Thomas White Global Investing
Egypt
Egypt Stamp
October 9, 2009
A Postcard from the Middle East
Egypt: Wiring the Telecom Gap

Egypt telecom sector

As the world becomes increasingly globalized, developing economies like Egypt are striving to create a durable information society for the future.

It is a transformation that did not seem possible, yet has become a reality. Once languishing, Egypt’s telecommunications industry, in the space of less than a decade, has changed its colors to become one of the country’s most promising sectors. Now, the Ministry of Telecommunications, an entity that only came into existence in 1999, is offering bids for two licenses for cable, internet and telephone services that are expected to attract investments of around $1 billion over the next five years.

The move could have far-reaching implications for Telecom Egypt, which until now has been the only fixed-line operator in the country. Also in play are Egypt’s nearly 50 million mobile phone users, who are currently served by three operators as well as some 13.7 million internet users. The bidding date for the new licenses has been set for January 12 next year, and work is hoped to begin in the second half of 2010.

Although the announcement is new, the decision to allow new operators is not. Last year, the National Telecommunications Regulatory Authority or NTRA was forced to postpone an auction and scuttle all plans to bring in a new fixed-line operator when economic turbulence rocked the world. With economic conditions improving now globally, the initiative has resurfaced once again. Interestingly, the successful bidders will not have to make an initial payment but instead offer around 8% of the revenues to the state, a bow to the difficult economic conditions. The Communication and Information Technology Minister Tarek Kamel has admitted that the move is intended to attract foreign companies.

Egypt has fared better than most in the global slump. The country’s gross domestic product is expected to touch 5% next year, but foreign investment declined over the past year as investors and companies alike restricted their budgets. Now, Kamel is hoping to revive investor interest.

But, there are some difficulties – will a second and third operator gain significant market share in a region that has been dominated by Telecom Egypt? For now, the two operators would be restricting their range to suburbs outside Cairo and other such communities in the country. These are small communities housing a maximum of 5,000 units, developed over the past few years as space in Cairo stagnated, and developers were forced to build housing projects further and further afield. Telecom Egypt would continue to operate in these areas as well. Kamel did not rule out prospects of additional licenses for the future, and it will be interesting to see if competition will spur a tariff or services war.

Over the years, Egyptian society has evolved as e-services have helped make life easier. From obtaining birth certificates, to official identity cards online, Egypt’s telecommunications boom has transformed a society used to long delays and longer lines to one that operates on efficiency and promptness in service. It is a revolution that continues as internet penetration increases, and mobile connections grow. Clearly, the telecom industry remains a top priority in driving development in Cairo. Egypt has now become the standard by which other countries in North Africa measure themselves. The past decade has laid the foundation for growth, and the next ten years may well decide if Egypt will move on to becoming one of the world’s most important telecommunication hubs.

 

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