INFORMATION AND COMMUNICATIONS
TECHNOLOGY IN EGYPT
Over the past three years, the Information and Communication Technology
(ICT) sector has become one of the nationally prioritized sectors
in Egypt and will continue to be so in the coming years. Investments
in the telecommunications sector are expected to exceed LE4 billion
in 2001.1 In 2000, Egypt's
telecommunications revenue from the provision of all telecommunications
services reached $2.9 billion (LE10 billion), of which Telecom Egypt's,
the country's incumbent provider, revenue shares were 57 percent,
amounting to LE5.7 billion of total revenues. In 1999, Egypt's telecommunications
revenues from fixed-line networks only amounted to $1.85 billion.
In 2001, the telecommunication sector contributed over 3 percent
of the Gross Domestic Product (GDP), up from 1 percent in 1996.2
In 2001, there were 565 companies working in the ICT field in Egypt,
up from 266 companies in 1999.
In 2001, the Egyptian IT market was valued at $730 million, indicating
a 33 percent increase from 1998 and 17.1 percent from 1999.3
In 2004, the IT market in Egypt is expected to reach a value of
$1.315 billion, increasing an estimated compound average growth
rate (CAGR) of 16.1% from 1998.
Source: International Data
Corporation (IDC)
Taking a closer look at the market in 2001 indicates that hardware
captured the highest share of the IT market in Egypt, accounting
for $364.76 million, representing approximately 44% of the total
IT market. This sub-sector is expected to continue to have the highest
share in the coming four years, with projected earnings reaching
$502 by 2004.
Second in line is the IT services sector, which accounted for $258.43
million in 2001 (representing 30% of the IT sector) and is expected
to almost double in value by 2004. The data communications equipment
sub-sector (including LAN Hardware and other data communication
equipment like analogue modems, ISDN, etc.) comes the last in terms
of size, with a share of 11% of the industry in 2001.
The volume of new local and foreign investments pumped into the
IT sector in 2001 hit LE1.1 billion compared to LE625 million in
2000. Egypt's IT exports are expected to hit $100 million in 2002.
Investment in the field of ICT in Egypt saves 33% of the manufacturing
costs and 25%of the designing and development costs.4
1 Ministry of Communications and Information
Technology (MCIT), "Telecommunications Sector, Status and Prospects",
2001.
2 Ibid.
3 International Data Corporation (IDC), 2001.
4 Arabic News, March 12, 2002.
The ICT sector began flourishing in Egypt with the formation of
the new Ministry of Communications and Information Technology (MCIT)
created in October 1999.
In January 2000, the Cabinet approved the "National Plan for
Communications and Information Technology" proposed by the
MCIT. The plan is Egypt's blueprint for the future, mapping all
the ICT projects. Its aim is to adapt with the ever-changing technological
landscape, repositioning Egypt in the ICT global map to go hand
in hand with the liberalization of ICT services trend supported
by the World Trade Organization through the General Agreement on
Trade in Services (GATS) and the Information Technology Agreement
(ITA). The long-term objective of the ICT plan is to encourage private
sector participation as well as to create an export-driven industry.
Through the plan, the MCIT coordinated the efforts of different
governmental entities with each other and the private industry.
Egyptian National Communications and Information
Technology (CIT) Plan Objectives:
1- Upgrading the current telecommunications infrastructure to build
an effective, accountable, expeditious infrastructure that would
provide Egypt and the MENA region with reliable, effective and affordable
telecommunications services;
2- Creating a legislative environment conducive to encouraging local
and foreign investors to operate in the ICT field;
3- Creating local demand for the ICT industry to motivate local
and foreign investors to enter the sector;
4- Targeting international markets by creating an ICT industry capable
of competing globally and transforming the sector into an export-led
industry in order to capture a greater share of the global market;
5- Developing qualified human resources by training professionals,
skilled labor and university graduates to develop and employ state-of-the-art
technologies; and
6- Attracting foreign investment through international agreements
with multinational companies.
ICT Development in Egypt
Similar to international market trends, liberalization of the Egyptian
telecommunication sector is currently taking place by creating a
new regulatory framework, aimed at encouraging private-sector participation,
and increasing competition and transparency in the sector as an
essential prerequisite for compliance with the government's WTO
commitments regarding the liberalization of basic telecommunications
services.
New Telecom Regulatory Framework
Under the new regulatory framework, Law No. 19/1998 and Presidential
Decree No. 101/1998 were issued to separate telecommunications services
provision (operator and service provider) from the regulatory functions.
The newly created Telecommunications Regulatory Authority (TRA)
was assigned the independent regulatory functions and Telecom Egypt
(TE), taking the responsibility of sole operator and service provider.
In 1999, a new telecommunications law was drafted to further liberalize
the telecommunications sector.
- The Telecom Regulatory Authority (TRA)
The primary functions of the TRA are to:
- Authorize and approve the provision of all new services in mobile,
Internet, data and voice transmission networks.
- Introduce licensing services.
- Manage frequency spectrum.
- Encourage competition, ensure transparency and balance the relationship
between service providers and consumers.
- Telecom Egypt: Egypt's Incumbent Provider
Telecom Egypt was the sole public authority entrusted by law to
provide all public telecommunications services in Egypt. Law No.
19/1998 transformed Telecom Egypt into a joint stock company, which
would act only as the telecommunications operator and services provider.
A maximum of 49 percent of the company can be sold to the private
sector.
Plans by the MCIT for the partial privatization of Telecom Egypt
are perceived as an essential factor for accelerating the company's
performance, as well as a major component of the government's commitment
to liberalization, and to the phasing out of government participation
in service provision.
