BMI Egypt Telecommunications Report Q3 2013 (1) 22142541 PDF

Q3 2013
www.businessmonitor.com
EGYPT
TELECOMMUNICATIONS REPORT
INCLUDES 5-YEAR FORECASTS TO 2017
ISSN 1748-4510
Published by:Business Monitor International
Egypt Telecommunications Report Q3 2013

INCLUDES 5-YEAR FORECASTS TO 2017
Part of BMIs Industry Report & Forecasts Series

Published by: Business Monitor International Copy deadline: May 2013
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CONTENTS
BMI Industry View ............................................................................................................... 7
Executive Summary .................................................................................................................................... 7
SWOT .................................................................................................................................... 9
Mobile ..................................................................................................................................................... 9 Wireline ................................................................................................................................................. Political ................................................................................................................................................. Economic ............................................................................................................................................... Business Environment .............................................................................................................................. 11 13 14 16
Industry Forecast .............................................................................................................. 17

Mobile ................................................................................................................................................... 17
Table: Telecoms Sector - Mobile - Historical Data & Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARPU .................................................................................................................................................... 19
Table: Telecoms Sector - ARPU - Historical Data & Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Fixed Line .............................................................................................................................................. 21

Table: Telecoms Sector - Fixed Line - Historical Data & Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Broadband ............................................................................................................................................. 23
Table: Telecoms Sector - Internet - Historical Data & Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Industry Risk Reward Ratings .......................................................................................... 25

Middle East and North Africa Risk/Reward Ratings ....................................................................................... Industry Rewards ................................................................................................................................... Country Rewards ................................................................................................................................... Industry Risks ........................................................................................................................................ Country Risk ......................................................................................................................................... 25 25 26 26 27
Table: MENA Telecoms Sector Risk/Rewards Ratings, Q313 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Egypt .................................................................................................................................................... 29
Market Overview ............................................................................................................... 32

Mobile ................................................................................................................................................... 32 Regional Perspective .............................................................................................................................. 32
Table: Regional Comparison Table, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Key Developments .................................................................................................................................. 33 Mobile Growth ...................................................................................................................................... 33 Market Shares ....................................................................................................................................... 35

Table: Net Additions ('000), 2011-2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Subscriber Mix ...................................................................................................................................... ARPU .................................................................................................................................................. Networks .............................................................................................................................................. Content ................................................................................................................................................
37 38 39 42
Business Monitor International
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Table: Mobile Contract Wins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Table: Selected VAS Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Mobile Operator Data ............................................................................................................................ 47

Table: Market Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Table: Vodafone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Table: Mobinil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Table: Etisalat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Regional Mobile Content .......................................................................................................................... 50 Data Networks And Devices Drive Mobile VAS ............................................................................................ 50 OTT Services Increase ............................................................................................................................ 51 Operators Give Competition A Go ............................................................................................................. M-Commerce Takes Off ........................................................................................................................... Operators Look To Non-Voice Corporate Solutions ...................................................................................... Fixed Line .............................................................................................................................................. Broadband ............................................................................................................................................. 51 52 53 54 58
Table: Wireline Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Industry Trends And Developments ................................................................................ 64 Regulatory Development .................................................................................................. 65

Table: Egypt Regulatory Bodies And Their Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Competitive Landscape .................................................................................................... 69

Table: Key Players - Egypt Telecoms Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Table: Egypt Financial Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Company Profile ................................................................................................................ 70

Telecom Egypt ........................................................................................................................................ 70 Mobinil .................................................................................................................................................. 75 Vodafone Egypt ....................................................................................................................................... 79
Regional Overview ............................................................................................................ 83

Turning The Business Around ................................................................................................................... 83 Recent Financial Results ......................................................................................................................... 84 Latest Contracts Show The Way ................................................................................................................ 85
Table: Alvarion - Selected Vertical & Carrier Wi-Fi Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Demographic Forecast ..................................................................................................... 87

Table: Egypt's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Table: Egypt's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Table: Egypt's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Table: Egypt's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Glossary ............................................................................................................................. 91
Table: Glossary Of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Methodology ...................................................................................................................... 93
How We Generate Our Industry Forecasts ................................................................................................... 93 Sources ............................................................................................................................................... 94
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BMI Industry View

Executive Summary
BMI View: After strong growth in 2011 and 2012, Egypt's mobile market contracted in Q113 as all three operators reported net subscription losses. However, this does not represent the end of subscription growth, as we forecast growth through to 2017. There is a transition under way though, with operators increasing their focus on postpaid migration and growth through wireless data services. Meanwhile, there is likely to be an increase in competition from the expected entry of a fourth operator, most likely Telecom Egypt, in 2013. Another noteworthy development is the stabilisation of the fixed-line market via the push to promote multi-play services by the incumbent, reversing the heavy subscription losses through 2011 and H112.
Key Data
Total mobile subscriptions declined by 2.874mn in Q113, a contraction of 3% q-o-q. This was the first net loss in Egypt's mobile market, the result of inactive subscription discounting. The fixed-line market increased to 8.63mn subscriptions at the end of March 2013, with two quarters of growth pushing the y-o-y growth rate into positive territory. Market weighted mobile ARPU appears to have stabilised after declining by 4.7% in 2012, compared to a 35.5% decline in 2011.
Risk/Reward Rating
Egypt has moved up three positions to 11th in our Risk/Reward Ratings (RRR) table in Q3 2013. Egypt received an improved industry rewards score; however, it continues to be held back by its underperformance in the country rewards and country risks categories due to the impact of political and economic uncertainty on investor confidence and private consumption growth outlook.
Key Trends And Developments
In April 2013 the Ministry of Communications and Information Technology (MTIC) announced the launch of Egypt's national ICT strategy for 2013-2017. Under the plan the MTIC is implementing a mobile money transfer service in 2013. It is believed the service will be interoperable as the government hopes to replicate the success elsewhere on the continent, where mobile money services has proved a boost to operators and the wider economy. The launch date is, however, uncertain, with Vodafone stating in late April 2013 that it was still evaluating the specific conditions and measures for the activation of the service and it would not be ready until at least July 2013. However, more promisingly, agreements allowing individual account users to
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use the same network inside and outside Egypt were already signed with the Housing and Development Bank.
The launch of a fourth operator is drawing closer, with the regulator stating in February 2013 that it would set the price for the fourth operator licence in H213. The government plans to issue the concession to Telecom Egypt; however, it is still examining the issues around the incumbent's existing stake in Vodafone Egypt. For its part, Telecom Egypt reported it plans to construct a network as soon as the licence is available, as well as launching MVNO services in 2013. The arrival of a fourth operator is expected to result in an intensification of competition in the mobile market, likely spurring faster growth, but squeezing ARPU.
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SWOT
Mobile
SWOT
Strengths
Presence of significant international investors Orange, Etisalat and Vodafone in the mobile sector.
Strong competition has existed since May 2007, following the launch of Etisalat Misr. Large market with still-low penetration promises good continuing growth. 3G services offered by all three operators; HSPA+ technology in the process of being deployed and upgraded.
There appears to be growing demand for mobile data and video services, and for other value added services such as mobile banking.
Weaknesses
Low incomes could constrain 3G market, while low PC ownership could also limit the potential for the USB modem market.
Mobile sector highly dependent on prepaid customers; mobile ARPU rates continue to fall.
Given the size of the market, the level of competition could be greater. Penetration rates in rural areas remain well below the national average. Introduction of mobile money transfer service in 2013 should boost VAS uptake, as well as add to postpaid growth momentum.
Opportunities
Mobile market still has potential to grow, with a penetration rate of just over 115% at the end of 2012; despite the introduction of compulsory SIM registration, penetration rates are thought to continue to reflect a certain number of registered, rather than active, users.
The ongoing deployment of HSPA+ creates opportunities for deploying new mobile services and increasing the general level of mobile internet usage.
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SWOT - Continued
The issuance of triple-play licences to Egypt's mobile operators will allow them to capitalise on the market for converged services.
Issuance of a fourth operating licence should add growth momentum in H213 and 2014.
Possibility that MVNO licence will be issued to Telekom Egypt. The presence of MVNOs would provide the sector with an additional competitive element.
Threats
Political uncertainties in the region could lead to limited FDI. A volatile economic climate could threaten customers' willingness to spend on telecoms services.
Unemployment remains high and is expected to grow; more popular mobile services could become prioritised by cash-strapped consumers.
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Wireline
SWOT
Strengths
Fixed-line penetration is unusually high compared with many markets in Africa and compares quite favourably to the Middle East.
Internet usage continues to grow steadily. The broadband market has some competition and is showing signs of promising future growth.
First stage of construction of the TE North Mediterranean cable system has been completed.
Licences have been issued to two consortia to provide triple-play telephone, internet and cable TV services.
Weaknesses
Fixed-line market is not liberalised, with Telecom Egypt not only the sole network provider but also the sole service provider. An auction for a second licence has been delayed indefinitely.
Mobile substitution resulted in steep losses of fixed-line subscriptions 2009 to mid-2012.
Broadband internet sector remains highly dependent on ADSL technology. Mobile broadband services growth has outpaced growth of fixed broadband subscriptions.
Opportunities
The eventual tender of a new fixed-line licence could do the market a lot of good. In the meantime, it would make sense to at least license resellers to offer fixed-line voice services over the Telecom Egypt network, as is the case with internet and broadband.
The government and regulator are working together to make computers and internet connections more affordable for people.
Telekom Egypt has started investing in the development of an FTTx network. New satellite broadband services are being introduced by Eutelsat Communications and Egyptsat.
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SWOT - Continued
Completion of major Mediterranean cable systems such as TE North will greatly increase the amount of available bandwidth.
Threats
A volatile economic climate could threaten customers' willingness to spend on telecoms services.
Unemployment remains high and is expected to grow; more popular mobile services could become prioritised by cash-strapped consumers.
Rising use of mobile broadband services could have a damaging impact on ADSL sector.
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Political
SWOT Analysis
Strengths
Egypt has no serious disputes with neighbouring states, although its relations with Syria and Iran are relatively tense.
Weaknesses
There is considerable domestic opposition to the government's relations with the US and Israel, and, increasingly, to recent economic reforms.
Tension exists between the military and Islamist groups, including the popular Muslim Brotherhood.
The transition away from authoritarian rule and the creation of necessary democratic institutions will be a protracted process, and there is no certainty that the end result will be a fully consolidated representative regime going forward.
Opportunities
The country is a major player in the Arab-Israeli peace process. Any success for Barack Obama's plans to re-engage with Syria and Iran would benefit Egypt.
Threats
Although the level of militant attacks, particularly on tourists and Western targets, appears to have fallen in recent years, sporadic incidents should not be ruled out.
Demands for the military to quicken the transition process away from authoritarian rule may not be met, which could increase the risk of large-scale unrest.
The reported presence of Hizbullah operatives in Sinai, apparently planning to attack tourist sites in Egypt, has highlighted the lack of effective policing in the region and added to security risks in the area.
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Economic
SWOT Analysis
Strengths
Exposure to the liquidity story in the Gulf should insulate Egypt against external shocks to some degree and keep growth positive, assuming a relatively quick recovery for the region from the current turmoil.
Low wages in global terms are advantages for foreign investors, particularly for those wishing to use Egypt as a base for export-oriented manufacturing.
With a population of 84 million, Egypt is the largest market in the Arab world. Unemployment is high, which subdues demand. Egypt has a widening fiscal deficit owing to a surging subsidies bill and rising public wage costs.
Weaknesses
There are relatively high levels of corruption and bureaucracy. The formation of a more representative government that is democratically elected could help reduce graft.
Opportunities
Future tenders will most likely be more transparent, helping those firms not politically connected with the government secure lucrative contracts.
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SWOT Analysis - Continued
Threats
The widening fiscal deficit is adding to the costs of servicing debt, most of which is held domestically.
High unemployment may lead to political resistance to privatisation plans. Militant attacks on tourist sites pose a downside risk to revenues from the key tourist sector, although increased security spending appears to have been successful in this regard.
Piracy in the Gulf of Aden has resulted in large numbers of shipping companies opting for alternative routes that do not use the Suez Canal. If the situation is not resolved, this key geo-strategic advantage will be lost.
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Business Environment
SWOT Analysis
Strengths
The country's geographical location is good for trade as Egypt has access to both the Mediterranean and the Red Sea, not to mention the key Suez Canal route, which connects Europe and Asia.
The legal system has issued adjudications in favour of foreign firms, although there are frequent procedural delays.
Weaknesses
Egypt ranks 118th out of 176 states surveyed in Transparency International's Corruption Perceptions Index 2012, comparing unfavourably with regional peers.
The labour market is relatively inflexible, with Egypt performing markedly worse than the Organisation for Economic Co-operation and Development average, and also inferior to the regional average on the World Bank's Hiring and Firing Workers index.
Opportunities
Efforts towards banking sector consolidation should bring down the cost of private sector credit and fuel small business growth over the long term.
Threats
Patronage networks impede attempts at fighting corruption and cutting bureaucracy. Although levels of education are relatively high, there is a considerable mismatch between the skills taught in schools and those required by most employers.
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Industry Forecast
Mobile
Table: Telecoms Sector - Mobile - Historical Data & Forecast
2010 No. of mobile phone subscribers ('000) No. of mobile phone subscribers/100 inhabitants No. of mobile phone subscribers/100 fixed-line subscribers No. of 3G phone subscribers ('000) 3G market as % of entire mobile market
2011
2012
2013f
2014f
2015f
2016f
2017f
70,64 83,12 100,70 104,22 106,60 108,50 110,31 1 1 96,799 0 4 1 9 0 87.1 100.7 115.3 117.9 120.1 120.9 121.2 121.4
734.4 954.3 1,131.2 1,184.3 1,257.2 1,339.0 1,397.9 1,436.0 7 2 3 9 8 3 5 3 4,350 5,500 11,060 14,266 17,928 21,894 25,621 31,545 6.2 6.6 11.4 14.2 17.2 20.5 23.6 28.6
f = BMI forecast. Source: BMI, NTRA, operators
The discounting of inactive subscriptions, resulting in a net loss of 2.874mn subscriptions in Q113, has led to a downgrade of our forecast for Egypt's mobile market. We maintain our view of moderate subscription growth 2013-2017; however, it will be on a lower trajectory following the revision of
100,000 150,000 125
Industry Trends - Mobile

2010-2017
subscription figures in Q113. BMI now forecasts a total of 100.7mn mobile subscriptions at the end of 2013, taking the penetration rate to 117.9%.
0 2013f 2010 2014f 2011 2015f 2012 2016f 2017f 50,000 100
Market data published by Egypt's Ministry of Communications and Information Technology (MCIT) and the country's mobile network operators covering the market through 2012 show that the mobile market experienced strong subscription growth, with strong subscriber uptake by market leader Vodafone and second-ranked Mobinil.
No. of mobile phone subscribers ('000) (LHS) No. of 3G & 4G phone subscribers ('000) (LHS) No. of mobile phone subscribers/100 inhabitants (RHS)
f = BMI forecast. Source: BMI, NTRA, operators
According to regulatory data, the market grew by 3.3% q-o-q in Q412 to 96.799mn subscribers. We had predicted a significant slowdown from the 10.6% q-o-q growth in Q112, following the upward revision of
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third-ranked Etisalat's subscriber figures based on the ITU's 90-day activation period. According to this system, only lines that are used to make or receive a call, send or receive an SMS or access other non-voice services such as internet browsing within a 90-day period will be considered active. The total growth in 2012 was 16.5%. We were already forecasting a slowdown to around 6% in 2013 as a result of increasing market saturation, and we had highlighted the threat of inactive SIM discounting, which ultimately resulted in a downgrade to our forecast in the Q3 2013 update.
We forecast an average annual growth rate of 2.7% in the five years to 2017. This will result in the mobile subscriber base rising to 110.3mn at the end of 2017, equal to a penetration rate of 121.4%. Growth will also be sustained by operator efforts to tap into new growth markets, particularly in rural areas where 57% of the population reside compared with saturated urban markets. Meanwhile, the arrival of a fourth operator is expected to boost competition and make services more accessible and affordable for low-income consumers.
Our 3G subscription forecast for Egypt was raised in the Q3 2013 update on the basis of new regulatory data showing stronger than expected growth of mobile internet subscriptions in 2012. We expect growth to be maintained, albeit slowing over the forecast period, due to the increasing availability of low-cost smartphone handsets means that more phone users are likely to be able to afford a smartphone and sign up to 3G network services. In the five years to 2017, we believe the average annual growth will be around 23.4% for Egypt's 3G subscriber market. By the end of 2017, we expect more than 31.5mn 3G subscriptions, accounting for 28.6% of the total mobile market.
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ARPU
Table: Telecoms Sector - ARPU - Historical Data & Forecast
2010 Mobinil blended ARPU (EGP) Vodafone blended ARPU (EGP) Market average ARPU (EGP) 38.8 40.1 39.4
2011 24.0 26.7 25.4
2012 23.0 25.3 24.2
2013f 22.1 24.3 23.2
2014f 21.4 23.5 22.4
2015f 20.9 23.0 21.9
2016f 20.5 22.6 21.6
2017f 20.2 22.2 21.2
f = BMI forecast. Source: BMI
In Egypt, only market leader Vodafone and secondranked Mobinil publish ARPU data on a regular basis. Our market average and forecast are based on the subscriber weighted average of ARPU data from
50
Industry Forecast - ARPU (EGP)

2010-2017
both operators, which accounted for 76% of the mobile market by subscribers at the end of December 2012. We made a minor upward revision to our ARPU forecast for the Egyptian mobile market on the basis of Q113 data from operators; however, results were broadly in line with our expectations, and as such there is no revision to our medium-term outlook.
10 30 40
20
0 2013f 2014f 2015f 2016f 2010 2011 2017f 2012
In H112, Vodafone and Mobinil reported further depreciations to their monthly blended ARPUs after a sharp decline in 2011. Although both operators' ARPUs recovered slightly in Q312, this was not sustained in the fourth quarter. Vodafone's ARPU fell by 3.1% q-o-q in Q412 to EGP25.3. For its part, Mobinil's ARPU fell by 1.3% over the same period to EGP23.0. In the first quarter of 2013, Vodafone reported a decline in ARPU, but Mobinil reported a rise, resulting in a minor adjustment to our 2013 outlook.
Over the next five years, BMI expects several factors to influence the development of Egypt's mobile ARPU rates. One is the extent to which the operators continue to improve their subscriber mix and increase
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the contract customers on their networks relative to prepaid users. Another factor shaping mobile ARPU levels over the next five years will be the success with which the operators encourage their mobile customers to use higher value data services. While progress in the above mentioned factors pose upside risks to our current forecast, we note that the arrival of a fourth mobile operator as planned by the government will increase downward pressures on ARPU levels.
We estimate average ARPU for 2012 of EGP24.2, a figure we expect to decline to EGP23.2 in 2013. The drop in 2012 was a much slower drop from market average ARPU of EGP25.4 in 2011 than previously envisaged based on the trend in 2010. We expect the slowdown in the rate of decline to be sustained through to 2017 by a steady expansion in the number of 3G and mobile data subscribers within the sector.
All three of Egypt's cellcos have been investing heavily in the expansion of their UMTS and HSPA networks. Further, data from the Ministry of Communications and Information Technology (MCIT) points to strong growth in the number of mobile internet users and USB modem subscribers. Growth in the use of mobile data services will provide Egypt's mobile operators with more stable sources of income. Meanwhile, we expect the operators will continue improving their subscriber mix throughout our forecast period. This trend will also help to mitigate the rate of ARPU decline. By the end of 2017, we believe that Egypt will have an average blended mobile ARPU rate of more than EGP21.
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Fixed Line
Table: Telecoms Sector - Fixed Line - Historical Data & Forecast
2010 No. of main telephone lines in service ('000) No. of main telephone lines/100 inhabitants 9,618 11.9
2011 8,710 10.6
2012 2013f 8,557 10.2 8,502 10.0
2014f 8,290 9.6
2015f 7,961 9.0
2016f 7,762 8.7
2017f 7,682 8.5
f = BMI forecast. Source: BMI, NTRA
BMI has made an upward revision to our forecast for Egypt's fixed-line sector in the Q3 2013 update as a result of the success of multi-play services in reducing the impact of fixed-to-mobile substitution,
15,000
Industry Trends - Fixed Line

