Egypt telecoms try to payoff competition (page 1 of 3)

Bribery? No, perhaps the word's too strong. But how else can one characterize the attempt by a pair of telecom operators in Egypt to pay the government hundreds of millions of dollars to crush the threat of a new competitor?

Even if the proposed payoff was public information, it still smelled rotten: it might have added some easy money to the state coffers, but would have sent a terrible message to foreign investors and ordinary Egyptians. Fortunately, for once, President Hosni Mubarak and his government did the right thing. Mubarak's message was clear: at least when it comes to telecommunications, Egypt's marketplace is not for sale.

Together, the Egyptian Company for Mobile Services (MobiNil) and Vodafone Egypt offered to pay Telecom Egypt (the state-owned fixed-line monopoly) 2 billion Egyptian pounds ($340 million), the exact amount Egypt Telecom paid the government in license fees in 2001 to establish a third mobile phone network.

With the multimillion-dollar payoff, Orascom-owned MobiNil and London-based Vodafone sought to eliminate a third competitor for the next five years, fortify their market dominance and avert a potential price war that would erode their profitability and market share. In short, the two powerful companies tried to spend their way out of potential trouble: they tried, and they failed.

Weeks of speculation and behind-the-scenes maneuvering ended on May 8th when, after being briefed on the matter during a cabinet meeting, Mubarak issued clear and final instructions for the immediate start of a third mobile operator set up as an Egyptian shareholding company. MobiNil and Vodafone's offer had set off heated debate in the People's Assembly, with parliamentarians charging that a deal would not benefit consumers and violate the Communications Law, which prohibits monopolies and promotes new investment in the communications sector.

On April 22nd, a day after the Egyptian business daily Alam Al Youm broke the news, MobiNil's president and chief executive officer, Osman Sultan, issued a statement saying only that "the Egyptian Company for Mobile Services can confirm that there are discussions underway between the parties on this matter. However, we cannot comment on any specifics or on the outcome of such discussions at this time." Vodafone also refused comment.

Telecom Egypt chairman Akil Beshir did not deny that postponing the launch of its mobile operations was one of the options on the table. The exclusivity period for MobiNil and Vodafone ended in November 2002, but Telecom Egypt's search for an international partner coupled with a sluggish economy have contributed to delays in the commercial launch of their mobile network. Telecom Egypt has not disclosed the names of potential partners, whether it will seek an equity partner, or contract an international telecom provider to set up and manage the network.

"Vodafone and MobiNil proposed to pay us the money we spent for licensing a network, which is 2 billion pounds, in exchange for Telecom Egypt not starting operations of a third network for four years," acknowledged Ahmed Fahmy, PR officer for Telecom Egypt, adding that the two operators made the offer in mid-April.

"We are still trying to run the network, but there were some difficulties with the partner we were negotiating with because of the regional and economic circumstances," Fahmy said before a presidential decision that sealed the fate of a third operator. "If we do not find a third partner, we may accept MobiNil and Vodafone's offer."

No capital expenditure had yet been made in setting up the network, but another mobile network can be operational in roughly six months, he said.