With price competition on voice services fierce, and margins being narrowed as a result, Egypt’s telecom firms are turning to value-added services (VAS) to develop new and lucrative revenue streams. The fundamentals, both on the demand and supply side, indicate that Egypt could be on the cusp of rapid mobile internet growth. A tech-savvy generation is coming of age with higher incomes, and the social networking phenomenon is driving data offerings in a range of devices.
VAS OPPORTUNITIES: There were 11.36m mobile internet users in Egypt as of June 2012, up 27.65% year-on-year, according to the Ministry of Communications and Information Technology (MCIT). Some 12.29% of mobile subscribers used mobile internet, while 36.41% of internet users went online on mobile devices.
A December 2011 report by US research and consultancy firm Frost & Sullivan forecast that the number of subscribers using VAS would grow at a compound annual growth rate of 8.46% until 2017, and that by 2016 VAS will contribute to more than 50% of operators’ revenues. The report asserted that VAS is a tool for “brand differentiation and revenue generation” – both vital in this competitive market with low average revenue per user (ARPU). It identified the wireless market and high literacy as positive indicators for the expansion of VAS, and suggested that upgrades to 3G infrastructure and more attractive pricing would encourage growth. Mobile operators are confident about the outlook, and indeed some think that growth potential is considerably greater than that forecast by Frost & Sullivan.
“There was an increase in smartphone usage in 2011 and this demand could increase 50-100% every year,” Vodafone Egypt’s CEO, Hatem Dowidar, told OBG. “Competition in 2012 will be more focused on services and data packages. Currently, around 10% of revenues are coming from internet and data services in Egypt, which is not as high as Europe, but it has very good momentum and will offset the decline in voice revenue.”
As competition between the operators on data services has heated up, charges have fallen, an important factor in this price-sensitive market. Android data plans are available for less than $20 per month – well above the average Egyptian user’s spend on mobile services and out of reach for most, but still affordable for millions of well-off Egyptians. “Data plans have become very competitive between operators, which has boosted content usage.” Mathia Nalappan, general manager for North Africa at equipment firm Nokia, told OBG. “Social networking, education and entertainment data applications have all been areas of growth in Egypt.”
SUPPLY & DEMAND: The supply side plays an important role in stimulating data growth, both in terms of equipment and content. Users can access data services through devices ranging from smartphones through iPads to USB “dongles”, offering a variety of choices to meet consumers’ different needs. While prices have fallen, as Dowidar notes, “the biggest challenge in increasing data usage among Egyptians is getting smartphones in their hands.” Low incomes are a barrier to uptake, and much of this population is unlikely to be using internet-capable devices in the near future, so operators are focusing on upper-middle and high-income groups. Mobile internet use is also linked to the availability of content and services online. The rise of social networking, real-time news and location-based applications has made mobile connectivity more appealing, and the growth of Arabic language content is having a similar effect. Subscribers will not pay for mobile internet unless they know there are good reasons to do so, as Frost & Sullivan notes, citing mobile banking and commerce, and social networking as drivers.
VAS are no longer a fringe concern in the telecoms market – mobile data in particular has become mainstream. VAS are currently limited to the better-off, and penetration is quite low, but that gives plenty of scope for growth. Expanding VAS has become a priority for all operators as they seek to tap new revenue streams, and much recent investment has been focused on developing networks to handle greater data volumes. The segment is only going to become more important.