Company must seek regional expansion, stay competitive at home to improve results, says analyst
CAIRO: Telecom Egypt s (TE) subscriber base grew by 8.5 percent and net profits reached LE 1.1 billion ($191 million), up 7.3 percent, from H1 2005 results, the company announced yesterday in its first H1 2006 report since a 20 percent stake was privatized last December.
Although profitability remains stable, among other figures such as a 3.5 percent increase in average revenues per line (ARPL) to $9.9 and 8.5 increase in operating revenue to LE 4.4 billion ($765 million), analysts say the company lacks the potential for more significant growth unless it pursues regional expansion.
The company is a good source for stable investment. However, there are not many growth opportunities [in Egypt], says Walaa Hazem, HC Brokerage telecommunication sector analyst. This has nothing to do with management. It has to do with the saturation of the market. I think TE has to expand outside of the country to achieve higher growth rates.
In 2001, with the establishment of the Ministry of Communication and Information Technology, TE underwent a significant restructuring program that produced noticeable improvement in customer service, market and image. The company then announced its goal to add 1 million customers per year. The strategy worked with 1 million lines added in 2002 and 2003 to TE s customer base of just 6 million in 2001.
But, by the end of 2004, company officials were beginning to realize adding more lines did not necessarily translate into boosting profitability, says Hazem.
[TE] saw the goal to add 1 million would not benefit its profitability so it is now looking to add profitable subscribers by concentrating on new cities such as 6th of October, Obour and Shorouk, he says.
In order to maintain ARPL levels, the company decided on a 20 percent rate increase earlier this year to LE 0.06 per minute among fierce public protest that saw the issue raised to the People s Assembly. On the other hand, TE slashed the line installation fee by 50 percent in an attempt to maintain subscriber growth.
Still, the country s land line penetration rate has climbed just 0.3 percent in the first half of the year to 14.6 percent, according to TE. Hazem says the rate might be low, but it does not represent the number of people using landlines. That number, he says, is more than 30 million, with many sharing the same set.
Combined with the recent growth in the mobile market, with a penetration rate of more than 17 percent, Hazem says the Egyptian market is becoming too saturated to project significant growth for TE.
[TE] needs to look for opportunities, whether it s fixed line or cellular, he says. Otherwise, we don t foresee the company growing any faster than 10 percent any time in the near future.
In a way, TE has started to look for opportunities outside of Egypt as the company recently sought and won a 50 percent stake Algeria s second fixed-line license as part of a consortium. Yet it was dealt a recent blow with the loss of Egypt s third mobile license, won by UAE s Etisalat-lead consortium.
Hazem says the company needs to concentrate on its Algeria venture because it has the potential to turn profitable in just two to three years. Algeria is one of the most attractive markets in the region because of its low penetration rate of 11 percent, he says.
With a second international calling license expected to enter the market in 2007, TE has also worked to lower its international rates. So far Etisalat, Orascom Telecom and Raya have all expressed interest with the information memorandum due out by the end of 2006.