2010-2017
which had previously resulted in steep losses of fixed-line subscriptions. Regulatory data show that
10,000 12.5
fixed-line subscriptions increased in Q212, Q412 and Q113, with total subscriptions up y-o-y to the end of March 2013. In light of this trend, we have raised our forecast for YE13, but we nonetheless believe subscriptions will decline over the course of the year as the growth impetus of multi-play services diminishes.
No. of main telephone lines in service ('000) (LHS) No. of main telephone lines/100 inhabitants (RHS) 0 2013f 2015f 2014f 2016f 2017f 2010 2011 2012 5,000 10
According to the regulator's data, there were 8.71mn lines in 2011, down from 9.62mn in 2010 and 10.31mn in 2009. Fixed-line subscriptions were down over the course of 2012, falling to 8.557mn, despite net increases in Q212 and Q412. The fixed-line penetration rate has also been trending downwards, falling to 10.2% at the end of 2012. There was a further increase in subscriptions to 8.63mn in Q113, meaning y-o-y growth was positive, in stark contrast to the 11.1% y-o-y decline to Q112.
It is worth mentioning that the rate of fixed-line subscriptions decline in 2012 was considerably slower than previously envisaged. This is due to the rising demand for xDSL-based services and the incumbent's promotional offers aimed at staving off further subscriber losses. This trend impacted performance in
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Q113. However, BMI believes the impact of multi-play services will diminish and as such we expect a small contraction for subscriptions over the course of 2013. We forecast total subscriptions will decline 0.6% to 8.502mn and a penetration rate of 10.0%.
Despite the impact of multi-play services in H212 and Q113, we maintain our medium-term assumption of continuing subscription losses. In our view that fixed-to-mobile substitution will continue in the market, especially as mobile services continue to become cheaper than fixed-line alternatives. In the five years to 2017, we believe that the market will decline at an average annual rate of 2.1%. By the end of our forecast period, we expect Egypt's fixed-line penetration rate will fall to just below 8.5%, by which time the number of fixed-line connections is expected to drop to 7.68mn. One major upside risk to our forecast comes in the form of increased competition in the fixed-line sector. The much expected issue of a second fixed-line licence, and the introduction of more fixed-wireless technologies, could yet do a lot to boost the market. We also expect the rollout of multi-play services to sustain demand for fixed lines in the long term.
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Broadband
Table: Telecoms Sector - Internet - Historical Data & Forecast
2010 No. of internet users ('000) No. of internet users/100 inhabitants No. of broadband subscribers ('000) No. of broadband subscribers/100 inhabitants 22,831 28.14 3,535 4.36
2011 29,000 35.14 4,430 5.37
2012 2013f 32,620 38.85 5,570 6.63 34,972 40.96 6,473 7.58
2014f 36,899 42.52 7,206 8.30
2015f 38,559 43.73 7,869 8.92
2016f 39,797 44.44 8,459 9.45
2017f 40,752 44.83 8,949 9.85
There were 32.62mn internet users in Egypt at the end of December 2012, according to data published by the country's Ministry of Communications and Information Technology (MCIT). The regulator also revealed there were 2.24mn fixed broadband subscriptions at the end of the same period and around 3.3mn mobile broadband subscriptions via dedicated USB modems. Based on the regulator's data, BMI calculates that Egypt's internet and broadband penetration rates stood at 38.9% and 6.6% respectively at the end of 2012.
Industry Trends - Internet Sector

2010-2017
The regulator's data show strong growth momentum in both mobile and fixed broadband subscriptions. BMI expects this trend to continue as a number of industry factors, such as availability of devices, and macroeconomic factors, such as rising income levels, drive demand for data services. There is a slight upgrade to our forecast in the Q3 2013 update for broadband growth over our forecast period ending in 2017.
BMI notes there are considerable growth opportunities in Egypt's data market, with broadband penetration still below 10%. We expect the country's youthful population, huge economic potential and investment in broadband networks to be among the key growth drivers in the broadband market. We expect mobile
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broadband to remain the dominant form of broadband access, although the increasing competition in the ADSL market, as well as the rising demand for incumbent Telecom Egypt's dual-play services is also expected to sustain growth in the fixed broadband market. By the end of 2017, we forecast Egypt's internet and broadband penetration to reach 44.8% and 9.9% respectively.
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Industry Risk Reward Ratings

Middle East and North Africa Risk/Reward Ratings
In general, there were only minor changes to industry and country risks and rewards scores for the 15 markets in the Middle East and North Africa (MENA) region this quarter. Most of those changes applied to the telecoms market arena as BMI factored in H212 company results and subscriber growth into our analysis. As a result, the regional average score for the telecommunications sector contracted by just 0.1 point, with the average industry rewards score falling by 0.2 points.
In terms of rankings, just two markets changed positions in the top 10 this quarter. The United Arab Emirates climbed one place to fourth position, forcing Kuwait down to fifth place. Kuwait's overall score fell by 1.2 points to 57.0 as a result of a 2.8-point reduction in its industry rewards score, owing to lacklustre mobile subscriber growth and weak ARPU evolution. The UAE's industry rewards score improved slightly owing to better than expected market growth in the second half of 2012. Meanwhile, the top three markets - Israel, Saudi Arabia and Qatar - saw no changes to any scores in any category and therefore stayed where they were. Meanwhile, in the lower reaches of the chart, Iran fell four places to the very bottom as we gave it lower scores for industry rewards and country risks.
Industry Rewards
The industry rewards score of most countries in our coverage continues to face downward pressures from declining ARPUs, weak subscriber mixes and a slowdown in mobile subscriber growth. Market saturation in the region plays a big part in these developments. Mobile operators often introduce lower tariffs and target low-value customers, mostly students and immigrant workers, to defend their market shares. We note there are factors capable of staving off further declines in the future. These include the potential for strong broadband uptake, particularly 3G and 4G mobile broadband services and FTTx services in some countries. Analysis of some operators' financial results shows a growing contribution from data services towards total revenue figures.
Saudi Arabia retains the highest score in the industry rewards category, despite recent downgrades. Saudi Arabia's score rose rapidly owing to a strong growth outlook, based on the seasonal surge in mobile subscriptions during religious holidays, such as the Hajj. However, now that strict SIM identification policies have been introduced at the regulator's behest, we foresee regular clear-outs of inactive accounts. Israel's three principal operators have been reporting negative subscriber growth and variable ARPU evolution in recent quarters, but this has been offset by growth among the country's newest mobile operators
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and MVNOs, and there is also a superior subscriber mix, keeping its industry rewards score relatively high. Once again, Tunisia has the lowest score in this category; efforts by the regulator to introduce MVNOs could allow the score to rebound before the end of 2013.
Country Rewards
Key macroeconomic factors such as GDP per capita, unemployment rates and urbanisation are the main components of our country rewards rating. This rating measures the potential reward on telecoms investments based on the existence, or lack thereof, of these factors. Low unemployment rates and high GDP per capita drive demand for various telecoms services, including advanced data services, while urbanisation rates affect the cost of network deployment to cover the majority of the population. It is generally cheaper to extend network coverage to customers living in urban areas than sparsely populated rural areas.
Kuwait, Qatar and the UAE continue to score strongly in this category, along with chart-topper Israel. The three Gulf states benefit from low unemployment rates and high GDP per capita. Israel, which has the highest score in the region, has an urbanisation rate of more than 91%. Algeria, Egypt and Iran are in the lower end of this category. These countries, along with others that have scores below the regional average, are characterised by sub-US$10,000 GDP per capita figures, unemployment issues and sub-70% urbanisation.
Industry Risks
There were no changes to any country's industry risks score this quarter, after we made an upward adjustment to the score for the UAE in last quarter's update. The UAE regulator has mooted the idea of some degree of liberalisation in 2015, potentially breaking the country's long-standing duopoly. This could allow us to make further improvements to the country's industry risks score, but certainly not in the near future, given the state's affirmation that it will continue to ban VoIP services.
Israel and Libya are ranked first and last in this category respectively. The Israeli market has an independent telecoms regulator, which has displayed equity in overseeing various new market developments, including the introduction of new players and the reduction of interconnection rates. On the other hand, Libya and Kuwait are yet to establish independent telecoms regulatory bodies, while reports of government interference in the telecoms sector are rife in some other countries, including Algeria, Iraq and Iran.
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Country Risk
BMI's country risks rating incorporates a wide range of macroeconomic factors, including a five-year private consumption growth outlook and political risk scenarios. Qatar scores highest in this category, complementing its good scores in other areas. We expect Qatar's economic growth to be largely driven by the non-hydrocarbon sector in 2013. Expanding domestic consumption and progress on infrastructure investments, both supported by public spending, will help to stimulate economic activity. However, growth in the hydrocarbon sector is set to remain tepid throughout the year, with the moratorium on new liquefied natural gas (LNG) capacity until 2015 limiting the prospects for any strong expansion in production. We forecast overall real GDP growth of 5.0% in 2013, down from an estimated 6.0% in 2012 and from a yearly average of 15.6% during the 2007-2011 period, when the hydrocarbon sector was in full swing.
According to latest data from the Qatar Statistics Authority, real GDP growth slowed to 3.9% y-o-y in Q312, from 7.9% and 5.0% in Q112 and Q212 respectively. For the second consecutive quarter, the hydrocarbon sector (mining and quarrying) was the worst-performing sector of the economy, shrinking by 0.8% y-o-y in real terms. With this trend in mind, it is clear that the government should be looking to other industries to provide additional growth momentum and we believe the country's telecoms sector - in tandem with its fast-growing IT service sector - will provide that momentum.
On the economic front, the budgets of most countries in the region have largely been expansionary, partly aimed at staving off any further discontent among the populace. While this poses long-term fiscal risks for some countries, especially those dependent on hydrocarbons revenues, it bodes well for the telecoms market in the short term, by sustaining a positive private consumption outlook. With plans to deploy fibre, create smart cities and develop cloud computing-based infrastructures, Qatar is poised to be an outperformer in this regard.
At the opposite end of the scale are Jordan, Morocco and Tunisia, which languish at the bottom of the regional scores for country risks, mainly due to their weak private consumption growth outlook over the next five years. We forecast real GDP growth in Tunisia to expand 3.1% and 4.0% in 2013 and 2014 respectively. Elevated government spending will ensure that private consumption expands at a relatively steady pace and, as we project the economy in the eurozone to return to growth in 2013, Tunisia's exports will increase. However, as a result of the killing on February 6 of Chukri Beleid, the leader of a left-leaning political bloc, political instability is rising, posing significant downside risk to the economic outlook.
Despite the possible signing of a Stand-By Arrangement (SBA) with the International Monetary Fund (IMF) in 2013, which will likely require the implementation of austerity measures, we believe that current
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expenditure will remain elevated. Given increasing political risks, the government is unlikely to have the willingness to undertake cuts to current expenditure.
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Table: MENA Telecoms Sector Risk/Rewards Ratings, Q313
Rewards Country Israel Saudi Arabia Qatar UAE Kuwait Oman Bahrain Iraq Morocco Jordan Egypt Libya Algeria Tunisia Iran Average Industry Rewards 50.0 60.5 52.3 52.3 49.5 42.5 46.8 47.5 40.0 35.0 40.0 37.5 35.0 32.5 45.0 44.4 Country Rewards 86.7 69.0 72.0 72.0 81.0 69.0 63.0 63.0 56.7 60.0 43.7 70.0 53.0 56.7 49.7 64.4 Industry Risks
Risks Country Risks 65.6 73.5 74.1 72.9 67.5 66.5 66.3 54.7 45.8 43.6 53.7 55.5 68.6 46.7 50.6 60.4 Telecoms Rating 65.8 64.5 61.5 58.3 57.0 53.7 52.7 51.3 47.9 44.7 44.5 44.0 43.7 43.2 43.2 51.7 Regional Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Previous Rank 1 2 3 5 4 6 7 8 9 10 14 12 13 15 11
80.0 60.0 60.0 40.0 30.0 50.0 40.0 40.0 60.0 50.0 50.0 10.0 30.0 50.0 20.0 44.7
Scores are weighted as follows: 'Rewards': 70%, of which Industry Rewards 65% and Country Rewards 35%; 'Risks': 30%, of which Industry Risks 40% and Country Risks 60%. The 'Rewards' rating evaluates the size and growth potential of a telecoms market in any given state, and country's broader economic/socio-demographic characteristics that impact the industry's development; the 'Risks' rating evaluates industry-specific dangers and those emanating from the state's political/economic profile. Source: BMI
Egypt
Egypt has climbed three positions to 11th in BMI's Risk/Reward Rating (RRR) table for Middle East and North Africa in the Q313 update. Egypt moved up the table as its overall score improved from 43.3 to 44.5 as a result of a higher industry rewards score. Meanwhile, its scores in the other three categories are unchanged in the Q3 2013 update. Despite having the largest population in the region, and therefore the potential to be an attractive market, Egypt's RRR is weighed down mostly by elevated risks in the political, economic and business environments.
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Egypt's industry rewards score has improved to 40.0 in the Q3 2013 update, up from 37.5 in Q2. Egypt's score improved on the basis of stabilisation of ARPU levels and continued subscription growth momentum, particularly in wireless data services. Despite the improved score, Egypt scores poorly considering the size of population, and therefore the telecoms market. Its scores continue to be held down by relatively low ARPUs and weak subscriber mix. It also reflects the increasing downward pressure on operators' margins due to slow revenue growth and rising operating costs.
There is potential for further improvement to Egypt's industry rewards score, which we would expect to result in further moves up the regional tablet. The prospects for strong broadband subscriptions growth are good following aggressive investments in next generation access technologies. Further, subscription losses in the fixed-line market slowed significantly in 2012 with the promotion of multi-play services by incumbent operator Telecom Egypt.
Unchanged at 43.7 in Q3 2013, Egypt continues to have the lowest score in the country rewards category in the region, far below the regional average of 64.4. With a population of 83mn, Egypt is the largest market in the Arab world. However, unemployment is high at 9.8% (and growing), a phenomenon that subdues demand. Furthermore, Egyptian wages are low in global terms, and, though this offers certain advantages to foreign investors, it means that the opportunities to rapidly deploy more lucrative telecoms products are reduced. Meanwhile, Egypt has a relatively low level of urbanisation, with only around 43% of the population living in towns and cities. This presents telecoms network operators with specific challenges when it comes to rapidly extending new services and technologies to the wider populace.
Egypt has a score of 50.0 in the industry risks category this quarter, unchanged from the previous quarter when it was downgraded from 60.0 to reflect the government's plans to increase internet censorship. Meanwhile, the decision about the licensing of a fourth mobile operator, either as full network provider or an MVNO, appears to have taken a political dimension, a development that could undermine the view of the telecoms regulator in the financial decision.
Finally, there is no change to Egypt's country risks score in Q3 2013 after an improvement in Q2 that saw the score increase marginally to 53.7, from 52.1 in Q1. Despite this uptick, the Egyptian economy remains on the edge, from which it does not appear likely to escape anytime soon. What is needed most - namely an end to frequent outbursts in violent unrest, and greater clarity on the medium-term policy trajectory - are those for which we are the least optimistic on in the near term. Much is often said about the need to sign a long-awaited IMF Stand-By Arrangement (SBA), which would certainly help by providing a key source of external financial assistance and forcing necessary structural economic reforms. However, we reiterate that
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an SBA is by no means a panacea, and will simply buy authorities with a little extra time (the US$4.8bn programme amounts to approximately one month of imports). The fundamental issue undermining fixed investment and consumption patterns centres on the country's protracted democratic transition, which is a process that appears set to unfold for several more years yet. Without a stabilisation in the political environment or greater clarity on medium-term policy, consumption and investment patterns will remain depressed.
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Market Overview
Mobile
Regional Perspective
Egypt's mobile market has undergone a period of rapid growth and development as subscriptions have increased and advances in wireless data services have occurred. Despite this development the market remains one of great potential, with low broadband penetration an opportunity mobile on which operators can capitalise. While there are many positives, Egypt's mobile market also presents significant challenges including low ARPU rates, inactive subscriptions and the uncertainty arising from the economic and political backdrop.
Regional Perspective
Egypt Vs Regional Mobile Penetration (LHS) And Comparison Of Key Mobile Indicators In 2012 (RHS)
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Table: Regional Comparison Table, 2012
Egypt CAGR 2012-2017 (%) Mobile penetration (%) 3G as % of entire market (%) Postpaid as % of entire market* (%) ARPU (US$) 3.1 115.3 11.4 4.7 4.8
Middle East & North Africa 3.1 141.4 27.7 13.8 17.6
Rank (Out of 15) 7 12 10 12 14
*= Out of 11 countries. Source: BMI
Key Developments
As part of the government's ICT Strategy 2013-2017, the government is creating a mobile money transfer service, expected to interoperable later in 2013. Based on demand levels seen elsewhere in Africa, most notably Kenya, the service could be very popular. In May 2013 Telecom Egypt confirmed it was planning to launch a mobile voice service once it receives a licence. The NTRA stated it plans to set a price for the licence in H213. Additionally, Telecom Egypt is planning an MVNO service launch in 2013. In February 2013, Egypt's Competition Protection Agency referred Mobinil and Etisalat Egypt to the public prosecutor for failing to provide necessary data and statistics about their operations to the agency. Under the country's competition protection laws, all companies and businesses operating within the country are required to submit any data, statistics and documentation to the agency, which it may request at any time. The two telecoms operators are being investigated for 'coordinated imposition of stamp taxes on pre-paid mobile users in January of 2012.' The Agency said that Mobinil and Etisalat had failed to provide the necessary documentation, despite their previous cooperation with the agency, which had previously signed a joint protocol with Etisalat. In February 2013, Etisalat Misr and Chinese equipment vendor Huawei reached a deal that enables the former to use the latter's technology to launch technologies and business solutions in Egypt. The new deal is an expansion of an existing collaboration agreement between the two firms. Under the new deal, Etisalat will target several areas, including mobile broadband, VAS, business-to-business, green energy, CRM and FMC. The new deal is aimed at enhancing customer satisfaction by offering better quality and speed. In January 2013, local media reports, citing the NTRA's CEO, that proposals for a tax on new mobile voice connections may fetch the Egyptian government around EGP750mn (US$115mn) annually. About 30mn new mobile accesses will be linked in the first year after the new tax comes in place. Meanwhile, there also exist proposals to raise the percentage of profits that mobile operators have to pay to the state.
Mobile Growth
Egypt's mobile market contracted for the first time in Q113, with the net loss of 2.874mn subscriptions as operators discounted inactive subscriptions. Total subscriptions declined to 93.993mn at the end of March 2013, as the penetration rate fell to 110.1%. The 3% q-o-q contraction in Q113 was a stark contrast to the
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3.3% q-o-q expansion in Q412, with net additions of 3.138mn subscriptions during Q412 to reach 96.867mn subscribers. This brought total subscriptions growth and net additions in 2012 to 16.5% y-o-y and 13.678mn.
It is worth mentioning that there was a sharp increase in Etisalat's subscriber base during Q112, which BMI attributed to a change in the regulator's methodology for calculating the number of active subscribers. As a result of the exceptional market growth in Q112 and the positive growth in the three subsequent quarters, Egypt's mobile penetration increased significantly during 2012, rising by 14.6pps to 115.3% at the end of December 2012.
Egypt's mobile market is among the most competitive in MENA, playing host to three major international players. These Vodafone Groupbacked Vodafone Egypt, Orange-backed Mobinil and Etisalat-backed Etisalat Misr. Competition has been fierce between the operators, especially in recent years with increasing market saturation and the implementation of new regulatory policies such as mobile number portability. Further, there will be increased competition from Telecom Egypt (TE) later in 2013, with both an MVNO and MNO launch in the pipeline. In December 2012, the telecoms regulator, NTRA, confirmed that incumbent operator TE will be allowed to provide mobile services in the country from mid-2013. Apart from price, other key areas we expect operators to compete on include network quality and coverage. This view is
Mobile Growth
2009-2013
Source: BMI, operators
supported by large scale network upgrade and expansion plans announced by the mobile operators in 2012 and early 2013. In February 2013, Etisalat and Chinese equipment vendor Huawei have reached a deal that enables the former to use the latter's technology to launch technologies and business solutions in Egypt. The new deal is an expansion of an existing collaboration agreement between the two firms. Under the new deal, Etisalat will target several areas, including mobile broadband, VAS, business-to-business, green energy, CRM and FMC. The new deal is aimed at enhancing customer satisfaction by offering better quality and speed.
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In February 2012, Etisalat selected Chinese equipment vendor ZTE for network expansion and successfully conducted trials of 84Mbps HSPA+ in March. In September, the operator announced plans to spend around US$500mn on modernising its network infrastructure to deliver 4G mobile broadband services. Etisalat's CEO, Saeed al-Hamli, said the company was waiting for bids for the project, parts of which have already undergone preliminary testing.
In July 2012, Vodafone picked Swedish equipment vendor Ericsson to upgrade its network for faster mobile broadband services and install technology which supports GSM/EDGE, WCDMA/HSPA and LTE in a single package. This is expected to guarantee an effective transition to other technologies in the future. For its part, Mobinil secured a EGP2.9bn loan in September 2012 which will, in part, finance the firm's network expansion strategies. These developments bode well for Egypt's mobile market which experienced a lull in network investments during 2011 as a result of the political uncertainty in the country.
Market Shares
As all three operators reported large net subscription losses in Q113, there was not a dramatic shift in market share. Vodafone's market share declined 0.5pps q-o-q following the net loss of 1.686mn subscriptions. Etisalat was the main beneficiary, with its market share up 0.5pps q-o-q to 24.5%, with relatively small net loss of 286,000 subscriptions. Finally, Mobinil's net subscription loss left its market share unchanged at 35.0% in Q113. BMI attributes the net loss of subscriptions to inactive subscription discounting, a view supported by the fact the bulk of subscription losses occurred in the prepaid segment. Vodafone continues to be largest mobile operator in Egypt in terms of market share despite a 0.4pps y-o-y decline to Q113. The 0.5pps decline in Q113 was partially offset by the operator's strong net additions in H212, equivalent of 52.5% of total net additions during that period, resulted in a marginal increase to its market share.
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Second-ranked Mobinil reversed its poor performance in H112 with strong quarterly net additions in Q312 and Q412 respectively. The operator reported net losses of 290,000 subscribers in Q112 and 232,000 in Q212, suggesting that a considerable proportion of new subscribers gained during its promotional drive in the latter half of 2011 became inactive soon after. The operator returned to positive growth in H212, with net additions of 329,000 subscribers in Q312 and 1.052mn subscribers in Q412 to bring its subscriber base to 33.773mn at the end of December 2012. However, this was not enough to stem the erosion of the operator's market share.
Mobile Market Shares (%)