In addition to acting as the principal provider of telecommunications
services in Egypt, TE offers fixed line services (domestic and international
voice telephony), leased lines, data transmission services, and
has started offering new Internet services, and other value-added
services.
In an effort by Telecom Egypt to enhance its services in preparation
for privatization; in addition to, administration, operational and
marketing reforms to take place by the end of 2002, TE will start
operating its own GSM mobile service once the four-year exclusive
period for the two existing operators (MobiNil and Vodafone Egypt)
expire. TE will be required to pay a LE1.975 billion ($428 million)
license fee to the Telecom Regulatory Authority before the new system
starts up.
Moreover, TE established a new IT and data arms known as Telecom
Egypt IT "Masreya" (www.masreya.com.eg) and Telecom Egypt
Data (TED) (www.gega.net)
- The Telecommunications Act (TA)
As the sector policymaker, MCIT in collaboration with private sector
(operators, vendors and users) drafted a new Telecommunications
Act (TA). The TA will gradually phase out the state's control over
the provision of telecommunications services, by allowing more liberalized
private-sector participation in telecommunications services. It
will grant more freedom to companies operating in the sector when
setting prices, subject to TRA approval.
The TA's measures call to:
- Encourage fair competition in the provision of telecommunication
services and ensure transparency between operators.
- Address the provision of telecommunications services at affordable
rates and establish a Universal Service Fund (US) to finance this
objective.
- Protect consumer rights and offer quality service at affordable
rates.
- Organize the licensing of fixed-wire and wireless communications
services in a transparent and non-discriminatory environment.
- Handle the management of the frequency spectrum.
- Empowering the role of the Telecommunications Regulatory Authority
(TRA) and ensuring its independence.
Top
MODERNIZATION OF TELECOMMUNICATIONS
INFRASTRUCTURE
THE TELECOMMUNICATIONS MASTER PLAN
In June 2000, the MCIT, in cooperation with operators, vendors,
and major telecommunications together drafted a "Telecommunications
Master Plan" to expand Egypt's Telecommunications Infrastructure
(ETI) over the next three years and serving as a blueprint for network
evolution. The goal of the Telecommunications Master Plan is to
modernize the core backbone of the sector through both expanding
the capacity of the network, and upgrading the current circuit switching
technology to more efficient packet switching technology. The backbone
will be based on an ATM/IP network to support integrated services
(data, audio and video). The extra capacity will solve the bottlenecks
and will enable Telecom Egypt to satisfy the high growth in demand
by licensed operators in the long term, providing them with enough
capacity to offer a wide range of integrated access services.
The plan is considered a mega project in terms of the amount of
investment needed in the short and the medium terms. The primary
estimates projected by the MCIT for the project approaches $1 billion.
The Telecommunications Master Plan views Egypt's telecommunications
market as a three-layered hierarchy consisting of:
1. Core services (outside plants, exchanges and international services,
among others),
2. Co-location access services (mainly related to the provision
of basic communications connections between a central exchange and
an end-user (fixed-line and public telephony, mobile communications,
Internet, data backbone, etc.) and
3. Value-added services (examples of value-added services are prepaid
telephone cards, Internet access services and content provision.).
Telecom Egypt has already implemented the first phase of an ambitious
project designed to increase the capacity of its core transmission
network in Greater Cairo area using Dense Wavelength Division Multiplexing
(DWDM) technology. This upgrade will expand the capacity of the
core transmission network by 32 times the current capacity of the
system without the need for installing new fiber rings in highly
populated Cairo. Telecom Egypt has also installed a new ATM architecture
for the core backbone, giving it greater flexibility and increased
speed in the provision of integrated services like voice, video
and Internet services.
Telecom Egypt (TE) is expected to invest up to LE21 billion ($6
billion) in improvements to rollout the fixed-line network, aiming
at increasing tele-density (the number of telephone lines per 100
habitants) to 17 percent by June 2005. Improvement measures will
include upgrading the network and system backbone, software and
the billing system TE already signed several agreements with Ericsson,
Alcatel and Siemens to develop its network.
In February 2002, TE signed an agreement with Ericsson aiming at
the transfer of technology know-how and modernization of the network,
through the implementation of the phase two for the development
of the telecommunications infrastructure of TE and the installation
of high-speed networks for the transmission of voice, image and
data, and fiber optic networks. This phase will be completed by
2007. The agreement involves an investment totaling 200 million
Euros.
In June 2002, TE signed also a cooperation agreement with Alcatel
aiming at the modernization and upgrading of TE's network for the
deployment of 1.5 million new fixed lines serving 10 governorates
in the Delta and Alexandria (Lower Egypt). Special attention will
be given to the underserved areas, ending all waiting lists in the
mentioned governorates, and will satisfy the increasing demand for
fixed lines over the coming five years. The projects' total investment
amounts for EURO 300million over a 5-year period.
Telecommunications Indicators
In July 2001, fixed lines reached 8 million, bringing the number
of Access Lines in Service (ALIS) to 6.3 million lines, from 4.6
million in October 1999. This raises the utilization rate to 78.8
percent as compared to an average level of 85 percent globally with
a tele-density of approximately 10 percent.
The installation of state-of-the-art digital switches, replacing
old exchanges, has relieved the pressure on the overloaded fixed-line
telephone switching network and has led to a higher quality of service.
In 2000, the number of digital lines increased to 96 percent of
the total telephone lines in the network, up from 86 percent in
1999. Currently, the percentage of digital lines in the system is
approaching 100 percent.
