Akil Beshir: Vodafone Egypt is the best
investment we ever made. It's a very profitable
The telecoms landscape in Egypt has changed dramatically
over the past couple of years - and it is set to change even
more over the next few. Though not as quickly as we expected
when Global Telecoms Business arranged an interview with Akil
Beshir, the chairman and CEO of Telecom Egypt, not only the
incumbent but also a 45% shareholder in Vodafone Egypt.
One of the biggest issues on the mind of Beshir and his
colleagues in Telecom Egypt is the arrival of a fixed-line
competitor into the market. A total of 12 companies had bought
the specification handbook from the National Telecom Regulatory
Authority and many of them were expected to bid by the
deadline, September 18 2008.
But about a week before that deadline, the NTRA decided to
postpone the auction for a full year. Postpone, but not cancel:
telecoms competition is gradually spreading throughout the
world, and - as an attractive market - Egypt is firmly on the
agenda for competitors.
Amr Badawi, head of the regulatory body, blamed the world's
financial turmoil for the decision, following discussions
between the NTRA and the 12 likely bidders. There are, he said,
increasing inflation rates and the increasing prices in the
international markets for computers and telecoms in Europe and
the US, and companies are spending less than they might
And the second licence will be expensive - not necessarily the
licence fee itself, but the capital investment that it will
require. The NTRA puts this at $1 billion in the early years of
Meanwhile, the NTRA is still looking at WiMax technology ahead
of the auction, now expected in late 2009.
With 81 million people, of whom 31% are aged 14 and under,
Egypt is and will continue to be a highly attractive market -
not only to Telecom Egypt and the mobile operators, but to
whichever company wins the auction next year.
Added to that is the fact that Egypt is at the junction of
three great continents of the world: telecommunications cables
from Europe to Asia - that is, the Gulf, India and further
afield - and from Europe to Africa are naturally routed through
Egypt and Telecom Egypt has a key role in connecting them
In 2008 alone, the company has announced participation in TE
North, which will run from the north coast of Egypt, along the
Mediterranean to southern France, and will also cross Egypt on
land to the Red Sea.
Back at home, even though the arrival of a second fixed-line
operator has been delayed, "we need to adapt", says
Telecom Egypt is now relishing its position as a wholesale
operator - its position at the heart of those international
cable networks has given it that experience - and the company
is readying itself to work with competitive carriers in the
Egyptian market, he says. "That's very important for the future
Of course, TE is involved in the most vibrant section of the
telecoms market in Egypt via its shareholding in the local
Vodafone operation. "That is the best investment we ever made,"
he says. "It's a very profitable operation and it has a very
According to TE's latest results, Vodafone Egypt generated
E£2.8 billion ($514 million) in revenue and E£737
million profit in the three months ending June 30 2008. The
company has 15.2 million customers.
In comparison, TE itself produced E£2.4 billion of
revenue in the same three months, with consolidated net profit
of E£681 million - so, roughly comparable. That was with
11.2 million fixed lines.
Vodafone has a 42% market share in number of subscribers in
Egypt, says Beshir. But higher revenues than its competitors
mean it has a higher share of the revenue - about 56%, he
calculates. "And 59% in profit. They are a much more profitable
It is a joint venture, but the Vodafone group has a management
contract, and supplies five of the nine directors on the
"We have signed a cooperation agreement so they are using
our international gateway, which is about 40% of the total
international traffic for Egypt. We have also developed joint
programmes on fixed-mobile convergence." And Vodafone shops
also sell Telecom Egypt services. "We have a real partnership
there," says Beshir.
Strictly this partnership applies to Egypt only, Africa and the
Middle East are both fast-growing markets for telecoms, so
could it extend beyond Egypt's boundaries?
"We are looking for international opportunities," he confirms.
"If there is a mobile element we will discuss it with Vodafone.
We don't have a case so far, but this is the agreement:
wherever there is a fixed and mobile opportunity in the region
we will discuss it with them."
We turn back to the fixed market within Egypt, and the arrival
- later next year, now - of a competitor, along with local loop
unbundling and all that goes with it. How are Beshir and his
colleagues in Telecom Egypt preparing for that day?
"We are preparing for the arrival of a competitor in several
ways - leveraging our infrastructure and increasing our
wholesale revenues," he says. "The second operator will also be
a customer. It will use our infrastructure for quite some time,
and there will be unbundling of the local loop, which is being
For a period of time the second operator will not be able to
offer international services to Telecom Egypt's mobile
customers. Vodafone uses Telecom Egypt's gateway exclusively,
but Orange associate Mobinil also has to use Telecom Egypt at
the moment. And, in advance of the competition, Telecom Egypt
is negotiating a deal with Mobinil to keep its international
The third mobile operator, Etisalat, has its own international
gateway, but still uses Telecom Egypt for some incoming
"When the second operator starts, for two years it will not
sell international service to mobile customers."
Of course, the biggest effect of competition is on pricing -
and Telecom Egypt has anticipated the arrival of a second
operator by introducing new tariffs in July 2008.
"The most important element of this was reducing the connection
fee by 50%." The company charged E£500 ($91) to install a
new line and this is now E£250, "to catch all the
remaining demand in the market", he notes.
"We have also reduced the fixed to mobile tariff." The company
has seen a shift from fixed to mobile services - mobile
substitution, in other words - because of low tariffs for
calling mobiles from mobiles. "We are now positioning our
tariffs in a way that the fixed line would be competitive with
The rebalancing wasn't all downwards: the monthly subscription
fee went up, and local call rates - once very low - went
"The other area we're focussing on is broadband," says Beshir.