2009-2013
In our previous updates, we highlighted the sudden increase in Etisalat's subscriber base during Q112
Source: BMI, NTRA, operators
following net additions of more than 8mn subscribers, according to regulatory data. This was tempered in the three subsequent quarters, with the operator recording net additions of just 517,000, 160,000 and 501,000 subscribers in Q212, Q312 and Q412 respectively. According to the MCIT, Etisalat had 23.270mn mobile subscribers at the end of December 2012. This was just 16.0% of total net additions in Q412, considerably less than its two bigger rivals. As a result, the operator's market share slipped to 24.0%, down from 24.3% in the previous quarter and 24.4% in Q212. BMI notes Etisalat has been implementing aggressive subscriber acquisition strategies since early 2011, with the aim of attracting new subscribers as well as disillusioned subscribers from other networks. The operator has also invested heavily in data services, which we believe appeals to young consumers, especially in major cities.
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Table: Net Additions ('000), 2011-2013
Mar-11 Mobinil Vodafone Etisalat Total 133 450 2,867 3,450
Jun-11 183 1,527 729 2,439
Sep-11 1,035 1,576 1,036 3,647
Dec-11 1,338 1,039 567 2,944
Mar-12 -290 842 8,245 8,797
Jun-12 -232 296 517 581
Sep-12 376 694 160 1,230
Dec-12 1,073 1,564 501 3,138
Mar-13 -902 -1,686 -286 -2,874
Source: BMI, NTRA, operators
Subscriber Mix
The net loss of subscriptions in Q113 resulted in a significant shift in the subscription mix in Egypt. As subscription discounting hits the prepaid subscription totals, we are now seeing a more accurate representation of subscription mix. Vodafone saw the most notable shift, with postpaid subscriptions as a percentage of the total increasing to 8% at the end of March 2013. This was up 1.3pps y-o-y and 3.5pps y-o-y. Meanwhile, Mobinil reported a more modest increase (as we would expect given the lower level of subscription discounting, as postpaid subscriptions increased to 3.5% of the total, up 0.1pps q-o-q and 0.6pps y-o-y. Prepaid subscriptions continue to dominate and drive Egypt's mobile market. Between 2007 and 2011, the proportion of prepaid subscribers in the mobile market increased from 94.7% to an average of around 97.5%. BMI believes the political and economic crisis in Egypt during 2011 made it more difficult for operators to focus on attracting postpaid subscribers. However, this trend appears to have curtailed in 2012 and Q113, with operators reporting considerable increases in the proportion of postpaid subscriptions on their networks. This is in line with our view that network operators will aim to attract subscribers onto their postpaid offerings in a bid to offset the impact of intense price competition in the prepaid segment. A price-based approach has been at the fore of Mobinil and Etisalat's strategies. Mobinil has seen its subscriber mix account for 96% prepaid at the end of 2007 and
Postpaid Subscriptions As % Of Total

2009-2013
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rising to over 97.4% by the end of December 2011. This dropped slightly to 96.6% in 2012, before further improvement in Q113.
Etisalat has quickly built up a significant mobile subscriber base. Etisalat has managed its swift growth through low-cost offerings; as a result, the operator now finds itself with a low value subscriber base.
At odds with these two operators, but nevertheless revealing a strong prepaid base, is Vodafone. Vodafone has a sustained focus on acquiring and retaining high-value customers. Although it appears this has yet to feed through significantly into its subscriber mix, the operator is outperforming its rivals in the acquisition of high-value customers.
Postpaid subscriptions are generally concentrated at the corporate end of the market. Operators contest this segment fiercely, small as it is, because it is an area of high earnings for them. Mobinil launched a new platform for corporate subscribers during 2008, called U-Control, which was designed as a convenient platform to combine access to email, mobile and diary services. However, growth has been slow and is being outpaced by the consumer prepaid market. The key for the operator will be to get higher spending prepaid users to commit to postpaid contracts, and this still appears to be a long way off.
ARPU
Mobile ARPU data are available for Mobinil and Vodafone. Vodafone has traditionally reported higher ARPU than Mobinil. Until recently, this phenomenon continued despite the downward ARPU trend affecting both operators. However, in recent quarters, Vodafone has seen its ARPUs decline at a faster rate and Mobinil passed it to have the highest blended ARPU in the market in Q113 - despite the discounting of inactive subscriptions by Vodafone. In Q113 Mobinil reported ARPU of EGP26.0, up 10.6% y-o-y, while Vodafone reported ARPU of EGP24.5, down by 3.2% y-o-y.
Vodafone's comparatively high Egyptian ARPUs have been key to its strategy, and it has made a policy of focusing on gaining and keeping high-value subscribers, rather than concentrating on volume, as Mobinil has tended to do. However, it would appear that Vodafone's focus on quality has had a side effect of bringing it increasing new volumes of subscribers. Many of these are in the lower income bracket and are therefore spending less and depressing ARPUs rates.
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Vodafone and Mobinil's ARPUs, which have been under increasing downward pressure since the start of political crisis in the country in early 2011, slipped further in Q112, but recovering marginally in Q212 and again in Q312 on a q-o-q basis. Vodafone's ARPU appreciated 2.4% q-o-q in Q312 to reach EGP26.1, but was down 5.4% on a yearly basis. However, this trend did not continue in the fourth quarter, which saw the operator's ARPU slip to EGP25.3. Mobinil's ARPU followed a similar trend, rising by 0.4% q-o-q in Q312 to EGP23.6, but falling marginally to EGP23.0 in Q412.
Mobinil Vs Vodafone ARPU (EGP)

