NO TIMELINE SET FOR OFFER OF A SECOND FIXED LINE

UNCLAS CAIRO 002042

SENSITIVE
SIPDIS

DEPT FOR NEA/ELA AND NEA/EEB
DEPT OF COMMERCE FOR IT MAS AND NTIA

E.O. 12958: N/A
TAGS: ECON EFIN EG PGOV ECPS EINV
SUBJECT: NO TIMELINE SET FOR OFFER OF A SECOND FIXED LINE
TELECOM LICENSE

REF: CAIRO 1928


1. (SBU) Key Points

- GOE has no set timeline or conditions upon which to offer
a second fixed line telecom license.

- NTRA President Badawi believes any future offer of second
fixed line license would be a revenue-sharing model.



2. (SBU) On October 12, we met with Amr Badawi, President of
the National Telecommunications Regulatory Authority (NTRA)
and discussed the GOE,s postponement of offering a second
fixed line license that would assist in fully de-regulating
the telecommunications market. Badawi reiterated the
official line that the GOE was postponing the offer of a
second fixed line license due to the world economic crisis.
Badawi stated that the Ministry of Communications and
Information Technology (MCIT) and NTRA wanted to see better
market conditions before they offered a second license;
however, despite being pressed multiple times, Badawi was
unable to define what would determine or quantify better
market conditions.


3. (SBU) Badawi claimed that Telecom Egypt lost 1.4 million
fixed line customers over the past three to six months, most
of whom were subscribers who were simply long overdue in
paying their bills. Thus, Telecom Egypt had made the
business decision to finally cut the lines off. Badawi used
this figure to claim that fixed-line communication was not a
growing industry but rather a dying one.


4. (SBU) Badawi,s personal opinion is that if and when the
GOE offers a second fixed-line license, it would most likely
do so through a revenue-sharing model, as this would be less
of an up-front burden to a new entrant into the market.
Badawi stated that he would like to see a new entrant have a
reasonable chance of success before determining that GOE will
offer a new fixed line license. Badawi believes that
although Telecom Egypt has the fixed line monopoly, mobile
phone operators serve as its competition, as more residential
subscribers were moving away from having fixed lines in their
homes and simply using cellular phones. Badawi also worried
that the infrastructure and its associated costs would be too
burdensome for a new entrant into the fixed-line market and
that this would in turn affect the GOE,s ability to make
decent revenue from the project.


5. (SBU) Comment: The MCIT is not committed to implementing a
full de-regulation of the fixed line market in Egypt and has
yet to explain what specifics they are waiting for to make a
decision on offering a new license. If the GOE were to offer
a new fixed line license based on a revenue-sharing model,
there would be little cost to the GOE while at the same time
opening up the market to full competition. The recent
decision by the MCIT to offer two new "triple-play" or
"compound" licenses for small, gated communities (Reftel) may
serve as a temporary solution to start breaking up Telecom
Egypt's monopoly on fixed line; however, it is only a small
step. Although fixed line growth is not likely to be high
given the ever-expanding technologies in Egypt, the GOE has
the opportunity to offer another license for bundled services
to include fixed line that may attract more bidders. While
the NTRA has tended to focus on the effect that fixed line
communication has on private citizens, NTRA does not address
the effect that this has on potential businesses and
investment. As most businesses need a fixed line operation,
the monopoly that Telecom Egypt has on fixed line can impact
costs.
Scobey