The brutally competitive worlds of advertising and Egypt’s telecom sector have collided — in Ramadan, nonetheless — to bring us one of the most controversial television commercials this year.
Etisalat, with the smallest market share, took its biggest competitor head-on, borrowing a character from a previous Vodafone ad campaign and using him to take several not-so-subtle jabs at the latter’s star-studded, sing-songy Ramadan ad.
The narrator asks the former Vodafone genie (who’s all decked out in their signature red), “They left you out of this cool song, huh? Do you plan on telling us how much they spent on that commercial? A respectable amount, huh? Shouldn’t they have given this money to the people? That would’ve made them happier.” Then his colors turn Etisalat green.
Heated debate ensued on social media, as it always does, over the ethics of the approach — whether this was a cheap shot or brilliant uppercut by Etisalat, which telecom operator actually benefited from the campaign, and so on.
But on Thursday, consumers launched their own social media campaign calling on citizens to briefly boycott telecom operators by turning off their mobile phones from 5-10 pm in protest against poor services, higher prices and the government’s control over the sector’s infrastructure.
Regardless of catchy advertising campaigns, there are a few things consumers are well aware of and have repeatedly objected to.
One: While fierce competition exists in the telecom sector, it hasn’t translated into better rates and services for customers. Two: There has been a steady deterioration in the quality of mobile and internet services in the past few years. Three: Both government entities and telecom operators have been slow to address these glaring problems, though they acknowledge them.
The state of telecoms
“It would be difficult to find anyone who disagrees that the quality of all the services provided today in the telecom sector are not satisfactory, be it in mobile or fixed internet, or fixed voice,” says Khaled Sherif, deputy to the minister of telecommunications.
Once squarely in the spotlight of Egypt’s economy, growth in the telecom sector has noticeably dimmed over the last four years. The industry is faced with a myriad of problems that are fully acknowledged by government bodies and market players alike.
Starting in 2004 under the government of former Prime Minister Ahmed Nazif, who hailed from a telecom background, the sector grew at robust rate and was pinpointed as a key driver in efforts to modernize the economy. Like many sectors, it hit a roadblock in 2011, and has not recovered since.
Today, growth is sluggish, the quality and speed of mobile and internet services have noticeably deteriorated and talks about the introduction of a fourth mobile license have been exceedingly erratic, leaving operators perplexed as to which strategy to follow moving forward.
In this context, network upgrades have come at a slow and inconsistent trickle, and services on offer lack innovation while pricing remains above global averages. For customers, this means patchy mobile connections, dropped calls, slow and pricey internet services and overall frustration.
“It was growing at a higher rate than the Egyptian economy,” says Khaled Hegazy, Vodafone’s external affairs and legal director. “After the revolution, there was a shift. We have not been the focus of the government for the past four years. There has been a succession of ministers that didn’t stay long, no long-term vision and none of the previous plans were carried out.”
For example, Egypt was due to introduce 4G by 2014, but that has obviously been delayed, Hegazy notes.
Sherif, who assumed his position alongside the new minister in the last Cabinet shuffle, says that their focus is to enter the next era of telecom development with 4G.
“When we say 4G, it is about providing the capability of having access speeds that are in the range of 100MB per second, whether it is fixed or fiber,” he explains. 4G and its associated technologies “give a new horizon for telecommunication and ICT at large, give new capabilities for development on the technical as well as the socioeconomic side.”
For this to happen, the country first needs a new regulatory environment. Sherif argues that there is a need to move away from facility-based licensing, which gives a telecommunications service provisions license to establish a network, and into service-based licensing, where companies can provide services without necessarily owning a network.
However, he admits, “we cannot take decisions to move into this new regulatory framework with the current status of service provisions. We need to improve the quality, make sure that networks at large are capable of providing the new aspirations for higher performance, higher speeds and more penetration.”
Similarly, the ministry plans to kick fixed internet speeds up to up to 4MB per second by 2016, because “today, we have [internet] speeds in Egypt that are quite embarrassing,” Sherif concedes. So much so that the global index for internet performance published by the US-based firm Akamai does not even rank Egypt, because it sets a minimum speed of 4MB per second for the listed countries.
Egypt’s fixed internet penetration levels are low, varying from an official 14 percent to around 34 percent if you factor in unofficial connections. MCIT is targeting 50 percent household fixed internet penetration by the end of 2016, which Sherif admits is still a modest goal.
Mobile saturation, slow growth
Over the years, Egypt’s mobile penetration grew at exponential rates and swiftly reached saturation levels. As of this past March, there were 96 million mobile subscribers — a penetration rate of 111 percent, according to the latest monthly report released by the Ministry of Communications and Information Technology.
Officially, the number is down 5 percent from the previous year’s 101 million subscribers and an 8 percent drop from a penetration rate of 119 percent, but this is attributed to a security measure taken by the National Telecommunications Regulatory Authority (NTRA) to cancel more than 5.5 million lines that were inactive or not linked to specific user data.
On the revenue side, mobile operators have also been disappointed. Vodafone has a 44 percent share of the market, with Mobinil in second place at 33 and Etisalat at 23.
“When it comes to mobile, we haven’t seen growth since 2011,” says Sarah Shabayek, a telecom analyst with investment firm CI Capital, adding that growth on the revenue side has been in the single digits.
Historically, revenue growth came directly from a surge in the number of subscribers, but today’s market has almost reached maturity, Shabayek asserts.
“In all markets globally, after penetration maturity comes data revenue that would lead to another round of growth — but that hasn’t happened,” she contends.
