MobiNil and Click Vodafone Revolutionize Mobile Telephony in Egypt

Osman Sultan, President of MobiNil.

As a result of telecommunication reforms begun in 1998, Egypt has undergone massive changes in mobile communications. The two leading private GSM service providers, the Egyptian Company for Mobile Services (MobiNil) and Click Vodafone, have rapidly found a huge market in the country.

With only six million fixed lines in a country of 66 million, mobile phone users have increased exponentially to over three million in less than four years. Given the fierce competition between the two operators, as well as the expected entrance of a third GSM provider, Telecom Egypt scheduled in late 2002, the number of subscribers is estimated to rise to five million by the end of 2002. In terms of mobile teledensity, some experts predict a rise to 18-20% by the year 2008, from the current 5%.

Both Click Vodafone and MobiNil have pursued aggressive strategies to widen their subscriber base. In a market originally dominated by high-income level users, price-cutting by the two carriers in the last two years has rapidly expanded usage to low and middle income segments. Another major contributor to the rapid expansion was the introduction of pre-paid cards as well as an installment-based payment method.

Gamal, a taxi cab driver catering to business travelers, is one such person in that category. With the addition of a mobile phone to his business, Gamal says he now has many repeat clients. In Cairo’s migraine-inducing traffic, Gamal’s clients find it much easier to call to arrange a quick pick-up, rather than scorching their heels on a hot street corner.

"It is incredible to see how the advent of the mobile phone has revolutionized life for everyone in Egypt," says Osman Sultan, President and Chief Executive Officer for MobiNil. "From the very beginning, it was our goal to make the mobile phone affordable to all segments of our society, not just the most affluent. Essentially we want a mobile in every hand."

However, affordability and the conflicting pressure to recoup licensing fees have dominated the short history of both GSM operators. As the first private GSM operator in Egypt, MobiNil (a consortium of Orascom Telecom, Motorola and France Telecom) paid approximately $516 million in May 1998 to obtain the license from Telecom Egypt (formerly state-owned Arab Republic of Egypt National Telecommunications Organization [ARENTO]). MobiNil Telecom was formed between the original shareholders, owning 51% of the shares of the Egyptian Company for Mobile Services (ECMS) with a shareholding structure of Orascom Telecom (28.75%) and France Telecom / Orange (71.25%). Motorola, an original partner, sold its shares in early 2001. The remaining 49% of ECMS is comprised of 16.6% held by Orascom Telecom and a free float of 32.4%.

Click won the second private GSM license in November 1998, paying the same fee as MobiNil, $516 million. Click, however, is still privately held, with British giant Vodafone holding a majority share of 60%. The remaining stake is comprised of 10% held by EFG Hermes; 10% held by Alkan; 5% by Banque du Caire; 7% by Cegetel; and 8% by Mobile Systems International [MSI].

Akil Beshir, Chairman of Telecom Egypt.

The two companies are rapidly trying to expand their respective subscriber base in expectation of introduction of the third GSM licensee, Telecom Egypt, which enters the market in late 2002. MobiNil reported in early October third quarter results for active subscribers exceeded 1.86 million (1.75 million using a 3-month definition for active subscribers), an effective growth of 82% in active subscribers from the same period last year. According to Sultan, the subscriber base is on track to meet the year-end target and will surpass the 2 million mark by the end of November, 2001.

Although declining to give exact figures, Click spokesperson Hatem Dowidar told The Washington Times that as of late October 2001, Click had about 1.5 million active subscribers.

The third GSM license, issued in June 2001, was awarded to Telecom Egypt. According to its Chairman, Akil Beshir, the company is looking for a strategic partner and is negotiating with several companies "with potential." However, he stated, that if Telecom Egypt cannot reach an agreement that is acceptable to it, the company will be quite willing to "go it alone."

Outlining the criteria for a strategic partner, Beshir said that it must be an international operator with an expansion strategy in the region, not one "that is just coming for some money and then leave." The partner must also be financially capable of investing in Telecom Egypt, said Beshir. "But we are not looking for a partner for his money, because we don’t need the money, as we are a cash-rich company," Beshir said. "We can finance easily our mobile operation. We need the partner to invest to get his commitment, because we need his know-how."

Terms Telecom Egypt would not find acceptable from a strategic partner include a majority stake of ownership. Although Beshir said that retaining 51% would be acceptable for Telecom Egypt for the right strategic partner, his preference would be to leave room for an I.P.O. at a later stage. According to Beshir Telecom Egypt is currently offering a 34% stake to its prospective, strategic partner.

With basic services currently available to the entire cross-section of the customer base, both MobiNil and Click are actively working on the introduction of new value-added services [VAS] and higher speed communications over wireless Global Packet Radio System [GPRS], commonly referred to as 2.5 G. The two companies are working with third parties to develop innovative marketing strategies in order to accelerate the introduction of these services. This includes participating in programs like "How to be a Millionaire," TV sports questions competitions, sending greetings, and more recently, a ‘hot line’ to a cleric who is ready to answer tricky questions by anxious callers.

Cairo is home to 30% of Egypt’s population of 70 million, providing a large market for MobiNil, Click Vodafone and the third expected GSM provider, Telecom Egypt.

So while both companies are intently wooing their subscriber base, probably the most frequent complaint heard from customers was their inability to send SMS messages to certain subscribers. Both companies offer the very popular Short Messaging Service (SMS), which allows subscribers to send up to 160 characters of text to anywhere in the world for less than the average price of one minute of voice. However, MobiNil customers could only send SMS messages to other MobiNil subscribers. Click Vodafone subscribers were faced with the same frustration. Expressing the sentiment of what seemed all of Egypt, one irate subscriber said, "I can send messages anywhere, but just not across the Nile to my friends, and all because of competition."

For a brief moment, it seems, the two companies have buried the hatchet. In October 2001, the two companies signed an Interconnect agreement to launch inter-operator SMS service. The long-awaited agreement still has all of Cairo talking.—