In metropolitan Cairo, TE has plans to expand the telephone services
by adding 15 new telephone exchanges to reach 69 from the current
54 before the end of 2001, to reach up to 75 exchanges in latter
stages. TE is not only focusing on Greater Cairo but also has various
installation plans in different districts and cities such as Alexandria,
Tanta and Mansoura to be completed by the end of 2001, as well as
the industrial cities.
TE also plans to expand its telephone services to reach 1,027 medium
size villages all over Egypt through fiber optic cables. The number
of villages that have telephone exchanges increased from 835 villages
in 1999 to 965 in July 2001. From Jan 2000-June 2001, new 174 telephone
exchange have been added to villages in Egypt. The TRA, acting on
behalf of the Government, will share the costs with TE to link small
villages to mother villages where distance exceeds 5Km, via special
cables.
Tariff Restructuring
On March 17, 2002, TE announced the new tariff rebalance structure
for fixed telephones in residences and commercial offices as of
July telephone bill. It is worth noting that telephone tariffs in
Egypt have not been changed since 1988.
The aim of fixed lines tariffs reformulation is to ensure more
equity and fairness between and within governorates as well as introducing
a more simplified tariff structure for long-distance billing.
The new tariff structure is the follows: For local calls the call
set-up charge is 3 Piasters, and the cost per minute is 2 Piasters,
for long-distance calls: the call set-up charge is 5 Piasters. The
cost per minute for calls made over distances less than 60Km will
be charged as follows: 10 piasters from 8am-8pm; and 8 piasters
from 9pm-7am. The cost per minute for calls made over distances
more than 60 Km will be charged as follows: 20 piasters from 8am-8pm;
and 16 piasters from 9pm-7am.
The new tariff and billing system is based on monthly computation,
but payment is made every three months during a period of 40 days.
The monthly subscription fee is now LE5 for residential phones and
LE10 for commercial phones.
The tariff for long-distance calls was distance-dependent (based
on the multi-meter system and the period of the call ranged from
45 seconds to 3 minutes within the villages and cities of the same
governorate). Moreover, the long-distance billing system that formerly
comprised 11 categories now comprises only 2 categories: under 60
Km and over 60 Km of distance.
Top
HUMAN RESOURCES
The total stock of university graduates in Egypt is over 2.5 million
(6% of population in the range of 10 years and above). Only a fraction
of this number however are ICT technicians due to the presence of
other engineering specializations such as construction engineering.
In 1996, a specialized faculty of Computers and Information (FCI)
was established by the Ministry of Higher Education as part of Cairo
University (a public university) to enhance supply of ICT professionals
in Egypt by providing computer and IT specialists. FCI includes
4 departments with 900 students currently enrolled. Students receive
4 years of study.
The average cost of training Egyptian labor to become world-class
IT professionals has been estimated at $20,000/person. Thus, to
reach the government's target of producing an annual 5000 IT professionals
requires an estimated $100 million budget to be allocated to ICT
training.
As a result, the MCIT has largely involved the private sector and
multinational corporations (MNCs) to work together to produce 5000-6000
highly professional ICT labors for the market annually in a five-year
period through various strategic alliances and miscellaneous programs.
Professional training programs have been arranged with several MNCs
namely Cisco, Ericsson, Lucent, Nortel, Qualcomm, ICL, IBM, Microsoft
and Oracle, in addition to the local Orascom and the Arab Academy
for Sciences, Technology and Maritime Transport. Strategic alliances
with MNCs are on a 50-50% cost-sharing basis with the Ministry.
Also, professional training for university graduates has been taking
place since 1993 with the establishment of the Information Technology
Institute (ITI) by the Information and Decision Support Center (IDSC),
the technical arm of the government, which offers a training duration
of 6-9 months to supply the market with professional software developers,
Geographic Information Systems (GIS) developers, Computer Networking,
multimedia, VLSI Design and Embedded Systems, computer instructors,
executive secretaries, information analysts, computer operators
and staff of technical bureau of ministers and governors. In July
2001, the ITI witnessed the graduation of 1,633 IT professional
graduates in various fields.
Top
ICT SEGMENTS IN EGYPT
Software Industry and IT Services
Technology parks and incubators and skilled human resources are
the major engines of growth behind the Egyptian software industry.
The software industry is the fastest growing segment among the Egyptian
IT segments.
In 2001, the software industry comprised 15 percent of the total
Egyptian IT industry accounting for $129 million up from US$105
million in 2000 with a growth rate of 23 percent and expected to
increase in 2002 by 15 percent amounting for $148 million.
Egyptian software exports were estimated at $100 million in 2001
and are expected to double annually to reach $500 million by 2005.
The number of companies working in the software industry is nearly
300 with 7000 professionals employed in the industry.
In 2001, application solutions software represented over half ($71.11
million) of the Egyptian software industry. Application solutions
market in Egypt is almost doubling annually. Application tools captured
the second highest share of Egypt's software market in 2000, with
over one quarter ($30 million) of the total market.
System infrastructure software had the smallest share of the Egyptian
software industry in 2000, accounting for $18.28 million, representing
17 percent. It is forecasted that application solutions will continue
to dominate the Egyptian software market and be the major driver
of software market development, accounting for an estimated $110
million in 2004, which would represent 56 percent of the total based
on a market compound average growth rate (CAGR) of 19.1 percent
from 1998.
Enterprise Resource Planning (ERP) and Customer Relationship Management
(CRM) are application solutions, which have become important cross-industry
tools for successful business. CRM is expected to witness a sharp
rise in the coming years, especially within the banking, telecommunications
and utilities sectors. Nonetheless, the outstanding sales of both
types of solution software had a great impact on increasing local
and regional application solutions software revenues.
