CAIRO: Private equity firm CI Capital released a glowing assessment of the Egyptian telecom sector, including a recommendation that investors buy stock in Telecom Egypt.
The Egyptian telecom sector grew at 13.5 percent for the first quarter of fiscal year 2009/10, posting the second highest year-on-year growth nationwide.
Telecom represents a major factor in Egypt’s ability to maintain positive GDP growth despite flagging profits from traditional revenue sources such as tourism, the Suez Canal, and foreign direct investment.
Simultaneously, Egypt’s IT sector is growing rapidly. According to the “Egypt Information Technology Report Q3 2009 by Business Monitor International (BMI), in 2008 spending on IT reached $1.2 billion, and is expected to nearly double in the next five years, topping $1.9 billion.
Omar Sami, head of the internet department at Al-Ahram Research Center, one of the fastest growing areas of Egyptian IT is providing telecom-related services.
“One of our main strong points in Egypt are the call centers. Increasingly, Egypt provides technical support for multinational companies’ IT sectors. Similar to India, Egypt can provide call center employees at globally competitive rates, he said.
Voice and mobile technologies are merging with data, internet and information technology services across the board.
The report from CI Capital identified the three key segments of Egyptian telecom as mobile, fixed line and internet, but pointed out that technological developments are already blurring the lines between the three.
Sami reaffirmed that internet-based services are creeping into multiple sectors. The IT and finance sectors, for example, are both expected to benefit from new e-banking services, some of which will also be mobile-based.
As distinctions smudge, technologies grow more complicated, and the telecom and IT sectors expand beyond national borders, Sami voiced his confidence in Egypt’s ability to train a globally competitive labor market, be they software engineers or call center employees.
“Egypt’s fresh graduates are ready to work with these new technologies. Our one problem is that Egyptian companies don’t always have the standards equivalent to those found at the international plane. But by increasing exposure to multinational companies, we can propel Egypt to the global standard, explained Sami.
“We have many engineering and computer science schools that thoroughly prepare their students, he continued. “Especially in Smart Village, we are beginning to see Egyptian companies operating according to the same standards.
The report admitted that predictions for the sector’s performance in 2009 had been dismal, but that intense competition among mobile providers had helped to drive growth, while internet profits continue to rise.
Fixed line saw no growth, which the report attributes to the monopoly of Telecom Egypt and recommends the regulator end the profit-damaging price war.
Telecom Egypt’s (TE) fixed line provider monopoly has drawn attention throughout the past two years. In June 2008, headlines proclaimed the decision to extend a second fixed line license. Yet in October government-owned TE announced it would retain exclusive rights to voice services. Two triple-play (data, video and voice) licenses will be granted, but the operator must give Telecom Egypt access to their network.
CI Capital’s bullish assessment of TE is partly due to TE North, is a TE submarine cable system from Egypt to Europe, expected to come into operation next year. TE North aims to lower the cost point of the TE group retail internet arm.
Despite expected profits from TE, the report warns that the development of new services is needed if the sector hopes to continue its upward trajectory, especially as ARPU (average revenue per user) falls. In particular, services that further unify mobile and internet technology are expected to be most profitable.
Cross-sectoral
Again, inter-sectoral collaboration will lead to new services that attract new customers and maintain profits. The expected increase in IT funding will come from the government and foreign investors, who are eying the growing demand for risk management technology.
All over the world, the “never again attitude toward the financial crisis has companies scrambling to demonstrate their commitment to risk management. Spending risk management technology has spiked, as documented by the “Chartis RiskTech 100 report. The report counts Egypt among the countries driving a 10 percent increase in risk technology expenditure.
Sami expects that Egypt’s software development capabilities and low labor cost will make it especially attractive as international companies look to keep costs low will reassuring investors with flashy new risk management software.
“Software outsourcing is growing, with companies looking to develop new programs, especially commercial applications, online banking, e-commerce and internet software. Egyptians will be especially sought to create Arabic language software for the regional market, he explained.
Sherif Fathy, business development manager of SAS Middle East, a business analytics software company, confirms the strong trend towards investing in risk management technology.
Al Bawaba quoted Fathy as saying, “Expectations for the Egypt IT sector remain high, with projection of an 11 percent compound annual growth rate surfacing despite anticipation that 2010 will be another challenging year for the market.
“Specifically, risk management is proving to be an excellent growth market in the country, as the number of initiatives taken to address risk management issues continue to grow.