"We can see the growing need for broadband. Penetration was
limited by the cost of connections, and the affordability of a
Both areas have been addressed, he says: "We now have very
competitive monthly subscriptions for broadband and there are
several initiatives for having PCs."
Telecom Egypt has two roles in the broadband market: it is a
wholesale provider to independent ISPs, but it also has its own
ISP, TE Data, which has a 66% market share. There are now about
450,000 DSL customers in Egypt. "That is very low but it is
growing at 25,000 every month."
About two-thirds of these subscribers are connected at 256
kilobits a second, the entry level. "This service is subsidised
by the government." It is sold at the equivalent of about $8 a
And people in Egypt, as in many other emerging markets, share
their broadband connections, he says. "The estimate is about
three to one," making the total broadband availability around
1.2 million homes if his figures are right. "Two thirds of them
are not paying," he adds. "One person in the building has the
subscription and then shares it with the neighbours." An ISP is
paid a subsidy of E£25 for each entry-level
In order to reduce misuse, there is a monthly limit of two
gigabytes, he says. That's tending to encourage customers who
used to share to get their own connections.
One of the standard features that incumbents have to face when
meeting competition for the first time in years - "154 years",
steps in Beshir: that's how long ago the old Department of
Telegraphs started business - is that they have fairly aged
equipment, because they haven't been in a competitive
environment. Does that apply to Telecom Egypt, and does that
mean he has to do some fundamental restructuring - including of
areas such as staffing and customer service as well as
"We started this journey eight years ago," says Beshir. That
was when Telecom Egypt was preparing for a share flotation -
delayed, as it happens, because of the dotcom crash. Now the
company is quoted on the Cairo and London stock exchanges. "It
was not until December 2005 that we could have our IPO, when
the government divested 20% of the shares," he says.
"But we started the transformation journey at that time" -
in 2008. "We got a whole new board." The new directors,
including Beshir, came from the private sector. "The more
difficult challenge was the manpower."
At that time the company employed 57,000 people. "We started a
very attractive early retirement plan, and more than 8,000
people took that. But the challenge was that not only were we
overstaffed but that we had a great shortage in many skills -
such as engineers. So we had to hire 10,000 people with the
Now the company employs 54,000, but productivity has more than
doubled "because we have more than doubled the number of lines
that we had at that time with fewer people", he adds. "We are
still overstaffed but not grossly. We have started another
early retirement plan. We intend to lose about 5,000 people
over five years."
The labour cost is about 17% of revenues, says Beshir, "which
is not alarming", and labour costs are stable. And those who
retire are not being replaced.
The network has been 100% digital since 2004, he continues.
"It's a modern network and there's very little we need to do
now." The company "cannot afford to be pioneers in new
technology", but it looks at new investments carefully. "We
want them to be well proven in other markets."
So, the network needs very little investment, he adds. "Our
capex is decreasing dramatically." For about three years it was
about E£3 billion a year, but in 2006 it was E£2.7
billion and in 2007 it was E£1.4 billion.
"Right now we have more than 25,000 kilometres of fibre optic
cable covering 95% of the populated land of Egypt." The rest of
the population is being addressed by CDMA wireless technology:
Egypt, of course, has a population that is highly concentrated
along the River Nile, the delta and along the Mediterranean
coast, with a very low density elsewhere. "It is very difficult
to wire, or not economic. Those areas are being addressed by a
CDMA wireless network."
On the whole, Egypt "is a very easy country to wire", he
admits: "It's very flat, with the exception of very few areas,
and most of the population lives on 5% of the land."
Some of the rest of the capex is being spent on IT, he adds: a
new billing package from Convergys is to be introduced in
January 2009, "because we are introducing new services, and
marketing initiatives, and different plans for our
And the company is spending on revenue assurance and fraud
detection, he notes.
The company has traditionally used a number network equipment
vendors - Alcatel-Lucent, Ericsson, Nortel and Siemens - now
NSN - with one, NEC, no longer supplying the company.
"We hope to introduce Huawei and ZTE," says Beshir. "This CDMA
network - most of it is Chinese. It's very complex, and they're
Meanwhile Beshir is looking forward to the implementation of
the new international cables. "I cannot think of any cable,
east to west or north to south, that does not pass through
Egypt," he says with a little exaggeration.
Telecom Egypt is usually a partner in club cables going through
Egypt, but what prompted the idea of TE North was a study of
the expected internet traffic that would be generated in Asia -
especially India and China - in the next few years, "and we
realised there would be a shortage of capacity". He expects
that India and China will generate about 35 terabits a second
of data by 2012 "and we estimate one third of that will go in
Telecom Egypt owns 100% of the TE North cable. "We are building
a cable starting from the eastern side of the Red Sea, directly
into Egypt." It will reach the Mediterranean at Sidi Kerir,
near the port of Alexandria, from where it will cross to
Telecom Egypt has already sold about 30-35% of the capacity of
the cable to three operators with connections further afield,
and has recovered its planned investment. The revenue from
those operators is about $170 million - comfortably exceeding
the $125 million the company is spending with Alcatel-Lucent on
the submarine stretch and $15 million on the part across
That means a paper profit already of $30 million. Not bad for a
company about to face the rigours of competition at home.
Operational highlights for Telecom
Operational highlights for Vodafone