2009-2013
There is no data for Etisalat's ARPUs, although we believe the operator reports a lower ARPU than its rivals because of its aggressive price-based marketing strategy and a weaker subscriber mix.
We expect the planned introduction of MVNOs to further weigh on ARPUs, especially for traditional voice and SMS services. This will likely increase operators' focus on high-value services such as mobile data and other advanced value-added services, as well as the migration of subscribers from low-value prepaid services to lucrative postpaid offerings.
Networks
3G All three of Egypt's mobile network operators have developed 3G service offerings and currently offer a wide range of data services. Based on the market's development to date, mobile internet and data services are thought to have considerable growth potential. Nevertheless, the fact that there has been no real evidence of an increase in operator ARPU suggests that mobile internet use is still somewhat negligible as a percentage of mobile use as a whole.
Vodafone Egypt was one of the first mobile operators in Africa to offer GPRS and MMS, which the company introduced commercially in April 2003. The operator has promoted Vodafone live! as part of its
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relationship with its main stakeholder. Mobinil also launched its own portal service, Mobinil Life, in September 2003. Egypt's smallest mobile operator by subscribers, Etisalat, was the first to receive a 3G licence when it was awarded a combined 2G and 3G operating licence in July 2006. However, in January 2007, Vodafone purchased its own 3G concession for US$586mn. Vodafone's licence, valid for 15 years, will also cost it an additional 2.4% of annual revenue payable to the Egyptian government.
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Vodafone was beaten to launch in the 3G sector by Etisalat, which, contrary to the expectations of many market watchers, launched 2G and 3G services simultaneously on May 1 2007. Etisalat's range of data services includes mobile TV, video calling and high-speed internet access over HSDPA. Within three weeks, the operator claimed to have signed up 300,000 customers, of which 75% were reported to be using the HSDPA network (although it is unclear whether they were actually accessing data services or whether their voice calls were being transmitted over the HSDPA network).
Although Mobinil previously said that Egypt's 3G licensing conditions were 'unattractive,' it began to show more interest following Etisalat and Vodafone's 3G licence purchases. The operator finally secured a licence in October 2007, after agreeing on a price of EGP3.34bn (US$599mn). Mobinil struck a deal with the NTRA to pay for the licence over a four-year period, whereas Etisalat and Vodafone both have shorter repayment terms. Mobinil was reluctant to agree to a shorter repayment scheme, as it would have put financial pressure on the operator due to larger borrowing costs. Mobinil will, however, pay 2.4% of total revenue to the NTRA for the duration of the licence, in line with Etisalat and Vodafone.
In September 2008, Mobinil announced the launch of commercial 3G services over a W-CDMA network covering Cairo, Alexandria, Sharm el-Sheikh, Hurghada, Dahab, Taba, Safaga, Marsa Alam, Luxor and Aswan. In partnership with several network vendors, Mobinil is reported to have invested EGP4bn (US $749mn) on its infrastructure in 9M08 - prior to the launch of commercial services - following an investment of EGP3.3bn in 2007.
Despite continuing to invest in expanding the reach of its 3G infrastructure, Mobinil has, in the past, expressed doubts about the future of 3G services in Egypt. In October 2008, Mobinil revealed that it did not expect to make a profit from its 3G operations, with a company executive claiming that it would not have purchased the 3G licence if the deal had not included an extension of its 2G licence. Guillaume van Gaver, vice president of Mobinil's commercial division, reportedly claimed that the cost of handsets, coupled with difficulties accessing content, had slowed the development of 3G services in the country. Van Gaver also stated that the operator would continue balancing investment between its 2G and 3G networks, adding that the mobile phone company had approximately 200,000 3G subscribers.
In May 2011, Mobinil awarded an EGP250mn (US$42mn) contract to Alcatel-Lucent to upgrade the operator's network in Upper Egypt governorates by offering 2G and 3G services. Mobinil has earmarked a total of EGP3bn to improve its network.
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In November 2007, Etisalat upgraded to 3.75G, which is the marketing term for HSUPA (High-Speed Uplink Packet Access). The operator's current handsets support speeds of up to 1.4Mbps. Etisalat is the first mobile operator in Egypt to offer downlink speeds of up to 7.2Mbps - twice as fast as 3.5G downlink speeds. Etisalat set itself the goal of reaching full 3.75G network coverage across the whole of Egypt, irrespective of whether there are inhabitants in that area or not, by the end of 2008. It is unclear whether the operator achieved this target, with media reports suggesting that Etisalat's network extended to more than 80% of the country's population as of mid-2010. With 3.75G technology, subscribers can video call, watch live TV, have access to high-speed internet connections and downloads, and also access a mobile portal built exclusively for Etisalat subscribers.
Etisalat Egypt's parent company has announced plans to invest up to US$1.4bn in its Egyptian unit over the next three years. In May 2010, it was reported that Chinese equipment vendor Huawei Technologies had completed the second phase of the deployment of HSPA+ technology across Etisalat Egypt's network. The deployment has seen it increase theoretical speeds across the whole of Etisalat's network to up to 42Mbps, up from the previous 21Mbps limit. Huawei was responsible for the initial rollout of HSPA+ on Etisalat's network back in mid-2009. In March 2012, Etisalat successfully conducted trials of 84Mbps HSPA+. The trial was based on two technologies namely dual carrier and MIMO. Etisalat Misr achieved a peak and average throughput of 70+Mbps & 60+Mbps HSPA+ respectively.
Content
With intense competition in traditional voice services, Egypt's mobile operators are increasingly turning to advanced VAS, mobile data and telecoms crossovers to create new revenue streams. In November 2011, Mobinil launched eServGlobal's Pay-For-Me service, also known in the market as Collect Call service. This service provides the operator with a way to incentivise its subscribers to maintain their 'active' status. Pay-For-Me is a reverse charge-based service that eServGlobal customised to suit the specific needs of the Egyptian, predominantly prepaid, market. Each subscriber can decide who to include or exclude from the service by assigning members to white or black lists. Callers access Pay-For-Me by simply adding a prefix to the phone number they wish to dial. Mobile Banking In April 2013 the Ministry of Communications and Information Technology (MTIC) announced the launch of Egypt's national ICT strategy for 2013-2017. The first phase of the strategy includes the implementation of a mobile money transfer service, due to be operational in 2013. Exact details are unclear at the time of writing, but it appears the NTRA is pushing to get the service working in 2013. In April 2013 Vodafone was asked to activate its mobile transfer application; however, the operator stated it is still evaluating the
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specific conditions and measures required to activate the service, which is not expected to be available until at least July 2013. Agreements allowing individual account users to use the same network inside and outside Egypt have been signed with the Housing and Development Bank. The MTIC strategy is not the first foray into mobile money services by Egypt's telecoms operators. In July 2011 Credit Agricole Egypt said it had expanded its mobile banking services to include SMS alerts. Customers can receive short text messages periodically or following major events, which includes notifications for withdrawals, transfers and the maturation of securities. CAE provides two categories of SMS alerts: the previously scheduled alerts allowing customers to define the frequency and time to receive an account summary, and event alerts to monitor certain accounts transactions such as cash withdrawals, purchasing, cheques, transfers or maturity date of certificates and time deposits, and credit card purchases, payments and over limit alerts with the exceeded amounts. The new service is available to all individual as well as corporate clients upon registering through the online banking service or by contacting CAE's customer service line. In November 2010 Vodafone and Citibank launched a joint credit card exclusively for Vodafone subscribers and non-Citibank customers in Egypt. The new card entitles cardholders to take a loan in the range of EGP500 (US$87.5) to EGP7,000 (US$1,225.06). The new card facilitates approval for the loan within one hour, compared with the standard 10-day approval period, according to Aftab Ahmed, managing director of operations at Citibank Egypt. VAS In December 2011, Mobinil signed an integrated mobile billing deal with Nokia to directly handle Ovi Store purchases made by its clients. Under the terms of the agreement, the charges for applications bought by Mobinil customers from Nokia Ovi Store are now passed onto their bills or deducted from their prepaid credit balance. Mobinil customers can download a wide variety of applications (social networks, chatting, ringtones, games, among others) at 'Mobinil Selections' on Nokia Ovi Store. During a promotional period, customers who purchase a Nokia C2-01 get one month of mobile internet at no extra cost so they can browse applications on Nokia Ovi Store for free. In February 2011, healthcare technology firm Great Connection announced the launch of its trademark product Mobile Baby with Mobinil. Mobile Baby enables medical practitioners to send ultrasound images, video clips and 3D scans to and from referring physicians for remote diagnostics. The application is compatible with any ultrasound machines and delivers images to specified mobile phones via SMS, MMS and email. The main aim of the service is to enhance pre-natal healthcare through immediate availability and low-cost transmission of images and video clips from the womb.
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In December 2010, Mobinil launched an interactive mobile advertising service for its subscribers in the country in collaboration with France-based telecoms equipment vendor Alcatel-Lucent. The new service uses Alcatel-Lucent's Optism mobile marketing solution to provide the operator's more than 30mn subscribers with a preference and permission-based advertising service on their mobile. The service enables subscribers to choose their preferred ads and offers as well as receive discounts, content and promotions in return. Mobinil claims to have an 85% success rate in getting customers to complete profiles about personal preferences through click-through banner adverts.
Egypt's mobile operators also offer a wide range of data and video-based services alongside traditional voice-based VAS such as short dialling codes, voice mail and multiparty calling. For example, Vodafone offers a large number of messaging and data-based information services, including a news service offered in conjunction with Egyptian Radio and Television Union, and a '1010 Football Service', which offers international and local sports news. Meanwhile, Vodafone's 'Shokran Services' allow prepaid customers to call certain numbers even when they have run out of credit; these include emergency numbers and recharge numbers. In addition to web browsing, Vodafone's mobile internet service provides customers with access to the international Vodafone Live! suite of online content services. Further improvements to Mobinil's VAS offerings continue with the operator announcing a partnership with OnMobile Global in November 2010, to provide such VAS services as ringback tones and m-Radio. The operator claimed that, within a 60day period, the number of subscribers using these services had doubled to 2.1mn, with some 2.6mn downloads and resulting in a 30% increase in revenues for the company.
Mobinil offers a similar range of mobile voice and data services to those offered by Vodafone. Popular services offered to both business and residential customers include MMS, Voice SMS and video calling. Other unique services offered include Mobinil Personal Guide 8000, a dedicated call centre with specialised representatives who provide customers with instant information, phone numbers, addresses and more on the phone or by SMS.
Meanwhile, Egypt's smallest operator by subscribers, Etisalat, provides a range of mobile VAS that is exclusively aimed at 3G subscribers. These include mobile TV, video calling and multiplayer games. Additionally, Etisalat's mobile internet customers have access to the Etisalat portal, which provides users with games, news and information, music and entertainment.
As Egypt's operators invest in new services, handsets and network upgrades, new initiatives are emerging that will see content providers partner with operators in an attempt to stimulate demand for applications.
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Table: Mobile Contract Wins
Date
Contract Value
Detail Etisalat and Chinese equipment vendor Huawei reached a deal that enables the former to use the latter's technology to launch technologies and business solutions in Egypt. The new deal is an expansion of an existing collaboration agreement between the two firms. Etisalat awarded Swedish network equipment vendor Ericsson a contract to upgrade its radio network in Egypt. Under the contract, Ericsson will give the operator access to its RBS 6000 radio base station technology. The new agreement between Etisalat Egypt and Ericsson is likely to help the former in supporting its network and IT infrastructure with tailored and adaptable solutions, according to Etisalat Egypt Chief Technical Officer Haitham AbdulRazzak. Etisalat Misr selected China-based telecoms equipment developer ZTE for network expansion. The move forms part of the operator's plans to ensure that it meets its forecast capacity requirements. The contract covers the second phase of the wireless network expansion plan agreed by both firms. The contract will provide for the supply, installation and implementation of SDR UMTS equipment and BSS solutions on a turnkey basis. Mobinil selected HP TippingPoint to boost network reliability and security for its customers. The operator selected HP TippingPoint S5100N IPS and HP TippingPoint Core Controller platforms to deliver real-time proactive inline protection for its distributed datacentres and network infrastructure. HP TippingPoint IPS detects and blocks trojans, viruses, worms or any potentially damaging network events that could slow down operations, threaten service quality or cause customer downtime. Mobinil said it is upgrading and extending its deployment of Clarity's Infrastructure Management system. Mobinil currently uses Clarity's system to support its network site rollout processes across two departments. The upgrade will see the latest version of Clarity's Infrastructure Management suite replace many disparate third-party systems and enable tracking of infrastructure changes across all of Mobinil's divisions. Etisalat Misr selected Chinese vendor ZTE to expand its network following a successful trial for Software Defined Radio (SDR) base stations. The SDR platform supports all types of wireless access technology, and is also is capable of delivering 2G, 3G and 4G from a single base station site, according to ZTE. Alcatel-Lucent wins an EGP250mn contract to upgrade Mobinil's network in Upper Egypt governorates by offering 2G and 3G services. Mobinil has earmarked a total of EGP3bn to improve its network. Clarity provides its Infrastructure Management system to Vodafone Egypt, which will use it to automate finance, network and service management processes. Huawei announces that it has completed the second phase of the deployment of HSPA+ technology across Etisalat Misr's network. The deployment has seen it increase theoretical speeds across the whole of Etisalat's network to up to 42Mbps, up from the previous 21Mbps limit. Mobinil selected eServ Global to supply the platform for its missed call alert service. Mobinil selected UK-based firm Aircom to help with its 3G network planning and optimisation. Chinese equipment vendor Huawei was selected for the third phase of Etisalat's turnkey network build, having completed the first two phases in 2007. Alcatel-Lucent was contracted to build a new submarine cable for Telecom Egypt. The cable is to link Sidi Kerir in Egypt with Marseilles in France, and will enable Telecom Egypt to meet demands for broadband services. Mobinil awarded network expansion contract to Alcatel-Lucent.
Feb-13
na
Dec-12
na
Feb-12
na
Oct-11
na
Oct-11
na
Sep-11
na
May-11 Nov-10
US$42mn na
May-10 Mar-09 Oct-08 Sep-08
na na na na
Feb-08 Sep-07
US$125mn na
Source: BMI
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Table: Selected VAS Services
Date July 2011
Details Credit Agricole Egypt announces an expansion in its mobile baking services to include SMS alerts. Customers can receive short text messages periodically or following major events, which includes notifications for withdrawals, transfers and the maturation of securities. LG launched touchscreen handsets equipped with dual SIM card slots in the Egyptian market. The LG GX500 and LG P525 provide users with the convenience of two phone lines in one handset plus full multimedia features. The P525 also comes with an Opera browser and a range of social networking and messaging features. Mobinil partners with Adidas and Nokia, using Alcatel-Lucent's Optimism Solution for mobile advertising. Vodafone Egypt partners with OnMobile Global for the provision of value-added services such as ringback tones and m-Radio. Vodafone began offering netbooks in its stores, alongside 3G USB modems. The Egyptian government officially banned all GPS equipment in mobile phones and asked Apple to remove this technology from the iPhone. This move was seen as likely to hinder growth in the smartphone market in Egypt, as most contain GPS, and removing the feature would add to the cost of handsets. The restriction was eventually lifted in April 2009. Software company Opera revealed that Egypt had overtaken Germany to become the 10th largest market in the world for its Opera Mini mobile web browser. Use of the browser in Egypt has apparently grown 1,859.7% since January 2008. After caving in to pressure and going back on its earlier decision not to bid for a 3G licence, Mobinil eventually launched 3G services. The company does not, however, expect to make a profit on the services for the foreseeable future, declaring it would not have paid for the extra spectrum were it not to the advantage of traditional voice and basic data services such as SMS to acquire extra spectrum. Both Mobinil and Vodafone began offering the iPhone 3G. Mobinil launched its U-Control mobile internet platform for businesses. Etisalat launched as Egypt's first 3G operator. Vodafone followed with its own launch of 3G services shortly afterwards. Both offer mobile broadband, video calling and MMS. Mobinil says it will continue to offer value-added services suited to the Egyptian market on its 2G network. The Cairo ICT Fair is used by all three operators as a test base for their new services. Both new operator Etisalat and the more established Vodafone demonstrated their 3G capabilities ahead of commercial launch in May. Mobinil used this platform as a launch pad for its Voice SMS, Instant Messenger and Mobile TV services.
June 2011
December 2010 November 2010 January 2009 December 2008
October 2008
September 2008
2008 2008 May 2007
February 2007
Source: BMI
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Mobile Operator Data
Table: Market Overview
Mar-11 Subscriber Numbers ('000) Total number Q-o-q growth Y-o-y growth Type: Prepaid Type: Postpaid Market penetration (%) No. of net additions (mn) 74,091 4.9 28.6 71,636 2,455 89.8 3,450
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
76,530 3.3 29.7 73,915 2,615 92.7 2,439
80,177 4.8 25.4 77,496 2,681 97.1 3,647
83,121 3.7 17.7 80,278 2,843 100.7 2,944
91,918 10.6 24.1 88,756 3,162 109.5 8,797
92,499 0.6 20.9 89,153 3,346 110.2 581
93,729 1.3 16.9 89,851 3,878 111.6 1,230
96,867 3.3 16.5 92,303 4,564 115.4 3,138
93,993 -3.0 2.3 57,177 3,877 110.1 -2,874
Source: BMI, NTRA, MCIT, operators
Table: Vodafone
Mar-11 Subscriber Numbers ('000)
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Total number ('000) Type: Prepaid Type: Postpaid Market share (%) Market penetration (%) No. of net additions (mn) Market share of net additions (%) Subscriber Usage Quarterly minutes of total use (bn) Quarterly minutes of use/subscriber Monthly blended ARPU (EGP)
32,218 30,994 1,224 43.5 89.8 450 13.0
33,745 32,361 1,384 44.1 92.7 1,527 62.6
35,321 33,873 1,448 44.1 97.1 1,576 43.2
36,360 34,869 1,491 43.7 100.7 1,039 35.3
37,202 35,528 1,674 40.5 109.5 842 9.6
37,498 35,698 1,800 40.5 110.2 296 50.9
38,192 35,939 2,253 40.7 111.6 694 56.4
39,756 37,092 2,664 41.0 115.4 1,564 49.8
38,070 35,024 3,046 40.5 110.1 -1,686 58.7
15.18 157.0 27.7
18.36 181.4 27.8
19.08 180.1 27.6
20.04 183.7 26.7
21.74 194.8 25.3
22.43 199.4 25.5
22.40 195.5 26.1
23.603 197.9 25.3
23.518 205.9 24.5
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Vodafone - Continued
Mar-11 Monthly ARPU (Prepaid) (EGP) 22.3 Monthly ARPU (Contract) (EGP) 162.4
Jun-11 22.4 161.2
Sep-11 22.4 153.0
Dec-11 21.4 148.8
Mar-12 20.2 137.6
Jun-12 20.3 132.7
Sep-12 20.7 122.2
Dec-12 20 103.1
Mar-13 16.6 124.5
Financial Structure Operating revenue (EGPmn) Service revenue (GBPmn) Net profit (EGPmn) Capital expenditure (EGPmn) Capital expenditure as % operating rev Capital expenditure/ subscriber (EGP) 2,832 281 487 1056 37.3 70.1 2,971 287 518 234 7.9 15.4 3,158 306 498 362 11.5 19.7 3,132 311 498 650 20.8 34.1 3,045 300 429 795 26.1 39.7 3,086 305 521 268 8.7 12.3 3,210 316 516 461 14.4 20.6 3,278 307 482 599 18.3 26.7 3,100 284 475 580 18.7 24.6
Source: BMI, NTRA, Vodafone, Telecom Egypt
Table: Mobinil
Mar-11 Subscriber Numbers ('000)
Jun-11 Sep-11 Dec-11 Mar-12
Jun-12 Sep-12 Dec-12 Mar-13
Total number Type: Prepaid Type: Postpaid Market share (%) Market penetration (%) No. of net additions ('000) Market share of net additions (%)
30,358 29,520 838 41.0 89.8 133 3.9
30,541 29,718 823 39.9 92.7 183 7.5
31,576 30,763 813 39.4 97.1 1,035 28.4
32,914 32,042 872 39.6 100.7 1,338 45.4
32,624 31,686 938 35.5 109.5 -290 -3.3
32,392 31,397 995 35.0 110.2 -232 -39.9
32,768 31,743 1,025 35.0 111.6 376 30.6
33,841
32,939
32,691 na 1,150 na 34.9 115.4 1,073 34.2 35.0 110.1 -902 31.4
Subscriber Usage Monthly minutes of total use (bn) Monthly minutes of use/ subscriber 15.810 174 17.035 186 17.041 180 18.301 185 19.020 194 19.020 na 196 na na na na na
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Mobinil - Continued
Mar-11 Monthly blended ARPU (EUR) Monthly blended ARPU (EGP) Monthly ARPU (Prepaid) (EGP) Monthly ARPU (Contract) (EGP) Annual churn rate (%) (1) Monthly churn rate (%) 4 33.7 25 153 9.7 3.2
Jun-11 Sep-11 Dec-11 Mar-12 3.5 26.4 22 164 11.3 3.8 3.2 25.8 21 168 11.96 4.0 3.0 24 20 159 13.2 4.4 3.0 23.5 19.2 151.7 14.4 4.8
Jun-12 Sep-12 Dec-12 Mar-13 3.0 23.5 19.2 151.7 na 14.4 na 4.8 na 3.0 23.6 19 na na na na 3.0 23 na na na na 2.9 26
Financial Structure Revenue (EURmn) Revenue (EGPmn) Service revenue (EGPmn) EBITDA (EGPmn) Capital expenditure (EGPmn) Capital expenditure as % revenue Capital expenditure/subscriber (EGP) 275 2,343 2,221 857 199 8.5 6.6 274 2,511 2,385 945 396 15.8 13.0 272 2,490 2,348 859 476 19.1 15.1 290 2,424 2,264 587 686 28.3 20.8 284 2,409 2,265 879 304 12.6 9.3 292 2,409 2,265 na 879 na 304 na 12.6 na 9.4 na 302 2,710 na na na na na 286 2,566 na na na na na 255 2,288
na = not available. Source: BMI, NTRA, Mobinil, France Tlcom
Table: Etisalat
Mar-11 Subscriber Numbers (000) Total number ('000) Type: Prepaid Type: Postpaid Market share (%) Market penetration (%) No. of net additions ('000) Market share of net additions (%) 11,515 11,122 393 15.5 89.8 2,867 83.1
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
12,244 11,836 408 16.0 92.7 729 29.9
13,280 12,860 420 16.6 97.1 1,036 28.4
13,847 13,367 480 16.7 100.7 567 19.3
22,092 21,542 550 24.0 109.5 8,245 93.7
22,609 22,058 551 24.4 110.2 517 89.0
22,769 22,169 600 24.3 111.6 160 13.0
23,270 22,520 750 24.0 115.4 501 16.0
22,984 22,153 831 24.5 110.1 -286 10.0
Source: BMI, NTRA, Etisalat
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Regional Mobile Content

The rapid take-up of mobile data services and increasing availability of smartphones and data-enabled devices are among key factors that make a strong case for mobile operators in the Middle East and North Africa (MENA) to expand their mobile content and advanced value-added services (VAS) portfolio as part of their revenue growth strategy, despite the allure of the seemingly more lucrative corporate services market. There have been some notable developments in the region's VAS market since our last update, most of which are in line with our view of partnership with OTT players and other third-party content providers.
Data Networks And Devices Drive Mobile VAS

Subscribers in Middle Eastern markets are increasingly turning to data services requiring highend mobile devices to take advantage of the growing availability of 3G and 4G networks. Several operators in the Middle East rolled out LTE networks in 2011 and 2012 and BMI expects the trend to continue. This will drive demand for data60 100 80
Surge In Data Subscriptions

3G & 4G Subscriptions As % Of Mobile Subscriptions
enabled devices, predominantly smartphones. Leading device manufacturers announced strong growth in smartphone and table sales in the MENA region during 2012 and early 2013. Samsung saw 214% growth in handset sales in the Middle East, with 340% growth in the UAE in 2012, according to the company's Gulf director, Young Woo Jun. Other global device manufacturers that have seen strong sales growth in the region in recent quarters include Apple, Huawei, Nokia, HTC and BlackBerry.
40 20 0 2014f 2013f 2015f 2016f 2010 2012 2017f 2011 Bahrain UAE
Egypt
Israel
KSA
Perhaps the most notable outcome of the uptake of smartphones is that subscribers are increasingly using their devices and, consequently, mobile lines for functions beyond the traditional voice and SMS services. Many of these functions are directly related to mobile data usage, while the others are crossover services that use the medium of mobile phones to increase access to services in other sectors, such as banking, health and agriculture. In the MENA region, network operators are at the forefront of rolling out new non-voice mobile services, which often serve the dual purpose of revenue growth and customer retention.
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OTT Services Increase

OTT players offer opportunities and risks to network operators almost in equal measure. The opportunities are mainly based on driving demand for mobile data services on which the OTT services function. However, the amount of data consumed and its effect is on operators' network is often not commensurate to the revenue from non-voice services. Meanwhile, some services from OTT players are verging on operators' traditional services such as messaging. This has the potential to erode operators' revenue from those services and add further downward pressure to their financial indicators.
In addition to the major OTT services available to phone users with data connection, such as messaging application WhatsApp and Google's video sharing service YouTube, a number of new players have introduced OTT-based services in the region in recent quarters. In March 2013, Nokia announced the launch of its music streaming service, Nokia Music, in the MENA region, starting with the UAE. Consumers can stream music from a suite of over 150 exclusive playlists that are curated and kept up-todate. The playlists span a wide spectrum of musical genres from Khaleeji, Arabic, Bollywood and International. Partnering labels include a variety of international renowned names such as Universal, Sony and EMI. The Nokia Music service is advertisement-free and requires no registration - just ownership of a Nokia Lumia device, which allows them to download the Nokia Music app for free from the Windows Phone Store.
Operators Give Competition A Go

In our previous update, we highlighted the ongoing debate in the region about competing or collaborating with OTT players. Operators are still deeply divided on the most viable option as evidenced by some recent developments. Zain and Batelco are among operators that formed partnerships or launched services to rival OTT services in 2013. In February 2013, Zain launched a pilot of GSM Association (GSMA)backed Joyn services, an integrated Rich Communications Service (RCS) platform. Joyn aims to compete with popular services such as WhatsApp, Viber and Skype, which have chipped away at revenues from traditional voice and messaging services. Joyn's RCS platform offers voice and messaging services from a single app. It also includes video and file sharing. With consumers using more and more data, providing customers with the tools to be more connected is a positive step. The popularity of third party apps such as WhatsApp and Viber has hit mobile operators that have not yet been able to offset falling voice and messaging services with revenues from data.
In March 2013, Batelco launched a new dedicated gaming portal - Batelco Games Lounge. According to Batelco, users can choose from three different gaming subscription plans: daily access at BHD0.150
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(US0.40), weekly access at BHD0.500 (US$1.33) and monthly access at BHD1.500 (US$3.99). For an additional one-off fee, games may be downloaded and can be played offline. At launch, the Games Lounge will serve only feature phones (devices running Java software), but plans are afoot to provide support for games for BlackBerry and Android devices. With Apple preferring to control content and applications that can be run on its iPhones, it is unsurprising Batelco makes no reference to this popular device.
Mobile gaming is incredibly popular, with Cisco Systems forecasting the global number of registered mobile gamers will rise from 487mn in 2012 to 1.272bn by 2016. We therefore view the launch of Batelco's new portal with interest, but are sceptical that the platform's content catalogue will provide the same kind of appeal and loyalty currently enjoyed by third-party global application stores and games publishers' own portals. Furthermore, owners of Android-powered devices are most likely to be seasoned consumers of the wealth of free, 'freemium' and paid content offered via the Google Play applications store, while BlackBerry has had some limited success with its own BlackBerry world store. Independent applications stores - such as GetJar - and games developers' own stores (Zynga, Glu Mobile etc) are equally well entrenched. It will be difficult for Batelco to differentiate itself from the competition.
We will not be surprised to see more operators develop similar platforms that will rival third-party OTT services. An avenue they are increasingly exploring is partnerships with VAS developers and other content providers. Jordan-based mobile content provider Info2Cell is one of the main drivers of this strategy in the region. The firm works with majority of the network operators across the region. In March 2013, the firm launched interactive services aimed at fans of games and trivia for phone users in the region. Info2Cell posted revenues of US$18mn in 2012, up 29% compared to 2011.
M-Commerce Takes Off

