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The Possible Value of the 3 rd Cellular License Bid in Egypt

The Possible Value of the 3 rd Cellular License Bid in Egypt. An Arab Advisors’ Analysis Based on Regional Benchmarks October 31, 2005. Egypt’s Regulator NTRA delayed 3 rd Mobile Network. Reasons for the delays:

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The Possible Value of the 3 rd Cellular License Bid in Egypt

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  1. The Possible Value of the 3rd Cellular License Bid in Egypt An Arab Advisors’ Analysis Based on Regional Benchmarks October 31, 2005

  2. Egypt’s Regulator NTRA delayed 3rd Mobile Network Reasons for the delays: • Steep decline in investment levels in the international and local telecom market and lack of liquidity. • Drawback of international operators from any investment concerning the third network at that time in 2002/2003. • Apparent non-feasibility of the third network technically and financially. • Reducing pressure on hard currency sources when the Egyptian pound was devaluated. • The war in Iraq and its effects on stability in the region. • The nascent state of 3G technology at the time.

  3. Change in NTRA’s Decision on 3rd Cellular Network in 2005 Reasons: • An increase in the economic growth rate to 4.8% in 2004/2005 against 3.3% in 2003, which is expected to increase to 6% in the coming fiscal year. • The appreciation of the Egyptian pound vis-à-vis the dollar. • Taming of inflation in Egypt • Successful start of third operators in peer markets, such as Algeria. • Successful implementation of 3G technologies in Arab countries, such as Bahrain and UAE. • Reduction of the cost of cellular network equipment, especially for CDMA technology.

  4. Egypt’s 3rd Cellular License • Winning bidder to be announced early 2006 • Service to start by mid 2007 • Network to be based on 2G and 3G technologies • License to be technology neutral. Can be based on CDMA 2000 or UMTS/ GSM technologies

  5. Background The Arab Advisors Group’s team of analysts has made a benchmarking exercise on the fees paid for regional GSM and cellular licenses in the region. A total of 17 licenses awarded between 1998 and 2005 were analyzed. The 17 licenses were in the ten countries of Algeria, Bahrain, Egypt, Jordan, Morocco, Oman, Saudi Arabia, Sudan, Tunisia and Yemen.

  6. Analysis Methodology The benchmarking exercise calculates the value of license per capita in each of these licenses. In arriving at a possible fair value for Egypt’s third GSM license, the Arab Advisors team took into account many factors such as number of operators, penetration rates, ARPU, and GDP per capita at the time of the award of the licenses. In addition, factors related to the license conditions themselves were also considered, such as license duration and availability of ILD gateway rights.

  7. Regional Cellular Licenses * December 2003: Telecom Egypt surrendered its GSM license, and MobiNil and Vodafone Egypt agreed to pay EGP 1240 million (US$ 201.6 million) each to access the 1800 MHz band

  8. Analyzed Countries * World Bank

  9. The Benchmark Licenses

  10. Egypt’s Existing GSM Licenses • Egypt's first 2 GSM licenses were at US$ 8.13 per capita in 1998 • License duopoly extension and 1800 MHz usage US$ 2.94 Per Capita in 2003 • Combined per capita license fees paid by MobiNil and Vodafone Egypt US$ 11.07 Per Capita Egypt’s cellular market is in a strong growth phase and will continue to grow

  11. Arab Advisors’ Analysis

  12. Comparable License Valuations • The most recent license valuations are in Saudi, Yemen, Oman, Jordan, Algeria • Saudi’s GSM license is very relevant to Egypt’s as it includes 3G services • Egypt’s current GSM licenses are also included in the benchmark licenses

  13. Comparable Markets in Terms of GDP per Capita in 2004 Method: Egypt’s GDP figure divided by benchmark country’s GDP • Egypt’s GDP per Capita in 2004 was US$ 1,074. Its weight is 1. • The most comparable countries in terms of GDP per Capita are Algeria (US$ 2,605), Jordan (US$ 2,103), Yemen (US$ 620), Oman (US$ 8,039). The least comparable is Saudi (US$ 11,051). • Resulting weights: Yemen (1.73); Egypt (1); Jordan (0.51); Algeria (0.41); Oman (0.13); Saudi (0.10)

  14. Comparable Markets in Terms of Number of Operators Method: Number of operators in country at time of award divided by 2 (Egypt's current number of operators). The fees paid are more relevant as the market becomes more competitive. • Algeria had two cellular operators at the time of Wataniya Telecom Algeria’s license. The resulting weight is 1. • Yemen’s Unitel and Jordan’s Umniah were awarded licenses with 3 existing cellular operators. The resulting weight is 1.5. • Saudi’s Etihad Etisalat and Oman’s Nawras Telecom were the second operators. The resulting weight is 0.5 • MobiNil and Vodafone entered the market with 1 existing operator. The resulting weight is 0.5.

