A new licence system governing Egypt's fiercely competitive telecoms sector is expected to be rolled out within weeks, paving the way for mobile and fixed-line operators to vie for each other's business. While the country has a large consumer population, as penetration has passed 100%, telecoms players have faced an increasingly tough marketplace in recent years, often finding themselves forced to lower prices and look for other sources of revenue through value-added services (VAS). Most significantly, the universal licence system will allow the main fixed-line operator, majority-government-owned Telecom Egypt (TE), to enter the mobile market. It will also pave the way for the three mobile players – Vodafone, Mobinil and Etisalat Egypt – to establish fixed-line businesses, although current arrangements prevent them from accessing TE's fibre-optic network.
All change The Ministry of Communication and Information Technology (MCIT) said it expected the licence's roll-out – previously delayed due to political instability – to take place before the end of June. Provided there are no further delays, TE has previously indicated it will be looking to launch its own mobile operator in the second half of 2014.
The company's general manger for investor relations and internal reporting, Mohamed Kamal, told local press at the end of March that TE would target 5m subscribers, or 5% of the mobile market by subscriber numbers, for 2014. Egypt's subscriber base totalled 99.7m at the end of 2013, according to MCIT figures. TE, which already owns a 45% stake in Vodafone Egypt, will likely launch a mobile virtual network operator (MVNO) following the universal licence system's roll-out. MVNOs have the advantage of a lower capital outlay than traditional operators and are able to introduce their services quickly, since they lease spare spectrum capacity from other operators for an agreed price, eliminating the need for expensive infrastructure installation. However, their set-up also gives them less control over service quality and tends to produce lower margins, prompting some to question whether the firm will eventually opt to launch its own network.
Competitive climate Egypt's mobile market presents challenges for both existing operators and new entrants. While penetration reached 118.2% at end-2013, according to MCIT data, subscriber growth slowed significantly last year, prompting suggestions that the days of high-volume growth are over. Increased competition means companies partially rely on winning over customers from other players, which is driving down prices. Average revenue per user (ARPU) dropped to EGP 22-26 ($3.13-3.70) in mid-2013, representing one of the lowest levels in the world, and leading operators to look increasingly to encouraging greater data and VAS usage.
Calls for clarification The tight pricing environment has also inevitably raised concerns about TE's market entry. In March, both Vodafone and Etisalat called on the government to clarify the rules of the universal licences and re-weigh them in favour of mobile carriers. Current arrangements provide mobile carriers with access to TE's copper wires but not its fibre-optics network, which is arguably one of the more useful components of the firm's infrastructure, given its ability to carry greater internet data traffic. Some players are also thought to favour a price floor, in light of the impact on ARPU in recent years from slowing penetration and greater competition. Obtaining access to fibre-optic infrastructure could prove pivotal for the sector as a whole, since increased competition is likely to see operators focus on boosting take-up of additional services, particularly through mobile internet usage and applications. The MCIT estimates that only around 15% of mobile subscribers use the internet on their mobile devices, offering plenty of room for growth. "While voice revenue continues to be stagnant, if not declining, mobile operators tend to search for new revenue streams like VAS. Such value-added services would also keep the customers engaged and hence can be used as a retention tool," Saeed Al Hamli, CEO of Etisalat Egypt, told OBG. "Mobile data services also continue to be the major contributor of revenue growth currently and will be in the future." The handing out of universal licences should pave the way for the second phase of industry development, Al Hamli added, involving the roll-out of long-term evolution (LTE). Similar to 4G networks, LTE will support considerably higher data volumes, at a time when internet usage is likely to be growing strongly. However, the process will be capital intensive and require significant investment. TE's mobile subsidiary will be launching at a time of tight competition in Egypt's telecoms sector, with Vodafone, Mobinil and Etisalat well established. Yet, in the medium term, it should help stimulate differentiation between providers and encouraging the take-up of VAS on a developing LTE network.