M-commerce services have been slow to take off in the region, partly because of a lack of regulatory framework in most countries and the focus of the service on migrant workers in other countries. However, there have been efforts in recent months by key stakeholders to integrate the service into the overall telecoms experience. In December 2012, Omani incumbent Omantel has signed a memorandum of understanding (MoU) with Bank Muscat to roll-out mobile banking (m-banking) services. The development provides opportunities for Bank Muscat to develop on-the-go banking products that can be accessed from a mobile subscriber's handset. Also in December, MasterCard Worldwide said it will begin to offer mobile payment (m-payment) services in Jordan in 2013. The MasterCard system will allow subscribers to download an app - meaning the system relies on smartphones - that will allow them to access their existing bank account or set up an e-wallet that can be used to make payments. The latter may appeal
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to the more security conscious subscribers, as a lost handset would only risk the amount stored in the ewallet, rather than full access to the user's bank account.
In February 2013, Etisalat outlined plans for the commercialisation of a mass market mobile wallet solution in 2013. The new mobile wallet solution will be capable of delivering a wide variety of payment and transaction options, including domestic and international money transfers, bank account management and the purchase of tickets on public transportation services. Etisalat is leveraging money transfer, user identity verification and account security solutions from MasterCard, as well as contactless data transfer technology from Oberthur Technologies to power the service. Users need to purchase an NFC-enabled SIM card, which, in theory, will work in any handset or mobile device and thus obviates the need to upgrade to a more expensive device. In addition, many new handsets due to come on the market in 2013 and beyond including low-end handsets - will incorporate NFC technology. Pending approval from the UAE Central Bank, Etisalat hopes to be able to launch the service in April 2013.
These developments are in line with BMI's view that there is scope for m-payment services using apps and near field communication (NFC) technologies, as well as mobile transfer services allowing banking customers to access their bank accounts using their mobile devices.
Operators Look To Non-Voice Corporate Solutions

The machine-to-machine (M2M) service arguably has the biggest potential among existing non-voice business solutions for mobile operators. It is therefore not surprising operators in the region with a corporate solutions strategy have deployed the service or are in the process of doing so. In March 2013, du announced plans to deploy Cinterion machine identification module (MIM) cards from Gemalto to support its push into M2M services. The MIMs allow remote machines to directly communicate with central management systems and are easily integrated into data-driven intelligent systems required by players in the oil and gas, retail, healthcare, utilities and transportation/traffic management industries. Remote machines are increasingly being deployed in remote locations, where there is no access to power supplies and where diverse climatic conditions can have a deleterious effect on complex systems. Therefore, the robust and scalable solutions developed by Gemalto, within the Cinterion product line, are well suited to end users' demanding requirements. The technology will support du's efforts to develop a range of data and telemetry services for customers across a wide range of industry verticals, enabling it to break its reliance on its core fixed and mobile telecommunications services for revenue growth.
In February 2013, Mobily signed a partnership agreement with US-based M2M solutions provider Jasper Wireless. The companies will explore opportunities to provide a wide range of smart connected device
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solutions to end-users in the enterprise and mass market consumer sectors across Saudi Arabia. Jasper Wireless will provide Mobily with applications and services to connect and manage a wide range of embedded wireless devices across the automotive, telematics and infotainment, consumer electronics, smart metering and building automation sectors, among many others.
Fixed Line
The latest data from the Ministry of Communications and Information Technology (MCIT) showed Egypt had 8.63mn active fixed-line subscriptions at the end of March 2013, 58.4% of total available capacity of 14.77mn lines. Q1 2013 was the second successive quarterly increase in subscriptions, with another quarterly increase in Q212. BMI attributes this reversal from the steep declines in 2010 and 2011 to the growing popularity of the incumbent's multi-play offering, which is helping to retain existing customers as well as attract new ones to its network. This is offsetting the impact of fixed-to-mobile substitution, which has dominated the longer term trend in the market.
Installed fixed-line capacity at the end of March 2013 was reported at 14.77mn lines, up from 14.61mn at the end of 2011, 14.5mn at the end of 2010 and 14.414mn lines at the end of 2009. The regulatory data show that installed fixed capacity and number of active lines were trending in different directions prior to H212. This was not surprising considering the general trend towards fixed-to-mobile substitution in most telecoms markets, although the loss of fixed-line subscriptions has on the back of strong take-up of fixedline broadband services and the possible introduction of multi-play services in the market has paused the divergence.
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At the time of writing, incumbent fixed-line operator Telecom Egypt (TE) latest results covered operations to the end of March 2013. The operator reported a fixed-line subscriber base of 7.2mn following a net loss of around 100,000 subscribers in Q113. Although TE has not provided official reasons for the sharp drop in fixed-line subscriptions in 2011 and 2012, we would not be surprised if it was partly related to the political crisis that engulfed the country for most of that period.
Egypt Fixed-Line Growth

2009-2013
Meanwhile, TE was plagued by a series of strikes during H211 as staff protested against corruption in the company's hierarchy and asked for better working conditions. However, TE reported 2.3mn 'higher yielding' double-play subscribers at the end of March 2013, up from 2.2mn in the previous quarter. This development suggests the operator is more focused on acquiring new double-play customers as opposed to retaining or acquiring new low-value voice only subscribers.
Source: BMI, NTRA
When examined over the longer-term, the available data - whether TE or the regulator's - suggest that Egypt's fixed-line market is in a state of decline. In light of the aggressive growth of mobile services over the past few years, the fall in fixed lines was expected, and it is with some surprise that the fixed-line market has managed to hold out this long against the decline that has afflicted most other countries. It is also likely that the significant fall in the number of fixed lines in 2009 was due to the country's economic downturn, as well as the spread of competitively priced mobile services.
TE remains the sole provider of fixed-line telephony services in Egypt, despite having lost its monopoly in the provision of data and other services. With the tendering of three so-called 'triple-play' licences for new companies looking to offer internet, TV and voice services to new residential and business customers, it was thought that TE's monopoly had technically been broken. However, TE has spoken out against this interpretation, arguing that the companies that won the licences would still have to lease capacity from TE to provide voice services.
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In March 2010, the NTRA took a step to ban VoIP services over mobile networks; this measure was seen as protecting TE's interests. Egyptian telecoms regulations require that all international voice traffic pass through licensed international gateways, and VoIP traffic bypasses this system. The NTRA had effectively been tolerating the 'illegal' deployment of VoIP services, until it was observed they were having a deleterious effect on the level of international voice traffic passing through TE's network. The most established international gateway continues to belong to TE. After it reported a continuous fall in fixed-line revenue for several consecutive quarters, the NTRA's move may be interpreted as an attempt to defend state-owned TE's revenue. However, since TE has purchased a licence to provide international voice services and the VoIP operators have not, it may also seem only fair that since it is apparently demonstrable that their activities are affecting TE's ability to make a return on its investment, they should be actively stopped. It is worth noting that, since 2007, TE is not the only licensed international gateway provider, as Etisalat also has a licence to provide such services.
Fixed-Line ARPU
TE Fixed-Line ARPU
2009-2012
In recent quarters, TE has reported declining ARPU for its fixed-line operations. However, there was a slight reprieve at the end of 2011 with ARPU appreciation on a q-o-q and y-o-y basis. According to market data published by the operator, ARPU for the 12 months to December 2011 was EGP53.5, up by 0.9% y-o-y from EGP53 in 2010. The operator's fixed-line ARPU figures appreciated significantly in 9M12, rising to EGP57.9 at the end of September 2012 (latest available data). BMI believes the increase in ARPU is probably due to the shedding of subscribers, most of who are on low-value services, as opposed to a significant increase in tariff and usage. We also believe the growing number of dualplay subscriptions is partly responsible for the uptick
Source: BMI, Telecom Egypt
in ARPU. However, it is not certain if this trend will be sustained in the long term as the incumbent is likely to discount tariffs in a bid to stave off subscriber losses on its network.
The shrinking fixed-line sector should provide TE with a strong incentive to accelerate its push into alternative service sectors. The company revealed in September 2010 that it was considering setting up a
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virtual mobile network over an existing operator's network. This could be popular, especially if offered in bundles with TE's fixed voice and broadband services. The government's move to award geographically limited triple-play licences has not been greeted with as much interest by prospective operators as envisaged, mainly because of their worries over TE's dominance of the fixed-line infrastructure. Perhaps the incumbent's launch of an MVNO service could be a platform for the development of triple-play services.
BMI believes that Egypt's fixed-line market would receive a boost from the introduction of fixed-line competition. The auction of a second fixed-line licence was to take place in 2008, but after being delayed a couple of times, the tender was indefinitely suspended. There was some talk of the process being resumed in 2009, but, given the fact that the state of the markets was given as a reason for the suspension, we do not think any action is likely in the short term. This means it will be some time before we see competition in this market. Wholesale already makes up a good proportion of TE's revenue, since internet and data services were liberalised and other companies started using its network. Companies understood to be interested in bidding for the second fixed-line licence are Egypt's Alkan Telecom, Giza Systems and Orascom Telecom, France Tlcom, mobile operator Etisalat, Saudi Arabia's Atheeb Group and telecoms equipment maker Ericsson.
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Broadband
The latest data from Egypt's Ministry of Communications and Information Technology (MCIT) show there were 33.3mn internet users in the country at the end of March 2013, up 7.9% from 30.9mn a year earlier. The key growth factors in Egypt's internet market include significant investments in wireline and wireless data networks, increasing use of e-commerce, social networks and other internet-based services. The MCIT also estimated that 40% of Egyptian households use the internet from home.
The regulator's data also showed there were 2.31mn ADSL connections in Egypt at the end of March 2013, up by 28.3% from 1.8mn a year earlier. The regulator's data show there is strong demand for ADSL services in Egypt, a development that bodes well for the overall fixed network sector in the country. In 2011 the number of ADSL subscribers rose by 28.4% to reach 1.798mn, up from 1.402mn in 2010 and 1.027mn at the end of 2009. The market's performance in Q412 was in line with our expectation of above 20% growth in 2012, a remarkable feat considering the rapid take-up of mobile broadband technologies such as 3G HSPA+.
Egypt Internet Users

2009-2013
Fixed-line incumbent operator Telecom Egypt (TE) reported having 1.414mn ADSL broadband subscriptions at the end of Q113, up by an
Source: BMI, NTRA
impressive 21.8% y-o-y from 1.161mn at the end of Q112. This gave the operator a market share of 61.3% at the end of Q113, down from 64.4% a year earlier.
BMI believes mobile operators Vodafone and Mobinil largely account for the remaining ADSL subscriptions in the market. In July 2010, it was reported that the Egyptian telecoms regulator had authorised two consortia to start providing triple-play services to residential compounds in Cairo. One of the two consortia led by LINKdotNET Egypt, which was recently sold to mobile network operator Mobinil, includes affiliates of local telecoms group Orascom Telecom. The other licence-winning group was Vodafone Egypt.
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At the end of Q113, France Tlcom, which now owns a majority stake in Mobinil reported an internet subscription base of 301,000. This was up by 11.1% y-o-y from 271,000 in Q112. For its part, Vodafone reported a fixed data subscriber base of 209,000 in Q113. The operator recorded a much faster growth than its two rivals y-o-y to Q113 with 83.3% growth.
In terms of fixed broadband internet subscriptions, most commercial services in Egypt continue to be based on ADSL. However, the feasibility of other technologies is being explored and in Q409 TE launched its first fibre offering. Availability is limited to certain areas of Cairo and Alexandria. The first launch was in the Qatamiya district of Cairo. One of the services available over the new service will be IPTV, along with voice and high-speed data services, allowing TE to provide triple-play services.
BMI believes it is an opportune time for TE to move towards fibre and more advanced services. It will certainly be a change for subscribers who can afford it, as the broadband market is currently dominated by ADSL, with a theoretical maximum download speed of 8Mbps (although most users experience much lower speeds in practice). However, it is understood that fibre services will initially be expensive, and TE is therefore strictly targeting high-end consumers and business customers. While the FTTH service is being launched in Qatamiya, TE is working on fibre-to-the-exchange (FTTx) in many more suburbs of Cairo and some parts of Alexandria.
The other mainstream form of broadband connectivity available in Egypt is mobile broadband in the form of a 3G dongle. Data from the MCIT suggest that there were 3.31mn USB modem subscriptions in Egypt at the end of March 2013(latest available data), up by 17% y-o-y. The regulator's figures on the strength of the mobile broadband sector confirm BMI's own observations of the market, which suggest that the use of mobile data services is increasingly popular among high-end users and businesses. There are no data on other forms of fixed broadband subscriptions such as FTTH. However, the regulator's data show that mobile broadband subscriptions via USB modems has overtaken DSL-based broadband subscriptions in Egypt, a trend we expect to continue in the future.
Source: BMI, NTRA
Egypt ADSL Growth ('000)

