Telecom Egypt sees Q3 revenues increase 16% while net profit disappoints

Ahram Online, Wednesday 13 Nov 2013

Fixed-line monopoly benefited from growing internet revenues and lower interconnection costs in 3 month period ending on 30 September

Telecom Egypt
Telecom Egypt (Photo: Reuters)

Telecom Egypt, Egypt's state-owned fixed line operator, announced consolidated revenues of LE2.86 billion for the third quarter of 2013, ending on 30 September.

The results represent a 16 percent increase compared to the same period in 2012, when revenues stood at LE2.48 billion.

The company reported a net profit after tax of LE650 million, representing a net profit margin of 23 percent.

"This is 16 percent below our estimate, and is mainly attributable to foreign exchange losses, due to the appreciation of the Egyptian pound against the dollar in that period," said Omar Maher, telecommunications analyst at Cairo-based investment bank EFG Hermes.

The Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) margin, standing at 39.5 percent, was higher than expected, added Maher, as interconnection costs between Telecom Egypt and mobile operators registered LE496 million for the quarter, lower than in the previous three quarters.

Results showed a slowing but continuing decline in voice revenues experienced by the landline monopoly, which fell by 15.1 percent, compared to 15.6 percent in the third quarter of 2012, as home fixed line subscribers fell from 6.4 to 5.7 million.

"Voice traffic was negatively impacted by the unforeseen events in the domestic market, along with seasonality pressures (Ramadan in July/August)," said the company in its earnings release.

This was offset by an accelerating growth in home data revenue, which climbed to 32.2 percent compared to 25.9 percent in the same quarter of the previous year, as home ADSL subscribers increased to 1.4 million, from 1.2 million in Q3 2012, representing a 62 percent market share.

“We see evidence of a future growth opportunity in our market," said CEO Mohamed El-Nawawy in his statement on the results.

"With fixed broadband and mobile data usage currently sitting at relatively low levels, revenues from these services are steadily increasing and offsetting the decline we see in voice from fixed to mobile substitution."

“The Egyptian telecommunications market is beginning to undergo a significant shift in mobile data usage, where data services such as Viber or Skype now supersede voice communications," explained El-Nawawy.

"Telecom Egypt is well positioned to take advantage of this shift, once we have received the total telecommunications license from the National Telecommunications Regulatory Authority," he added.

The country's only fixed-line services provider is eagerly anticipating the issuing of a virtual universal licence by the Egyptian government, which owns an 80 percent stake in the company, which will grant it the right to provide mobile voice and data services to compete with Egypt's three mobile operators.

In return, the licence will grant the Egyptian Company for Mobile Services (Mobinil), UAE-based Etisalat's Egypt arm, and Vodafone Egypt, which itself is 45 percent-owned by Telecom Egypt, the right to provide landline services through Telecom Egypt's infrastructure.

At a second stage, mobile operators will be granted the right to build their own fibre optic networks, and Mobinil and Vodafone will have to wait for a third phase to acquire their own international gateways.

Disagreements about the plan have delayed the issuing of the licence several times since 2012, with the latest missed deadline in September 2013.

In a phone interview with Reuters on Wednesday, El-Nawawy announced that the licence would be issued in January 2014.

Speaking on Egyptian private satellite channel El-Hayat on Monday, the minister of communications and information technology did not give any indication as to when the integrated licence would be issued.

International customers and networks revenues, from submarine cables, grew by 433 percent, reaching LE449 million in the third quarter of 2013, compared to LE84 million in the same quarter in 2012, as "the business continues to capitalise on the growth of broadband demand and mobile penetration that leads to increased internet and international capacity demand," said the company.  


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