Interview: Hazem Metwally, Yves Gauthier, Walid Gad, Ahmed Essam
To what extent is there enough demand in the market to absorb an additional mobile operator, especially with respect to data?
HAZEM METWALLY: The telecoms industry is about long-term investment. Etisalat Misr has entered the market with that in mind and has thus invested more than LE30bn ($4.09bn) to date. Unlike the other operators, Etisalat Misr has yet to reap the returns of that investment. Egypt is currently seen as a success story within the industry, as penetration is over 100% and prices are very competitive. In fact, each time I travel abroad, I am amazed by how inexpensive data prices are here compared to those in other countries, even if you factor in purchasing power parity. Allowing a fourth operator will likely lead to falling revenues and squeezed profitability given the current penetration rate among the existing operators, which will make it more difficult for them to justify additional infrastructure investments. This, of course, will have a negative impact on the quality of mobile communications in the country. I understand why the incumbent wants access to the mobile market; it is their right to pursue this, especially if they see it as economically viable for them. In all cases, experience shows that any market (especially an emerging one) with more than three operators is either consolidating or is under pressure to consolidate.
YVES GAUTHIER: When you divide a cake by four as opposed to by three, each person is left with a smaller share. It is no different when talking about the Egyptian mobile market. The real question is whether this cake will grow. While voice has stayed pretty flat over the past few years, we have seen a significant increase in data usage, with traffic in the latter increasing by roughly 140% in 2014 and continuing to grow. Today you have roughly 20-23% of mobile customers using smartphones, compared to 90-95% in western Europe. As general income levels rise, so will this figure. In addition, between 1.5m-1.6m new Egyptians are born each year, so the data market is definitely growing. However, whether this is enough to sustain a fourth operator is another question entirely.
WALID GAD: Expansion of data is really the focus of the industry worldwide at the moment. When we talk to customers, they are definitely looking more for data than for voice, and mobile data especially is at the front of their minds. If you compare Egypt with similar countries, it is not unreasonable to think that demand for data will grow 5-6 times once 4G is available, which is why there are multiple players looking at investing in the technology for its roll-out. The most important thing, however, is that whatever happens with new licences ultimately benefits the end-user. Generally when there is more competition, quality improves and prices decrease. While there is a big debate as to whether there is enough demand or not, Telecom Egypt is in a unique position in that it has a captive market of more than 6m customers that are using our landlines. The company is not looking for competition as such, but rather to improve services for existing customers. That said, it is not entirely settled how we will go about getting a mobile licence, as there are many potential options and the market’s competitive dynamics dictate a well-considered approach. We are, however, preparing our network for the issuance of 4G licences so that it can provide strong internet services in fixed and mobile, both for us and our partners that use it. We should also be in a good position to bid on a licence ourselves if we so choose.
AHMED ESSAM: In today’s world, technology is considered one of humanity’s basic needs. It is no longer considered a luxury for the few. As such, the demand for mobile and internet services is growing considerably and will continue to do so going forward. This applies in Egypt as much as anywhere else.
Therefore, with respect to the entrance of a new mobile operator, we welcome any fair competition. In terms of Egypt itself, data usage is growing significantly. There are more than 25m users of mobile internet across the three operators, and we are lucky to have the largest share. As for ADSL, or fixed-line internet, there are more than 3.4m users, of which 72% are TE Data customers and the remaining 28% are divided among the other companies in the sector. Our data share, for instance, is around 7% of the total.
What infrastructure upgrades are necessary to improve network capacity in terms of data?
GAUTHIER: Because we are in practice unable to lay our own fibre-optic network (although not in theory according to our licences), and because the prices charged to rent space from the fibre network operator are relatively high when renting larger volumes, the most economically viable option available to us – and to other mobile operators – is to continue building our microwave backbone. While this can solve some of our short-term capacity issues, it will not be able to keep up with the explosion in data that we are seeing, especially since present trends point to volumes increasing 10-fold over the coming eight years.
Once 4G is implemented, usage will increase even more significantly. In addition, investments in microwave are relatively costly and inefficient, as signals do not reach very far: the distance you can put between stations is only 2-3 km. While they can be deployed faster than fibre, they also do not have the same capabilities in terms of bandwidth. So the only real solutions are to either increase the size of the fibre network by allowing all operators to build their own, or to reduce prices for the current network to incentivise operators to move away from microwave.
One positive aspect of the unified licence is the plan to create Kayan, a joint venture between the government and the four operators to build out and manage a national fibre-optic network. If this goes forward, it should help to solve some of the access and capacity issues that we are currently facing.
