Telecom Egypt New Mobile License Dilemma

Although the total cost of the new fourth mobile license which is 8.1 billion Egyptian

Pound (EGP) is very low compared with the previous one (the third mobile license

which was ~ 17 Billion EGP), the cost of Mobile Virtual Operator (MVNO) as a part of

this license is extremely high (2.5 Billion EGP). In addition, Telecom Egypt (TE) will

compete in an over penetrated and price driven market. There are many questions need

answers for example, is there any kind of commitment from Mobile Network Operators

(MNOs) to provide TE a certain amount of minutes/connectivity for reselling? If not, that

means there is no meaning of MVNO license as National Telecom Regulatory Authority

(NTRA) didn’t highlight/governance this topic. The fact is MNOs in Egypt have no extra

capacity to resell it for very limited time (2 years) till TE getting the new range of

frequency because if they do that, MNOs will face over investment problem (due to over

capacity) after TE releasing the MVNO and start establishing their own MNO. Also

according to Egypt tender law 89/1998 for government and public sector, TE couldn’t

pre-agree with a certain MNO through direct order to ensure the principle of equal

opportunities, best price and transparency. On the other hand TE will lose ~ 35% from

annual net profit in case of selling their stake in the Vodafone Egypt (VFE) beside losing

another big portion of revenue in case of MNOs decided to build their own

infrastructure. Another question needs an answer, when TE breakeven? In spite of TE

will have a good cash flow due to selling VFE stake, the expensive of building new

network from scratch will devoured the cash. Managing operational cost is also a big

challenge as TE is an organization of more than 50,000 employees and the wages for

example will be an issue if TE decides to cope with the market salary after introducing

the MNO. Still the idea of buying the VFE stake (~ 55%) is very valid and less expensive

in short and long term for TE. Now Vodafone Group is pricing the shares to buy the TE

stake (~ 45%), so there is an equal opportunity for both VF and TE to acquire the other

part. In this case the fair value of the share price will be occurred because both parties

have the same interest of buying or selling. This article is representing my personal view

as a telecom professional.

Written by John Ayoub