2008-2012
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Part of the reason for the popularity of mobile broadband is the lack of availability, and inferior quality, of fixed broadband services. It is therefore thought that focused investment by the government to improve the availability and quality of fixed broadband services could bring great dividends.
It is interesting to note that mobile broadband subscriber growth continued to be strong throughout the period of political unrest at the start of 2011. During that unrest, BMI expressed concern that Egypt's plan to invest up to US$1bn to boost broadband penetration over the next five years was ambitious even before the political crisis, which led to the dissolution of the Hosni Mubarak-led government. It is unclear whether the new government will be able to stick the former government's target of getting 4mn households connected to broadband within four years. The one way by which this target could be achieved, however, is through the continued spread of mobile broadband subscriptions.
Although Egypt's fixed broadband market remains dominated by ADSL services, there has been some limited investment in alternative fixed broadband technologies, including WiMAX. In September 2007, Redline Communications announced that EgyNet had chosen its RedMAX family of WiMAX products to build a broadband wireless network in the tourist resort and scuba-diving hub of Sharm el-Sheikh. The project forms part of an initiative by the MCIT. EgyNet was licensed to provide wireless internet services to the region through the WIESC (While In Egypt Stay Connected) programme of the United States Agency for International Development (USAID). WiMAX network design, integration and rollout are being managed by Alkan Telecom, a systems integrator that partners Redline in Egypt. The RedMAX network is being designed to serve the 3.5mn tourists that visit the region each year, as well as local businesses and residents.
In August 2011 satellite operator Eutelsat Communications announced a six-year distribution agreement valued at EUR20mn between its Skylogic subsidiary and Egyptsat. The agreement enables Egyptsat to offer the Tooway satellite broadband services across Egypt. The service offers download speeds of up to 10Mbps and upload speeds of up to 4Mbps, based on a satellite dish and modem connected to the PC through Ethernet. Set up in 2000, Egyptsat is a licensed VSAT operator in Egypt, providing internet services to oil companies in and outside Egypt for offshore locations. Tooway will complement the company's product portfolio by offering satellite internet for small offices and home users in industrial and economic centres in the north of the country. These will be served through the Ka-Sat spotbeam allocated specifically for Egypt.
The Egyptian government and the NTRA are eager to increase the availability of internet and broadband services across the country. The government has sought to promote the take-up of internet and
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communication technologies, which it believes will increase efficiency in both government and businesses as well as improve education and healthcare standards. One of its priorities has been to reduce the cost of internet access. One way of doing this has been to promote greater competition in the market by licensing new ISPs to compete with incumbent TE. However, one problem encountered by the regulator has involved the tendency of alternative operators to concentrate themselves in large urban areas. This is a scenario common to almost all telecoms markets; new entrants will tend to cluster in those areas where infrastructure covers the most potential customers. However, such developments often aggravate a 'digital divide' between urban and rural areas, with customers in major cities offered a range of different services at competitive prices, while the incumbent operator retains a virtual monopoly over low-income rural areas. In Egypt, one of the NTRA's solutions has been to regulate the cost of local loop unbundling, bringing down prices to encourage ISPs to extend their services nationwide.
The issuance of 'triple-play' concessions to new operators is seen as a first step towards ushering in more excitement to Egypt's broadband market. The concessions are to provide triple-play telephone, internet and cable TV services, with the potential for mobile as an additional fourth service, to specified new developments. The triple-play concessions are geographically restricted. According to former minister of communications and information technology Tarek Kamel, the introduction of new competition will affect smaller communities of 50-5,000 homes and is largely located near Cairo, the Sinai resort of Sharm elSheikh and the Mediterranean coast. However, larger communities will continue to be served by TE, thereby not completely ending the operator's monopoly. With a new government in charge, it will be interesting to see what changes may be made to the former government's plans concerning opening the fixed-line market to more competition.
Long-Distance Networks
In August 2011 TE and French-US vendor Alcatel-Lucent announced the launch of a new Mediterranean cable system. The new network, which has been dubbed TE North, has been provisioned with 40Gbps wavelengths, reportedly making it the first cable network in the Med to provide commercial services using 40Gbps technology. The 3,600km submarine link connects Abu Talat in Egypt to Marseille, France, with a branch to Pentaskhinos, Cyprus, while it also includes other branching units for further expansion in the Mediterranean basin. According to Alcatel-Lucent, the introduction of the 40Gbps technology essentially doubles the original design capacity of the system from 10Tbps to over 20Tbps. The expanded design capacity will also allow TE to better meet the increasing demands of its customers. Specifically, the network will boost the operator's ability to serve global operators relying on Egypt to hub the services in Asia, Africa and the Middle East. In order to implement the upgrade, Alcatel-Lucent used the latest 1620
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Light Manager product, previously deployed as part of the original US$125mn contract, and which was subsequently upgraded to 40Gbps.
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Table: Wireline Developments
Date
Contract Value
Details IPTV operator Egyptian Advanced Multimedia System (EAMS) announces that it has selected Anevia's IPTV head-end solution. Anevia IPTV and VOD servers will enable live and on-demand content in HD and SD formats to be delivered across the EAMS IP network. Eutelsat Communications announces a six-year distribution agreement valued at EUR20mn between its Skylogic subsidiary and Egyptsat. The agreement enables Egyptsat to offer the Tooway satellite broadband services across Egypt. The NTRA gives the go-ahead for two consortia to provide triple-play services to residential compounds in Cairo suburbs containing between 50 and 5,000 housing units. Two bids were received for the concessions in April 2010. It is understood that of the two consortia, one is led by LINKdotNET Egypt, which was recently sold to mobile network operator Mobinil, and includes affiliates of local telecoms group Orascom Telecom. The other licence-winning group is believed to include Vodafone Egypt. The NTRA announces that it will invite bids for two licences to provide triple-play telephone, internet and cable TV services, with the potential for mobile as an additional fourth service. The deadline for bids was set for January 12 2010, with bidding open to private sector consortia, either local or international. TE launched its first FTTH commercial service. The fixed-line monopoly holder has been working on various fibre rollouts in suburbs of Cairo and Alexandria. The first launch is in the Qatamiya district of Cairo. The chairman of TE revealed that the company is looking for an investment vehicle outside of Egypt. TE's preference was for an integrated fixed-line and mobile operation in the Middle East or North Africa, although the company would not rule out looking further afield in Africa. It was later revealed that it was considering a stake in Meditel in Morocco, or a bid for Tunisia's new fixed-line and mobile licence. The NTRA, after discussions including all the bidding companies, announced that the auction for a second fixed-line licence would be postponed for a year, citing global market woes. The regulator felt that loss from global inflation would keep bidders away from fresh investments in Egypt. TE is planning to develop its international connectivity business and expects to complete the deployment of the new TE North cable in mid-2009. TE North will enable Telecom Egypt to generate further wholesale revenue by selling capacity to other operators. Agreements have been signed with three companies, totalling US$126mn. This is encouraging and bodes well for future growth. TE and Alcatel-Lucent signed a US$125mn contract to deploy a new submarine cable connecting Sidi Kerir in Egypt with Marseille in France. Dubbed TE North, the cable will enable Egypt to increase its international connectivity and provide diversity from existing cable routes. In addition, the TE North cable will help TE enhance its ability to operate as a wholesale carrier to other operators and expand its service offering to more businesses and consumers.
Sep-11
na
Aug-11
EUR20mn
Jul-10
na
Oct-09
na
Oct-09
na
Feb-09
na
Sep-08
na
Mar-08
na
Feb-08
US$125mn
na = not available. Source: BMI
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Industry Trends And Developments
In April 2013 the government announced Egypt's ICT plan for 2013-2017 (see regulatory developments for more in-depth discussion). The key short-term development is the implementation of a mobile money transfer service in 2013. It is not clear at the time of writing when the service will be fully operational. In April 2013 Vodafone Egypt was asked by the country's telecoms regulator, the NTRA, to activate its mobile phone cash transfer application. However, the operator is still evaluating the specific conditions and measures required to activate the service, which is not expected to be available for at least another three months. Agreements allowing individual account users to use the same network inside and outside Egypt have been signed with the Housing and Development Bank.
In February 2013, the Egyptian telecoms regulator, the National Telecommunication Regulatory Authority (NTRA), appealed against a court ruling to block access to US-based Google's video-sharing website YouTube, according to the Ministry of Communications and Information Technology. The ban is likely to affect the Google search engine, resulting in losses to the economy and affecting thousands of jobs, the statement added. The communication and investment ministries have been ordered by the Egyptian administration court to ban the site for a month as the site posted a 13-minute video that denigrates the Prophet Mohammad. In February 2013, Etisalat Misr and Chinese equipment vendor Huawei reached a deal that enables the former to use the latter's technology to launch technologies and business solutions in Egypt. The new deal is an expansion of an existing collaboration agreement between the two firms. Under the new deal, Etisalat will target several areas, including mobile broadband, VAS, business-to-business, green energy, CRM and FMC. The new deal is aimed at enhancing customer satisfaction by offering better quality and speed. In February 2013, Mobinil's CEO Yves Gauthier said the company is likely to sell shares in order to meet Egypt's company ownership rules. France Tlcom owns a 94% stake in the operator, but would need to list more shares on the stock exchange in order to increase its free float from the current 1% to around 15%. However, Gauthier noted that the share listing is subject to the economic situation in the country. In December 2012, Telecom Egypt (TE) signed an agreement with Palm Hills Development (PHD) for the deployment of telecoms infrastructure for internal communication and high-speed broadband services in the latter's projects, as well as the connection of PHD's developments to the incumbent's extensive telecom network across the country. The agreement will allow TE to supply residents of new urban communities with integrated telecom services.
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Regulatory Development
Table: Egypt Regulatory Bodies And Their Responsibilities
Regulatory Body National Telecommunications Regulatory Authority (NTRA) Smart Village Building No. 4 Cairo Egypt Tel: +20 (2) 534 4000 Fax: +20 (2) 534 4155 Web: www.tra.gov.eg
Responsibilities
Provide a transparent regulatory framework for telecommunications across Egypt at affordable prices. Promote and encourage fair competition for the benefit of the end-user. Encourage investment in the telecommunications sector on a nonmonopoly basis. Protect the public interest and user interest. Ensure optimum utilisation of frequency spectrum. Ensure that telecommunication services reach all areas of the country. Protect national security and higher state interests. Assure compliance with the state-approved provisions of international agreements and the issued resolutions by regional and international organisations. Monitor technical and economic efficiency programmes for all telecommunications services. Support participation of local and foreign capital through various forms of Public/Private Partnerships (PPP). Incubate technology transfer and offer training programmes to young graduates in cooperation with pioneering international companies. Encourage transparency in restructuring the ICT sector. Cooperate with stakeholders in using communications and IT to improve service delivery to citizens. Oversee the implementation of Universal Service Policy.
Ministry of Communications and Information Technology (MCIT) Smart Village Kilo 28- Cairo-Alexandria Road Egypt Tel: +20 (2) 534 1300 www.mcit.gov.eg
Legislation And Market Liberalisation
The liberalisation of Egypt's telecoms sector is linked to the country's economic reform programme initiated in 1991 and has been set as a World Summit on the Information Society (WSIS) priority. Egypt has signed the WTO Basic Telecommunications Agreement (BTA), which sets up a framework for the integration of its ICT industry with the global economy.
Liberalisation was introduced to Egypt's mobile market in 1998, through the two mobile network operating licences. Payphone services were also opened to competition in 1998. Furthermore, in 1998 the MCIT was established as an entity independent from the former Ministry of Transportation and Telecommunications. The MCIT has responsibility for developing Egypt's ICT infrastructure, stimulating the knowledge
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economy and forging an e-government strategy and a legal framework that is in line with international digital requirements. One of these requirements is deregulation.
To encourage sector privatisation, legislation turned Telecom Egypt (TE), the state-owned incumbent operator, into a joint stock company in 1998. Law 19/1998 and Presidential Decree 101/1998 separated operator and service provider from the regulatory functions. Accordingly, MCIT also created an independent regulator, the Telecommunication Regulatory Authority (TRA), in line with Decree 10/1998.
Liberalisation was further regulated by Telecommunication Regulation Law (No.10) of February 2003 and its associated presidential decree. The law rests on four main pillars: information disclosure; free competition; the provision of universal services; and user protection. A central aspect of the law was the establishment of the National Telecommunications Regulatory Authority (NTRA), replacing the TRA and being assigned all regulatory functions as an independent regulatory authority.
Another crucial aspect was the deregulation of TE's monopoly of domestic and international telephone services by January 2006. Accordingly, the NTRA completed the main elements of the first liberalisation phase by the end of 2006. The first phase of the liberalisation process ran from 2006 to 2008. During this phase, licensees were allowed to run voice and data services over satellite earth stations and cable landing points operated by TE. Licences to establish independent landing station infrastructure are set for the future.
While liberalisation is progressing relatively smoothly, criticism has centred on the overprotection of the incumbent telecoms operator within the liberalisation process. Other challenges to completing liberalisation include the role of the minister as the final decision-maker for the regulator and for TE, a dual role that does not favour deregulation. At the same time, the lack of public participation opportunities in the ICT policymaking process makes liberalisation a technocratic process without adequate public checks and balances.
Regulation
The MCIT was established in 1998. It is responsible for developing ICT infrastructure, stimulating the knowledge economy and forging an e-government strategy. It is also responsible for overseeing the liberalisation of the Egyptian telecoms sector. In 1998, Telecommunications Law No.19 separated its operator and service provider functions from its regulatory functions. Accordingly, MCIT created an independent regulator, the TRA, in line with Decree 10/1998. The Telecommunication Regulation Act (No. 10), which was ratified in February 2003, established the NTRA, which replaced the TRA, and assigned it
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with all the regulatory functions of an independent regulatory authority. The 2003 Law empowered the NTRA and defined its goals, responsibilities and structure.
The NTRA is managed by a board of 17 members headed by the MCIT. The NTRA has full autonomy in terms of financing its activities and recruiting staff. It also has the power to monitor the performance of operators, penalise deviations from licences and manage frequency utilisation for commercial and governmental use.
Licensing And Spectrum
Egypt's 2003 Telecommunications Law outlines the procedures for licensing and frequency spectrum management. The NTRA grants all telecommunications operating licences. It awarded more than 20 licences to operators who offer telecommunications services to the Egyptian market, including mobile, payphone, prepaid calling card, internet, data and VSAT (satellite) services. The NTRA is also responsible for advanced radio management and monitoring systems, and is rationalising the radio frequency spectrum to introduce new services. Licence fees are a main source of income for the NTRA.
In deciding whether to issue a telecoms operating licence, the NTRA assigns a team to study the proposed service and evaluate the technical, economic and legal aspects, in addition to the organisational aspects for providing the service. The NTRA team considers the technologies that are to be used in providing the service as well as the possibility of harmonising them with the current technologies being used in the Egyptian market. It also studies the frequency spectrum and numbering system resources required for the service and the economic feasibility of providing the service and its effect on the sector. Following completion of the study, the team submits its findings to the board of the NTRA, in order to obtain a preliminary approval for provision of the service in question. The NTRA then prepares the licence agreement for the provision of the service in question.
In February 2013 Amr Badawi, CEO of the NTRA, stated that the price for Egypt's fourth mobile network operator licence would be decided by H213. The government revealed in late 2012 that it planned to issue the concession to fixed-line incumbent TE. Additionally, it was confirmed that the regulator was still examining the issue of TE's stake in Vodafone Egypt.
ICT Strategy 2013-2017
In April 2013 the MTIC announced the launch of Egypt's national ICT strategy for 2013-2017. The strategy aims to attract foreign investment, create jobs and establish Egypt as an ICT hub in North Africa through
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the development of technology infrastructure, updating of legislation and promotion of Egyptian companies at international ICT conferences.
The ICT strategy is divided into two phases. The first phase, set for 2013-2014, will kick off with the implementation of a mobile money transfer service in April 2013 and the Communications Unified licence, opening up fixed and mobile services to all licensed telecoms operators, by July 2013. During these two years, the MTIC also plans to invest US$2.8mn in developing Egypt's fixed and mobile broadband infrastructures and up to EGP300mn (US$42.7mn) in manufacturing tablets, and to create 50,000 new jobs in the ICT sector. The 2013-2014 goal is to increase the current ICT sector GDP of EGP48bn (US$6.8bn) and 3.2% contribution to national GDP, to a GDP of EGP66bn (US$9.4bn) and a 4.1% contribution to national GDP.
During the second phase, which will also begin in 2013 and will continue until 2017, the MCIT will focus on expanding Egypt's outsourcing capabilities and generating foreign direct investment (FDI) in the ICT sector. It plans to attract FDI with a new generation of graduates in IT and an increased presence of Egyptian ICT companies at international exhibitions and conferences. Between 2013 and 2017, the MTIC plans to invest EGP450mn (US$64mn) in Egyptian ICT companies and EGP20mn (US$2.8mn) in small and medium-sized enterprises (SMEs) in the mobile and open-source applications fields. By 2018 the MTIC expects to have doubled the ICT sector's 2014 output to EGP120bn (US$17bn) and to have created more than 100,000 direct jobs.
In theory, creating an ICT strategy is a good way to give investors some clarity about the goals and opportunities available in Egypt's ICT sector. As a country with a large, relatively well-educated population and a strategic location, Egypt has the potential to become an ICT hub for the Middle East and North Africa (MENA). However, a lack of political and economic stability undermines the strategy's potential for success.
For companies taking a long-term view, it is possible to overlook Egypt's current economic and political instability in favour of its location or potential consumer demands. For example, Egyptian mobile operator Etisalat Misr has already partnered the Arab Company for Computer Manufacturing to manufacture and distribute tablets domestically, and Samsung plans to build a flat-screen TV and computer monitor factory in Egypt, with a view of distributing its products throughout the MENA region. However, neither of these companies is depending on the MTIC's ICT strategy to ensure a return on investment.
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Competitive Landscape
Table: Key Players - Egypt Telecoms Sector
Company Name Egypt Telecom Mobinil Vodafone Egypt Etisalat Misr
Ownership Government (80%); Free Float (20%) Orascom Telecom (5%); Orange (93.9%) Free float (1.1%) Vodafone (54.93%); Telecom Egypt (44.95%), Free Float (0.12%) Etisalat (66%); Egyptian National Post Authority (20%); National Bank of Egypt (10%); Other (4%)
Market Fixed-line telephony,data, internet, IPTV Mobile Mobile, broadband internet Mobile, broadband internet
Source: BMI
Table: Egypt Financial Indicators
Company Name Egypt Telecom Mobinil Vodafone
2012 revenues (US$mn) 1,986 1,502 2,510
2011 revenues (US$mn) 1,635 1,683 1,998
2010 revenues (US$mn) 1,689 1,748 1,994
2009 revenues (US$mn) 1,804 1,958 1,981
2008 revenues (US$mn) 1,806 1,788 1,913
Established 1918 1998
Employees 51,650 4,000
1998 na
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Company Profile
Telecom Egypt
SWOT
Strengths
The historical owner of Egypt's only fixed-line network. While mobile has grown much more rapidly and overtaken fixed line, there is still potential in this sector, and the fixed-line subscriber base is still growing.
Has a licence and facilities to connect international calls, which have enabled it to benefit somewhat from the growth in mobile, since it connects most international mobile calls.
Has the only broadband infrastructure in Egypt and is the market-leading internet service provider through its subsidiary TE Data.
Weaknesses
Egypt's fixed-line market has been in decline since 2009, with no let-up from the pressures of fixed-to-mobile substitution in sight.
TE has so far failed to stimulate significant growth in broadband take-up. TE does not have its own mobile network in Egypt so it is unable to take direct advantage of the massive mobile growth that has been experienced and is continuing. However, a stake in Vodafone Egypt has compensated a little for this.
Opportunities
Reported intention to launch an LTE network could generate retail mobile revenues, or act as a source of wholesale revenues.
TE is looking to expand its assets by looking outside the Egyptian market for other growth opportunities.
Broadband will be TE's significant growth area. TE is looking to launch mobile services in the country, either as an MVNO or an MNO. This would provide new opportunities for the operator in the mobile sector, as well as broadening its portfolio of converged services.
In August 2011 TE launched a new 40Gbps Mediterranean cable system called TE North. The new cable system will help TE meet the increasing bandwidth demands of its customers.
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SWOT - Continued
Partnership with real estate developers create new opportunities to offer attractive multiplay services to relatively affluent segments of the market.
Threats
Now that Etisalat has been licensed to connect international calls as well, TE no longer has a monopoly on this lucrative service and may see revenue reduced.
Not only is fixed line likely to start declining, but the economic slowdown threatens what broadband subscriptions TE has among its consumer base.
Company Overview
Telecom Egypt (TE) is Egypt's incumbent fixed-line service provider, operating 7.3mn lines at the end of 2012, as well as providing broadband and wholesale services. The operator underwent an IPO in December 2005, selling a 20% stake to individual investors, institutions and TE workers, raising more than EGP4.5bn. TE remains 80% owned by the Egyptian state. In January 2010, TE purchased the remaining 4.95% stake it does not own in TE Data from three Egyptian banks, bringing its overall shareholding to 100%. TE did not disclose financial details.
Strategy
Telecom Egypt's dual-play offering has been hugely successful. The operator is keen to take advantage of more growth opportunities in the multi-play market by including mobile services to its product bundle. To this end, Telecom Egypt aims to win a mobile licence, either as a full network operator or as an MVNO later in 2013. With the announcement of FY12 financial results in March 2013, the TE CEO stated that the operator intends to launch an LTE-based mobile network in 2013 upon attainment of the essential approvals from the telecoms regulator. It had been reported that the regulator expects to license a fourth operator in H213.
Financial Results
TE's most recent financial results cover performance for the first three months of 2013. Revenue increased 1.4% y-o-y to EGP2.717bn, driven by a 4.1% increase in wholesale revenues to EGP1.58bn. Meanwhile, retail revenues declined 2.1% y-o-y to EGP1.137bn in Q113 as fixed-line service revenues fell 18.5% y-o-y to EGP312mn. However, EBITDA was down 32.1% y-o-y to EGP947mn in Q113 due to cost increases. Salaries increased 8% in January 2013, while backdated interconnection costs to Mobinil, the renewal of interconnection agreement with Vodafone and promotional activities also squeezed margins.
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TE revenues for 2012 reached EGP10.032bn, an increase of 1.6% from 2011. Breaking this figure down, retail revenues were down 2% to EGP4.56bn, with the 15.1% decline in fixed-line revenue to EGP1.46bn the key factor. Dual-play revenues compensated for this decline as subscriptions surged by 22.6% y-o-y, resulting in revenues increasing 24.5% y-o-y. Meanwhile, wholesale revenues accounted for 53.6% of total 2012 revenues, benefiting from the provision of backbone network services to the country's mobile operators, as revenues climbed 5% to EGP5.382bn. While revenues increased, the picture for bottom-line performance was weaker. TE registered a 13% y-o-y fall in profits to EGP2.61bn (US$386mn) in FY12. EBITDA was down 19.2% in 2012, dropping to EGP3.725bn. The decline was attributed to the effects of the post-Mubarak confusion on the economy, as well as increased salary costs and backdating of interconnection costs following an agreement with Mobinil. During 2011, TE recorded total consolidated revenue of EGP9.985bn, a decline of 2.3% y-o-y. Total consolidated operating revenue for Q411 totalled EGP2.534, up by 7.7% from EGP2.352bn in the previous quarter. TE's weak financial performance in FY11 is related to the continued disruption to the wider business operating environment across Egypt because of the political crisis and the seasonal effects of Ramadan. Total retail revenue reached EGP4.734mn in of 2011. During Q411, retail revenue was EGP1.129bn compared to EGP1.159bn in Q311. The decline in retail revenue during Q311 also reflects the impact of seasonality and the holy month of Ramadan. Total access revenue, comprising connections and subscriptions, stood at EGP1.159bn for FY11 compared to EGP 1.809bn during the same period in 2010. In Q311 total access revenue were EGP374mn, a decline of 6.4% q-o-q. TE attributes the decline to the tightening of its credit policy as well as actions to temporarily disconnect lines as a result of non-payment. For the 12 months of 2011, TE's total wholesale revenue was EGP5.158bn, compared to EGP4.839bn in 2010, a rise of 6.6%. Total wholesale revenue for Q411 reached EGP1.405bn, accounting for 55.4% of TE's total revenue for that quarter. TE's wholesale business is made up of revenue from domestic and international services to third parties who use TE's extensive digital infrastructure, principally for co-location and transmission services and infrastructure leasing. TE's network enables some 75mn fixed and mobile subscribers and more than 1mn broadband users in Egypt. Group EBITDA for the 12 months ended December 2011 reached EGP4.551bn, down from EGP4.663bn for the same period in 2010. This was equivalent to EBITDA margin of 46%. EBITDA for Q411 reached EGP1.006bn, representing an EBITDA margin of 39.7%. In addition to slow revenue growth, TE's EBITDA was affected by an increase in interconnection costs, as a result of higher mobile traffic; and increases in employee salaries. TE's consolidated net profit for the 12 months ended December 2011 reached EGP2.929bn, down from EGP3.143bn in 2010. This was affected by a higher corporate tax rate of 25% introduced in 2011, compared to 20% in 2010. Net Profit for Q411 was
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EGP584mn, a net profit margin of 26.5%. Capital expenditure in 2011 reached EGP689mn, down from EGP1.086bn for the same period in 2010. Capital expenditure was lower because of a tighter negotiation for long-term supplier contracts and delays in spending because of the political crisis.
Network Development
TE launched its FTTH network in October 2009, in the Cairo suburb of Qatamiya. This will offer both corporate and residential customers with download speeds of 70Mbps. Furthermore, residential customers through directly connecting to the fibre network has also allowed for the supply of triple-play services of voice, data and IPTV on a single high-speed connection. TE is considering setting up as a mobile virtual network operator (MVNO) over an existing operator's network. The MVNO could see TE roll out services more quickly to most parts of the country using the host network's infrastructure. TE's MVNO service would operate over an existing operator's network, possibly Vodafone Egypt, given the existing relationship between the companies. In May 2013 TE confirmed its intention to launch an MVNO service once it secures an appropriate licence from the Egyptian telecoms regulator. The operator also plans to start technical tests in the week ending May 18 and TE's CEO revealed that the firm aims to begin work in July. Adding confusion is the fact that in February 2013 Amr Badawi, CEO of the NTRA, stated that the price for Egypt's fourth mobile network operator licence would be decided by H213. The government revealed in late 2012 that it planned to issue the concession to fixedline incumbent TE. Meanwhile, in April 2013 the Egyptian government is also mulling over granting permission to the country's telecoms operators - MobiNil, Vodafone Egypt and Etisalat Misr - to offer fixed-line voice services using the incumbent's infrastructure.
Financial Data
Annual Revenue (2010): EGP10.318bn Annual Revenue (2011): EGP9.985bn Annual Revenue (2012): EGP10.032bn Revenue (Q113): EGP2.717bn Net profit (2010): EGP3.143bn Net profit (2011): EGP2.929bn Net profit (2012): EGP2.611bn Net profit (Q113): EGP858mn Number of fixed lines (2010): 9.3mn Number of fixed lines (2011): 8mn Number of fixed lines (2012): 7.3mn Number of ADSL lines (2010): 883,171 Number of ADSL lines (2011): 1.111mn Number of ADSL lines (2012): 1.362mn Number of ADSL lines (March 2013): 1.413mn Company Name: Telecom Egypt
Operational Data
Company Details
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Egypt Telecommunications Report Q3 2013 B7, Smart Village K28 Cairo-Alexandra Desert Road Cairo Egypt
Tel: +20 12-320-0000 Fax: +20 12-320-7111 Web: www.mobinil.com
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Mobinil
Strengths
Presence in the fixed-line sector. Relationships with Orascom and France Tlcom give Mobinil regional strength. Last operator in the market to acquire a 3G licence. Increase in the proportion of prepaid users (over 96% of all subscribers) is putting downward pressure on ARPU levels.
Weaknesses
Lost market share to rivals Vodafone and Etisalat in 2011 and 2012. Recorded weak financial performance in 2011 with a net loss of EGP169mn, compared to a net profit of EGP1.380bn in 2010.
Opportunities
Growth in Egypt's mobile market set to continue, leaving room for further improvement.
Fixed-line services provide opportunities for revenue stream diversification and multiplay services.
Corporate-aimed services, including VoIP services, could give an edge over Vodafone in this important business segment.
Threats
Continuing political and economic crisis in Egypt will affect network investment decisions.
Introduction of MVNO services could increase downward pressure on mobile ARPU.
Company Overview
Mobinil is the second largest mobile operator in Egypt. It lost first position to Vodafone Egypt in mid-2010. Mobinil had around 32.9mn subscribers at the end of March 2013. On May 28 2012, French telecoms giant France Tlcom (Orange) confirmed it had increased its stake in Mobinil to 93.9% in a deal that gives it greater control of Egypt's second biggest mobile operator by subscribers. France paid an estimated EUR1.5bn to buy most of the shares owned by Orascom Telecom Media and Technology (OTMT) and free-float shares traded on the Cairo bourse. According to the deal, France Tlcom owns 93.9% of the shares of Mobinil, OTMT owns another 5%. Meanwhile, the remaining 1.1% will remain on free-float and be traded on the stock exchange. OTMT
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will, however, retain its 28.75% voting interests in Mobinil to assuage local concerns about national ownership. In December 2009, the Financial Supervisory Authority in Egypt approved France Tlcom's bid to take control of Egypt's leading mobile network. The French incumbent offered EGP245 (US$43.4) per share. Back in April 2009, an arbitration court ordered Orascom Telecom to sell its shares in the holding company Mobinil Telecommunications to France Tlcom. The offer, which was France Tlcom's third, was dependant on the Financial Supervisory Authority accepting France Tlcom's argument that the other shares in the company were worth less than the agreed price that had been set for those owners through the holding company. However, in April 2010, an Egyptian court upheld a ruling barring a France Tlcom buyout of Mobinil. Judge Hamdi Yassan said minority shareholders would be disadvantaged by France Tlcom's offer at EGP245 per share, less than the amount an arbitration court said the French firm should pay for Orascom's stake in Mobinil. On July 13 2010, Orascom Telecom amended and restated shareholders' and settlement agreements with France Tlcom. Thus, from Q310, Mobinil's financial figures were represented as discontinued operations by Orascom Telecom and were not made available. Meanwhile, France Tlcom's representation of Mobinil's operational figures from Q310 was described as 100% consolidated. Furthermore, during Q310, Mobinil's acquisition of LINKdotNET was concluded, bringing about a convergence between ISPs and operators.
Recent Financial Performance
Mobinil has not provided a breakdown of its financial data since it was acquired by FranceTlcom. The company's latest result relates to the three months ending March 31 2012. Mobinil reported a 3.9% y-o-y increase in revenue to EGP2.525bn in Q112. EBITDA also increased by 4.4% in Q112 to reach EGP888mn. However, the downward pressure on the company's bottom line continued, with a net loss of US$74mn, down from a net profit of US$23mn a year earlier. France Tlcom reported only top-line revenue for Mobinil for the full year ended December 2012 and Q113. According to the operator, total revenue for that period was EUR1.325bn, up 1.5% y-o-y from EUR1.306bn a year earlier. Revenue in Q113 fell to EUR255mn, a decline of 10.2% y-o-y. Meanwhile, revenue in local currency was down 5% y-o-y to EGP2.288bn. Mobinil reported a 6.5% decline in full-year operating revenue to EGP9.768bn in 2011 and a 24% y-o-y decline in EBITDA to EGP3.249bn. The company also reported a net loss of EGP169mn, compared to a net profit of EGP1.380bn in 2010. The operator reported an 8.1% contraction in revenue growth during Q411 and its EGP177mn net loss was a reversal of the EGP342mn profit recorded a year earlier, as operating costs escalated. Q411's poor financial results were partly due to higher
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commercial expenses necessary for defending market share, which has been on a downward spiral since Q211.
Network Development
In September 2007, Mobinil awarded a contract to Alcatel-Lucent to expand its network and upgrade to 3G. 3G services were first launched by the company in September 2008, and in the following month Mobinil announced it had awarded a contract for further 3G network planning and optimisation to Aircom. In May 2011, Alcatel-Lucent won an EGP250mn (US$42mn) contract to upgrade Mobinil's network in Upper Egypt governorates by offering 2G and 3G services. Mobinil has earmarked EGP3bn to improve its network. The firm reportedly beat competition from four international companies to win the bid. In May 2013 Mobinil selected Swedish vendor Ericsson to upgrade its network to cater to high-speed internet services. As part of the deal, Ericsson will also be responsible for offering Mobinil its operations and business support systems. The deal also comprises design, installation and integration of the microwave backhaul by utilising MINI-LINK TN and MINI-LINK CN.
Financial Data
Annual revenue (2010): EGP10.576bn Annual revenue (2011): EGP9.678bn Annual revenue (2012): EUR1.325bn Annual revenue (Q113): EUR255mn EBITDA (2010): EGP4.309bn EBITDA (2011): EGP3.249bn EBITDA (Q112): EGP883mn Net profit (2010): EGP1.380bn Net Loss (2011): EGP169mn Net Loss (Q112): EGP74mn Number of mobile subscribers (2010): 30.225mn Number of mobile subscribers (2011): 32.914mn Number of mobile subscribers (2012): 33.841mn Number of mobile subscribers (Q113): 32.939mn Number of internet subscribers (2010): 217,305 Number of internet subscribers (2011): 257,000 Number of internet subscribers (2012): 299,000 Number of internet subscribers (Q113): 301,000 The Egyptian Company for Mobile Services (Mobinil) 2005C, Cornishe El-Nil, Ramlet Boulaq Cairo 11221 Egypt
Operational Data
Company Details
Tel: +20 12-320-0000
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Egypt Telecommunications Report Q3 2013 Fax: +20 12-320-7111 Web: www.mobinil.com
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Vodafone Egypt
SWOT
Strengths
Market share continues to expand through strong subscriber net additions, despite intense competition from Mobinil and Etisalat.
The strength of Vodafone's international brand, and the experience behind it, certainly works in its favour and makes it well placed to take advantage of roaming revenue, due to its international connections.
Vodafone was early into the 3G market, followed immediately behind Etisalat, while Mobinil's hesitance, but eventual entry made it look somewhat weak in the end.
Weaknesses
Despite strong postpaid customer growth, subscriber base remains highly skewed towards lower-spending prepaid users.
ARPUs are still falling, indicating that it has been hard to fuel real take-up of 3G services.
In April 2013 it was reported that foreign exchange shortages meant Vodafone was finding it difficult to buy new network equipment.
Opportunities
3G segment still has good potential growth, especially if Vodafone can succeed in marketing USB modems to consumers rather than a small pool of corporate users.
Growth in basic services is still high. Managed services contract and implementation of energy-efficient network infrastructure should increase margins.
Threats
Focusing on higher value customers may see Vodafone's profit squeezed further, with the overall market gearing towards cheap, bundled services such as those provided by rivals Mobinil and Etisalat.
The arrival of a fourth operator, either as an MVNO or MNO, could increase downward pressure on mobile ARPU.
The country's political class is yet to find a lasting solution to the political and economic crisis in the country.
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Company Overview
In 1998 Vodafone Egypt launched the country's second GSM network. The operator became Egypt's biggest wireless network in 2010 and recorded 38.1mn subscribers at the end of March 2013. The operator's network covers over 99.5% of Egypt's population. Following the conclusion of its strategic partnership in November 2006, Vodafone Egypt is 55% held by UK mobile company Vodafone, with the remaining 45% held by Telecom Egypt through a holding company. This differs from the previous 50:50 joint venture. Vodafone Egypt recorded revenue of EGP12.675bn in the 12 months to ending March 2013, up 3% from FY12. Net profit increased 2.6% to FY13, reaching EGP1.995bn. Financial performance was boosted by mobile subscription growth, up 2.3% y-o-y to 38.07mn, as well as fixed-line growth, with subscriptions up 83.3% to 209,000 at the end of March 2013. While Vodafone's full-year performance was positive, in Q42012/13 the operator reported a net subscription loss of 1.686mn, and revenues were up by just 1.8% y-o-y to EGP3.1bn, indicating a slowdown in growth. Vodafone Egypt generated revenue of EGP12.305bn in the 12 months ending March 2012, a 2.4% y-o-y increase. Vodafone's revenue was mainly boosted by a strong performance in Q411 after revenue for 9M11 grew by just 0.8% y-o-y. Vodafone, like other players in the market, has been working to mitigate the effects of continued lowerthan-average tourist levels and an overall contraction in business usage of roaming and international calls. These factors were reflected by the operator's net profit for the same period, which was down by 25.9% to EGP1.942b. The operator's capex also fell by 25.1% y-o-y to EGP2.040bn, although this masked a 79.4% y-o-y increase in capex in the three months to December 31 201,1 following a slowdown in network investments at the peak of the political crisis in Egypt. Revenue and net profit for the three months to March 2012 were EGP3.045bn and EGP428mn respectively. According to UK's Vodafone Group, Vodafone Egypt's blended ARPU was EGP25.3 in the three months to March 2012, down by 8.7% y-o-y from EGB27.7 a year earlier.
Corporate Ownership
Recent Financial Result
Network Development
Powerlan, an ICT product and services provider, secured a deal to deploy its Infrastructure Management solution for Vodafone Egypt in December 2010. Clarity, a telecoms solution provider subsidiary of Powerlan, will provide Vodafone Egypt with the support system, which will use it to automate finance, network and service management processes. The financial terms of the deal were not disclosed. Vodafone Egypt became the second operator in the country to acquire a 3G licence, behind newcomer Etisalat, which launched services in May 2007. Vodafone Egypt paid the asking price of US$580mn, as set by the earlier purchase price for the third mobile licence of US$2.9bn, which included a 3G licence. The 3G licence is valid for five years.
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Vodafone Egypt CEO, Ian Grey, justified the cost of the licence. He said it added muchneeded voice capacity, essential if the operator is to grow its market share. Vodafone Egypt and Telecom Egypt signed a wholesale agreement in September 2009, which builds on a pre-existing relationship. The three-year agreement, valued at EGP4bn, comprises two parts: utilising Telecom Egypt's gateway services to transit all Vodafone customers' incoming and outgoing international traffic, and relying on Telecom Egypt's extensive domestic network for all Vodafone infrastructure leasing needs. In April 2013 Vodafone Egypt tested a new energy-saving solution, called Psi-Coverage, working with Swedish network equipment vendor Ericsson. The solution will offer 3G mobile broadband coverage to end-users, while allowing significant energy and cost savings for operators. Ericsson claims the solution has reduced energy consumption by 40% as a result of decreasing the number of radios used for a 3G base station from three to one. The tests followed the March 2013 announcement that Vodafone, along with Etisalat, had contracted Ericsson to manage and operate their mobile base stations. Local reports stated that Ericsson had been specifically tasked with ensuring adequate supply of diesel for infrastructure in addition to usual managed service responsibilities as operators struggle in the face of diesel shortages.
Strategy
Vodafone is continuing to concentrate on data services from both the wireless and wireline sectors, as they are deemed to be higher value subscribers, such as those in the business section as well as higher spending residential consumers, based largely in urban areas. Vodafone claims it introduced the fastest wireless broadband in Egypt, through new modems that are already available to some corporate clients and which it plans to make more widely available soon. These modems, Vodafone says, offer download speeds of 28.8Mbps. Annual revenue (March 2010): EGP11.987bn Annual revenue (March 2011): EGP12.019bn Annual revenue (March 2012): EGP12.305bn Annual revenue (March 2013): EGP12.675bn Annual Net profit (March 2010): EGP3.080bn Annual Net profit (March 2011): EGP2.622bn Annual Net profit (March 2012): EGP1.942bn Annual Net profit (March 2013): EGP1.995bn Number of subscribers (2010): 31.768mn Number of subscribers (2011): 36.802mn Number of subscribers (March 2012): 37.202mn Number of subscribers (June 2012): 37.498mn Number of subscribers (September 2012): 38.192mn Number of subscribers (December 2012): 38.756mn
Financial Data
Operational Data
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Egypt Telecommunications Report Q3 2013 Number of subscribers (March 2013): 38.070mn Company Name: Vodafone Egypt Telecommunications S.A.E. Address: Sixth Horizon Bldg.,65/3 G Central Axis Road 6th of October City, Giza P.O. Box 12573 Egypt
Company Details
Tel: +20 22-529-2000 Web: www.vodafone.com.eg
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Regional Overview
Alvarion Ltd, the Israel-based vendor of wireless broadband equipment and solutions, agreed in February 2013 to offload its WiMAX division, ending the company's reliance on the troubled technology standard and giving it greater freedom to exploit growing demand for unlicensed wireless broadband solutions. BMI believes the company is correct in identifying the carrier Wi-Fi market as holding significant business development potential, but there are many other vendors active in this market and success in refocusing the business will likely be hard-won.
Founded in 1992, Alvarion was the first and arguably the most successful vendor of WiMAX and related wireless broadband solutions worldwide. However, while operators and service providers found Alvarion's products to be useful in providing last-mile broadband access, cellular bridging/backhaul, public safety applications and private network connectivity for enterprises, the technology's designation as a fourthgeneration mobile communications standard pitted it against an arguably more attractive proposition, LTE. The more cost-effective and flexible LTE standard has gone on to become the de facto 4G mobile broadband standard, leaving WiMAX as a less attractive alternative from a return on investment (ROI) perspective.
In late February 2013, Alvarion agreed to sell its carrier licensed business - the unit built around its WiMAX products and patents - to fellow Israeli technology company Telrad Networks for just US$6.1mn (this could double, assuming certain performance-based milestones are reached after closure of the deal, expected in Q213). Alvarion and Telrad also agreed to sign a reseller agreement under which Alvarion will continue to provide carrier licensed solutions to its partners and distributors, while Telrad will provide Alvarion's unlicensed solutions to its carrier customers.
Turning The Business Around

