Egypt telecom reform could sting foreign operators
Cairo, November 2, 2012
(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)
An upcoming telecoms reform in Egypt could sting foreign operators. The government is mulling a plan to allow state-controlled Telecom Egypt to launch mobile services.
Telecom Egypt is a fixed-line provider and its retail revenue is flagging as landlines lose favour. It also already owns a 45 percent stake in Vodafone's local subsidiary.
The government doesn't want to bring in another player in a crowded market. Egypt has three mobile operators: Vodafone Egypt , Mobinil - a subsidiary of France Telecom - and the UAE-backed Etisalat Misr. Telecom Egypt is the sole fixed-line provider.
Competition is tough and the mobile penetration rate is high. The average price per a minute is the cheapest in the Middle East. Market leader Vodafone Egypt has seen its EBITDA margin shrink 700 basis points in three years and Mobinil, the second largest operator by subscribers, is losing money.
So the plan is to convert existing licences, for fixed and mobile, into universal ones allowing all operators to compete in both fixed and wireless. Telecom Egypt could either launch a mobile virtual network operator (MVNO) service, marketing wireless under its own brand while using a rival's infrastructure, or have its own network.
The MVNO route would be cheaper and less risky given the competitive environment. Telecom Egypt would probably have to pay for the licence change, but not too much. As an example, Saudi Arabia is offering MVNO licences for around $267 million each. By comparison, Etisalat Misr paid $2.9 billion for Egypt's third full mobile licence in 2005.
If the state-backed firm decides it wants its own network, that would put into play Telecom Egypt's 45 percent stake in Vodafone Egypt. Telecom Egypt could divest its stake and invest the proceeds to build the network. Another possibility would be to try to buy out Vodafone.
Assuming a current peer group trailing EBITDA multiple of six times, the stake Telecom Egypt doesn't already own would be worth at least $3 billion, while the company has a $4 billion net cash position.
The second option would save the costs of building up market share, but it needs a willing seller. In the meantime, foreign operators can only hope that the government's move will not further dent the sector's shrinking margins. – Reuters
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