Major software companies working in the Egyptian market are: Raya
Holding (Mega and Oratech), IT worx operating from Nasr City's Free
Zone, Sakhr as a pioneer in developing many educational and Arabic
cultural products for the Arab marketplace including Egypt. MNS
has also excelled in mobile applications that make use of GSM technologies,
namely SMS & WAP.
In June 2001, the Software Engineering Certification Center (SECC)
was officially inaugurated in Egypt as the first in the MENA region.
The Center's mission is to promote and support the development of
software industry in Egypt by raising the software engineering practices
to a higher maturity level, thus becoming more competitive in the
international market.
Several Egyptian and multinational corporations (MNCs) operating
in Egypt have already committed their efforts to serve the Center's
activities. Motorola is one of the companies, which will contribute
with a sum of $100,000 annually over a period of three years. The
founders of the SECC include Alcatel, Asset Technology Group, CITE,
Comsys Software, Delta Software, DMS, Giza Systems, IBM, ICL, IT
Worx, LINKdotNET, Lucent Technologies, Mentor Graphics, Microsoft,
MobiNil, Nile Soft, Oracle, Pyramid Technology and Raya Holding.
As the IT hub for the Arab region, Egypt has become the major software
exporter to most Arab countries, competing with Jordan and United
Arab Emirates (UAE). In 1999, Egypt supplied 70 percent of the demand
for such software from the Gulf region, primarily represented by
the United Arab Emirates (UAE) and Saudi Arabia. Multimedia-related
products such as cultural, educational, entertainment and religious
CDs are the leading products exported to the Middle East region.
The majority of Egyptian software companies have established branches
in the UAE, Saudi Arabia, Bahrain and Oman.
In recent years, numerous programs have appeared in Egypt to promote
exports among different sectors. Not surprisingly, boosting Information
Technology exports has been set as a major priority in almost all
of them. Examples of such export development programs are those
of the Center for Business Support (CBS) and the Egyptian Exporters
Association (ExpoLink) under the Growth Through Globalization Program
(GTG).
IT services are comprised of support, consulting, implementation
services, operations management, and training. It is the second
largest segment in terms of size in the IT market. In 2000, the
IT services market generated $210 million in revenue representing
almost 29 percent of the total Egyptian IT market.
Support services and operations management accounted for the highest
share among IT services, representing 34 percent and 19 percent
of the total IT services in 2000. Like the software market, the
IT services market rotates around implementation, training and consulting
services, which accounted for 47 percent of services in 2000. The
trend towards packaged application solutions, Internet/Intranet
usage and networking will make IT services a major and dynamic segment
of the IT market within the coming years. It is forecasted that
by 2004, IT services will generate $445.5 million in revenues with
service support representing the largest share, amounting to 35
percent, followed by operations management, which will represent
18 percent of the IT services market.
Increasing the level of automation among the governmental and private
sectors has increased the demand on implementation services that
involve application development, hardware and software installation,
systems/network implementation and network integration.
Continuous support services have become a complementary service
with the increase in selling packaged solutions in the Egyptian
local market. Software companies have to ensure continuous support
and maintenance to clients against problems that may result from
programming errors. Many companies offer hot line support, on site-per
call support, and website support.
Operations management, ranked second after support services, is
triggered by outsourcing, which has become a common trend in the
IT sector. In some cases, the entire information management of a
company is outsourced, including planning and business analysis
as well as the installation, management, and servicing of the network
and workstations. Outsourcing can range from a large contract by
which a company manages IT services for another company to the practice
of hiring contractors and temporary office workers on an individual
basis. From the IT vendors' side, outsourcing is a way to expand
their local IT services to include the range of operational services.
Demand for outsourcing is being driven by the increasing need for
external network management, new solutions migration and the growing
complexity of IT operations.
With the increase in competition between companies and the importance
of improving performance and business processes, IT and management
information systems consulting are essential. Systems integrators
and Independent Software Vendors (ISVs) have become important players
in the software market, which reflects demand for software and related
services beyond personal use as multi-year system-wide solutions.
As is the case worldwide, the IT market in Egypt is facing a shortage
of skilled IT personnel in all technology segments and among different
managerial levels. As IT sector performance is mainly measured by
its manpower, training has become essential to fill the gap between
the demand and supply in both technical and project management expertise.
3. The Government's Role in Promoting the Software Industry
As previously stated, the GOE aims to boost software exports to
$500 million by 2005 from the $100 million recorded in 2001. The
government has taken serious measures to achieve this goal through
a series of incentive building legislations, including:
Tax holidays: A five-year tax holiday for all software companies
and 10-year tax holiday for those software companies that establishes
their operations in new industrial zones. Removal of customs and
sales tax on software, which had previously been set at 5 percent
and 10 percent, respectively.
Intellectual Property Rights (IPR)
As of 2000, Egypt's software piracy rate was 56 percent; although
this figure marks a 19 percent decrease from the previous year,
it is still high in comparison to the world average of 37 percent.
The relatively high piracy rate and the insignificant value added
of software perceived by many Egyptian organizations and companies
are still two primary reasons for the immaturity of the country's
software industry.
Intellectual Property Rights (IPR) has become a major legislative
concern for the software industry in Egypt because they would give
international companies more confidence in the Egyptian market.
The lack of IPR bars the local IT industry from competing in global
market.
