By Roger Field
Egypt's dynamic mobile phone market offers great potential for telecom operators and service providers.
With a population of some 70 million people, a relatively low mobile penetration rate and a fixed line sector soon to be opened up to competition, Egypt offers great potential for telecom operators and service providers.
The country, which now has three mobile operators, Mobinil, Vodafone and Etisalat has changed rapidly in recent years, as the increased competition created by the three operators has led to a changing dynamic in the market.
Of course the latest development in offering a second fixed-line licence will be another milestone in the country’s telecom sector. - Khaled Nosseir
And with Egypt's National Telecommunication Regulatory Authority (NTRA) expected to make a decision on how to launch a second-fixed line operator, imminently, the market looks set to experience further significant change for the next few years.
George Edward is one telecom professional with his finger on the pulse. As chief commercial officer at MobiServ, a company that provides a broad range of back-end infrastructure services for the telecommunications sector, Edward has a clear overview of what makes the Egyptian telecom sector tick.
"The mobile penetration rate now is something in the order of almost 50%," Edwards says. "Egypt has about 35 million subscribers out of 75 million inhabitants.
The Egyptian market penetration rate had been going through a steady increase in the first six or seven years and then suddenly there was a boom when the decision was taken by the regulatory body to give the third licence.
For Edward, the entry of a third operator served as clear demonstration of the power that competition can exert on a market. Following the entry of the UAE's Etisalat into Egypt, the two established operators modified their operations.
"This was when Mobinil and Vodafone changed their strategy into developing the market and increasing subscribers, and of course raising the bar for the third operator," he says. Edwards adds that he thinks this level of competition, and the low penetration rates, will sustain growth in the market for another couple of years, before declining.
"Whether Egypt is moving towards other mature markets in the region with 100% penetration is difficult to say. This will depend on how the operators want to make their revenue, whether they want to present more value-oriented offerings with high penetration, or not to decrease the rates from the existing figures.
"The acquisition rate, which is about 5-6 million subscribers now, will continue for another year maybe two and will then start to decline," he says.
Amid this level of competition, there are differences in the way the three mobile companies operate.
Between the GSM operators there is a lot of rivalry and two of the operators are focusing more toward value offerings and market share, which is Mobinil and Etisalat, which wants to expand its customer base, while Vodafone is offering on having a premium perspective or value to their service," Edward says.
It is selling offerings at a higher prices than the other two operators and is actually making considerable more net income at the end of the year." Etisalat meanwhile has not yet produced any financial figures because they have only been active for a few months.
For Sameh Atalla, MobiServe's managing director, one of the key challenges facing operators in Egypt is how to make money in a market where ARPU is among the lowest in the Middle East.
The offerings have to find a balance between customer service level, infrastructure costs and the offerings, and hence be able to make decent income. There are some challenges in growing the network," he says.
Khaled Nosseir, vice chairman and managing director of telecom and network specialist Alkan CIT, a subsidiary of Alkan Holdings, also recognises the potential of the Egyptian market, and also the challenge of falling ARPU.
"The whole sector is actually evolving recently," he says. "There is growth but most of it is in the lower segments with very low ARPU.
Indeed, Nosseir believes most growth and development in the Egyptian market lies in the introduction of new value-added services and the growth in data services.
"That is where the real growth and development is. There is of course growth in numbers of voice especially in mobile, but with very little impact on revenues," he says.
"There is nothing holding back the voice sector, it is just a matter of income distributions in Egypt. There is substantial growth in the voice sector - more and more subscribers joining in - but that is pushing the ARPU down, as there are simply more subscribers with lower usage.
He also believes that competition will help improve fixed line services in Egypt. "Of course the latest development in offering a second fixed-line licence will be another milestone in the country's telecom sector," he says.
It is a huge step forward. Competition will definitely improve the services, enhance the offerings and will ultimately benefit the whole community, the consumer, the user, institutions and industry.
Indeed, Nosseir estimates that growth in Egypt's voice and data sector is somewhere in the teens.
"In the data sector, overall there has been substantial growth in the past couple of years and we expect it to continue. That is where there is potential, and in value added services, there are new products that are coming up.
He also sees much potential coming from the sheer size of Egypt and its population, however, he adds that growth of the sector is also dependent on the continued success of the countries economic policies and continuing reforms.
"It is the economic growth that is driving the whole segment, so we expect and hope this will continue - there is still great potential," he says.
Ossama Kamal, CEO of TradeFairs International, the organiser of Cairo ICT said the event differs from other ICT exhibition in the region, partly because it attract a broad cross-section of smaller players. Indeed, Kamal points out that the event attracts service providers such as systems integrators and software developers, as well as the CEOs of multinationals.
"What we have managed to do along the years is to attract more solutions providers rather than just consumer products to be displayed," he says. "Of course people like to show something interesting to the audience, but what makes this event different from what happens in the rest of the region is that it has a strong IT base that we build on.
"We have the system integrators and the software developers for online business, and value added business on telecoms. These are the people that you can normally find in Cairo that you can't find elsewhere.
For Kamal, the smaller players are vital to the ICT sector, because they are the companies that form the bulk of the industry.
The business is mainly made of the smaller companies rather than the big companies. Like with a nation, you have the king and the prime minister, and the ministers - they are all at the forefront and you read about them in newspapers. But then you have the people in the nation, and the people in the nation of ICT are the smaller companies, and the small and medium size companies.
We give these companies good attention - as much as we give to the likes of Cisco and Vodafone.
At this year's ICT Cairo, there will also be discussion forums of key issues facing the telecommunications sector in the region, including service standards and the motives and potential benefits and problems of regional telcos expanding into new markets. This is particularly relevant to Egypt at the moment, given that a second fixed line operator will soon be entering the market.
"One of the big things that is happening in Egypt is that we are about to have a second fixed network, and that is quite debatable in a country that has had such networks for over a hundred years," Kamal says.
"Will it be profitable for someone to come in, and will it be useful? Actually a lot of companies are applying for the second network for reasons that are not related to having a second network - they see more as a gateway into the country," he adds.
"Operators like Etisalat and Vodafone want to use it in order to have a back-to back solution. Other companies are using it to open markets in Africa, and others want to get the international gateway. So when you think about it, the question remains: what are you providing the users with? That is one thing that we will be talking about."
The event will also features a forum debate on quality of service from all areas of the telecommunications sector, from operators to hardware vendors, according to Kamal.