Telecom Industry in Egypt external assessment

Telecom Industry in Egypt

Prepared By
Abdel-Aziz Mohamed

Ehab Adel
Supervised By

Prof. Dr. Adel Zayed

Walaa Fathalla

1

About Telecommunication

2
Agenda

5
6

Telecom Licenses in Egypt

3

Telecom Market in Egypt

4

The Five-Forces Model of Competition

Q&A

References

Telecom Industry
External Assessment

About Telecommunication
• The word 'Tele' means distance and
'Communication' means "a process by which information is exchanged through a common system of symbols, signs or behavior".
• Basically 'Telecommunication' means exchange of information over distance. In wider interpretation, telecommunication encompasses the electrical communication at a distance of voice, data and image information. (Freeman, 2005)

Telecom Industry
External Assessment

Telecommunication Licenses in Egypt
Mobile
Services.
Infrastructur
e Leasing.

Fixed
Services.

Telecommunication
Licenses in Egypt

Satellite
Services.

Data
Services.
International
Services.

Telecom Industry
External Assessment

Fixed line Services Operators
Fixed Services

Pay Phone

PPCC

Access

Fixed
Telephony

Telecom Egypt

ATS,NTC,Telec ard,Telecom Egypt.

TEVOTECH,
Link One.

Telecom Egypt.

Telecom Industry
External Assessment

Mobile Services Operators
Mobile
Services

GSM 2G & 3G

Mobinil,
Vodafone,
Etisalat.

SMS One to
One

Sama Tel, Digital sound,
EME,Quasar,RazyTech,

SMS one to many Egypt Linx,OTS,Arpu +,Stryx, VictoryLink,
VASMIX,Techno Wireless,MNS,Advansys,I

Egypt Call, Actel Egypt .
Telecom Industry
External Assessment

Voice, Solution,Binary Waves,T.A
Telecom,Razy Tech

Data Services Operators

Data Services

Registrar

TE Data ,
Vodafone Data,
Link (Registrar),
ENU.

Internet
Class A

Internet
Class B

Internet
Class C

Global
Peering

Nile On Line, Link
Egypt ,TE Data, Egy
Net, Vodafone Data,
Noor,
Communication,
Yalla.

Equant,
Batelco.

154 ISPS.

GPX.

Telecom Industry
External Assessment

Infrastructure Services Operators

Infrastructure
Leasing

Tower

Telecom Egypt

EEC,Alkan,HOI MEA,MobiTower
Telecom Industry
External Assessment

Satellite Services operator
Satellite Services

VSAT

Navigation
(Aviation /
Maritime)

African Waves,
Mobiserve,
Alkan,Egypt Sat
Telecom,
Opextel.

Aeromobile, On
Air, Boeing,Via
Sat, Panasonic
Avionic ,Nilesat.

GMPCS

Iridium

Al Thuraya

Inmarsat

Egypt
SatTelecom.

Alkan.

Egypt Sat
Telecom, Alkan,
MobiServe.

Telecom Industry
External Assessment

International Services operator

International
Services

International
Services &
Gateway

Submarine
Cables

Mena Co.

Telecom
Egypt.

Etisalat.

Telecom Industry
External Assessment

Telecom
Egypt.

Telecom Market in Egypt

Telecom Industry
External Assessment

Large consumer market
Egypt has emerged as a consumer market of significant importance in the region, as witnessed by the arrival of dozens of global brands and the sharp expansion. This is partly due to the sheer size of Egypt’s population that put it as the most populated country in Africa and the Middle East, as well as Per capita income that reached EGP 18695 in 2011/2012 from EGP 8555 in
2005/2006. the fact that 68% of Egyptian are between the age 14-54 has also impacted spending and investment trends.
6.70%
55-64

5%
>64yrs

32.10%
< 14 yrs
38.40%
25-54 yrs
17.80%
15-24 yrs

Telecom Industry
External Assessment

How Families Spend in Egypt
50%

47%

45%
40%
35%
30%
25%
20%
15%
10%
5%

12%

11%
8%

7%
2%

0%

Telecom Industry
External Assessment

8%

8%
3%

Egypt ICT Development

Telecom Industry
External Assessment

fixed lines services
• Since established in 1999, ministry communications and information technology has worked hard on improving ICT infrastructure in Egypt and expanding fixed lines services to reach rural areas. The ministry focused on increasing the number of subscribers in both rural and urban areas. To this aim, the ministry exerted a lot of efforts to improve the quality of services provided to the public, increase the number of centrals and its capacity in addition to reducing the complaints.

