Sawy added that he does not expect the MVNO to simply act as a retailer for a mobile company. The winner of the licence, he said, will develop its own content to differentiate itself and attract customers. Kuruvilla says that the benchmark average across markets with MVNOs shows an average MVNO market share of 13 per cent. And with a strong market entrant, the impact may be comparable to that of a fourth mobile operator which in some markets shows an average of 11 per cent, he said. He added that market share depends highly on the nature of the operator. "A small player can focus on targeting a small market niche, consequently achieving only a small market share, while a large player like TE with solid financials, an existing customer base, and a wide distribution network may be a significant market challenger for existing mobile operators." Furthermore, "it is all about targeting the right segment of customers," added the source from TE. Kuruvilla pointed out that MVNO success stories include football clubs and other associations that have large-scale followings. Such entities have a strong brand loyalty, a customer base with specific unmet needs, and potentially also a good distribution network. They are able to provide exclusive services required by their customers, such as live match viewing, archiving of goals, exclusive club and player news, and so on. But TE's existing 45 per cent shareholding in Vodafone Egypt is another issue that could pose questions. Kuruvilla believes that since 45 per cent is not a majority stake it does not represent a problem. If TE owned a majority share in a mobile operator as well as an MVNO, that may have allowed for an unfair market advantage, whereby one operator is able to exert influence or coordination with the MVNO at the expense of others. In case TE moves ahead and is able to get a majority stake in Vodafone Egypt, Kuruvilla said, the regulator should seek to instil measures that ensure the operational independence of the MVNO. These may include operational level directives in the licence governing the relationship between operators and the MVNO.
