CAIRO: Executives from Vodafone Egypt discussed their plans and outlook for the market going forward at a meeting with journalists at their office in the Smart Village. Last year we invested over LE 1.7 billion in infrastructure to provide coverage, capacity and quality in our operations in this country, says Ian Grey, chief executive officer and managing director of Vodafone Egypt. The company plans to spend another LE 3.5 billion on infrastructure in the next two years. Our network currently covers 99.5 percent of populated areas in Egypt, says Mohammed Hanna, chief technical officer of Vodafone Egypt. The latest area we provided coverage for is Shelatin, which is in the southeast extremity of Egypt. We are very concerned with providing services to areas that are currently denied telecommunications services. This is why we worked on Shelatin and it is already part of our coverage. We will also cover the area of Halayeb. The company also plans to extend its network to key roads. We are working on the Edfu-Marsa Allam road, says Hanna, and this road is very important because it will increase the links between the tourist areas of the Red Sea with Upper Egypt. There is also a new road between Assiut and Sohag that we are currently working on and there is a road from Cairo to the Bahareya Oasis that is waiting for military approval to initiate work. In addition to geographic coverage, Hanna explains that Vodafone is working on improving its network inside commercial and residential buildings in metropolitan areas. Utilization of the network increased by 60 percent in 2005 compared to the previous year. Meanwhile, the company has expanded its radio network capacity by 150 percent and its prepaid system capacity by 120 percent. Hanna adds that bureaucracy continues to be an obstacle to doing business, with various governorates applying what appear to be haphazard rules and requirements. The company also has a lawsuit pending against the government concerning the termination of its tax holiday. As the battle continues for the third mobile license, the National Telecommunications Regulatory Authority (NTRA) stated that it intends to require the two incumbents, Vodafone and Mobinil, to sign national roaming agreements with the third operator. These agreements would allow subscribers of the third operator to make use of the networks of Vodafone and Mobinil outside of metropolitan and key tourist areas during the first three years of the new entrant s operations. Any mobile operator makes most of its money in metropolitan areas, because that is where most of the wealth resides, says Wael Ziada, senior research analyst at EFG-Hermes. And that s why an operator that is establishing a new network begins in metropolitan areas. Operators provide coverage outside of affluent areas once they are well-established. Later on, operators cover other areas to, firstly, give an advantage to their existing subscriber base with an extended coverage, says Ziada. If you re a rich guy and you live in Cairo but you spend your weekends in Luxor or Sharm El-Sheikh, you do not want to be disconnected; you still want coverage everywhere in Egypt. Secondly, operators want to get some value from this geographic expansion. The national roaming agreements are necessary for the new operator because coverage outside of metropolitan areas is not feasible at the outset. In the very early stages of growth, there is very low value coming from expanding outside metropolitan areas, says Ziada. And an operator that is growing in an environment of severe competition cannot afford to spend money to stretch out the network in this manner. That s why they either go for a national roaming agreement or, if it doesn t work, they wait until the subscriber base grows and they have more money to expand their coverage. Grey does not foresee that national roaming will be a problem, although Ziada believes that negotiating the agreements with incumbent operators will be a substantial challenge to the new entrant. Building a subscriber base will also be major challenge for the third operator. Grey explains that while there is room for growth in the market in terms of the number of potential subscribers, new mobile users tend to spend very little. There is therefore likely to be intense competition for current subscribers. Ziada adds that the opportunity to for price reduction is limited. Given the low value that will come from potential subscribers, this market cannot withstand an aggressive price war, says Ziada. I believe there may be room for some price reductions over the next year or so, but a price war like what happened in markets like Russia two or three years ago would diminish the value in the market and the third operator would be harmed the most from this. The NTRA is expected to announce its rules governing third-generation (3G) mobile networks for incumbent operators once the bid for the third license is finalized, although Grey explains that his company s policy is to provide 3G services everywhere it operates. However, Ziada believes that 3G services will not be an important factor in attracting a large number of subscribers in the short-term. Growth will come from low-end subscribers who only came into the market when connection fees dropped to LE 40 and below, says Ziada. So if you re looking for growth, 3G is not the way to market this growth. Nevertheless, 3G network technology will have an impact on the efficiency of operations. It will offer better economies on the network because it can handle more calls, more traffic and more subscribers on the same frequency spectrum, says Ziada. So it s more economical and efficient for the network and it s a good hedge, and eventually in the future it will be an applicable technology. But is it immediately relevant to the mass market? I don t think so. The government also plans on liberalizing the market for international calls, which is currently monopolized by Telecom Egypt. Grey expressed an interest in bidding for the new international gateway when it is offered, although a final decision would only be made after the details of the terms are revealed. It will provide them with flexibility in pricing of international calls to their subscribers, says Ziada. However, I think Telecom Egypt will be committed to provide extremely cheap prices for international calls, and that could possibly make it uneconomical for Vodafone to bid for an international license and build their own international gateway. Telecom Egypt has an incentive to do this because Vodafone and Mobinil provide it with over 50 percent of its international traffic. The NTRA is expected to initiate the tender for a new international gateway later this month.
