Telecom Egypt makes approach for £3bn controlling stake in Vodafone Egypt

Telecom Egypt, the country’s fixed-line monopoly, has made an informal approach to buy out Vodafone’s £3bn, 55% controlling stake in mobile phone operator Vodafone Egypt.
The two companies held initial talks about a possible deal about a month…

Telecom Egypt, the country’s fixed-line monopoly, has made an informal approach to buy out Vodafone’s £3bn, 55% controlling stake in mobile phone operator Vodafone Egypt.

The two companies held initial talks about a possible deal about a month ago.

Telecom Egypt owns the remaining 45% stake in Vodafone Egypt – a company that it set up in partnership with Vodafone in 1998.

On May 13, Tarek Tantawy, Telecom Egypt’s chief executive officer, said that he wanted the company to own a mobile phone operator as soon as possible. Telecom Egypt’s fixed-line customer base has shrunk over the last few years as it faces increasing competition from cheap mobile phone subscriptions.

Telecom Egypt could also enter the mobile phone market if the Egyptian government auctions a new mobile phone licence later this year.

The Egyptian authorities may auction a fourth licence after October this year, according to Nick Read, Vodafone Group’s chief executive officer for the Asia Pacific and Middle East region, who spoke on the sidelines of Vodafone’s annual results on 18 May.

Telecom Egypt said it would consider either a takeover of Vodafone Egypt or the acquisition of the new licence.

“The company is exploring several alternatives including increasing its stake and role in Vodafone Egypt or potentially to apply for the fourth mobile licence if the Egyptian government were to make one available,” the company said in a statement on 21 May.

If the government auctions a further licence, however, Telecom Egypt risks losing out to a more cash-rich bidder, such as Saudi Telecom, the Arab world’s largest operator by market capitalisation.

Vodafone sees chance of a fourth operator in Egypt

The Egyptian government could licence a fourth mobile phone operator as early as October this year, according to a senior Vodafone executive who met the Egyptian minister of communications in March.

When the UAE telco Etisalat won the third mobile phone licence in the country back in 2006, the Egyptian authorities agreed to give Etisalat until at least October 2010 to establish itself in the market before licencing a new competitor.

On May 13, Tarek Tantawy, the head of Egypt’s fixed-line monopoly Telecom Egypt, reignited speculation that the state would soon licence a new mobile operator when he said that he hoped his company would soon get a licence.

As Telecom Egypt owns 45% of Vodafone’s Egyptian subsidiary, some of the analysts who cover Vodafone expressed concern about the fate of the company.

According to Nick Read, the chief executive officer of the Asia Pacific and Middle East region at Vodafone, Egypt’s communications minister Tarek Kamel has said that the state may launch an auction for a fourth licence later this year.

“I met with the minister two months ago and his consideration was that it is an option that could be done. It’s all related to Etisalat’s window that’s due to come off in October this year. There is speculation in the market and Telecom Egypt is adding to that speculation,” Read said.

However, both Read and Vittorio Colao, Vodafone Group CEO, denied that the UK operator had problems with its minority shareholder in Egypt.

“We have a very good relationship with Telecom Egypt and with the government. What I can tell you is that it’s a very positive, friendly, mutually win-win type of situation,” said Colao.

Telecom Egypt expects to start using submarine cable this summer

Telecom Egypt, a monopoly fixed-line operator, expects to start using its new submarine cable to Europe this summer.

The telco forecasts that the cable, called TE North, will add between £E700m ($124.8m) and £E800m to its revenues this calendar year.

The company will use TE North to provide faster internet connections and bandwidth at a lower cost, said Tarek Tantawy, the company’s chief executive officer.

“The trend going forward is for more bandwidth-intensive applications,” he said.

Telecom Egypt relies on its sales from providing wholesale services, such as bandwidth, to counteract falling revenues from its fixed-line business which has been hit by increasing competition from Egypt’s three mobile phone operators.

The wholesale business accounted for £E1.2bn, or 48%, of total revenues of £E2.5bn in the first three months of 2010. Wholesale services generated 14% more revenues than they did in the first quarter of 2009.

The retail business produced £E1.3bn of revenues, down 12% on the same period a year earlier.

Tantawy also said that Telecom Egypt planned to become the country’s fourth mobile phone operator, even though the Egyptian telecoms regulator has yet to declare whether it will license a new entrant. Tantawy failed to give any details of how Telecom Egypt would enter the market.

The company said that its 45% stake in Vodafone Egypt – the country’s second-largest mobile phone operator – contributed £E300m of net profits in the first quarter.

Vodafone’s UK-based parent will disclose full financial results on May 18