EGYPT: THIRD MOBILE LICENSE AGREEMENT SIGNED

UNCLAS CAIRO 005287 SIPDIS SENSITIVE SIPDIS STATE FOR NEA/ELA AND EB/CIP USAID FOR ANE/MEA MCCLOUD USTR FOR SAUMS/AUGEROT/MCHALE/NEUREITER COMMERCE FOR 4520/ITA/ANESA/TALAAT FCC FOR INTERNATIONAL BUREAU/COOPER E.O. 12958: N/A TAGS: ECON ECPS EINT EINV ETRD EG KCOR KGIT SUBJECT: EGYPT: THIRD MOBILE LICENSE AGREEMENT SIGNED REF: CAIRO 4142 Sensitive but unclassified. Not for internet distribution. ¶1. (U) Summary: The National Telecommunication Regulatory Authority (NTRA) recently signed a licensing agreement with Egyptian-Emirati consortium Etisalat for operation of Egypt's third mobile phone system. Etisalat paid LE 16.7 billion ($2.9 billion) for the license, a sum that will have a significant positive effect on Egypt's public finances in the current fiscal year. Etisalat plans to begin service in early 2007, and will invest up to $1 billion in the initial stage of operations. Service will only be offered, however, in Egypt's major urban centers. The competition from the third mobile operator is expected to lead Egypt's current operators, Mobinil and Vodafone, to upgrade their technology and services. End summary. ¶2. (U) On August 21 the National Telecommunication Regulatory Authority (NTRA),headed by Amr Badawi, signed a licensing agreement with Etisalat, an Egyptian-UAE consortium, for operation of Egypt's third mobile phone system. Prime Minister Nazif and Minister of Communication and Information Technology Tarek Kamel were also present at the signing ceremony and President Mubarak met with the consortium representatives the following day to discuss Etisalat's operational plan. As noted in reftel, Etisalat won the tender for the third cell phone license by offering LE 16.7 (USD 2.9 billion), more than eight times the minimum price asked by NTRA. The LE 16.7 billion was paid in full on August 17 to NTRA, which will eventually transfer the funds to the Ministry of Finance (MOF). ¶3. (SBU) Payment of the licensing fee was executed August 17 and has already had a significant effect on Egypt's public finances. Minister of Finance YBG indicated that revenue from the licensing fee would reduce the GOE's budget deficit from 6.5% to 4.6% in the current fiscal year 2006-07. He also predicted the new mobile operation would increase foreign investment, possibly to $3.2 billion, up from previous estimates of $1.5 billion for the current fiscal year. Shortly after payment of the licensing fee, the MOF announced it would decrease its next Treasury bill offering by LE 10 billion. Mohamed Assaad, Advisor to YBG, told econoff that the GOE had planned to tender LE 29.5 billion in T-bills from 22 August till 26 September, but will now only offer LE 19.5 billion, with quarterly maturity rather than annual. ¶4. (U) According to Etisalat president Mohamed Omran, the company, which still has not announced a commercial name, plans to begin trial operations in November or December, and full service by February 2007. Initial investment will reach approximately $1 billion, backed by investments and loans from some over 22 financial firms, including some U.S. financial houses. Omran denied rumors that Etisalat was planning an IPO of 10%-15% of the new company. Etisalat will offer service only in Cairo, Alexandria, Sharm el-Sheikh and Hurgada, and will sign national roaming agreements with Egypt's other two operators, MobiNil and Vodafone Egypt to cover the rest of the country. The new system will use elements of "3G" or third generation technology, a more advanced technology than that used by Mobinil and Vodafone. ¶5. (U) On the same day that Etisalat's full service begins, NTRA plans to introduce Mobile Number Portability, a system that will allow users to switch from one operator to another while retaining their mobile number, according to NTRA President Amr Badawi. Industry experts predict that the increase in competition from Etisalat will force Mobinil and Vodofone to upgrade their operations, a process that will require additional licensing from NTRA. Omran also indicated recently that Etisalat will bid on an international gateway license the GOE will tender later this year to carry telecommunications traffic to and from Egypt, further increasing the competition for Egypt's telecommunications market. RICCIARDONE