|
|
|
|
|
Egypt: Growing Pains
Published May 26, 2009
|
One of the most prominent hiccups affecting the telecoms sector of late was the decision by the National Telecoms Regulatory Authority (NTRA)National Telecoms Regulatory Authority (NTRA) to postpone the sale of a second fixed operator licence, citing turbulence in international markets. Similarly, in the past few weeks, the two-year long dispute between the shareholders of the mobile operator Mobinil (MT) has become tenser, as France Telecom (FT) and Orascom Telecom (OT) Orascom Telecom (OT) jockey to retain shares of the company. Although numerous deadlines for resolution have already passed, investors seem to think the issue could be resolved soon and newly purchased shares helped buoy the benchmark index last week.
The fact that telecoms actually helped the CASE30 jump 2% on May 18 is evidence of the significant contribution of the sector to the economy. The combined information and communications technology (ICT) sector was valued at LE10.48bn ($1.88nm) in the fourth quarter of 2008, equivalent to 3.98% of GDP, up from 3.48%, or LE7.01bn ($1.3bn), in the fourth quarter of 2007. This revenue growth is matched by an increasing number of ICT companies, which in turn have expanded job opportunities in the sector. According to the Ministry of Communications and Information Technology (MCIT)'s March "Information and Communications Technology Indicators Bulletin", there are currently 2938 ICT companies, representing an annual growth rate of 25.12%, with 7.77% more employees over 2008.
Penetration rates are also rising. The majority of recent growth comes from the mobile segment, although fixed-line subscribers did increase a modest 6.25% to 11.9m. However, this number pales in comparison to mobile users, who increased to 41.3m, an annual growth rate of 37.21%. Mobile penetration now stands at 54.8%. The growth in penetration has been impressive over the past few years, as Etisalat Misr joined Mobinil and Vodafone Egypt to compete for subscribers in 2006. At present Mobinil has 46% of the market share, while Vodafone has 41% and Etisalat 13%. Despite a late start, Etisalat is attracting more customers as a result of its focus on lower-income segments and its market share could increase to 22% in the long run, according to Marise Ananian, the head of telecoms research at EFG-Hermes. Both Etisalat and Mobinil launched corporate campaigns this month to lure subscribers from Vodafone, which could also have an effect on market shares.
But it seems unlikely that growth will continue at the same rate in 2009. Indeed, Ananian predicts that a third fewer subscribers will sign up in 2009. While 8m is still an impressive number, contraction is always a concern. And although she assumes the potential for future market saturation to be between 80% and 85% of the population, which means there is room for growth, the timeline is more long term, with increases expected in 2015 or 2016.
In addition to the natural ebb and flow of new subscribers, nervousness over market conditions may also affect the sector this year. Although Egypt has been following a gradual approach to liberalisation for years, its recent postponement of the auction for its second fixed-line licence is a concern. A competitor was due to join Telecom Egypt (TE)Telecom Egypt (TE) in 2008, but the process was postponed three times from the initial date of June 19 and the third postponement, only weeks before the auction was due to take place, resulted in an ambiguous end date. Despite a government announcement that 12 companies expressed an interest in the licence, the NTRA, the government body charged with regulating the sector, told the press that the auction would be postponed "for a year", adding that there would be a "re-examination of the offering again, to take place next year". The government cited continued turmoil in global markets as the cause for postponement, coupled with ongoing discussions with the various parties about interconnectivity. While competitors are lamenting the delay, TE is doing quite well. In the first quarter of 2009, the company reported a 72% rise in net profit, which it plans to channel into expansion, although the TE chairman, Akil Beshir, told local media he was not ready to comment on specific plans.
Business may be booming at TE, but the other major Egyptian player, OTOT, has been grappling with its shares in Mobinil, which account for 19% of OTOT's revenue. After almost two years of court arbitration by the International Chamber of Commerce, stake in Mobinil Telecom, a holding company that owns 51% of the Egyptian Company for Mobile Services (ECMS) 's operator. OTOT, whose chairman, Narguis Sawiribi, has said he would prefer not to sell his company's stake in Mobinil at all, appealed to Egypt's Capital Market Authority (CMA)Capital Market Authority (CMA). The CMACMA ruled that FT had to buy all of ECMSECMS, including not only MT, but also Orascom’s 20% direct equity interest in ECMSECMS and the 29 free float shares. Although FT initially rejected the decision, it subsequently agreed to buy ECMSECMS, but offered a lower price than the LE273.26 ($49) per share agreed upon for the sale of MT. Several deadlines for payment have passed, but thus far the two sides have remained in deadlock. While investors seemed to be confident last week that the issue would be resolved soon, the key players seem less convinced, as OTOT has launched legal action to nullify the mandatory sale of its shares, claiming that FT had not met the conditions for the sale. Still, FT has gradually revised its offering upwards and it may be that OTOT will sell once the price is right.
The influx of cash would be a help to OTOT, as it works to maintain its large international networks with activities in Algeria, Pakistan, Tunisia, Bangladesh, Zimbabwe and North Korea, while scaling down capital expenditures by around 10% this year. Already operations in Pakistan and Bangladesh have been restructured in the face of more challenging market conditions.
Despite the hurdles of the immediate future, there is a lot of cautious optimism about the future of Egypt's telecoms sector. It is unlikely that the government will allow TE to keep its fixed-line monopoly for much longer and there are plenty of interested parties waiting to make an offer on a licence. The Mobinil dispute may affect the stock in the short term, but the high demand for mobile telephony will continue to bolster it. Once these issues are resolved, new investment opportunities will come on-line to offer services to the Egyptian market.
Posted by
VMD - [Virtual Marketing Department]
|
|
|