GAD: Telecom Egypt provides fibre infrastructure for both itself and the mobile operators. At the moment, we have enough capacity and can double it very quickly if needed. In fact, only 30% of our current capacity is being used, so there is plenty more available if needed. That said, considerable strides are being made with a view to enhancing our network through the introduction of new exchanges – more than 4000 small ones over the past year – and more fibre, which should result in better bandwidths for customers and allow them to more effectively utilise the network. This should also lead to increases in average revenue per user (ARPU) for customers, as they will be able to introduce more value-added services as a result of these upgrades. Egypt has one of the lowest ARPUs in the world, which needs to change.
ESSAM: It is my belief that investing in infrastructure in Egypt is the key to the continued, and future, success of its telecoms sector. It is absolutely necessary if the country is to successfully implement 4G technology sometime over the coming period as the government is currently planning. For sure, such technology cannot be rolled out without adequate fibre infrastructure in place. Of course, new spectrum will also need to be availed in order to support the new technology, which will result in higher speeds, better data services and an enhanced customer experience overall for Egyptians.
Roughly 80% of our stations and towers are ready for 4G, and we are, as such, waiting for the National Telecommunications Regulatory Authority (NTRA) to avail the necessary spectrum so that we can start providing 4G services. We are also in the process of investing LE10.5m ($1.43m) over the course of the next three years, which is dedicated to developing our network and raising efficiency by 2017.
METWALLY: Data usage is almost doubling annually, mainly due to the growing popularity of social networking sites and applications. To keep up with this demand, Egypt’s mobile infrastructure needs continuous improvement. Mobile operators face two main challenges in this regard: the availability and price of additional spectrum, and the difficulty of acquiring permission to build our own fiber-optic networks. In the UAE for instance, operators can apply for spectrum at any time and pay for it at reasonable prices on a fixed schedule.
In Egypt, however, spectrum availability is infrequent and operators must pay a large initial fee all at once, making it harder to finance the building of the actual network. Ideally, annual payments, with the stipulation to build a minimum number of base stations within a certain timeframe, is the way to go in my opinion; this provides the state with a steady revenue stream and encourages operators to invest more in building infrastructure. As for the second issue, while our current licence allows us to build fibre, we are unable to receive the necessary permissions to do so. Right now, only the incumbent is able to lay fibre-optic cables. If the regulators allowed the three mobile operators to join in, the quality of the country’s data services would be greatly enhanced.
What opportunities exist for growth in fixed-line voice and internet, and in planned access for mobile operators to international gateway licences?
GAD: ADSL will continue to be very important going forward, especially as it becomes faster and even more reliable as a result of recent upgrades. Fibre to the home is slowly being introduced, especially in some of the new housing compounds, and should see a more substantial roll-out in the coming years. Fibre increases speed and connectivity dramatically compared to copper, with speeds of more than 80 MB above the norm. Given Egypt’s large population and rising income levels, the market potential in fixed-line internet is huge. Currently the market size of interest users is 2.8m, but there are also 10-12m illegal connections that are putting a great burden on the network. We need to find a way to bring these connections into the mainstream.
ESSAM: Currently, our license does not allow us to provide fixed-line voice services or to have our own international gateway. On the latter, we cooperate with TE through wholesale commercial agreements. So, right now there are no opportunities in the area, but there has been talk of awarding international gateway licenses to mobile operators, which would obviously alter the current situation.
On the former, I believe that there are opportunities for growth and potential in fixed line but that it is subject to investing in infrastructure and fiber-optic technology. In general, we welcome any investments or opportunities for investment in the area of infrastructure because, as I said before, it is an area where Egypt needs significant investment METWALLY: The second part of this question is less applicable to us than to the other operators, as we currently have our own gateway, through which most of our international traffic is routed. In fact, we only use Telecom Egypt for a very small portion of this traffic. Unfortunately, fixed-line voice no longer offers significant opportunities for growth; the market is saturated and even shrinking. That said, there is potential in the bundling of services, such as triple-play packages for voice, cable and internet, although it is unclear at the moment how much demand there is for this kind of service.
GAUTHIER: In some cases the fixed-line voice segment can be interesting, for example the potential in providing packages for services to the new housing developments being built outside of Cairo. That being said, whether this is viable or not depends on the price of the licence. Being able to negotiate your own tariff for international calls under international gateway licences should lead to savings for the operators and lower prices for consumers, which is positive.
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