Orascom Telecom: An Egyptian Success Story

As Egypt’s most well-known success story, Orascom Telecom [OT] is a textbook example of how to take one man’s vision, combine it with a thick layer of hard work, add a dash of luck, and create one of the region’s most dynamic regional telecommunications powerhouses.

In three short years, Naguib Sawiris, OT’s chairman, has expanded from his first GSM [Global System for Mobile Communications] license in Egypt to acquire 19 licenses in Africa, the Middle East and in Asia. OT is now one of the leading companies listed on the Cairo and Alexandria Stock Exchange and is also listed in London.

OT’s most recent agreement to acquire Algeria’s first private GSM license for $737 million in July has solidified the company’s reputation as a regional player able to compete, and win, against giant telecoms such as France Telecom and Spain’s Telefonica.

"We are a completely different company today," Sawiris said. "This is the first time we have gone into a huge country like Algeria and challenged Telefonica and Orange. The whole world will look at us with a completely different view."

The Algerian license is typical of the dramatic expansion undertaken by Sawiris over the last several years. Despite a population of 33 million and ample oil and gas receipts, Algeria has but one mobile operator managed by the government. Highlights of OT’s terms include a 20-year renewable license with no additional payments; no issuance of a third GSM license for two years; license payable in two installments of $368 million; customs deduction of 5% on all goods; and full convertibility of all revenue into foreign currency.

"We obtained the license and now we need to show that our assumptions are right," Sawiris said of the Algerian deal.

Proving those assumptions right - at least in the short term - may be easier said than done. Following the announcement, OT stock in Egypt and in London nosed downward primarily over investor concern over the perceived high cost of the license. Two other mobile operators were short-listed to participate: France Telecom, with a substantially lower bid of $422 million; and Spain’s Telefonica, who ultimately chose not to submit a bid.

Sawiris defended the $316 differential between the two bids by saying that the Algeria government had targeted $900 million for the license. Had OT bid in the range of France Telecom, he maintains that the Algerian government would have withdrawn the offer, as Tunisia recently did in a similar GSM license offer. "So where would I be today?" Sawiris said. "I would be without an Algerian license and I would not be the same person."

Answering investor concern over financing of the Algerian deal, Sawiris characteristically had a short dismissal: "I don’t know why they should be worried. The only one who should be worried is myself. I own 60% of this company, and I am definitely not worried."

Sawiris expects to launch services in February 2002 in Algeria. While acknowledging that it may be difficult, he aims for one million subscribers in the first year and eight million within the first five.

This would be a substantial addition to OT’s existing subscriber base of 2.7 million. OT’s current licenses include Egypt, Jordan, Pakistan, Yemen, Syria, and 11 countries in Sub-Saharan Africa.

In addition to Algeria, OT has other global ambitions. Sawiris said he is looking at the United Arab Emirates, Saudi Arabia, and Iran, when the climate is right for investment. But don’t underestimate Sawiris’s ability to find new markets or his willingness to tackle the seemingly impossible resources of the global telecom giants.

"For Algeria, this is the first time someone has come in from the Third World and challenged multi-nationals. So if you talk about globalization, this is my answer."—