It is the sole fixed-line provider in the country, the access point for all Internet traffic and most of the international calls going out of Egypt, and soon it will also be providing mobile phone services. Meet Telecom Egypt (TE), the 80 per cent state-owned local telecommunications giant. Tapping the mobile market has been on TE's agenda for a while. In fact, many analysts assert that it was about to get a license immediately before the 25 January Revolution, and the issue was floated throughout last year with different deadlines given for acquiring the license. Early January 2014 is the new deadline for TE's acquisition of a mobile virtual network operator license, but what is new this time around is that the head of the National Telecommunications Regulatory Authority (NTRA), Hisham Al-Alayli, has for the first time given details of the new license. Under the terms of the new arrangement that the government will offer the four operators in the telecommunications market, the fixed-line provider TE and the three mobile network operators Mobinil, Vodafone Egypt and Etisalat Misr will each get what is known as a fully integrated license, which means they will be able to offer all kinds of telecommunications services, fixed-line, mobile and data. The license will be virtual, in other words it will not see any of the four operators setting up new networks or extending their infrastructure. Telecom Egypt will offer mobile services through one of the three other operators' networks, and the mobile operators will use TE's infrastructure in exchange for wholesale fees in both cases. The second phase of the agreement entails giving the mobile companies the right to build their own fibre optic networks. TE currently controls these networks in Egypt, which are essential to transmitting all kinds of telecommunications services, including telephone signals, Internet communications and even cable television. Its control of these networks gives TE a considerable advantage over its competitors. In the final stage, the NTRA will offer an international gateway license to the two oldest mobile operators, Mobinil and Vodafone Egypt. Currently, international call traffic from subscribers to Vodafone and Mobinil is conducted through the TE international gateway. Etisalat Misr acquired its own international gateway license back in 2007. While the duration of the phases has not yet been revealed, market observers believe that the first phase might last for two years. What this entails for TE “depends on the price of the license”, said Maria Samir, a telecommunications analyst at Beltone, who added that a possible scenario would be for TE either to pay a sum upfront or through profit-sharing with the government, which already owns 80 per cent of the company. However, Ahmed Adel, a senior analyst at Naeem Securities, said that even if TE did pay a fee it would not be more than $100 million, which its cash position, currently standing at LE5 billion ($751.8 million), would generously cover. The virtual network would not see TE pumping any new capital investment into the business, as network capacity would be leased from one of the other mobile network operators, Samir said. This would minimise the cost of tapping the market compared for TE compared to its predecessors. Provided that the first phase lasts for two years as Adel expects, “this would be a decent interim period for the company to gain large number of subscribers, perhaps in the range of three to five million,” he said. However, the largest gain for TE as a result of acquiring the license would be its ability to offer data services via a mobile network. Currently, Telecom Egypt offers broadband ADSL services to its fixed-line customers, a pool that does not exceed more than eight million. Were it to operate a mobile network, it would be able to offer broadband services via data lines that would allow users of smart phones and tablets to access the Internet. “Data services represent four to five per cent of the revenues of companies working in Egypt, compared to 15 per cent for those working in Asia, for example, which means there is a real space for growth,” Adel said. Meanwhile, the mobile operators get little in return during the first phase compared to TE's gains. “The fixed-line services are not that appealing for them as there is no room for growth in them,” he added. “History shows that in other markets switching to alternative service providers is a slow process, and the incumbent usually continues to retain the dominant market share,” Adel said. According to the proposed new license arrangements, all fixed-line calls would have to pass through TE's network, and this would entail a lot of interconnection and access charges that are likely to make acquiring a fixed-line license unappealing to mobile operators. However, acquiring a mobile license is also not necessarily a win-win situation for TE. Samir highlighted the fact that the mobile penetration rate in Egypt is 116 per cent, and thus TE's potential in the market is not great. Moreover, the second and third phases of the agreement could strip TE of many of its advantages. Samir said that the company had been witnessing a retreat in its revenues from voice services as customers were transferring from using fixed lines to mobiles, but it had been able to counteract this over recent years by its wholesale services, which include the international gateway and fibre optic networks. The second quarter of 2013 figures, the latest available performance indicators for the company, show that revenues from voice services witnessed a 15 per cent decline compared to the corresponding quarter of the previous year. Losing its control of the international gateway will hit TE hard, as 70 per cent of its wholesale service revenues come from this service. While Etisalat have the same license, its competitors, Mobinil and Vodafone have been reluctant to apply for it due to the high cost. According to NTRA regulations, if the two operators decide to accept the new license they will have to pay LE100 for each existing user and LE25 for each new one, which puts the cost, for example to Vodafone Egypt, which has 40 million subscribers, at LE4 billion. However, Samir believes that the government will probably retreat and offer the licenses at a lower cost in order not to appear to be giving TE preferential treatment. “This would be very damaging to TE's wholesale segment, as revenue from the expected nascent mobile business would be insufficient to offset the impact,” Adel said, who added that TE was likely to lose at least 20 per cent of its revenues. Another challenge will be if and when the government offers fourth-generation (4G) licenses to mobile operators in Egypt. 4G is a higher technological standard than the currently available 3G and 3.5G in mobile telecommunications. The government has said it might auction the licenses in 2014. If TE opts to apply for a 4G license, it will need to abandon its 45 per cent stake in Vodafone Egypt. Administrative regulations at TE prevent it from investing in two competing companies, and this would see it losing a big chunk of its revenues. Vodafone Egypt contributed by 25.6 per cent to TE's revenues in the first quarter of 2013. “With its only option being to sell its shares in Vodafone under these circumstances, even selling might not be at the best price as this would undermine TE's negotiating power in the selling process,” Samir said.