In terms of private sector efforts at curbing software piracy,
a consortium of MNCs in Egypt, including Microsoft and Oracle, have
taken the initiative in providing university students with software
packages for nominal prices to encourage student use of legally
licensed software.
World Intellectual Property Organization (WIPO)
The World Intellectual Property Organization (WIPO) has provided
Egypt assistance in promoting awareness of intellectual property
rights among parliamentarians and producing a WIPO-compliant IPR
law. The organization is committed to supporting Egypt build a robust
IPR infrastructure.
The major obstacle to making the country ready for full-fledged
ITA compliance, however, goes back to the issue of software piracy.
Three of out four pieces of software in the country have been copied
illegally. Even with the 19 percent decrease in 2000, software piracy
was still responsible for losses in retail software revenue of $12.2
million. Egypt had the fifth lowest piracy rate in the Middle East,
with Israel having the lowest value. In the African Continent, it
had the second lowest piracy rate after South Africa, which had
a 45 percent piracy rate.
Hardware Industry
Under the current IT development trend, the hardware industry has
been the focus of the sector, accounting for $461.71 million, representing
the highest share of the whole IT market. In 2001, the hardware
industry, included:
1. Multi-user server systems (which entail high-end servers, mid-range
servers, low-end servers, and server add-ons),
2. Single-user systems, which are commonly termed workstations,
(personal computers, PC printers, other PC add-ons) and
3. Data communications equipment (Local Area Network and other data
communications equipment).
Egypt has an extremely high PC growth rate in comparison to neighboring
countries, and is considered the fastest growing market for personal
computers in the Arab region. Its PC growth rate is the second highest
worldwide after China, and is well above the global average of 18.3
percent. Despite this, the volume of computers in Egypt compared
to the population of 67 million shows that the market is still "under
computerized."
According to a survey conducted by IDC on the PC market in Egypt,
in 2001, PC installed base reached 709,244 units including desktops,
portables and PC servers which accounted for 682,895, 16,511 and
9,838 respectively increasing from 521,935 in 2000. The total commercial
market accounted for 85 percent of the total installed base.
Triggered by the high demand on Internet usage, household PCs claimed
27 percent of the market by 2000. The same survey claimed that the
installed PC base is expected to increase with an annual growth
rate of 23-24 percent to reach 1.08 million by 2003.
Locally assembled PC units supplied by both large and small assemblers
have dominated the market, accounting for approximately 60 percent
of the PCs installed base with local brands represented at a minimum
compared to international brands. In 2000, foreign brands such as
Compaq, HP, Dell, IBM, Acer represented 37 percent compared to 4
percent for local brands as Nile PC, Optics and Banha
Different incentives by the government have been established to
encourage locally produced PCs. Customs tariffs on hardware are
relatively low at 5 percent for completed products, and 5-10 percent
on parts. In terms of retail, the sales tax on hardware components
has been discounted by 50 percent to just 10 percent. While all
ICT activities are granted a five-year tax holiday those located
in industrial zones (such as 10th of Ramadan City and 6th of October
City) are double rewarded with a 10-year tax holiday.
Few private companies have taken the initiative of manufacturing
parts for personal computers, such as monitors and plastic computer
cases. The first locally produced PC-compatible equipment was manufactured
by the state-owned Banha Electronics Company. Other companies have
now entered the market, such as International Electronics (a subsidiary
of Bahgat Group), one of the leading private sector electronics
companies in Egypt.
Though the commercial sector has a higher market share compared
to household shares, the level of automation among corporations
in Egypt is still low. According to Microsoft's internal estimates,
out of some 400,000 companies and organizations operating in Egypt,
only 10 percent have installed computers, while the remaining 90
percent have zero installed computers. The government has become
an active PCs consumer after the issuance of Presidential Decree
No. 627/1983, which stipulated that all government entities should
establish computer information centers on their premises. In 1998,
the public sector had 61,611 installed PCs, compared to only 15,282
in 1995. While the majority of these public-sector PCs came from
local manufacturers, multinational companies and large-scale companies
preferred to buy imported PCs.
In terms of price, locally assembled PCs are nearly 40 percent
less expensive than their imported equivalent. Small Office/Home
Office (SoHos) and Small and Medium Enterprises (SMEs) are the main
consumers of locally assembled PCs. Two-thirds of PC shipments in
Egypt are made to SoHos and SMEs, which are attracted by the low
prices offered by local and regional assemblers.
As an initiative to increase demand by students in schools and
universities, the MCIT has a plan to provide university students
with PCs at subsidized prices. These PCs will be sold at LE2,000
each, which can be paid by the student in LE50 monthly installments
over a three-year period and can be added to Telecom Egypt.
Microsoft Corporation will contribute to the project by offering
students the operating system and other software at discounted prices,
that can also be paid in installments as low as LE30 per month.
The aim of the project is to increase the installed PC base in Egypt
and raise computer skills among the younger members of Egyptian
society. In addition, MCIT is already in the process of building
120 community centers throughout Egypt to offer free computer training,
in cooperation with youth clubs, cultural centers and universities.
Government to boost PC usage: "A computer in every home"
Initiative
The government in cooperation with the private sector collaborated
forces to boost PC usage through "a computer in every home"
initiative. A local PC manufacturer called Centra Technologies established
in June 2002 will be responsible for providing PCs with reasonable
prices afforded by the average user. The company plans to produce
150,000 machines in the first year of operations. The company's
shareholders are Telecom Egypt (TE), Al-Ahram, of newspaper fame,
Dokki-based system solution provider Prosylab (the largest shareholder
in the company), and Banque Misr.