As of March, there were 23 million mobile internet users, a 35 percent annual increase and 3 percent more than the month prior. The growth rate is nowhere near the trajectory witnessed with mobile subscriptions in the 2000s.
“There’s no data uptake as you would have imagined there would be,” says Shabayek, attributing this failure to bad network quality, which does little to entice users to adopt mobile internet.
For mobile data, there exist other barriers to entry — chiefly socioeconomic issues such as illiteracy and low income levels, as well as macroeconomic issues that affect disposable income. However, as Shabayek points out, “even people that would want the service or would want to increase their service are not encouraged by the quality.”
“Expected growth in the market comes from growth in services, subscribers, value-added services,” says Hegazy. “If there is nothing new to offer, the market won’t grow.”
Politics of the network infrastructure
The poor quality is a direct effect of mobile operators not investing in their networks, Shabayek argues, which can also be tied to the negative macroeconomic effects. “They weren’t sure whether to invest or not, and this is where they got it wrong, because people will continue to use data and mobile even if the macroeconomic scene is not positive,” she says.
But there’s another bottleneck to network upgrades that lies in the sector’s very infrastructure, which is in full control of the country’s landline monopoly Telecom Egypt (TE), 80 percent of which is owned by the government.
Since 2014, Telecom Egypt has been working to replace copper cables with fiber. The target is to completely overhaul the network over the next two years, says Sherif, but “unfortunately, they started very late.”
“All mobile operators and fixed internet providers depend on the same infrastructure,” says Hegazy, and “there’s only one company allowed to provide infrastructure, which is Telecom Egypt.”
“We spend a lot of money on upgrading our part of the network, increasing capacity, adding sites and optimizing frequency, but what we can’t control what we can’t help. We all go through the same bottleneck,” he adds.
While Hegazy is hopeful that network upgrades will improve quality, he adds that Telecom Egypt is replacing copper with fiber in the end access point only. “The backbone is not being upgraded,” he says, which could translate into users getting the same speed at a higher price.
Sherif recognizes the “degraded mobile services quality” and claims there are many reasons for it, “all of which are being addressed and resolved, whether from the provider side or from the regulator and enforcement side.”
The ministry recently issued what Sherif called a “charter for performance,” an attempt from the side of regulators to enforce quality control on all of telecom services providers. The charter levies “penalties on companies if they fail to comply with quality standards set by the regulator — in an indirect way, it will force them to improve the quality of the networks,” he says.
“Some argue that companies were not investing sufficiently in network upgrade and quality improvement. I think this is changing now,” Sherif asserts. “We have seen operators like Vodafone investing a lot recently to improve the quality of their network, and others will follow.”
Will a fourth mobile license shake up the sector?
Vodafone is 45 percent owned by Telecom Egypt, and four of its executives sit on the TE board, which saw a sudden shakeup in late May.
Prime Minister Ibrahim Mehleb appointed new government representatives to the board on May 27, removing Mohamed al-Nawawy from his three-year tenure as CEO in the process. The new board selected Osama Yassin as CEO and Mohamed Salem as chairman. Salem served as telecommunications minister in July 2011 in the post-revolution Cabinet of then-Prime Minister Essam Sharaf.
Speculation abounded regarding the reason behind Nawawy’s removal, and none of the sources Mada Masr spoke to would give an explanation of what happened.
Nawawy was keen on buying the long-awaited license that would finally enable Telecom Egypt to enter the mobile market, and had agreed to pay LE2.5 billion for it in May 2014. This was at a time when the government was considering offering all market players a unified license, but it was never activated.
Since then, it has been increasingly unclear whether Egypt will move forward with plans for a unified license or choose a different path to allow Telecom Egypt access to mobile, a move that has been in the making for several years.
Sherif says that the ministry and the regulator are indeed now attempting to adopt a unified license for all market players, as opposed to selling a fourth mobile license directly to TE.
“A unified license would allow all telecom service providers in the country the same capability of providing all the services listed in this license,” says Sherif. Due to launch in 2016, it is essentially meant to level the playing field.
Shabayek explains that the unified license gives all operators what is missing in their license. For example, Vodafone has mobile data and mobile voice, but not fixed voice. Mobile operators also have to go through Telecom Egypt’s international gateway for international phone calls, she says.
With a unified license, each of these services would be priced, and operators will have to pay to add on the services they currently lack. Telecom Egypt would therefore pay LE2.5 billion to be able to provide mobile services, and may have to sell its stake in Vodafone.
But this could further cut into Telecom Egypt’s revenue, which is already suffering from the decreasing usage of landline services. If mobile operators get their own international calling gateway, “that would be another 30 percent of the company’s topline,” Shabayek points out.
Another issue of contention is that the unified license would give mobile operators access to the infrastructure. “It would cost Telecom Egypt a lot in revenues, because today it has the largest infrastructure footprint, so mobile operators have to lease this infrastructure,” which constitutes another 30 percent of its revenue, explains Shabayek.
In theory, mobile operators wouldn’t need to lease the infrastructure if they can duplicate it, but technically it would be difficult to do so as that would entail digging up Cairo’s streets. Besides the nightmare this would represent logistically, it’s a security concern for the ministry and the NTRA.
There has been a proposal for a national entity for infrastructure, which would bring the four main players together to save on the infrastructure costs. However, that plan is also controversial, because it would have officials from the different security ministries on the board.
“Telecom Egypt needs to decide which way they want to go,” Sherif concludes. “There are many options and compromises to be taken into consideration in getting this license.”