  15. Comparable ARPU Method: Egypt's 2004 ARPU divided by the benchmark country’s ARPU in 2004 • Egypt’s ARPU was US$ 17 in 2004. Its weight is 1. • Yemen has the most comparable ARPU (US$ 19). Its weight is 0.93. • Algeria’s ARPU is partially comparable (US$ 23). Its weight is 0.75. • Jordan’s ARPU is partially comparable (US$ 32). Its weight is 0.54. • Oman’s ARPU (US$ 46) has a weight of 0.37. • Saudi’s ARPU (US$ 56) has a weight of 0.31.

  16. Comparable Markets in Terms of Cellular Penetration Method: Egypt 2004 penetration divided by the penetration rate of benchmark country at year of license award. Weights are normalized by division over Egypt’s weight. The close the penetration to Egypt’s the more relevant the benchmark. • Egypt’s cellular penetration was 11% in 2004 versus 1.4% in 1998. Its weight (7.56) was used as basis for normalization, and therefore modified to 1. • Algeria’s penetration was 4% in 2003. Its weight is 0.32. • Jordan’s penetration was 31% in 2004. Its weight is 0.05. • Saudi’s penetration was 40% in 2004. Its weight is 0.04. • Oman’s penetration was 30% in 2004. Its weight is 0.05. • Yemen’s penetration was 9.1% in Q3 2005. Its weight is 0.16.

  17. Comparable License Durations Method: Egypt's license duration divided by benchmark license duration. The benchmark license duration is 15 years. • Saudi’s license duration is 25 years. Its weight is 0.67. • The duration of Yemen’s Unitel license is considered to be 15 years. Its weight is allocated to 1. • The remaining licenses (Algeria, Egypt, Jordan, Oman) have a duration of 15 years, with a weight of 1.

  18. ILD Gateway Availability Assumption: Egypt’s 3rd cellular license will not have ILD Gateway rights • The licenses of Etihad Etisalat and Wataniya Telecom Algeria include ILD gateway rights. Algeria and Saudi are allocated weights of 0. • Yemen’s Unitel license is assumed to be without ILD gateway rights, and is allocated a weight of 1. • The remaining benchmark licenses don’t have ILD gateway, and are allocated weights of 1.

  19. Added Scores and % of Weight % of Weight (relevance) • Saudi 7% • Yemen 26% • Oman 12% • Jordan 19% • Algeria 14% • Egypt 22% • Total 100% Added Scores • Saudi 1.61 • Yemen 6.32 • Oman 3.06 • Jordan 4.59 • Algeria 3.49 • Egypt 5.50 • Total 24.6

  20. Weighted Per Capita License Fees • Saudi US$ 9.37 • Yemen US$ 1.80 • Oman US$ 4.79 • Jordan US$ 0.20 • Algeria US$ 1.87 • Egypt US$ 1.82 • Total (Egypt’s projected possible license fee) US$ 19.85

  21. Egypt’s Possible Cellular License Fees • Based on the previous analysis, the expected per capita fees for Egypt’s 3rd cellular license will be US$ 19.85 per capita • This yields license fees of US$ 1,389.25 million

  22. Rationale of Cellular License Value • The new license fees could be higher than the existing two GSM licenses in Egypt for the following reasons: - The Egyptian economy and its currency has been growing stronger for the past 2 years. - A booming cellular market. The cellular penetration reached 13.7% in mid 2005 compared to 8.4% in 2003. - The massive size of the addressable Egyptian market, relatively low penetration rate, and the great growth potential for cellular market.

  23. Reasons for Upward Trend in Upfront License Fees • Many Arab cellular markets are still underserved with big growth potential. • Increased number of Arab telecom operators with regional expansion strategies that enhance competition for the licenses on offer. • Increased interest from global operators in the regional telecom markets. • The booming regional economies, especially Gulf oil producing countries that are experiencing massive cash surpluses, which have translated into booms in the stock and real-estate markets. The euphoria has certainly spelled over into the cellular markets.

  24. Arab Advisors Group Arab Advisors Group provides reliable research, analysis and forecasts of Arab communications, media and technology markets. This presentation draws from around 430 reports Publishedby Arab Advisors Group’s team. Proudly serving close to 320 regional and global clients. www.arabadvisors.com Tel: 962.6.5828849 Fax: 962.6.5828809 arabadvisors@arabadvisors.com

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