Centra computers will be manufactured in three government-owned
factories: Benha Electronics, which today mainly produces military
goods; the Arab Industrial Organization; and the Armed Forces company,
El Basariat. Two other local giants, Orascom and Baghat Group, will
be involved in manufacture and distribution.
The payment scheme will be in cooperation with TE. The PCs will
be paid on monthly basis, LE100 installments, to be charged on the
telephone bill.
All PCs will be installed with Microsoft's Windows XP operating
system. Three models will be introduced, ranging from those fitted
with Intel Celeron processors and 1 GB to Intel Pentium 4s with
40 gigabytes of disk space. The company is planning to produce notebooks
as well.
Smart Schools Network
In 2000/2001, MCIT started the Smart School Network initiative to
be completed over three years period. The project objectives are
to raise student awareness with modern technological through:
- Introducing a 3-5 hour-per-week IT syllabus into the educational
system, specifically in primary-stage education
- Supply sufficient computers and accessories to schools so as
to allow a one-to-one student-computer ratio
- Introduce computer-aided education to the school system.
- The project will assure training programs for teachers in technology
and computer-aided education
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INTERNET INDUSTRY IN EGYPT
The Internet market in Egypt, has been witnessing a steady growth.
The "Free Internet Model" introduced by the MCIT has been
a major factor directly related to the boost in Internet users and
will continue to be a major force behind consolidation and a market
shakeout amongst Egyptian ISPs.
Market Structure
As of 2001, the Internet market became reformulated during the past
five years with the liberalization of Internet service provisioning
and the increase in competition between operating ISPs.
By 2001, the market had expanded to contain 60+ ISPs, providing
diversified Internet services for commercial enterprises and individual
users throughout Egypt. In these short six years, the country's
ISP market had also developed into a large, lucrative and competitive
industry.
In 2000, the Internet service provisioning market started to witness
several mergers and acquisitions among ISPs in Egypt. The largest
amongst them took place in April 2000, Orascom Telecom (OT), one
of the shareholders in the leading cellular operator MobiNil, increased
its stake in InTouch Communications from 40 percent up to 99 percent.
Later, InTouch Communications merged with Link Egypt to become LINKdotNET,
one of the largest ISP in the Egyptian Internet market and the Middle
East, in which OT currently holds a 75 percent stake with the remaining
25 percent owned by private shareholders.
Internet Usage:
A newly released report from the Arab Advisors Group projects that
Egypt's Internet subscribers will reach 680,000 accounts (2.6 million
users) by 2006, up from 120,000 (540,000 users) in 2001 translating
into penetration rate of 0.93%, up from 0.18% in 2001. ("Internet
Accounts" includes regular users of the free Internet model).
Internet Service Providers:
The number of Internet Service Providers (ISPs) increased to 60+
in June 2001 from 45 ISPs in October 1999, increasing by 44 percent
and serving 750,000 Internet users. The number of Internet users
recorded an increase of 150 percent, up from 300,000 in October
1999. The number of Internet users in June 2001 translated into
115 subscribers / 10,000 population from 101 subscriber in October
1999, increasing by 145 percent. With the introduction of the "free
Internet" model, the number of Internet users is expected to
increase tremendously by the end of 2002.
There are currently more than 13 Internet and Datacomm providers
and some 65 small and virtual ISPs.
Internet Service Providers (ISPs), the report shows strong signs
of an impending consolidation and shakeout phase in the country
that will reduce the number of infrastructure-based "real"
ISPs to 9 by 2006. As for privately branded virtual ISPs, promoted
by major brand names in Egypt in association with the big ISPs,
they are expected to increase to 145 by 2006.
Revenues:
Internet access revenues in Egypt will reach US$ 81.5 million in
2006 up from US$ 19.1 million in 2001.
Bandwidth:
In December 2001, Egypt's bandwidth increased to 450Mbps compared
to 20Mbps in December 1999. Egypt's bandwidth comprises approximately
45 percent of the Arab countries' bandwidth (including Egypt, Saudi
Arabia, Lebanon, Jordan, Morocco, Oman, Syria and the UAE), which
amounts for 777Mbps.
The Arab Advisors Group has developed a regional broadband index
to rank the availability of bandwidth in different Arab countries.
Egypt topped the index with a score of 2.11, with Syria lagging
behind with a score of 0.19 (a country with a score above one has
better than average bandwidth per subscriber).
However, due to Egypt's massive total population in comparison
to the rest of the region as well as the large span between its
highest and lowest socio-economic groups, the country has one of
the lowest penetration rates in the Middle East, representing just
0.82 percent, followed by Morocco (0.73 percent) and Algeria (0.6
percent).
The Internet utilization rate in Egypt is 1:65 compared to a world
utilization rate of 1:14.9 The Internet community is distributed
over three major sectors: academia, government and commerce. It's
worth noting that most subscribers are concentrated in Cairo, Giza
and Alexandria.
Liberalization of Internet services provisioning
The Internet Service market has transformed itself into a fully
liberalized and highly competitive market. The majority of ISPs
are concentrated in Cairo, Alexandria, Gharbiya, Port Said, El Menia
and Beni Sweif, offering a range of Internet services with various
Internet technologies, including leased lines, dial-up PPP, Slip
connection, Integrated Services Digital Network (ISDN) and Digital
Subscriber Lines (DSL).
Internet and data license categories
Among the first administrative moves made by the TRA when it began
to regulate the Internet and data market in 1999 was to categorize
ISPs' licenses into three different categories. These are:
Internet Services (Class A)
Licenses to provide Internet services, under which licensees can
establish an international gateway using transmission media (fiber
optics or cable) leased from Telecom Egypt to provide Internet services
to both Class B and C as well as end-customers. In addition, Class
A licensees can co-locate equipment at Telecom Egypt exchanges to
establish their own high-speed backbones and Internet access networks.
