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If the Egyptian regulatory body, NTRA, comes to the conclusion that a disruptive force is needed to revitalize the Egyptian mobile market, expect a third mobile operator in the medium term. Egypt’s mobile operators, with high EBITDA margins and a perceived reluctance by operators to increase lower end subscribers, is having the NTRA re-considering the possibility of auctioning a third mobile license.
NTRA sizes the addressable Egyptian mobile market at 14m subscribers. Pyramid Research’s mobile demand analysis and benchmarking of similar markets confirms the NTRA assessment. In light of this, Pyramid Research analyst Jonas Lindblad says “subscriber growth has arguably been sluggish and operator profit margins are seen as an additional indication of weak competition and having large unexploited growth opportunities.” At YE2004, the Egyptian mobile market had 7.3m subscribers as shown is Exhibit 1, which is half the addressable market.
Exhibit 1: Mobile subscribers in Egypt, 1998-2004
Source: Pyramid Research, Operators
The entrance of a third operator is not a guarantee for success in the market though. For example, Vodafone Egypt entered the market only a few months after Mobinil back in 1998 and yet the impact is still noticeable in the operators’ ARPS. The 150,000 subscribers that joined Mobinil during its first months of operation have both the money and the appetite for high usage and generally produce ARPS 100-150 times the current prepaid ARPS. At this stage, where the marginal subscriber is prepaid and spends less than $6 a month on mobile services, a third entrant would have to attract at least a portion of the existing post-paid or higher end pre-paid subscribers to survive over the long term, which is no easy task as both Mobinil and Vodafone Egypt are relatively competitive in the higher end of the market. Any potential bidders for a third license must closely follow the regulator’s plans for a UMTS license. Offering high-speed data services and attractive subsidized 3G handsets in major urban areas could be just the kind of differentiator needed in order to establish a diversified and profitable subscriber base.
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