Large investments are being made in the Egyptian telecommunications industry as the private and public sectors look to boost capacity and increase the availability of new technologies.
The Egyptian Ministry of Planning expects to see LE11.3bn (€1.34bn) in investment in the telecoms sector in the 2011/12 fiscal year, which started on July 1. In the wider telecoms and IT industry, the ministry forecasts LE13.9bn (€1.64bn) in investment, with 85% of that coming from the private sector.
The figures, published in a recent report, suggest a positive outlook for what has been one of the most dynamic sectors of the Egyptian economy. Demand remains strong and competition between several major players ensures that continued spending will enhance services.
While there were setbacks during the unrest of the early months of this year, when mobile telephone and internet communications were briefly suspended and concerns were raised that Egypt’s large outsourcing industry would be affected, normality has quickly been restored. The official forecasts suggest this year will see a return to the high levels of investment last seen before the international financial crisis and the more recent revolution, which totalled LE14bn (€1.66bn) in 2008/09, according to the Ministry for Communications and Information Technology (MCIT).
Egypt’s telecoms and IT sector attracts such attention both due to its huge domestic market of more than 80m people and its importance as an export-oriented services centre. There were 77.76m mobile subscribers in Egypt in July, the last month for which figures are available, according to the MCIT’s “ICT Indicators in Brief”, published in August. This indicates year-on-year growth of 29% and penetration of 96.57%, though these figures include many Egyptians own more than one phone or use more than one SIM card.
Due to the high penetration rate, competition between the country’s three mobile operators – Vodafone, Mobinil and Etisalat – is intense, and in recent years, the companies have changed strategies to focus increasingly on expanding market share through expanded service offerings, aggressive pricing policies and increased data usage rather than improving penetration. According to figures from May featured in the local press, Vodafone’s market share was 41.2%, with Mobinil closely behind at 39.4%. Etisalat, the market’s most recent entrant in 2007, holds a 19.4% share.
The competitiveness of the sector has created a challenging market environment, leading to declining average revenue per user (ARPU), which ranged between LE30 (€3.55) and LE40 (€4.73) at the end of last year, with Etisalat at the lower end and Vodafone toward the top. Orascom reported that Mobinil’s ARPU fell by nearly 20% in the first quarter of 2011, though this can largely be attributed to the political situation and network shutdown.
By way of comparison, in Jordan the two main players, Zain and Orange, had ARPUs of €11.56 and €6.55 respectively in 2010, while in Turkey, Vodafone reported ARPU of €8.11 in 2011 against Avea’s €7.74 and Turkcell’s €8.60.
However, efforts to bolster revenues through increasing usage of high-value services have shown traction. Mobile internet subscription rates grew by 43.17% between June 2010 and June 2011, to 8.9m, according to the MCIT. The scope for continued expansion is considerable: only 11.64% of mobile users had mobile internet subscriptions, and 34% of Egypt’s growing body of internet users were going online through their handsets.
With network-sharing still extremely limited, operators are also investing in improving service quality, lowering the proportion of dropped calls and raising data capacity through spending on network equipment.
While the pending elections at the end of the month have raised question marks for investors, wary of the composition of the following government, there is little doubt that ensuring economic growth will be at the top of the agenda for any victor – and crucial to that will be the maintenance of the country’s overall stability and it’s encouraging regulatory approach – both of which have served to provide particular benefits for Egypt’s sizeable outsourcing industry. The sector has benefitted from relatively low costs for labour, land and overhead, and a trained and multilingual workforce and access to the Arab World and Europe.
Particularly with continued investment and the current emphasis on human resources training and strengthening the value-added business, knowledge and IT processes outsourcing industries, it seems likely that the sector will continue to see success.