Telecom Egypt Full-Year Net Drops 13% as Expenses Increase

Telecom Egypt (ETEL), the country’s monopoly fixed-line phone operator, said 2012 profit retreated 13 percent as expenses rose and more customers gave up their traditional fixed-lines.

Net income decreased to 2.61 billion Egyptian pounds ($386.3 million) from 2.99 billion pounds a year earlier, the Cairo-based company said today in a statement posted on its website. That compares with the 2.66 billion pounds average of 12 analyst estimates compiled by Bloomberg. Revenue rose 1.6 percent to 10 billion pounds.

“Mobile substitution is not a new phenomenon,” said Chief Executive Officer Mohamed Amin El-Nawawy. “As anticipated, it continues to pressure our retail voice and access business. However, the growth in broadband revenues from our subsidiary TE Data is offsetting the decline of traditional voice only services.”

Telecom Egypt, which is 80 percent-owned by the government, saw its profitability slump for the second year following the start of the country’s 2011 uprising. The company said its earnings before interest, taxes, depreciation and amortization declined 19 percent from a year earlier because of higher costs, including salary increases.

The number of fixed-line customers fell to 7.3 million compared with 8.4 million a year earlier. The company expects broadband revenue to offset the fixed-line decline by 2014, El- Nawawy said.

Telecom Egypt shares have fallen 4.1 percent in the year to date compared with a 1 percent drop in the benchmark EGX 30 Index. (EGX30)

Mobile Stake

The company expects to be awarded a mobile phone license by June which shouldn’t be affected by its 45 percent stake in Vodafone Egypt, El-Nawawy said by phone.

“To launch mobile services, the law doesn’t require us to divest,” he said. “We may only have to remove our seats on the board.”

The Egyptian government is planning to allow its four telecommunications providers to offer mobile, fixed-line and broadband services under a single license. This would enable the Egyptian Co. for Mobile Services, or Mobinil, Vodafone Egypt and Etisalat Misr to offer land-line services, while Telecom Egypt offers mobile services.

A decision is expected this year after a September arbitration hearing on a 1.2 billion pound ($177 million) claim involving two of the incumbent mobile phone operators, El-Nawawy said. Telecom Egypt claims that competitor Mobinil paid lower interconnection rates to Vodafone Egypt.

Mobinil, meanwhile, signed a three-year agreement in the third quarter of 2012 to use Telecom Egypt’s infrastructure, Telecom Egypt said. The interconnection fees were backdated to the beginning of the year, which also contributed to higher costs in 2012, the company said in its earnings statement today.

To contact the reporters on this story: Nadine Marroushi in Cairo at nmarroushi@bloomberg.net; Ahmed A. Namatalla in Cairo at anamatalla@bloomberg.net

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net

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