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TELECOM FIRMS EYE FIXED-LINE PRIZE
BY KHALED BARAMAWY
Telecom companies are moving into the starting
blocks as the government edges ever closer to announcing a tender
for the country’s second fixed-line license. A request for
proposals (RFP) for the new license, which would break state-run
Telecom Egypt’s 126-year monopoly on fixed-line telephone
services, are expected to be issued in early 2008. The new fixed-line
operator should be ready to launch services the following year,
according to Minister of Communications and Information Technology
Tarek Kamel.
While the mechanism of the sale has not yet been announced, Kamel
said in a recent press briefing that the price of the new license
will include the cost of building and operating a second fixed-line
network. He also said the new operator will be provided some privileges
to help it operate and secure a market share – a statement
that some industry insiders have taken as a hint that the new entrant
will be granted an international gateway license.
The new operator will give TE its first taste of competition in
the fixed-line arena, one of its few remaining uncontested services.
Kamel insists he is not concerned about the potential threat to
TE’s revenue generation, pointing out that the company has
been preparing for competition for some time. In fact, plans to
issue the license date back as far as 2003, but have been postponed
due to what the government described as “unsuitable timing.”
The delay has put Egypt at odds with the World Trade Organization
(WTO), which has pressed it to end all monopolies in the telecommunications
sector. But like other signatories of the GATT agreement, which
commits countries to fully liberalize their services sectors, Egypt
is permitted to set its own pace, says Abdel-Rahman El-Sawy, a professor
of communications engineering at Cairo University. “Timing
remains a significant factor that each country sets according to
its vision [and] in light of its economic conditions. So Egypt has
chosen to liberalize in phases according to the market and its capacity,”
he told Business Monthly.
And as far as El-Sawy is concerned, the economic conditions are
ideal for the issuance of a fixed-line license. He compared Egypt’s
economic conditions to countries with similar attributes, noting
that Algeria, Morocco, Saudi Arabia, Tunisia, UAE and Kuwait have
all issued second fixed-line licenses. “The success of each
case depends on the government’s thought process and what
they are hoping to gain out of issuing [the license]. For example,
there shouldn’t be excessive requirements designed to encourage
heavyweight entrants that can offer enhanced services [if this drowns
out the] competition,” he says. “Nor should the government
exaggerate the terms or price of the new license if it will use
the sale system. In Morocco, not a single company submitted proposals
to secure the license due to the many and complicated demands of
the government.”
The National Telecommunication Regulatory Authority (NTRA) is conducting
feasibility studies to determine how the fixed-line license will
be sold. Two options are under consideration: one is to request
a call for closed bids whereby the bidder submits a price for the
license and is unaware of how much competitors are willing to pay;
the other is to have an open sale, where the government decides
based on feasibility studies submitted by interested parties that
will advance to the final round, after which the license goes to
the highest bidder. This open-bid approach was adopted for the highly-contested
sale of the third mobile license last year, which UAE’s Etisalat
Group picked up for a hefty LE 16.7 billion.
And there are signs that the fixed-line license sale could be a
heated contest. Heavyweight Gulf contenders Saudi Telecommunications
and Kuwait’s MTC have expressed firm interest, while UAE-based
Etisalat, having already won Egypt’s third mobile license,
is thirsting for more.
Etisalat Egypt CEO, Saleh El-Abdouli, said the company is preparing
to submit a proposal for the second fixed-line license once the
NTRA issues the RFP. As he sees it, purchasing a fixed-line license
would be a smart play, as it would give Etisalat the ability to
offer packages grouping mobile and fixed-line services. He rejects
the notion that Egypt’s fixed-line market is saturated, pointing
out that similar claims were made about the mobile sector, a fact
disputed by the company’s growing number of subscribers, now
estimated at 25 million. The fixed-line market, by comparison, has
11 million subscribers – a penetration rate of less than 15
percent.
The strategies of Etisalat’s rival mobile operators, Mobinil
and Vodafone Egypt, are more opaque. Mobinil appears to be taking
a wait-and-see approach, especially in light of just shelling out
LE 3.4 billion to acquire its 3G license. Moreover, its relationship
with the NTRA and MCIT has been sour for the better part of a year
as a result of a drawn-out dispute over the issue of EDGE technology.
Vodafone Egypt, meanwhile, may have a leg up on the competition.
The mobile operator already has a stake in the fixed-line market
through its strategic alliance with TE, which holds a 49-percent
stake in the telecom. “If Vodafone Egypt ends up not submitting
a proposal for the second license, it could alternatively offer
packages of joint services with Telecom Egypt, some of which are
already under preparation, but TE’s commitment to equal dealing
with all mobile operators halts further action or joint cooperation,”
says Hany Mahmoud, executive vice president of Vodafone Egypt. He
points out that this restriction would end once TE’s monopoly
is ended as the second fixed-line network starts operation.
Analysts expect the issuance of the fixed-line license to benefit
more than just the state coffers. Telecom expert Ahmed El-Oteify,
former vice president for business development of the National Telecom
Company (NTC), points out that new telecom entrants in other countries
enhanced the market by offering new services such as triple play
applications and fixed-mobile convergence. He says the competition
created by the entrants serves the interests of consumers by driving
prices down. “Competition is the keyword here,” he stresses.
He uses Etisalat’s entrance into the Egyptian mobile market
as an example. “The 3G service has been operating worldwide
for three years, but neither of Egypt’s existing two operators
would have taken the step of introducing here if the third operator
hadn’t [pushed them to introduce the service], which has created
a flood of special offers, reduced prices and lured new subscribers,”
he explains.
However, he warns that mobile and fixed-line networks are two very
different beasts. “It is very unlikely that price [of the
license] will come anywhere close to that of the third mobile license,”
he cautions. “The government is required to select a method
of sale that guarantees a balance between technical and financial
proposals. Bidding will not be the ideal choice in this case.”
Tarek El-Hemaily, chairman of TeleTech, one of last year’s
bidders for the third mobile license, argues that the NTRA should
ensure that the new fixed-line license goes to a new player. This
would strengthen the local market and prevent the creation of a
duopoly. Taking it a step further, he suggests the issuance of two
licenses, as Saudi Arabia did. By dividing the country into two
coverage zones, the NTRA could secure higher economic returns and
better service. “Competition would certainly encourage TE
to develop and improve its services,” he said.
If Telecom Egypt is worried, it isn’t showing it. Company
officials say they knew this day was coming, and have used the time
to consolidate their position. The company has spent over LE 12
billion in recent years to develop its networks to handle voice
and data services. “With 11 million subscribers, Telecom Egypt’s
position will not be threatened by the entry of a new operator,”
Yasser El-Badrawy, TE vice president for commercial affairs, told
Business Monthly. “TE will remain the dominant company, and
the new entrant will have to route its services through our networks
and telephony exchanges, at least in its initial phase of launch,
which will make up for any losses TE might incur if some of its
clients switch to the new operator.”
El-Badrawy, however, does see a niche for the new operator, mainly
in areas TE has deemed unprofitable. “I think the new operator
will compete in areas not covered by Telecom Egypt, or by offering
services that we do not offer, but by using our infrastructure,”
he says. “It might benefit even more by competing in international
calling services.”
But new entrant be forewarned: TE’s size may be formidable,
but its activity is constrained by NTRA rules intended to prevent
it from exploiting its monopoly. Once that monopoly ends with the
sale of the fixed-line license, the gloves come off. TE is going
to be a very tough competitor, El-Badrawy boasts.
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