Alvarion had been looking to sell the WiMAX unit for more than a year and slow progress in finding a buyer was compounded by slow demand for its other products and services as the deepening financial crisis in the eurozone and operators' reluctance to commit to costly network expansion and upgrade projects weighed on sales.
Alvarion's customer base includes Tier 1 and Tier 2 wireless operators, competitive fixed broadband operators and regional carriers, as well as government departments, municipalities, communities and enterprises. It therefore has a large addressable market that ought to hold considerable demand for wireless broadband solutions that utilise unlicensed frequencies. Consequently, Alvarion aims to transform itself into
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a 'pure play' company, addressing the needs of private and public networks in vertical markets as well as the carrier Wi-Fi market.
With respect to carrier Wi-Fi, Alvarion correctly asserts that strong user demand for bandwidth-intensive services is leading to a shortage in network capacity and that new service rollouts increase data congestion. So far, there has been consistent growth in the carrier Wi-Fi space due to the proliferation of the Wi-Fi-as-ahotspot service model; increasingly, this has been driven over the last two to three years by deployments by mobile operators seeing a platform for offloading traffic. It cites research from Infonetics that envisages the value of the carrier Wi-Fi equipment market growing at CAGR of 47% to more than US$2bn by 2016.
Alvarion notes that a number of carriers in frontier markets, including Tier-1 carriers, have been using its carrier Wi-Fi solutions and that it sees significant opportunities to replicate this success worldwide. Among those carriers using its solutions are Tata Teleservices Maharashtra Ltd in India, China's three mobile operators, Ural Svyaz in Russia (part of the Rostelecom group) and San Luis Telecom in Argentina.
As for vertical markets, Alvarion believes that data-intensive traffic (eg, HD video) is overloading private networks in some verticals. There is an increased need of speeds of 100Mbps and above. In addition, verticals such as oil and gas, mining and smart cities offer considerable technological challenges, including long-distance signal propagation, interference and non-line-of-sight connectivity requirements. In short, in tandem with rising demand, successful products need to offer increased complexity and improved total cost of ownership (TCO). Alvarion believes its products - which support multiple frequencies, applications, topologies and environments and offer optimised capacity and coverage as well as superior non-line-ofsight performance - give it a competitive advantage and allow it to differentiate itself from its rivals' offerings.
Recent Financial Results

