ANALYSIS-Egypt Telecom faces competition, banks on network

Published: 14 Oct 2009 07:02:06 PST

* New licences add to pressure on fixed-line incumbent

* Interest expected from regional players, some Europeans

* State pulls back from second full fixed-line competitor

CAIRO/BANGALORE, Oct 14 - Telecom Egypt's fixed-line infrastructure will offer protection from the opening up of the country's telecoms market but the company is vulnerable to mobile substitution and loss of share in voice traffic.

Cairo-based regional heavyweight Orascom Telecom has announced its interest in the "triple play" -- bundled cable television, Internet and fixed-line licences -- which Egypt said last month it would offer.

Others tipped to bid include the UAE's Etisalat, which already competes against Mobinil and Vodafone Egypt in Egypt's mobile market.

Etisalat, the Arab world's second-largest telecom by market capitalisation, said on Wednesday it was looking to sell bonds to fund further expansion outside its home base.

Some European firms may also eye the new licences, particularly those already present in Egypt.

"Obviously there are growth opportunities there if the licences aren't too expensive," said Michael Kovacocy, senior analyst at research firm Metacommuncare in London, mentioning Vivendi as a potential contender.

"For Vodafone and France Telecom it would be a possibility to solidify their position in the market," he said.

France Telecom and Orascom each own about a third of Mobinil.

Despite the limited scope of the new licences, analysts see a new readiness on the government's part to gradually let majority state-owned Telecom Egypt face more competition.

"This is a real sea change in the government's attitude towards liberalisation in the telecom market," said Michael Millar, regional head of research at Naeem Brokerage.

"This is just a first step and the genie is out of the bottle now."

Communication Minister Tarek Kamel said this month he would block Telecom Egypt's bid for Orascom's Internet units as it would make it too dominant.

FLAGGING FIGURES

But Telecom Egypt will retain its advantage in the medium term even when new "triple play" rivals emerge because they will depend, at least in the early stages, on its infrastructure for fixed-line services.

"It is unlikely that these two new operators will come and dig infrastructure," said Delilah Heakal from Pharos Holding. "What is more likely to happen is that part of the network would be built on leasing infrastructure from TE."

Such leasing will boost traffic through Telecom Egypt's network in the medium term, analysts said.

But the new players will eventually erode the state provider's already flagging voice usage figures, even if that takes some years.

"Obviously it is going to take time for any new operators" to develop their own infrastructure, said Naeem's Millar, adding that new residential areas -- usually for upscale homes -- would offer some of the highest returns per user in the country.

Bid documents will be available this month with a January deadline. The government expects successful candidates to begin work in the second half of 2010.

Telecom Egypt, which has 20 percent of its shares listed, is already struggling to maintain its traditional revenue base as more users turn to mobiles from fixed lines.

Etisalat, Mobinil and Vodafone have been slashing rates for calls between users on their networks to scoop up customers and converting Internet users to their mobile USB modems.

A third of Telecom Egypt's own profits in the second quarter came from its 45 percent stake in Vodafone Egypt. The most populous Arab country has seen mobile subscriber growth blossom to more than 50 million, consistently adding more than a million a month in recent years.

Meanwhile, Telecom Egypt had 9.8 million subscribers at end-June, compared to 11.3 million a year earlier, and most recent growth in revenue has come from its wholesale operations, such as leasing its network. But even that now faces a threat.

"If in future you do get more liberalisation and, for example, these other operators are allowed to put their own fibre down outside these compounds then immediately that (wholesale) business would disappear," Naeem's Millar said.