This post is based on an email discussion I had with Prof David Mellor, as the discussion seemed to be productive, Dr Mellor suggested that we share it on the blog and open the discussion with more participants.
As an introduction, for those unfamiliar with the current political conditions in Egypt, the country has been facing major transformations since the Arab spring and the overthrow of the ruling regime in January / February 2011.
During those 12 months, Egypt had 3 different Prime Ministers and 3 different ICT ministers; which certainly had an unlikely impact on the telecom regulations.
It also deems necessary to share some information about the telecommunications environment and market, please refer to the footnote* for a brief introduction.
Due to the political instabilities, Foreign Direct Investment (FDI) and tourism revenues are declining, creating economic pressures, resulting in a growing trend in protecting the existing government sources of income, including Telecom Egypt dividends (approx. Net Profit of GBP 300 in 2011).
There is also an on-going general mood of favouring public over private investments, and perceiving privatisation as driven by corruption.
All those factors are resulting in the following symptoms:
1) Difficulty in balancing between long- and short-term objectives
Although this is one of the major challenges facing most regulators, during turbulent times, the magnitude of the challenge is multiplied.
As an example, market reforms through additional liberalisation, as a long-term objective has a negative effect on the incumbent’s short-term financial results.
2) Delay in licensing new services / promoting existing services
Licensing new services specially requiring large investments cannot be offered during uncertainties. As a result, LTE plans will not be realized in the near future, same applies to an ambitious broadband initiative, aiming at tripling the fixed broadband penetration in 3 years.
3) Slow decision-making
Fearing allegation of corruption, decision-making process in the government is escalated to higher than usual levels. Operational decisions are often escalated to board of directors, and in some cases to the general assembly.
As a remedy for this situation, there are certain steps that have to be taken. Some of the possible solutions may be:
*Footnote
The regulatory body is the National Telecommunications Regulatory Authority (NTRA), which reports to the ICT ministry, and the minister himself is the NTRA (honorary) chairman.
The incumbent (Telecom Egypt) is primarily government owned (80% of the shares) and it enjoys monopoly position in:
• Plain Old Telephone Services (POTS)
• Transmission Network Infrastructure
And a semi-monopoly in the International voice gateway (Etisalat Misr, the 3rd mobile operator is licensed to operate an international voice gateway, limited to its own traffic)
It also fully owns the market leader Internet Services Provider (approx. 60% market share)
Telecom Egypt does not own a mobile license (MVNO is not yet introduced in the market); it owns however a stake of 45% in Vodafone Egypt
The mobile market is highly competitive, 3 MNO licenses were issued
As for the data market, there is a high number of ISP’s which are continuously being consolidated, mainly under mobile operators.
The NTRA recently issued 2 infrastructure licenses, with the scope limited to the residential closed compounds.
For a complete list of the licensed telecom services, you may refer to:
http://www.ntra.gov.eg/presentations/LicensedTelecomTree16012012_En.pdf
As an introduction, for those unfamiliar with the current political conditions in Egypt, the country has been facing major transformations since the Arab spring and the overthrow of the ruling regime in January / February 2011.
During those 12 months, Egypt had 3 different Prime Ministers and 3 different ICT ministers; which certainly had an unlikely impact on the telecom regulations.
It also deems necessary to share some information about the telecommunications environment and market, please refer to the footnote* for a brief introduction.
Due to the political instabilities, Foreign Direct Investment (FDI) and tourism revenues are declining, creating economic pressures, resulting in a growing trend in protecting the existing government sources of income, including Telecom Egypt dividends (approx. Net Profit of GBP 300 in 2011).
There is also an on-going general mood of favouring public over private investments, and perceiving privatisation as driven by corruption.
All those factors are resulting in the following symptoms:
1) Difficulty in balancing between long- and short-term objectives
Although this is one of the major challenges facing most regulators, during turbulent times, the magnitude of the challenge is multiplied.
As an example, market reforms through additional liberalisation, as a long-term objective has a negative effect on the incumbent’s short-term financial results.
2) Delay in licensing new services / promoting existing services
Licensing new services specially requiring large investments cannot be offered during uncertainties. As a result, LTE plans will not be realized in the near future, same applies to an ambitious broadband initiative, aiming at tripling the fixed broadband penetration in 3 years.
3) Slow decision-making
Fearing allegation of corruption, decision-making process in the government is escalated to higher than usual levels. Operational decisions are often escalated to board of directors, and in some cases to the general assembly.
