Analysts unconcerned by non-recurring reasons behind decline CAIRO: Telecom Egypt's (TE) nine month 2006 net income declined by 17.2 percent to LE 1.5 billion from LE 1.8 billion in the same period of 2005, the company s interim results report released yesterday showed. The company s results surprised many market observers especially since they also show 47 percent growth in fixed-line subscribers over growth recorded in the nine month period of 2005 to 10.7 million. The results include LE 450 million in investment income from TE s then 25 percent stake in Vodafone Egypt (VE). TE s acquisition of an additional 24 percent is not reflected since the deal was concluded in October. HC Brokerage Telecom analyst Walaa Hazem says the company s numbers were mostly affected by strong fluctuations in foreign exchange rates, especially since the euro accounts for 57 percent of its debt and the US dollar for another 37 percent, in addition to other currencies. As a result, TE lost LE 97 million so far this year, compared with LE 240 million in gains because of favorable fluctuations in the nine-month period of 2005. Other research houses, including Beltone Financial, expressed little concern over the drop in TE s income, saying it was mostly due to non-recurring circumstances. Last week TE finalized a deal with Vodafone International to lower its stake in VE to 45 percent from 49 percent through a capital increase, the shares of which are to be issued and reclaimed by Vodafone International. In exchange, VE retracted its bid for an International Gateway License and will continue to use that of TE for a yet to be announced duration. VE s current rights to TE s international calling operations would have expired at the end of 2007. Hazem says the strategic partnership signed by both companies should benefit both sides as no winner can be seen yet. TE will not lose much when its share in VE drops 5 percent, says Hazem. He adds VE will, on the other hand, stand to benefit from access to TE s international calling system as the National Telecommunication Regulatory Authority continues to hold out on issuing the call for tenders on the now TE-monopolized service. TE s official monopoly on international calling operations ended in December 2005, but the NTRA has yet to offer two more licenses as promised in January 2006. TE collected LE 2.3 billion in international calling revenues, or 27 percent of total revenues of LE 8.5 billion in 2005. International calling revenues include incoming international calling fees, mobile international traffic via its 25 percent share in VFE and fixed international calling traffic via its network. For the rest of the year, Hazem says he expects TE s final net income to live up to expectations of about LE 2.1 billion, although the number could be as low as LE 1.8 billion if the company consolidates results from its Algeria fixed-line operation begun earlier this year. As with any new investment, you can expect initial results to reflect a loss, says Hazem. That s not to say that the Algeria operation was a bad decision. It should actually reflect well on the company in the long term. A 50-50 TE and Orascom Telecom consortium is now building Algeria s second fixed line network after being awarded a 15-year operation license at the end of last year for LE 373 million ($65 million). Algeria s fixed line penetration rate is currently around the 10 percent mark, compared with almost 15 percent in Egypt.