Data Transmission (Class B)
Licenses to provide data transmission services, under which the
licensee is authorized to build high-speed data networks to serve
the end-customers using infrastructure from Telecom Egypt or by
leasing network elements from a class A licensee. The licensee can
also provide Internet services to end-customers by using the gateway
of one of class A licensees.
Class B licenses are also extended to empower licensees to establish
international gateways using transmission media (fiber optics or
cable) leased from Telecom Egypt to provide global data transmission
services to closed user groups. The licensee is authorized to transfer
data using international data networks and not the Internet (Voice
traffic is not allowed).
Retail Internet Service Providers (Class C)
Class C licensees, or downstream ISPs, are only allowed to use class
A infrastructure to provide services to end-customers.
Classes A & B have the right to interconnect their networks
with the public switched telephone network (PSTN) based on an interconnection
agreement with Telecom Egypt. This allows the licensees to provide
dial-up and high-speed Internet access services to their customers
based on a revenue-sharing model.
With the entrance of numerous ISPs to the Internet market in Egypt
in 1996, different packages were introduced to the Internet community
according to utilization patterns. The cost of Internet access has
decreased and payment schemes have diversified to provide rates
based on the speed and the type of the technology employed. Up until
three years ago, Internet access in Egypt was considered very expensive
in relation to the GDP Per Capita. However, different public-private
initiatives were undertaken to broaden the adoption of Internet.
Tariff Reduction
Cutting tariffs by Telecom Egypt on international bandwidth was
a major initiative undertaken to increase Internet penetration in
Egypt. The first reduction took place in December 1999 with a 50%
reduction on high-speed international private lines and 33% on low
speed lines. In August 2000, another set of reductions, ranging
between 10 and 40%, took place on international private lines for
Internet services.
In April 2001, the international private lines tariffs were further
reduced on average by 40 percent. Later in September 2001, the tariffs
on very high-speed international private lines for licensed ISPs
DS3 (45Mbps) and STM-1 (155Mbps) were reduced for long-term contracts.
Cutting tariffs resulted in lower Internet prices offered by ISPs
and, eventually, more demand by the end-users.
Dedicated Internet access, a means for connecting one or more hosts
to the Internet, is primarily used by academic and governmental
institutions and large corporations for accessing the Internet.
TE is the main provider of dedicated lines in Egypt through its
transmission services (leased lines) or Frame Relay services (permanent
virtual circuits (PVC). Under the new regulatory framework, licensed
ISPs and PDN operators who establish their own network infrastructure
will be able to provide the leased lines and only lease copper loop
from Telecom Egypt for LE1200/year.
Dial-up Access
In 2001, the average cost of a dial-up connection reached LE10-30
(US$2.5-7.5) per month, down substantially from the average sum
of LE400 per month in 1996 for unlimited hours.
On the first day of Cairo Telecomp Conference and Exhibition 2002
on January 14th, the Internet market witnessed the launch of the
"free-Internet" in Greater Cairo. The "free Internet"
model allows users Internet-access with no annual or monthly subscription,
paying only the price of a regular call, which costs LE1 for 60
minutes. (for a regular local call, 1 Unit which is equivalent to
6 minutes costs LE0.10).
In partnership with licensed ISP's, Telecom Egypt set-up an estimated
150,000 ports, capable of serving 2 million Internet users. ISPs
are eligible to apply for a Free Net number from the Telecom Regulatory
Authority (TRA). More than 50 ISPs acquired a number in the "0777"
dial-up system after undergoing an auction by the TRA.
The revenues generated are split between the ISP and Telecom Egypt
so that ISPs receive 70 percent of the revenues on each call while
TE receives 30 percent.
Licensed ISPs will be able to interconnect with TE local telephone
exchanges across the country. The aim of the model is to reduce
traffic on TE lines avoiding any congestion by enabling users to
log on directly to the ISPs network without occupying space on TE's
lines.
Integrated services digital network (ISDN)
The ISDN is a low cost, advanced and fast way for individuals and
businesses to connect to the Internet via digital telephone lines
at 64Kbps or 128Kbps.
An ISDN flat rate account costs approximately $409-$450 annually,
paid to the ISP, and LE240 paid annually to Telecom Egypt, in addition
to the regular local call. Despite the high quality of these services,
their relatively high prices have kept the level of accounts still
low. It is worth noting that in June 2001, the number of ISDN subscribers
reached 3,057 increasing by 6014 percent from 50 subscribers in
1999 and by 144 percent from 1,254 in 2000.
Digital Subscriber Lines (DSL)
DSL is a more advanced technology; different from the ISDN that
allows high-speed connections to the Internet over copper telephone
wires. The DSL modem divides one phone line into two, so that it
can be used simultaneously for a normal phone call and for continuous
Internet connection. DSL speeds start at a range of 128Kbps-1Mbps,
which is 2-24 times faster than standard 56Kbps dial-up modem.
Currently, DSL services are being implemented in a number of exchanges.
The licensed companies for the DSL services will operate by the
first quarter of 2002 after the setting of standard pricing for
such services by the TRA.
ISPs in Egypt not only offer Internet access, but they also provide
services such as intranet/extranet solutions as well as hosting
services.
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E-COMMERCE AND ITS APPLICATIONS
IN EGYPT
E-commerce in Egypt is very much in its early stages of evolution.