Telecom Industry
External Assessment

Mobile Services
• Recently mobile phones have largely increased, due to the progress in the Egyptian market resulting from competition between the three mobile operators (Vodafone, Mobinil and Etisalat).
• Such competition is positively reflected on the cost of services, introducing the 3G network, spreading mobile database services and mobile phones applications as well as preparing for accessing the
4G network.

Telecom Industry
External Assessment

Internet Services
• MCIT adopted a number of initiatives to spread Internet in Egypt with appropriate costs for the various categories of the Egyptian society.
• The ministry adopted in 2002 the free internet initiative, in order to increase the number of internet users by providing a low-cost tool to access internet.
• This was followed by the Broadband initiative in 2004 aiming at lowering the cost of
ADSL and this initiatives have contributed to the increase of the number of internet users in 2007.
• On the other hand, USB modems and mobile phones connections, the number of broadband internet users has expanded in Egypt, reaching 86% of the overall number of internet users.

Telecom Industry
External Assessment

Mobile Voice vs Data Services in Egypt

Telecom Industry
External Assessment

Profile of Internet Users

Telecom Industry
External Assessment

Internet Services

Telecom Industry
External Assessment

Internet Services

Telecom Industry
External Assessment

The Five-Forces Model of Competition

Threats of New
Entrants

Threats of
Substitutes

Rivalry
Bargaining Power of Supplier

Bargaining Power of Buyers

Telecom Industry
External Assessment

The Five-Forces Model of Competition

Threats of New
Entrants

Threats of
Substitutes

Rivalry
Bargaining Power of Supplier

Bargaining Power of Buyers

Telecom Industry
External Assessment

Rivalry among competing firms
• Competition between players, backed by international telecom firms and the government (TE), is unlikely to abate. With changes in firms ownership and strategies ( Universal License debate) , the sector will likely remain fast paced.

Telecom Industry
External Assessment

Rivalry among competing firms
• Fixed line:
– TE is enjoying a monopoly position in the fixed line business, with a strong presence in other telecommunication businesses.
– The fixed line sector is expected to witness a drop in growth as more customers opt for using mobile connections.

Telecom Industry
External Assessment

Rivalry among competing firms
• Mobile Services:
– While the country has a large consumer population, as penetration has passed 100% which exceed the Middle east and Global average , telecoms players have faced an increasingly tough marketplace in recent years, often finding themselves forced to lower prices and look for other sources of revenue through value-added services (VAS).
– Increased competition means companies partially rely on winning over customers from other players, which is driving down prices.
– Average revenue per user (ARPU) dropped to EGP 22-26 ($3.13-3.70) in mid-2013, representing one of the lowest levels in the world, and leading operators to look increasingly to encouraging greater data and VAS usage.

Telecom Industry
External Assessment

Rivalry among competing firms
Global Penetration

91%

India

58%

Africa

71%

China

86%

North America

100%

APAC exluding China & India

101%

Egypt

116%

Middle East

104%

Latin America

113%

Westren Europe

126%

Central & Eastern Europe

139%
0%

20%

40%

60%

80%

100%

Mobile Services Penetration
Telecom Industry
External Assessment

120%

140%

160%

Rivalry among competing firms
• Internet (broadband):
– Egypt has some of the lowest prices for DSL services on the continent; the result of a highly competitive climate. It is worth noting that the strongest growth is currently seen in mobile broadband services, which offers to the mobile operators new revenue streams in an environment of falling ARPU.

Telecom Industry
External Assessment

Rivalry among competing firms

Telecom Industry
External Assessment

The Five-Forces Model of Competition

Threats of New
Entrants

Threats of
Substitutes

Rivalry
Bargaining Power of Supplier

Bargaining Power of Buyers

Telecom Industry
External Assessment

Threat of new Entrant
Egypt’s mobile market presents challenges for both existing operators and new entrants. While penetration reached 118.2% at end-2013, according to MCIT data, subscriber growth slowed significantly last year, prompting suggestions that the days of high-volume growth are over
• Capital requirements.
• Access to optical fibre network
• Government policy.
• Product differentiation.
• Economies of scale.
• Switching costs.
• Access to distribution channels.
• Disadvantages independent of size.

