Subscriber numbers exceeded 56 million and revenues topped £603 million in the first quarter of 2007

As liberalisation has spread across the region, Middle Eastern telecoms markets have experienced a great deal of change in recent years. This has led to a newly competitive environment and increasing rates of market penetration in the industry, releasing new opportunities for operators and investors alike.

Established in 1998, Orascom Telecom is considered among the largest and most diversified telecommunication companies in the area. It designs, builds and operates complete communications infrastructures. The company has GSM networks in seven emerging markets across the Middle East, Africa and South Asia that have seen remarkable growth across the board. Its subsidiaries cover Algeria (Djezzy), Pakistan (Mobilink), Egypt (Mobinil), Tunisia (Tunisiana), Iraq (IraQna), Bangladesh (Banglalink) and Zimbabwe (Telecel Zimbabwe).

Naguib Sawiris, Chairman and CEO of Orascom Telecom Holding, says, “I believe that Egypt can be the telecommunications hub for the region, especially because of its unique geographical location. Recently, we acquired the licence for the first fibre-optic cable in two landing stations here in Egypt. This will allow us to connect the cables that we have in Europe with the assets that we have in Pakistan. We will be the only operator worldwide that will connect most of its footprints on its own cable.”

The holding’s first-quarter results for 2007 reflect the vitality of the sector. Total subscribers exceeded 56 million, an increase of 61 per cent over March 2006, and revenues topped LE 6,845 million (£603 million), a rise of 22 per cent over the same period. Net income showed an increase of 7 per cent over March 2006 to reach LE 970 million (£85.5 million), and the group’s earnings before interest, taxes, depreciation and amortization (EBITDA) margin stood at 43.3 per cent.

As at the end of March 2007, Orascom boasts a total population under licence of approximately 460 million with an average mobile telephony penetration of approximately 29 per cent. “I would like to see Orascom hitting 100 million subscribers,” comments Mr Sawiris regarding the outlook for the next five years. “The biggest company in the world now is Vodafone with 200 million subscribers. We are currently approaching 60 million and by the end of next year we could reach the 100 million mark. So we would be half the size of Vodafone and yet we are only eight years old, not 20 years old like the competition.”

Orascom is traded on the Cairo and Alexandria Stock Exchange and the London Stock Exchange. Its Egyptian mobile subsidiary, Mobinil, is among Egypt’s five largest companies by market capitalisation and also one of the five most heavily traded companies by value.

The company boosted its global exposure by acquiring stakes in Hutchison Telecom in 2005. Together, the two enterprises control mobile operations in 15 countries, representing a licenced area covering a population of two billion people. In July, it announced the receipt of $793 million (£395 million) in cash as dividends from the proceeds of Hutchison Telecom’s divestment of its subsidiary in India.

Orascom Telecom has positioned itself as a leader in the region in part from the diversity of its operations. To complement its existing GSM and internet services, in January this year it launched OTV, an Egyptian TV channel featuring international TV shows and films. “OTV is a local satellite channel very much focused on the Egyptian population,” says Mr Sawiris. “Some other Arab countries are watching OTV because it is very open. If the fundamentalists are one extreme, then we want to be the other extreme. I want them to watch a movie and see what love and sex are all about. Currently, we are considering introducing channels for music and movies, plus we are looking for a partner to join us to launch a news channel.”

The expansion policy of Orascom Telecom is renowned for its readiness to take risks in markets with high population and low penetration rates. “It’s the size of the market that matters. It is better to operate in one country with 150 million people, like Pakistan, than in 30 countries with five million. This is because you will then have only one subject to deal with, one CEO, one regulator and one country risk. We are all looking for growth and that is why the low penetration is important,” comments Mr Sawiris.

“British companies have done very well here in Egypt, especially in the oil and gas with BG Egypt, pharmaceuticals with GlaxoSmithKline, and telecoms with Vodafone,” Mr Sawiris adds. “Vodafone has done a great job here, better than in many other countries. They helped educating many Egyptians and building a new industry. Egyptians are very innovative and resourceful. Also, they are loyal to the company and you cannot buy them with money; they would rather have an opportunity.”

Naguib Sawiris Chairman and CEO of Orascom Telecom Holding

‘The clock is ticking; investors should come now’

Naguib Sawiris, CEO of Orascom Telecom Holding provides an overview of the telecoms sector in Egypt, the company’s position and opportunities for foreign investors.

This last year has been quite exciting for the telecoms sector…
Yes, we have seen the entrance of the third mobile operator with a huge investment. They paid a high licence fee and they seem to be spending lots of money. Time will tell, but for the moment they are stimulating the economy. For instance in advertising, the billboards and sites are becoming more expensive and the contractors are difficult to find. All this is creating a boom in the economy.

Has your strategy changed with the arrival of a third operator?
No. Actually I am not a big fan of 3G. We have not taken the licence as of yet, but we are under a lot of pressure to do so. Opinions vary, but personally I do not think 3G is useful. On the contrary, I find it very uneconomical. But we might be forced to take it because of frequency constraints. Nevertheless, should we decide to acquire it, we will have a different approach regarding the consumer and this new technology.

Do you have plans for further expansion in Europe?
Yes, we do. We look at under managed assets that would allow us to create synergies if we took them over. We are present on both sides of the Mediterranean and we would like to be perceived as the Mediterranean operator. We are very interested in the French market and will aggressively seek opportunities there.

What advice would you give to potential investors from the UK?
We have never had a better government. The clock is ticking and many opportunities are being lost. For instance, three years ago you could buy companies at half the market cap and you could buy land at one-fifth of the current price. We are only eight years old and we have created $16 billion. So investors should come now, because in two or three years the opportunities will become very scarce.