By Christopher Reynolds
Christopher Reynolds examines Egypt's lucrative telecoms industry, and studies the blueprint for progress in the MENA region's largest market.
Dawlat El-Badwy, Telecom Egypt's vice president of planning, is focused on increasing fixed-line penetration in the North African country to 25% by 2010, despite the twin threats of VoIP and fixed-mobile substitution. As such, Egypt's sole fixed-line provider faces increasingly hostile competition.
Telecom Egypt is the largest provider of fixed-line services in the Middle East and North Africa, registering more than 10.7 million fixed-line customers, with a capacity of 13 million, at the end of 3Q 2006. This represents a market penetration of 14.9% in a country of over 70 million inhabitants.
The telco provides local, long distance and international voice services, as well as internet and data; along with wholesale services including the leasing of broadband capacity to ISPs, and national and international interconnection services. Although Telecom Egypt has enjoyed a comfortable position as the country's fixed line incumbent, it has always strived to not to adopt a complacent attitude towards its market. The Egyptian government is looking to increase fixed-line penetration in the country to 25% by the end of 2010 despite the worldwide slowdown of fixed-line growth.
This is a strategic mission for Telecom Egypt and its vice president of planning, Dawlat El-Badwy, believes, through the deployment of relevant technologies and government grants, her company is on track to meet the penetration targets set.
"We are on track to achieve the government's target using a variety of technologies. Also, if the cost (of rolling out fixed-line coverage) is high for certain areas, we have a deal with the Telecommunications Regulatory Authority (TRA) that we can use the universal TRA fund to develop areas that are not profitable for us in order to achieve the government's targets," she says.
A willingness to adapt to prevailing technological advances is a quality El-Badwy is trying to foster at Telecom Egypt. CDMA, for example, was one of the key technologies Telecom Egypt selected in order to overcome the challenges of covering a scattered population and an area geographically unsuited to the installation of copper cables.
With the rise in cost of copper cable and the relatively low price and wide availability of wireless solutions, CDMA was a vital aspect of the telco's business case for mountainous, rural, and low population areas such as Sinai and for meeting wider government-set targets for increased fixed-line penetration.
El-Badwy is fully aware of the problem fixed-mobile substitution presents and realises that a large enterprise such Telecom Egypt needs to significantly limit the effects of the decrease in its public switched telephone network (PSTN) traffic, through strategies that mitigate mobile substitution and prevent a significant migration of international fixed-line calls to VoIP.
Installing measures to lower operational costs is also high on Telecom Egypt's agenda, in order to provide lower prices to PSTN customers tempted to switch to mobile.
IDC's programme and consulting manager of communications, Mohsen Malaki, believes the best way for Telecom Egypt to do this is by transferring its core to a next generation network, in order to lower PSTN tariffs, while still maintaining a healthy profit margin, and retain more traffic on the PSTN network. The broadband, corporate data and SMB sector offers another avenue for Telecom Egypt to expand into, and thus stem the loss of revenue caused by fixed-mobile substitution; providing the market with data and IP solutions and the ability to look further into convergence and triple play for high-end residential households.
Bundling is another way in which a fixed-line provider such as Telecom Egypt can retain customers, putting in value-added services over the PSTN, such as intelligent network-based services and beyond that, to leverage the IP network built out of DSL connections currently being rolled out across the country.
This approach, according to Malaki, will allow Telecom Egypt to move into advanced offerings and provide services that enable new revenue growth opportunities, so the telco company can compensate from inevitable lost revenue from fixed-mobile substitution.
"These are all big possible growth areas for Telecom Egypt. A big chunk of its investment right now is in shares of Vodafone Egypt, because mobile is a growth area and it wants to make sure that it is at least getting some money back through its investment with the mobile operator, if it is going to lose traffic through fixed-mobile substitution," says Malaki.
Telecom Egypt also participates in the Egyptian mobile market by supplying mobile interconnectivity via its current 44.66% holding in Vodafone Egypt, the country's second-placed operator in terms of subscriber numbers.
As part of its strategy for regional expansion, Telecom Egypt launched the second fixed-line network in Algeria, Consortium Algerien des Telecomunications, as a joint venture with Orascom Telecom. El-Badwy wants to maximise Telecom Egypt's joint venture with Vodafone and she mentions fixed-mobile convergence and triple play as likely future developments, which can offer subscribers additional services and extra add-on features.
"We have a joint venture with Vodafone and of course fixed-mobile substitution is huge, it is rapidly increasing. (So) we started to think about value-added services (in order to try and stem the tide of fixed-mobile substitution). Triple play is one of the features that actually encourages the use of the fixed line.
