Possible scenarios for STC-Vodafone Egypt deal

With the possibility of completing the deal sometime in the summer, Telecom Egypt (TE) has begun discussing the investment opportunity in the deal, in light of its acquisition of 45% of Vodafone Egypt.

The Saudi Telecom Company (STC) signed a memorandum of understanding (MoU) to acquire Vodafone International's stake in Vodafone Egypt.
The potential deal for STC's acquisition of a 55% stake in Vodafone Egypt, has caused a movement in the mobile market. STC signed a memorandum of understanding (MoU) to acquire Vodafone International's stake in Vodafone Egypt.
With the possibility of completing the deal sometime in the summer, Telecom Egypt (TE) has begun discussing the investment opportunity in the deal, in light of its acquisition of 45% of Vodafone Egypt.
How does Egypt benefit from the potential deal for STC's acquisition of 55% of Vodafone Egypt?
Hisham El Alaily, the former executive president of the National Telecom Regulatory Authority (NTRA), said that TE has a once-in-a-lifetime opportunity to become the top operator in the Egyptian mobile market.
El Alaily added that TE should take advantage of the opportunity and use the right of pre-emption to acquire the rest of Vodafone Egypt's share, which would make it the number one operator in the market instead of the fourth.
He believes that the company can manage the value of the deal by selling some assets or increasing capital, especially since the value of the deal is convenient in exchange for what TE will receive.
He also said that after three years of operating in the mobile market, TE only controls 4% of it. However, if it uses the right of pre-emption to purchase Vodafone's global stake in Vodafone Egypt, it will merge Vodafone Egypt and WE and control 45 million customers, which equals almost half the mobile market.
He believes that if TE capitalises on this opportunity, it could bring the company larger profits for several reasons. The first being that TE would become a major operator in the market, as well as providing mobile services based on the Vodafone licence instead of WE's virtual licence -which forces the company to pay fees under the local roaming agreement with TE. In addition, the number of operators in the market will decrease to three, which will increase the value of the return per user.
TE obtained its 4G licence in 2016 and started providing mobile services in 2017 as the fourth operator in the market. WE relies on TE to provide voice services through a local roaming agreement between the two companies. If it acquires the rest of Vodafone Egypt's share, it will no longer rely on the agreement since the acquisition deal includes Vodafone Egypt's networks and mobile towers.
The number of WE mobile customers has grown to four million since its operation began three years ago.
El Alaily believes that mobile operators with a share of less than 20%, after five years of providing the service, should reconsider their situation. He noted that according to WE's performance, it will not be able to reach 20% share within the next two years.
For his part, Hamdy El Laithy, chairperson at the Chamber of Information Technology and Communications, said that there are two scenarios that could benefit TE.
He believes that the first of these scenarios is to make use of the possible compulsory purchase offer submitted by STC to sell its stake in Vodafone Egypt, in which case it would receive an amount of nearly $2bn. This would help the company improve its services, and would drive the growth of WE. It is also the easiest option.
The second scenario, which is the most difficult but the best, is to use the right of preemption and buy the rest of Vodafone Egypt's share, which turns the company from the fourth largest operator in the mobile market to the top and largest one.
El Laithy believes that the company can manage part of the financing of this deal by coordinating with NTRA to sell its 4G licence acquired in 2016, seeing that both companies are only able to merge their technical aspects.
It can also fund the purchase of the deal through loans from banks, especially that this is a major deal and its funding will be met with great demand if the company decides to buy.
He believes that in the case of TE acquiring the rest of Vodafone Egypt's share, it should set a strong strategy to turn into a regional mobile operator. He noted that there is a great possibility for expanding into new external markets within five years of completing the deal.
STC and Vodafone International Group, have agreed that the former would acquire the latter's stake in Vodafone Egypt for $2.4bn.
TE said in a press statement a few days ago that it was in the process of appointing an investment bank to study the investment options and opportunities available in the deal.