The public and private sectors cooperate together to discuss, negotiate
and argue the merits of e-commerce-related issues. It is expected
that the bulk of e-commerce will come from the B2B market.
E-commerce primarily takes place within and between various parties
namely, businesses, consumers and governments, along with banks,
which often act as an intermediary. The different levels of e-commerce
are Business-to-Business (B2B), Business-to-Consumer (B2C), Government-to-Government
(G2G), Government-to-Citizen (G2C), Government-to-Business (G2B),
and Citizen-to-Citizen (C2C).
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INVESTMENT OPPORTUNITIES IN THE
ICT SECTOR
Expanding the capacity of the fixed telephone network will require
that Telecom Egypt enter into partnership with the private sector.
Such partnerships can take various forms, such as BOO projects or
revenue-sharing contracts.
To maximize local and foreign investments in the ICT market, all
the IT and Telecommunications investment fall under Investment Law
no. 8 of 1997. This includes:
- Unrestricted ownership of investment capital by local and foreign
investors.
- Right to freely transfer funds on and out of the country, including
unlimited profit repatriation and invested capital re-exportation.
- 10-year exemptions on distributed profits, plus, under certain
conditions 2 additional years.
- Right to acquire and own land and real estate.
- Right to operate on behalf of third parties.
- No price controls or profit ceilings.
- Guarantees for project assets and funds.
- Entitlement to export and import immediately.
- Approved project cannot be nationalized, expropriated or confiscated.
- Unified customs tax rate of 5% on all imports.
Modernization of the core backbone
Telecom Egypt is seeking strategic partners to provide financing
and know-how for the $1 billion modernization project, which will
facilitate the transfer of voice, data, and video information. The
project will also allow TE to satisfy demand for capacity in later
stages.
Telecom Egypt GSM Network
Telecom Egypt invited international companies for a bid in March
25, 2002, for the contract to supply and install equipment for the
third GSM system. Companies that have expressed interest include
France's Alcatel, Sweden's Ericsson, China's Huawei Technologies,
Lucent Technologies of the US, Canada's Nortel, and Germany's Siemens.
Much of the design work has been carried out by German consultant
Detecon.
Wireless Telephone Network
The Ranin Consortium won an Egyptian wireless telephone network
tender valued at $700 million. The tender consists of installing
a five million wireless telephone network in three phases. The first
phase includes installing 1.5 million wireless telephone lines at
a cost of L.E1.5 billion ($325 million). The Ranin Consortium includes
the Kuwaiti Al-Kharafi Group, the Egyptian Raya Holding Company
and several other local partners.
Public Data and Internet Services
To place Egypt in the e-marketplace, the TRA licensed several new
companies to build and operate infrastructure that expands data
services and the highly competitive Internet market in Egypt. Investments
range from $20 million to $100 million, depending on the type of
service and geographical location. Many of these newly licensed
companies are partnerships between local companies and multinational
corporations, a reflection of the international financial market's
growing confidence in the Egyptian sector.
In addition to the private sector participation in these services,
Telecom Egypt seeks strategic partners to provide technology-transfer
and managerial know-how to its new data subsidiary, Telecom Egypt
Data (TED) that will offer a wide-range of services targeted to
corporations and end-users. Currently, TED is responsible for operating
the Information and Decision Support Center (IDSC) network, the
seven7s.net, and Geganet ISP after acquiring it totally.
E-Commerce
Due to the widespread use of the Internet in Egypt, investors are
needed to create and implement all levels of e-business. Three of
the MCIT major goals are to:
- Build national databases (civil information, commercial registry,
land ownership, legislation)
- Implement e-government {purchasing, budget control, customs,
inventory control, taxes, and services)
- Generate e-commerce (trade, tourism, banking, stock exchange)
A successful example of a B2B portal is Ciranet, which is tailored
for the pharmaceutical industry established recently by Citibank/Ciranet,
an American/Egyptian joint venture.
E-Delivery
With the advent of e-commerce, a full modernization of the National
Postal Authority is a key government project. The Postal Authority
started to build a network to connect 3,000 post offices throughout
the country. Plans for transforming the Authority into a joint-stock
company are already under way. Opportunities exist for partnerships
with the private sector to introduce electronic postal services
and new applications in postal banking.
IT Venture Capital: Egypt's First Technology
Incubator
In October 11, 2001, the MCIT and Commercial International Investment
Company (CIIC), Egypt's largest investment house, announced the
formation of the region's first technology incubator firm known
as IDEAVELOPERS to be in the future Pyramids Smart Village, Egypt's
first technology park, in Giza. The aim of the incubator is to help
entrepreneurs develop their ideas into successful businesses quickly
by offering them both venture capital for new start-ups and the
essential entrepreneurial and operational expertise required to
rapidly accelerate growth.
MCIT and UNDP Establish Egypt's ICT Trust
Fund
In January 22, 2002, the MCIT, Ministry of Foreign Affairs, and
United Nations Development Program (UNDP) signed an agreement establishing
a partnership to guide and manage Egypt's Information and Communication
Technology (ICT) Trust Fund. The Fund's main purpose is to utilize
ICT to further development in Egypt by increasing awareness of its
benefits, and by making information technology (IT) more accessible
and affordable to all citizens. The Fund aims to contribute to poverty
reduction and job creation in Egypt by introducing computers and
IT into the daily lives of its citizens. The Fund will empower communities
giving them access to the information they require at their fingertips
- or the click of a mouse. The ICT Trust Fund will be financed by
contributions from the Government of Egypt, private sector, and
bilateral and multi-lateral donors.
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