Telecom Industry
External Assessment

Threat of new Entrant
• Capital Requirements
– The cost of active equipment is estimated to be 55 % of the telecom operator's total cost, while the balance is accounted for by passive infrastructure. – Mobinil, Vodafone and Etisalat has invested close to 500 $ billion to create the cellular infrastructure with 45,000 towers across the country.
Typically, a ground based tower costs 1300000 $. A roof-based tower can be built for 1000000 $.
– Cost of maintaining one tower (active + passive) is estimated at 60,000 to 65,000 per month.
– This factor makes the telecom industry moderately attractive for the new players and investors

Telecom Industry
External Assessment

Threat of new Entrant
•

Access to optical fiber network
– The largest optical fibre has been built by the telecom-Egypt company which can be leased by other operator (Mobinil, Vodafone and Etisalat)
– It is fairly difficult and cost- ineffective for new entrants to lay down optical fiber connecting remote places as well.

Telecom Industry
External Assessment

Threat of new Entrant
• Government And Legal Barriers
– Most significantly, the universal license system will allow the main fixed-line operator, majority-government-owned Telecom Egypt (TE), to enter the mobile market. It will also pave the way for the three mobile players – Vodafone, Mobinil and Etisalat Egypt – to establish fixed-line businesses, although current arrangements prevent them from accessing TE’s fiber-optic network.
– TE, which already owns a 45% stake in Vodafone Egypt, will likely launch a mobile virtual network operator (MVNO) following the universal license system’s roll-out.
– MVNOs have the advantage of a lower capital outlay than traditional operators and are able to introduce their services quickly, since they lease spare spectrum capacity from other operators for an agreed price, eliminating the need for expensive infrastructure installation.
However, their set-up also gives them less control over service quality and tends to produce lower margins, prompting some to question whether the firm will eventually opt to launch its own network.

Telecom Industry
External Assessment

The Five-Forces Model of Competition

Threats of New
Entrants

Threats of Substitutes

Rivalry

Bargaining Power of
Supplier

Bargaining Power of
Buyers

Telecom Industry
External Assessment

Bargaining Power of Buyers
• Buyers in Telecom industry generally land in two categories:
– Individual .
– Enterprise Customers like IT companies, Banks etc.
• There are ample number of telecom providers in the market with big product variance and cheaper prices which gives buyer many options to select operators and thus have a large bargaining leverage.

Telecom Industry
External Assessment

Bargaining Power of Buyers
• Cost of product relative to total cost
– Telecom products e.g. Voice calls, 3g, internet etc cost very high percentage of the total cost of service that the buyer spend in.
– buyers are more sensible (sensitive) to pricing.
( Market research has shown that the vast majority of Egyptians prefer pre-paid mobile subscription plans, and as a result, most consumers consistently shop around for the lowest possible mobile rates and regularly switch providers according to price. Therefore, many consumers are not necessarily tied or loyal to any particular mobile provider. )
– Enterprise customers generate major part of the revenues for any telecom companies which means higher buyer power.

Telecom Industry
External Assessment

Bargaining Power of Buyers
• Product differentiation
– For the fixed lines service there is no differentiation since there is only one company provide this service (telecom Egypt TE ).
– For the mobile service Mobinil, Vodafone, Etisalat have approximately similar prices for similar products and less likely for any one to maintain product differentiation and hence buyers have the option to switch over. Nevertheless, quality of service has increasingly emerged as the major competitive differentiator amongst Egyptian operators and has become a key consideration for subscribers.
– For the internet there is high degree of differentiation in the service , where the service can provided Mobile Internet & USB Modem or ADSL or Leased Line or even ISDN& dial up , Hence there is also differentiation in the price related to each type so buyers have the option to switch over.

