Egypt's mobile connections outstrip their fixed-line counterparts following a big jump in low-income subscribers

The extensive market analysis carried out for this study incorporated comprehensive interviews with most network operators and importers, as well as network dealers, retailers and the general public.

Report author, Mr Wisam Francis explains that Egypt's cellular market is currently experiencing unprecedented growth, a phenomenon that BIS Shrapnel forecasts will result in the number of mobile subscribers in Egypt reaching 21.1 million by the end of 2008.

For the first time, total cellular subscribers at the third quarter of 2005 exceeded the fixed-line subscriber base, despite the relatively strong uptake of fixed line subscription in Egypt. By the end of September 2005, Egypt had 12 million mobile and 10.3 million fixed line subscribers. This compares to 9.9 million mobile and 9.7 million fixed line subscribers at the end of June 2005. Moving forward, Mr Francis expects the margin between Egypt's mobile phone and fixed-line subscribers to continue to widen, reaching around 3 million by the end of 2006.

Growth in fixed-line connections

On the fixed-line front, in Egypt - unlike the United Arab Emirates (UAE), Jordan, Morocco and Israel - the fixed-line subscriber base is not showing symptoms of stagnation. Rather, Egypt's landline subscriber base has been growing rapidly, adding an average of 875,000 new fixed line subscribers every twelve months for the past four years (2000-2004). By the end of September 2005, research shows the network reached 10.3 million lines, bringing the penetration rate to approximately 14 per cent. This penetration rate, although ahead of Jordan, is behind Saudi Arabia and well below the UAE.

Growth in wireless connections

On the mobile front, rapid growth has become particularly evident since the third quarter of 2004. The number of mobile subscription adds during the 12 months (September 2004-September 2005) was unprecedented - more than 5.2 million mobile subscriptions were provisioned, according to BIS Shrapnel's study. Putting this into perspective, the increase in the mobile subscriber base during that period is more than the total number of mobile subscribers at the end of 2002, and approximately three times the uptake for 2004.

This trend continued into 2005, with some 2.3 million new mobile subscribers added in the third quarter of 2005 alone. This represented a massive 400 per cent increase on the third quarter 2004 result, when there were only 459,000 new subscribers.

The consequence of competition, foreign investment and improvement in economic conditions are seen as the main factors that have driven growth in Egypt's cellular market. Aggressive strategies adopted by the existing cellular operators have also contributed to growth, according to Mr Francis. Aside from the network expansion which gained momentum, especially following the slight appreciation of the Egyptian Pound, both operators introduced low tariff prepaid services that were bundled with low end mobile handsets. The latter strategy attracted lower spending customers, contributing to a noticeable decline in average revenue per subscriber (ARPU).

Moving forward, BIS forecasts current rates of growth to continue out to 2008. The number of cellular subscribers will exceed 13 million by the end of 2005. This will translate to 5.4 million mobile subscriber adds during 2005. This uptake matches closely only with that forecasted for Algeria and Turkey in the MENA region. Despite this aggressive growth, the mobile penetration rate in Egypt will remain as low as 18 per cent by the end of 2005.

New market developments

Three notable changes will soon take place in Egypt's telecommunications market, according to Mr Francis. Firstly, at least one further fixed line operator is likely to be licensed in 2006. Secondly, it is anticipated that a portion of the government's stake in Egypt Telecom will be sold. Thirdly, a new mobile operator is expected to launch its service during the first quarter of 2007. Telecom Egypt will be allowed to enter the bidding with an international partner. Acquiring a mobile licence would make Telecom Egypt more attractive to potential investors.

While bidding for the third GSM licence is likely to take place in early 2006, it will be interesting to observe how this will unfold. The appointment of a 'pro-reform' cabinet in mid-2004, the appreciation of the Egyptian pound and an evolving mobile culture are factors which would support this development. Nevertheless, the operators' declining ARPU, the previous unsuccessful attempts to sell a stake in Egypt Telecom, and even the recent (July 2005) Sharm el-Sheikh bombing, could undermine these positives, and deter potential investors from placing high bids. Moreover, the motives behind Egypt Telecom's 2003 decision to abandon its plans to enter the mobile market will also play a role in moulding the outcome of this sale. Russia's Sistema and China Mobile are among many foreign companies currently eyeing this deal.

Mobile Handset Market

Nokia is the leading mobile handset brand in Egypt followed by Samsung. In terms of distribution, with the exception of Nokia, Samsung and Motorola, the other handset vendors (including Sony Ericsson, LG, Bird, Siemens, Sagem and Alcatel) are currently adopting a closed distribution channel in order to distribute their handsets in the Egyptian Market.

According to Mr Francis' colleague and Asia-Pacific telecommunications analyst, Joe Leong, 'the strategies to adopt a closed distribution channel by second tier handset vendors are in line with their practice in many Asian countries'. However, Mr Leong cautioned that relying too heavily on a single distribution channel could be potentially risky.

According to Mr Francis who met with the Egyptian distributors, 'some fledgling small scale dealers in Egypt have come and gone'. He explains that securing reliable and cooperative distribution partners is vital to succeeding in the MENA handset market.