As a remedy for this situation, there are certain steps that have to be taken. Some of the possible solutions may be:
- Detach the NTRA from the ICT ministry
- Issue MVNO licenses, and allow the incumbent an MVNO license opportunity
- In return, introduce competition in the services where Telecom Egypt enjoys a monopoly (or duopoly) status, for example Infrastructure and International voice gateways.
*Footnote
The regulatory body is the National Telecommunications Regulatory Authority (NTRA), which reports to the ICT ministry, and the minister himself is the NTRA (honorary) chairman.
The incumbent (Telecom Egypt) is primarily government owned (80% of the shares) and it enjoys monopoly position in:
• Plain Old Telephone Services (POTS)
• Transmission Network Infrastructure
And a semi-monopoly in the International voice gateway (Etisalat Misr, the 3rd mobile operator is licensed to operate an international voice gateway, limited to its own traffic)
It also fully owns the market leader Internet Services Provider (approx. 60% market share)
Telecom Egypt does not own a mobile license (MVNO is not yet introduced in the market); it owns however a stake of 45% in Vodafone Egypt
The mobile market is highly competitive, 3 MNO licenses were issued
As for the data market, there is a high number of ISP’s which are continuously being consolidated, mainly under mobile operators.
The NTRA recently issued 2 infrastructure licenses, with the scope limited to the residential closed compounds.
For a complete list of the licensed telecom services, you may refer to:
http://www.ntra.gov.eg/presentations/LicensedTelecomTree16012012_En.pdf
Very interesting indeed. I can understand how it might be difficult to invest in telecoms in such an uncertain market; I know that Vodafone has had particular problems in Egypt during the "Arab spring."
ReplyDeleteI wonder whether a regime based on authorisation rather than licensing might be beneficial — although perhaps impossible to make such a change at the current time, as it would likely be seen as a lessening of control. However, if market entrants did not need to seek specific approval, and negotiate a licence (or even just sign a standard-form licence), but rather just had to comply with pre-determined conditions, there may well be a rise in investment. Conversely, if there is a concern over security, new market entrants simply popping up might not be desirable, irrespective of obligations to support law enforcement and the like.
I'm not so sure about your example of the problems of balancing long- and short-term objectives though, with the reference to the impact on the incumbent. A liberalisation regime is, by definition, taking power away from the incumbent, and, where the incumbent is state-controlled, in pretty much all circumstances this would lead to a lower income, as competing services arise? If the concern is to maximise income from TE, liberalisation is unlikely to be an appropriate path, I would have thought?
The delays and the slowing down of decision making and implementing needed reforms is understandable when there continues to exist a situation of instability and unpredictability in the political arena. The detachment of the NTRA from the Ministry may be a helpful first step in creating a robust framework for providing a level playing field for competition in the telecom sector.Here in Tonga the regulator is the Ministry of Information and Communication, but there is some indication from government circles that the regulatory function will ultimately stand as an independent body. Any shortcomings in carrying out the duties of a regulator derives mainly from an acute lack of resources, including the lack of the skilled manpower to enforce the law. For example, the testing of radio equipments and operator skills is a huge undertaking that the Ministry is ill-equipped to carry out especially wireless equipment on small boats that are spread out over a vast ocean area in remote islands and sanctuaries.
ReplyDeleteThe Ministry is also responsible for overseeing the broadcasting sector, not only the licensing and frequency allocation but also the content with respect to defamation and cultural sensitivities considerations.
You said that the incumbent enjoys a monopoly position in PSTN services, but with the encroachment of wireless into the market, what we find here in Tonga, is that the PSTN is beginning to be a burden on the only operator that has them, Tonga Telecommunication Corporation, TCC. The new entrant to the market, Digicel, only has a wireless network and therefore does not have to deal with any copper network. The copper lines are old, the parts are hard to get, and very expensive, as there are less and less of them being manufactured, and are not suitable for broadband applications.
I note that the Technical Advisory Committee to the FCC has recommended that the FCC should set a date for the end of the PSTN. It estimates that by 2018, only 6% of subscribers in the US will still be using the fixed line. http://blog.connectedplanetonline.com/unfiltered/2011/07/07/fcc-considering-exploring-end-dates-for-the-pstn/
So perhaps from a regulatory point of view, the monopoly on PSTN may not necessarily be a competitive advantage, but is an albatross hovering over the challenging future of the only operator that was "blessed" to have them in the first place, as a legacy of its roots in the bygone era of the monopoly service provider.