Virtual virtues: A new licence will facilitate convergence of fixed and mobile services

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The launch of Egypt’s first mobile virtual network operator (MVNO) should add new competition to the telecoms market and is likely spur further changes in the sector. Winning the licence could provide new impetus for legacy operator Telecom Egypt (TE), which is expected to be the lead bidder, while encouraging greater sharing of capital-intensive infrastructure.

LICENCE BID: In May 2012 the National Telecom Regulatory Authority (NTRA) announced that it would be preparing a tender for a virtual network licence. An MVNO provides mobile services through the infrastructure and network of an existing mobile operator. The MVNO firm essentially buys mobile services from an existing GSM company and then resells them to the customer. It thus allows players to enter the mobile market without the heavy capital investment associated with establishing a GSM network from scratch.

The tender issue has been delayed due to political uncertainty and details that have yet to be finalised, including the number of licences that will be issued and their pricing. TE’s chairman, Akil Beshir, has said that he would like his firm to secure the licence by the end of 2012, though this timeframe may be optimistic, given past delays and the elections. The pricing of the licence had yet to be decided at the time of press.

FULL PACKAGE: An MVNO licence would provide TE the ability to offer mobility services as part of a total package for subscribers. It would also allow it to compete with other telecoms firms. TE currently challenges mobile operators’ internet service providers in the online segment and vies with Etisalat for the international gateway market, but MVNO would allow it to compete over fixed-line and mobile telephony convergence. “The main benefit of an MVNO would be sustaining voice subscriptions and revenue streams,” Waleed Hassanien, TE’s general manager for corporate intelligence, told OBG. “It would allow true fixed-to-mobile convergence. This is the age of mobility, and conversions to mobile have put pressure on our fixed-line operations. We are trying to tackle this in the most realistic way.” The NTRA said that it would be forming a committee to oversee the process and establish the regulatory framework by the end of August 2012. Once that process is completed, the request for proposal (RFP) and tender documents should be issued.

COMPETITION: Should an MVNO licence be awarded, another competitor would be added to the mobile market, with implications for the incumbents that are already feeling squeezed. Any new players would be a challenge to the other GSM operators, particularly if it is TE, which will be able to leverage its existing network, subscriber portfolio, sales outlets and brand, as well as the experience it has gained through its involvement in Vodafone, in which it holds a 44% share.

That TE will apply for and win a licence is seen as probable, and existing GSM operators are critical of the prospect, seeing the state-owned firm’s participation in the mobile segment and monopoly over fixed-line as unfair, particularly in light of current levels of competition. Mobinil informed the international press that it had conveyed its opposition to the NTRA, saying, “such a move would not be for the benefit of the market, currently, under the existing margins.”

Hassanien disagrees, asserting that the time for a new operator is right. “There is no room for further average revenue per user to decline, so the price war will end soon,” he said. “Operators will become more service-oriented and offer more comprehensive products.” In a few years, the data segment may evolve enough to support the existence of a value player, targeting higher-income individuals and businesses, a role which TE could fill, as it is already aiming to do with its fixed-line business. The competition that an MVNO player would bring could prove healthy for the market. The logic of infrastructure sharing in MVNO technology could be applied more widely, catalysing cooperation on network equipment, which would result in lower capital costs. For TE, if its bid is successful, the licence would give it a chance to offset the declining fixed-line market by integrating a new segment with its existing business.

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The Report: Egypt 2012

Telecoms chapter from The Report: Egypt 2012

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