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Egypt Telecommunications Report Q1 2012

The Q112 update on Egypts telecommunications market contains the latest operational and financial data for 9M11. The new data have been published by fixed-line incumbent Telecom Egypt (which also publishes data for the countrys largest mobile operator Vodafone Egypt) and Mobinil (which is jointly owned by Frances Orange and Egypts Orascom Telecom). Data published by Telecom Egypt and Mobinil help us determine the size of Egypts mobile telephony sector at the end of September 2011. The Ministry of Communications and Information Technology (MCIT) has published new data on the number of fixed-line, internet and broadband subscribers at the end of September 2011. Meanwhile, we have extended our forecast for the three sectors over a new five-year period ending 2016.

Based on figures published by Mobinil and Vodafone, and market data published the MCIT, we estimate that the country registered net additions of 9.536mn subscribers during the first nine months of 2011 to reach 80.177mn mobile customers at the end of September. This represents growth of 4.8% q-o-q in Q311 and by 25.4% y-o-y. It also reflects a mobile penetration rate of 93.3%, up from 83.6% at the end of December 2010. This performance is remarkable considering the negative effect of the ongoing political crisis on economic activities. Analysts believe a combination of promotional activities by operators and the increased need for communication because of the political climate is mainly responsible for the uptick in mobile subscriptions in Egypt. Although we expect the mobile market to maintain a steady growth rate during our forecast period, we caution that a considerable number of net additions during the political crisis may be artificial, resulting in many of those lines becoming inactive and ultimately discounted. This poses a significant downside risk to our revised forecast, which envisages mobile penetration to reach to 116.6% by 2016, equivalent to 104.372mn subscribers.

Data from the MCIT show that the decline in fixed-line subscriptions accelerated during Q211 and Q311 to bring the total number of active lines to 8.955mn at the end of September 2011. Fixed-line incumbent Telecom Egypt, which is the sole provider of fixed-line services in the country, attributed the loss of fixedline subscribers to the tightening of its credit policy on non-payment and the negative effect of the ongoing political crisis on business and tourism activity. With strong prospects for increased fixed-to-mobile substitution, we forecast a steady decline in fixed-line subscriptions in Egypt over the next five years. By 2016, we expect fixed-line penetration to fall below 8% from almost 12% in 2010.

According to the MCIT, there were 2.12mn USB modem customers at the end of August 2011, up by 104.2% y-o-y. In the last few months, the proliferation of mobile broadband services, including those using USB modems, smartphones and other portable devices, has led to strong subscriber growth within Egypts broadband sector. Increasingly, mobile broadband services are complementing and competing against broadband services based on ADSL. Between 2011 and 2016, analysts forecast that Egypts broadband sector will grow by approximately 12.4% a year. By 2016 we forecast a total market of about 8.929mn broadband subscribers, equivalent to a penetration rate of almost 10%. It is worth mentioning that we now exclude mobile data subscriptions via smartphones from our broadband forecasts. This brings our broadband forecast for Egypt in line with our specific definition of mobile broadband subscriptions as those that access internet networks via dedicated USB modems and data cards.

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