With mobile subscribers flattening out, plans to add a fourth player seem to be out of sync with the

The telecoms market in Egypt is one of the most developed industries in the country with mobile penetration rates crossing the 100% threshold. However, what this means is that the sector will face difficulties in maintaining strong growth rates it has seen in the past. Ahmed El Hindawy, senior research analyst at Prime Holding, explains that the increase in mobile subscribers in 2012 does not really represent a major addition to the market.

"Despite the expected increase in mobile subscribers in 2012 to about 94 million -- up from 83 million in December 2011 -- the bulk of the increase is not a material addition to the sector because it resulted from the redefinition of who a subscriber is," explains the analyst. "There's a gradual shift from competition for subscribers to quality and the introduction of new services."

As the cellular market has matured, the fixed-line subscriber base continues to decline and the main growth drivers in 2012 have primarily been broadband and data services offered by the telecom players.

"The internet segment sustained solid growth with DSL subscribers increasing from 1.8 million at the beginning of the year to an expected level of 2.23 million at the end of the year. Internet users are estimated to have grown from 29 million in December 2011 to almost 31.5 million in December 2012," says El Hindawy.

While data services and the introduction of new mobile services are poised to be the locomotives for growth in the years to come, the government's plan to issue a fourth mobile license raises a few questions about how a move like this could affect the market.

The state-controlled fixed-line incumbent, Telecom Egypt (TE), which also has a monopoly on the international data gateway, has been pushing the government to grant it a mobile license to boost its competitiveness in the market.

Telecoms Minister Hany Mahmoud told Reuters that the government is still studying the needs of the market and could either issue a new license or work with existing networks to improve their services.

"We are studying the whole telecommunications market and what we need exactly. Is it a new player or distributing things into the different players we have now? It's not clear yet, and it will be finalized in the first quarter next year," Mahmoud told Reuters on the sidelines of a business conference in Cairo.

Hindawy explains a fourth mobile license will face with many difficulties due to the highly competitive market and significantly high investment costs, which might not yield the same returns as the first three licenses.

Another important factor is that TE already owns a 45% stake in Vodafone Egypt, currently the country's largest mobile operator by number of subscribers. Having its own network to operate will place TE in an awkward position.

"One of the key reasons behind the delay in the government decisions regarding the launch of new licenses in the sector is the fate of the 45% stake of Telecom Egypt in Vodafone. It will not be acceptable to have Telecom Egypt running a mobile operator and at the same time allowing it to be in the board of a competitor," Hindawy explains.

"The minister of telecommunications had mentioned earlier that Telecom Egypt may be obligated to sell its stake in [Vodafone] to obtain a virtual mobile license, and then a fortiori, it will be obligated to do it to build an actual mobile network," he adds.

The ministry's suggestion for distributing services over the current players means that they could issue universal licenses to all four players where all mobile and fixed line providers compete on all dimensions. Hindawy believes this might be the favorable scenario.

"Telecom Egypt benefits from its nationwide infrastructure in many ways, and one of them is providing more stable DSL services than USB connections of mobile operators," he says.

"Thus, universal licenses will be beneficial for mobile operators as this will boost their internet services provision and at the same time achieve vertical integration of their operations and exploiting synergies. For Telecom Egypt, it will manage to offset the impact of fierce competition with cellular operators. However, the fixed-line subscriber base will remain flat," says the research analyst.

What remains unclear is whether the launch of universal licenses will see an end to TE's monopoly over fiber-optic cable networks and international gateway. Hindawy explains that although universal licenses could change the scope of the telecoms business, it is still too early to estimate their impact.

© Business Today Egypt 2013