Arab Advisors Group
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Is there room for a 3rd GSM network in Egypt?.
Wednesday, June 25, 2003

A new report from the Arab Advisors Group analyzes the Egyptian GSM market and its revenues in light of the flotation of the pound. The report draws conclusions on the viability of a 3rd GSM operator in the country. June 25, 2003 - The rough economic conditions in Egypt have taken their toll on the GSM market in the country. The steep devaluation of the Egyptian pound from an average of 3.9 pounds to the US$ in 2001 to 6 pounds to the US$ in 2003, has resulted in increasing inflationary pressures in the country and has lowered people’s real incomes. Whereas the market added 1.29 million GSM subs in 2000 and 1.4 million subs in 2001, it only added 866,000 in 2002. For a full analysis of Egypt’s GSM market please refer to Arab Advisors Group’s Egypt Communications Projections 2002 Report. Arab Advisors Group’s analysis of the duopolistic GSM market in Egypt reveals revenue pains. The gradual slide in the Egyptian pound between 2001 and 2002 (from an average 3.9 LE to 4.6 LE to the dollar) meant revenues (calculated in foreign currency which is needed by the operators to finance their expansions) declined. For example, Mobinil’s gross revenues in Egyptian pounds increased by 11% in 2002 to exceed LE 2.5 billion, yet declined by close to 6% when calculated in US dollars to reach US$ 560 million. A new research note (small report), “Has the devalued pound diminished the prospects for a 3rd GSM network in Egypt?” was released to the Arab Advisors Group’s (www.arabadvisors.com) Strategic Research Service subscribers on June 15, 2003. The 3-pages report analyzes the Egyptian GSM market and its revenues in light of the flotation of the pound. This report can be purchased from Arab Advisors Group for only US$ 50. Any investment in this research note will count towards a Strategic Research Service subscription should the service be acquired within three months from purchasing the report. “The revenue pains have multiplied in 2003. In the first quarter of 2003, the monthly average revenue per user (ARPU) in Egyptian pounds was steady and similar to that in 2002. In US dollar terms, however, the first quarter 2003 monthly ARPU actually dropped by 20%.” Jawad Abbassi, Arab Advisors Group’s President wrote in the report. “The Arab Advisors Group believes that the steep decline in revenues growth will negatively affect future network expansions and infrastructure deployment in Egypt’s GSM services.” Mr. Abbassi added. This dual problem of devaluation and lower market growth also complicates Telecom Egypt’s GSM network plans. The state-owned operator has a third GSM license but has not rolled out its network yet. The Arab Advisors Group believes that a 3rd GSM network in Egypt’s current market situation is a tough sell. Telecom Egypt’s service record is not better than MobiNil’s or Vodafone’s. As such, the operator will not be able to attract the high revenue post paid users already served by the two operators. Its growth therefore will arise from marginal users whose APRU is even lower than the average market ARPU. At the current growth rates in the market, the feasibility of the project will be in doubt. This situation raises the stake and puts the onus on Egypt’s regulator and government to come up with a solution that does not endanger Telecom Egypt’s finances and at the same time serves the interests of the Egyptian consumers. The solution may indeed lie in a Mobile Virtual Network Operator (MVNO) approach or, more daringly, obligatory national roaming between GSM operators. Such a scenario, the Arab Advisors Group believes, will of course need fair compensation to the existing GSM operators in the country for national roaming. The Arab Advisors Group’s team of analysts in the region has already produced more than 160 reports on the Arab World’s communications markets. The reports can be purchased individually or received through an annual subscription to Arab Advisors Group’s (www.arabadvisors.com) Strategic Research Service. To date, Arab Advisors Group has served more than 70 global and regional companies by providing reliable research analysis and forecasts of Arab communications markets to these clients.

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