Whatever the percentage of substitution, the subscriber still requires a fixed line. So fixed-line companies need to think of ways for subscribers to need a fixed line and promote these ways," El Badwy explains.
Telecom Egypt already operates with around 15% of its international transit traffic over IP networks, with 12 soft switches and media gateways that cover the whole country.
This is the first stage toward Telecom Egypt's deployment of triple play and then NGN platforms.
El-Badwy wants to test the waters with NGN and triple play; and Telecom Egypt has deployed its current experimental IP network to familiarise itself with the new technology and to further train its engineers in next generation network operability.
The NGN deployment strategy being overseen by El-Badwy is based on the targeting of small areas in Egypt that offer strong potential as business and tourism centres. It is a strategy that makes sense according to IDC's Malaki, given the country's vast pool of low income users. He believes applications such as IPTV are never going to be mass-market products in the short to medium-term in Egypt.
However, the country does have a small percentage of high-income households together with generally higher ARPU corporate subscribers who could be looked to in order to generate the demand required to warrant NGN rollout. Both Malaki and El-Badwy agree that the business plan for NGN deployment is only viable in Egypt if it is region specific, focusing on high-end neighbourhoods, businesses, tourist resorts or the recently built ‘smart village'.
"For instance, Sahl Hashish is an area on the Red Sea, which has a great potential as a business and tourism centre and we started to target such areas to deploy triple play. We also have Telecom Egypt Data, which is a company we started to deploy triple play within Sahl Hashish, as well as in areas in Cairo where there are a large number of hospitals, universities and modern schools," says El-Badwy.
The other factor for Telecom Egypt to consider is the already huge growth of broadband internet in Egypt, allowing the telco to offer IP services on top of its broadband connections.
Malaki believes the best strategy for Telecom Egypt would be to up sell a selection of broadband customers with value added services, in the same manner as Telecom Egypt Data's recent move into the offer of IPTV.
Internet usage in Egypt has grown at an exponential rate since 2003, and by December 2005, Telecom Egypt Data was servicing over 27,343 ADSL subscribers, an increase of 197% from 2004.
"If you look at Telecom Egypt's financials all they mention in terms of growth is DSL and corporate data. So these are the growth areas. In terms of overall revenue right now, data is not that big but will be the growth engine going forward, so all of the CAPEX is going towards enabling the IP network to provide data and broadband services, and is important for the telco strategically," comments Malaki.
"There is a whole lot of pent-up demand for broadband and business related IP services in the country that one could provide over broadband, such as managed data connectivity and managed storage and other services," Malaki adds. VoIP currently constitutes a massive threat to Telecom Egypt's fixed-line subscriber base according to Malaki. IDC research shows that up to 70% of broadband customers use VoIP for international long distance calls in countries where VoIP is legal.
In a price-sensitive market such as Egypt, a great deal of broadband customers establish a DSL connection and then set-up a LAN network within their residential complex in order to share the connection and costs across households, allowing price-sensitive consumers to use VoIP for international calls at a considerably lower cost.
Another likely revenue bleeder is the Egyptian government's deregulation of international calling. Etisalat, the UAE operator that is preparing to launch Egypt's third mobile licence in February, is currently lobbying hard to obtain an international licence in order to bypass Telecom Egypt completely.
For the meantime though, Telecom Egypt's position in the provision of international calling services remains relatively secure, though again, the telco would be wise not to become in any way complacent. "I think overall, Telecom Egypt is in a good position (in the international calling space). It has 100% or almost 100% of the market right now, but it needs the right strategy to keep that wholesale international traffic on its own international network rather than on the new entrants," Malaki cautions.
Although nurturing new revenue streams to compensate for fixed-mobile substitution is a priority for Telecom Egypt, El-Badwy remains committed to maximising the efficiency of Telecom Egypt's customer services.
The creation of a new customer care centre has helped Telecom Egypt streamline its support service, allowing subscribers to apply for a new line, resolve billing complaints and access caller ID services.
"Customer satisfaction really is the main issue. We want to keep up-to-date with new developments but we never apply a technology for the sake of the technology," El-Badwy comments.
"The technology needs to provide us with real value, and if we see that it fulfils the requirements of our subscribers, then we will start to deploy it."
IF people are moving to mobile and VOIP for international calls so why dose Telecom Egypt raise their tarif for fixed lines ? Instead of fighting againest that with better service and less price they just go to the opposite by raising the prices which may help on the very short run but on the long run it will kill the company completely. In jusy two or three years penetration rate of mobile in Egypt will reach 80% and by this time GSM voice calls will be even less than current price for fixed calls...!!!! Telecom Egypt should do itself a favour and focus more on how to retain customers and how to be really competitive not through regulations but it should be ready for the unregulated world in which if it continues like that it will be bunkruptcy in less than a decade.