Egypt telecoms try to payoff competition (page 3 of 3)

While MobiNil had the advantage of a headstart and an existing
client base of 80,000 subscribers, Vodafone's strategy was to capitalize on the woes of an oversubscribed competitor in a cellular duopoly
guaranteed until late 2002. But nearly six years later, MobiNil still maintains an edge, with a larger subscriber base (4.4 million to Vodafone's 4.1 million) and a greater number of post-paid users.

MobiNil has enlisted George Kordahi, host of MBC's Who Wants to be a Millionaire, and Egyptian pop singer Hakim to appear in television commercials promoting its service. "Let's withdraw two answers," says Kordahi aboard a Nile yacht. He dials a friend on his mobile, then asks the advice of the audience. The crowd shouts, "MobiNil" in unison. Kordahi turns to the female contestant who replies, "MobiNil, final answer." In another spot, Hakim bellows his song "Alo," the name of MobiNil's prepaid service, over his mobile to the love of his life.

MobiNil's financials indicate solid profit margins. "MobiNil's profits and margins are the highest in the region and one of the highest worldwide," said Abol-Enein. The company posted a higher than expected 84 percent jump in first-quarter net profit to 153.5 million pounds ($26 million) on April 23rd. "They are adopting an active hedging strategy."

MobiNil has substantially reduced its foreign debt exposure from $250 million to about $40 million and is retaining its hard currency revenues from roaming fees to pay off dollar-denominated loans. (Vodafone Egypt is not a publicly traded company, and its financials are not publicly available.)

More than 80 percent of mobile subscribers in Egypt are in the less lucrative prepaid segment, Abol-Enein points out. MobiNil's average post-paid subscriber tallies 400-plus minutes a month in outgoing calls, while prepaid subscribers average merely seven minutes per month in outgoing calls. To maximize revenue per user, the mobile tariff structure has been adjusted, slightly lowering the price per minute for prepaid subscribers, and increasing the price per minute for post-paid subscribers while lowering post-paid monthly connection fees.

With a market penetration at six percent, Egypt has not reached saturation levels, say analysts. MobiNil forecasts penetration rates to reach 14 percent in 2008. But for now both MobiNil and Vodafone are focusing on value growth in favor of subscriber growth - by promoting post-paid subscriber usage and catering to corporate clients, in addition to offering an array of value-added services.

"Value-added services will definitely provide room for growth in coming years," says Abol-Enein. "In three, four, five years, the contribution will be more tangible. However, at the current stage, I don't see services, excluding SMS, representing a major contribution to revenues."

In the long term, then, the two players appear to be in a strong position. In the short term, though, after their failed, embarrassing bid to crush the coming competition, Vodafone and MobiNil must admit the error of their ways and ask for the public's forgiveness. Saddled with a $340 million image problem, these mighty companies have hopefully learned their lesson, after having been humbled by their own hubris.