The Middle East / December 2000
By Larry Luxner
CAIRO -- Emotions were running high Nov. 30, 1998, the day startup Egyptian mobile operator ClickGSM began offering service in competition with existing provider MobiNil. Several fistfights broke out at one suburban retail outlet as Cairenes jostled to sign up for the flashy new service.
These days, blood is no longer being spilled in the pursuit of mobile happiness, but the fierce battle for market share continues -- with huge Arabic-language billboards in garish colors vying for the attention of crowded Cairo's 12 million inhabitants.
Mohamed A. El-Hamamsy, CEO of Misrfone Telecom S.A.E., which owns ClickGSM, says that in just two years of operation, his company has been able to capture 45% of the mobile subscriber base in the Arab world's most populous nation.
"The Egyptian market is growing much faster than we predicted," El-Hamamsy told us over breakfast at Ain Sukhna, a resort along Egypt's Red Sea, about 120 kilometers east of Cairo. "We thought the number of subscribers would not reach more than 200,000 during the first year of operations. But we ended Year One at 330,000, and we now have around 750,000."
And not all the new customers are diplomats, movie stars or mobsters, as is often the case in developing countries.
"At the beginning, it's true that the mobile phone was a status symbol. But Egypt's low fixed-line phone penetration -- about six million lines for a population of 65 million -- showed us there was a need not being addressed by the incumbent provider," El-Hamamsy said. "These days, plumbers, electricians and other professionals are using mobile. These people are mosly prepaid users, the ones who are most cost-conscious."
Egypt may have given the world the Great Pyramids, the Sphinx, the temples of Luxor and the ancient library at Alexandria, but compared to other Arab countries it entered mobile telephony rather late in the game.
Egypt's first mobile service was launched in November 1996 by Arento -- a state-owned entity that changed its name to Telecom Egypt two years later. In March 1998, the government decided to deregulate the cellular market, and as a result of an RFP awarded Misrfone S.A.E. a 15-year license for $515 million.
Misrfone is a consortium owned 60% by Vodafone and the rest by local investment group Alkan (10%); Egyptian Finance Group-Hermes (10%); MSI (8%); CGSAT-Vivendi (7%) and Banque du Caire (5%).
To encourage competition, the government decided to give a similar 15-year license (also for $515 million) to a second company, MobiNil, to buy and operate the existing Arento network.
Misrfone launched its new service, ClickGSM, on Nov. 30, 1998, and six months later brought in El-Hamamsy to oversee the fledgling operation.
"Mobile telephony is not a status symbol anymore," said the 54-year-old CEO, who headed IBM Egypt for 13 years and worked as a private consultant for two years before assuming his current job. "We thought we'd be selling only to A and B consumers, but we've been able to crack the D's as well. Half of our prepaid customers pay in installments. This has really boosted business, even though these people are not big spenders."
Prepaid users, which account for more than 80% of ClickGSM's customer base, pay a $200 activation fee, 45 cents a minute to call a landline phone and 35 cents a minute to call another cellular phone. Contract users, who tend to have more disposable income since they must first pass a credit check, pay a $150 activation fee, a $25 monthly service charge, 13 cents a minute to call a landline number and only 6.5 cents a minute to call another cellular phone.
In neither case does the activation fee include the phone itself. Ericsson, which has a 20% share of the handset market here, charges around $185 for the 2618 model and $290 for the T28 model.
"The thing that attracts most customers is a good deal," says El-Hamamsy. "From time to time, we pair with our dealers to make special prices for handsets. People feel they have to grab the opportunity now."
ClickGSM spends $20 million a year on advertising, roughly the same as rival MobilNil, which is owned by Motorola, France Telecom and local conglomerate Orascom.
ClickGSM currently has 1,400 employees, 14 retail outlets and over 1,200 points of sale throughout the country. Revenues in the company's first year of operations came to $200 million, and the company is making a slight profit in its second year, though El-Hamamsy declined to be more specific.
"We now have two private mobile phone companies with international owners," said Johan Gyllensward, president and general manager of Ericsson Egypt Ltd. "That has spurred growth, with the quality going up and prices coming down."
In fact, some 1.7 million Egyptians now have mobile service, up from only 84,000 in May 1998. And although Egypt's per-capita GDP stands at only $1,300, its economy is doing well.
Geographically, Egypt is an easy country in which to offer mobile service.
"The unique thing about Egypt is that it's 96% desert. Therefore, the entire population lives in 4% of the area, which is the Nile Delta and the Nile Valley," says El-Hamamsy, noting that ClickGSM has purchased around $200 million worth of equipment from Ericsson. It now has 700 cell sites and claims to cover 200 cities, while rival MobiNil (which uses Alcatel and Motorola equipment) has 1,000 cell sites but covers only 160 cities.
Ericsson, which defeated Siemens and Lucent Technologies for the ClickGSM contract, built all microwave and transmission infrastructure, and had turnkey responsibilities for the first 60 cell sites. Interestingly, says Gyllenswärd, "Click was the first GSM operator in the world to launch with prepaid."
Hans Hoglund, key account director at Ericsson, estimates that at least 10% of Egyptians -- roughly six million people -- can now afford limited cellular service, thanks to the prepaid concept. "Even taxi drivers have cellphones," he says. "They'll spend a month's salary to get one."
By 2008, predicts Hoglund, some 13 million Egyptians will have mobile service, translating into a cellular penetration rate of 20%. But by then, ClickGSM and MobiNil will face competition from a third, and possibly a fourth, mobile operator.
To encourage greater use of ClickGSM's network, Ericsson has established a Mobile Internet Center in the Cairo suburb of Ma'adi. The idea: to let Egypt's 250,000 or so Internet subscribers use their mobile phones to download useful information.
"Egypt has a good supply of educated professionals in Egypt, and lots of local companies have already established themselves as developers," says Danny Atme, sales and marketing manager at Ericsson Egypt. "We want to help the industry at large develop specific applications suited to the Middle East market, such as Arabic-language applications, local events and Islamic prayer times."
For example, says Atme, state-owned Egyptian Railways intends to launch a website that offers electronic purchase of train tickets.
"We help operators design these applications. We have been supporting ClickGSM with WAP (Wireless Application Protocol) for the last nine months," says Atme. "Although Internet penetration is relatively low, the advent of WAP and the speed of mobile has led to the possibility of quadrupling the number of Internet subscribers in Egypt to well over a million."