Telecom Industry
External Assessment

Bargaining Power of Buyers
• Size and concentration of buyers relative to products
– individual customer :
• Big size and low concentration(except in the fixed line service only for TE) of consumption per individual gives lower leverage to buyer power.
– Enterprise customers :
• Big size and big concentration of consumption accrues high buyer power
– Together we can say its moderate buyer power in terms of size and concentration. Telecom Industry
External Assessment

Bargaining Power of Buyers
• Buyers’ switching cost
– Low switching cost & Low new connection cost.
– Meaning high buyer power.
• Buyers’ information
– Buyers information regarding the availability of other options has become high – Increased social networking, high advertisements through TV, hoardings, banners and word of mouth, buyers are well informed about the substitute products with better offerings urban as well as rural areas.
– Means high buyer power
• Buyers’ ability to backward integrate
– Not much intermediaries between the producer and the consumers.
– High Investment required for backward integration.
– Less likely to have backward integration and hence low buyer power
Telecom Industry
External Assessment

Bargaining Power of Buyers
 Cost of product relative to total cost (High)
 Product differentiation (High)
 Size and concentration of buyers relative to products (Moderate)
 Buyers’ switching cost is low (High)
 Buyers’ information (High)

 Buyers’ ability to backward integrate (low)

Telecom Industry
External Assessment

The Five-Forces Model of Competition

Threats of New
Entrants

Threats of
Substitutes

Rivalry
Bargaining Power of Supplier

Bargaining Power of Buyers

Telecom Industry
External Assessment



Bargaining Power of
Supplier
Many Vendors are available (Infrastructure, Fiber Optics cable, Towers,
Software) so they have (Low) power.



All the Vendors products are governed by ITU Standards which means the differentiation between it is (Low) .



Substitutes are not readily available (High).



Suppliers aren’t able to integrate forward and compete directly with

their present customers (Low)


There are a limited players in the Telecom environment so vendors can’t ignore any of them (Low).



Switching Cost between Vendors is relatively (moderate) Specially for high technology equipment.
Telecom Industry
External Assessment

The Five-Forces Model of Competition

Threats of New
Entrants

Threats of
Substitutes

Rivalry
Bargaining Power of Supplier

Bargaining Power of Buyers

Telecom Industry
External Assessment

Threat of Substitutes
• Availability of substitutes
– Internet telephony
– Postal office
– Transportation
– Library and education center
• Buyer Propensity to Substitute
– Egypt adopted many strategies to increase the diffusion of the internet. This has been reflected in a significant increase in internet users from 0.65 million users in year 2000 to reach 31 million users in year 2013
– Internet penetration in Egypt rose from 0.7% in 2000 to 25 % in Feb
2014. ADSL subscribers increased sharply during this period from 0.9 thousands in 2002 until reached 1,607 thousands in Feb 2014
Telecom Industry
External Assessment

Threat of Substitutes
• Relative Prices
– Internet Telephony eating into the revenue of GSM and fixed telephony .
– Flat/ fixed rate revenues from internet services - cannibalization of revenues from GSM services.
• Performance of Substitute
– Voice quality is an issue with internet telephony.
– Internet voice services also currently limited.
– Time is an issue with transportation and postal services

Telecom Industry
External Assessment

The Five-Forces Model of Competition

Low

Threats of
Substitutes

Threats of New
Entrants

Low

Rivalry
Low

Bargaining Power High Bargaining Power of Supplier of Buyers

Telecom Industry
External Assessment

High

Telecom Industry
External Assessment

References
 http://www.theatlantic.com/business/archive/2012/09/how-families-spend-inbrazil-russia-china-india-egypt-turkey-indonesia-and-saudi-arabia/263023/
 http://sarmady.net/marketing.php
 http://www.indexmundi.com/egypt/
 ICT indicator Report 2009-2013 (Egyptian MCIT)

 Measuring Information Society 2013, ITU
 https://www.mobinil.com/investors/annualreport2012/overview/telecommunica tions-egypt.aspx#  http://www.merisratings.com/UserFiles/File/Telecom%20Egypt%20Report.pdf
 http://genesi.company/cache/baylor/Egypt.pdf
 http://www.dailynewsegypt.com/2014/06/16/competition-set-rise-egyptstelecoms-industry
Telecom Industry
External Assessment