Alvarion's revenues from continuing operations (ie, excluding sales of the former WiMAX business) totalled US$49.9mn in 2012, down by 31.0% from US$72.3mn a year earlier. Although sales costs decreased by 24.2% y-o-y, there was a one-off inventory write-off cost of US$4.2mn in 2012, further impacting on gross profit. At the same time, research and development expenses increased by 16.3% y-o-y, while amortisation of intangible assets was higher in 2012.
The company recorded an operating loss of US$20.0mn in 2012, building on the US$14.7mn loss seen in 2011. The net loss from continuing operations was US$23.0mn in 2012, versus US$15.7mn a year earlier.
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Nevertheless, the results could have been much worse: losses from discontinued operations amounted to US $32.1mn in 2012, versus US$18.1mn in 2011.
Latest Contracts Show The Way

Recent product supply and trial announcements show how Alvarion has been working to mine new opportunities in the verticals and carrier Wi-Fi markets. These bode well for the company's new strategic focus. However, a large number of younger and nimbler competitors are also active in these markets, and we believe Alvarion will be hard pressed to compete, despite its high-quality product line and generally positive support for the company as a brand. Historically, Alvarion has enjoyed considerable success in Israel and neighbouring Middle East and North Africa (MENA) markets, and we expect this to continue.
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Table: Alvarion - Selected Vertical & Carrier Wi-Fi Contracts
Date February 2013
Contract Details Alvarion chosen to deploy Smart City solution in Mar del Plata, Argentina, to connect municipal centres, hospitals and primary healthcare centres, schools and libraries. The project is valued at more than US$1mn. XN Networking and Anixter International deployed BreezeMAX Extreme base stations and CPEs and BreezeNET B to deliver a complete and robust solution for the entire Smart City implementation in the 4.9-5.35GHz unlicensed frequencies. Alvarion and Aptilo Networks successfully tested an end-to-end Wi-Fi mobile data offloading solution combining Alvarion's carrier-grade WBSn family of Wi-Fi base stations with the Aptilo Service Management Platform and the Aptilo Access Controller. The companies intend to market the solution globally. Alvarion announced that Dukcom Ltda, Alvarion's partner in Colombia, has chosen the company's carrier-grade Wi-Fi solution to deliver data, video and voice services in two rural networks in Antioquia and Atlantico, Colombia. Alvarion said it had deployed its carrier-grade wireless broadband solutions in approximately 300 municipalities across 24 different states in Brazil. The resulting 'Smart Cities' were built using Alvarion's BreezeNET B, BreezeACCESS VL and WBS Wi-Fi solutions in the 2.4GHz, 4.9GHz, 5.4GHz and 5.8GHz frequencies, enabling a single unified wireless broadband network that supports a wide range of applications. Such applications include indoor and outdoor Internet access, classroom connectivity and e-learning, intelligent traffic and transportation control, video surveillance for public safety, online services for citizens and voice and video and data connectivity for government offices, hospitals and other service providers. Alvarion said that its collaboration with G-Net, a wireless ISP in the Republic of Georgia, had enabled Wi-Fi connectivity in both urban and rural Georgia. Over 600 Wi-Fi base stations enabling carrier-grade Wi-Fi access had been deployed in heavily congested areas in Georgia's capital city, Tbilisi, and rural villages situated nationwide. The network provides access in the 2.4GHz band. Alvarion and BHU, the exclusive distributor of Alvarion products in China since 2009, announced that an unnamed Tier 1 mobile carrier had deployed Alvarion's carrier-grade WiFi base stations for high speed Wi-Fi Internet access in Liaoning province. This project was said to be one of several Tier-1 carrier projects spearheaded by BHU throughout different provinces around China using Alvarion carrier-grade Wi-Fi solutions. Approximately 2,500 of Alvarion's two-way beamforming Wi-Fi base stations had been installed in 2.4GHz in Liaoning province, covering large and small rural cities such as Shenyang (the province's capital city), Tieling, Fushun, Chaoyang and Fuxin.
February 2013
February 2013
October 2012
July 2012
April 2012
Source: Alvarion
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Demographic Forecast
Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements.
Source: World Bank, UN, BMI
The accompanying charts detail Egypt's population pyramid for 2011, the change in the structure of the population between 2011 and 2050 and the total population between 1990 and 2050, as well as life
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expectancy. The tables show key datapoints from all of these charts, in addition to important metrics including the dependency ratio and the urban/rural split.
Table: Egypt's Population By Age Group, 1990-2020 ('000)
1990 Total 0-4 years 5-9 years 10-14 years 15-19 years 20-24 years 25-29 years 30-34 years 35-39 years 40-44 years 45-49 years 50-54 years 55-59 years 60-64 years 65-69 years 70-74 years 75+ years 56,843 8,507 7,823 6,971 5,855 4,902 4,220 3,705 3,148 2,848 2,061 1,835 1,553 1,289 944 621 561
1995 62,064 7,989 8,334 7,762 6,717 5,341 4,488 4,110 3,725 3,136 2,809 1,989 1,716 1,411 1,113 746 677
2000 67,648 8,172 7,908 8,300 7,678 6,308 4,876 4,353 4,101 3,706 3,093 2,719 1,877 1,577 1,238 900 843
2005 74,203 8,552 8,098 7,883 8,262 7,538 6,030 4,787 4,429 4,094 3,676 3,016 2,590 1,745 1,407 1,025 1,071
2010 81,121 9,008 8,499 8,074 7,851 8,158 7,347 5,901 4,782 4,437 4,068 3,597 2,890 2,429 1,575 1,186 1,319
2012f 83,958 9,149 8,693 8,221 7,837 8,028 7,746 6,476 5,145 4,537 4,214 3,773 3,100 2,559 1,814 1,212 1,453
2015f 88,179 9,212 8,974 8,480 8,044 7,737 7,990 7,255 5,892 4,796 4,432 4,005 3,469 2,728 2,215 1,348 1,603
2020f 94,810 9,063 9,182 8,957 8,451 7,930 7,569 7,891 7,235 5,894 4,786 4,365 3,871 3,289 2,503 1,913 1,910
Table: Egypt's Population By Age Group, 1990-2020 (% of total)
1990 0-4 years 5-9 years 10-14 years 15-19 years 20-24 years 25-29 years 30-34 years 35-39 years 14.97 13.76 12.26 10.30 8.62 7.42 6.52 5.54
1995 12.87 13.43 12.51 10.82 8.61 7.23 6.62 6.00
2000 12.08 11.69 12.27 11.35 9.33 7.21 6.44 6.06
2005 11.53 10.91 10.62 11.13 10.16 8.13 6.45 5.97
2010 11.10 10.48 9.95 9.68 10.06 9.06 7.27 5.90
2012f 10.90 10.35 9.79 9.33 9.56 9.23 7.71 6.13
2015f 10.45 10.18 9.62 9.12 8.77 9.06 8.23 6.68
2020f 9.56 9.69 9.45 8.91 8.36 7.98 8.32 7.63
Page 88
Egypt's Population By Age Group, 1990-2020 (% of total) - Continued
1990 40-44 years 45-49 years 50-54 years 55-59 years 60-64 years 65-69 years 70-74 years 75+ years1 5.01 3.63 3.23 2.73 2.27 1.66 1.09 0.99
1995 5.05 4.53 3.21 2.77 2.27 1.79 1.20 1.09
2000 5.48 4.57 4.02 2.78 2.33 1.83 1.33 1.25
2005 5.52 4.95 4.06 3.49 2.35 1.90 1.38 1.44
2010 5.47 5.01 4.43 3.56 2.99 1.94 1.46 1.63
2012f 5.40 5.02 4.49 3.69 3.05 2.16 1.44 1.73
2015f 5.44 5.03 4.54 3.93 3.09 2.51 1.53 1.82
2020f 6.22 5.05 4.60 4.08 3.47 2.64 2.02 2.01
Table: Egypt's Key Population Ratios, 1990-2020
1990 Dependent ratio, % of total working age 1 Dependent population, total, '000 2 Active population, % of total Active population, total, '000
3 4
1995 75.1 26,621 57.1 35,442 68.0 24,086 7.2 2,536
2000 67.9 27,361 59.6 40,288 60.5 24,380 7.4 2,981
2005 60.7 28,036 62.2 46,167 53.1 24,533 7.6 3,503
2010 57.6 29,662 63.4 51,460 49.7 25,581 7.9 4,081
2012f 57.2 30,543 63.6 53,416 48.8 26,063 8.4 4,479
2015f 56.5 31,830 63.9 56,348 47.3 26,665 9.2 5,165
2020f 54.7 33,529 64.6 61,281 44.4 27,203 10.3 6,326
80.9 25,427 55.3 31,416 74.2 23,301 6.8 2,126
Youth population, % of total working age 5 Youth population, total, '000 6 Pensionable population, % of total working age 7 Pensionable population, '000 8
f = BMI forecast; 1 0>15 plus 65+, as % of total working age population; 2 0>15 plus 65+; 3 15-64, as % of total population; 4 15-64; 5 0>15, % of total working age population; 6 0>15; 7 65+, % of total working age population; 8 65+. Source: World Bank, UN, BMI
Page 89
Table: Egypt's Rural And Urban Population, 1990-2020
1990 Urban population, % of total Rural population, % of total Urban population, '000 Rural population, '000 43.5 56.5 25,136.4 32,648.4
1995 42.8 57.2 27,331.1 36,526.6
2000 42.6 57.4 29,894.0 40,279.8
2005 42.6 57.4 32,867.8 44,286.6
2010 43.0 57.0 34,882.1 46,239.0
2012 43.3 56.7 36,370.8 47,587.6
2015 43.8 56.2 38,622.3 49,556.4
2020 45.0 55.0 42,664.5 52,145.5
Page 90
Glossary
Table: Glossary Of Terms
2G 3G
second generation third generation
GDP Gross Domestic Product NGN Next Generation Network GPR Global Packet Radio S Service Global System for Mobile GSM Communications HDS High-bit-rate Digital L Subscriber Line HSD High-Speed Downlink PA Packet Access HPS High-Speed Packet A Access Mbps megabits per second MHz megahertz
ADS L Asymmetric Digital Subscriber Line ARP U Average Revenue per User ASP Average Selling Price BMI bn BTS Business Monitor International billion Base Transceiver Stations
MNP Mobile Number Portability MoU Memorandum of Understanding MOU Minutes of Use Multiprotocol Label Switching
HSU High-Speed Uplink Packet MPL PA Access S HTM HyperText Markup L Language Hz Hertz Information And Communication Technology
MSC Mobile Switching Centre MVN O Mobile Virtual Network Operator
CDM A Code Division Multiple Access
CRM Customer Relationship Management ICT DAMP Digital-Advanced Mobile Phone S Service DLD Domestic Long-Distance DMB Digital Multimedia Broadcasting DSL DSL AM Digital Subscriber Line Digital Subscriber Line Access Multiplexer
na
not available
IDD ILD IPO IP
OIBD Operating Income before International Direct Dialling A Depreciation and Amortization International LongDistance Initial Public Offering Internet Protocol POP R&D Point of Presence research and development
SaaS Software-as-a-Service SDSL Symmetric Digital Subscriber Line Subscriber Identity Module
IPTV Internet Protocol TV
DSU Digital Subscriber Unit DTH Direct-To-Home
Integrated Services Digital ISDN Networks SIM ISP Internet Service Provider Information Technology
SMS Short Messaging Service TDM A Time Division Multiple Access Time Division-Synchronous Code Division Multiple Access trillion
DVBH Digital Video Broadcasting-Handheld IT DVB- Digital Video Broadcasting-Satellite SH Handheld e/f estimate/forecast
ITU JV
TDInternational SCD Telecommunication Union MA joint venture trn
EBIT Earnings Before Interest, Taxes, DA Depreciation and Amortization EC European Commission
Kbps kilobits per second KHz kilohertz
UMT Universal Mobile S Telecommunications System VOD Video On Demand
Page 91
Glossary Of Terms - Continued
2G
second generation
GDP Gross Domestic Product NGN Next Generation Network km kilometres VoIP Voice over Internet Protocol VLAN Virtual Local Area Network WAP Wireless Application Protocol WCDM A Wideband CDMA WiBr o Wireless Broadband WiM AX WLL Worldwide Interoperability for Microwave Access Wireless Local Loop
EME A Europe, Middle East & Africa EVDO FDI Evolution-Data Optimised Foreign Direct Investment
LANs Local Area Networks LEC Local Exchange Carrier
FTTB Fibre-To-The-Building FTTH Fibre-To-The-Home FTP File Transfer Protocol
LTE
Long-Term Evolution
M2M machine-to-machine mn million
Gbps gigabits per second GPO N Gigabit Passive Optical Network
MEA Middle East & Africa
MEN A Middle East & North Africa WTO World Trade Organization
Source: BMI
Page 92
Methodology
How We Generate Our Industry Forecasts
BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling. The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. BMI mainly uses OLS estimators and in order to avoid relying on subjective views and encourage the use of objective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear model, but simple non-linear models, such as the log-linear model, are used when necessary. During periods of industry shock, for example a deep industry recession, dummy variables are used to determine the level of impact.
Effective forecasting depends on appropriately selected regression models. BMI selects the best model according to various different criteria and tests, including, but not exclusive to:
R tests explanatory power. Adjusted R takes degree of freedom into account. Testing the directional movement and magnitude of coefficients. Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value). All results are assessed to alleviate issues related to autocorrelation and multi-co-linearity.
BMI uses the selected best model to perform forecasting.
It must be remembered that human intervention plays a necessary and desirable role in all of BMI's industry forecasting. Experience, expertise and knowledge of industry data and trends ensures that analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not.
Within the retail industry such interventions may include, but are not exclusive to significant company expansion plans; new product developments; change in production that may influence pricing levels; product taxation; changes in lifestyle and general social trends; the formation of bilateral or multilateral trade agreements; and development of industry in neighbouring markets.
An Example Of Retail Sales Model(Retail Sales) = 0 + 1 (Private Final Consumption) + 3 (Inflation) + 4 (Lending Rate) + 5 (Government Expenditure) + u
Page 93
Private final consumption should have a positive effect on retail sales. As consumption goes up, retail sales also increase.
Inflation should have a negative effect. As prices go up consumption will go down.
Lending rates should have a negative effect on retail sales. As lending rates go up, spending increases.
Government expenditure should have a positive effect on retail sales. Firstly, government will affect retail sales directly; secondly, an increase in government expenditure will lead to a general increase in expenditure.
Sources
Retail sales is the key indicator in this sector. BMI has decided on the following procedure for sourcing retail sales data: if available, we use retail sales data published by national sources (statistics offices, retail associations etc). In some instances there may be no specific retail sales data available, but other indicators that deal with retail, such as turnover of retail enterprises are published. In this case we use these as a proxy for retail sales.
In cases where no retail data is available from local sources, BMI uses an aggregate of UN household consumption data as a proxy for retail sales. This data gives the individual consumption expenditure of households, non-profit organisations serving households (NPISHs) and general government at current prices. From this data BMI aggregates four different categories to generate a proxy for retail sales:
Food and non-alcoholic beverages. Alcoholic beverages and tobacco. Clothing and footwear. Household equipment and routine maintenance of the house.
In rare instances no local or UN data is available. On these occasions, we use a percentage of private final consumption as a proxy for retail sales. In order to decide what percentage of private final consumption to use BMI looks at the ratio of retail sales to private final consumption in a country for which we have data and which has similar properties to the country for which we are missing data. In doing this we assume that countries with similar macroeconomic characteristics have similar consumption patterns.
Page 94

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Q3 2013

Egypt Telecommunications Report Q3 2013

Part of BMIs Industry Report & Forecasts Series

Egypt Telecommunications Report Q3 2013

Industry Forecast .............................................................................................................. 17

Fixed Line .............................................................................................................................................. 21

Industry Risk Reward Ratings .......................................................................................... 25

Table: MENA Telecoms Sector Risk/Rewards Ratings, Q313 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Market Overview ............................................................................................................... 32

Business Monitor International

Egypt Telecommunications Report Q3 2013

Mobile Operator Data ............................................................................................................................ 47

Table: Wireline Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Industry Trends And Developments ................................................................................ 64 Regulatory Development .................................................................................................. 65

Competitive Landscape .................................................................................................... 69

Company Profile ................................................................................................................ 70

Regional Overview ............................................................................................................ 83

Demographic Forecast ..................................................................................................... 87

Business Monitor International

Egypt Telecommunications Report Q3 2013

BMI Industry View

Key Trends And Developments

Business Monitor International

Egypt Telecommunications Report Q3 2013

Business Monitor International

Egypt Telecommunications Report Q3 2013

Business Monitor International

Egypt Telecommunications Report Q3 2013

Business Monitor International

Egypt Telecommunications Report Q3 2013

Mobile substitution resulted in steep losses of fixed-line subscriptions 2009 to mid-2012.

Business Monitor International

Egypt Telecommunications Report Q3 2013

Business Monitor International

Egypt Telecommunications Report Q3 2013

Business Monitor International

Egypt Telecommunications Report Q3 2013

Business Monitor International

Egypt Telecommunications Report Q3 2013

SWOT Analysis - Continued

Business Monitor International

Egypt Telecommunications Report Q3 2013

Business Monitor International

Egypt Telecommunications Report Q3 2013

f = BMI forecast. Source: BMI, NTRA, operators

Industry Trends - Mobile

f = BMI forecast. Source: BMI, NTRA, operators

Business Monitor International

Egypt Telecommunications Report Q3 2013

Business Monitor International

Egypt Telecommunications Report Q3 2013

2011 24.0 26.7 25.4

2012 23.0 25.3 24.2

2013f 22.1 24.3 23.2

2014f 21.4 23.5 22.4

2015f 20.9 23.0 21.9

2016f 20.5 22.6 21.6

2017f 20.2 22.2 21.2

f = BMI forecast. Source: BMI

Industry Forecast - ARPU (EGP)

0 2013f 2014f 2015f 2016f 2010 2011 2017f 2012

Business Monitor International

Egypt Telecommunications Report Q3 2013