Telecom Egypt Profit Drops as Economy Hurts Calls Abroad

Telecom Egypt Co., the country’s monopoly fixed-line phone service, said first-quarter profit fell 6.2 percent as slowing economic growth led to reduced calling abroad.

Net income dropped to 857.7 million Egyptian pounds ($123 million) from 914.2 million pounds a year earlier, the Cairo-based operator said today in a statement. Revenue increased 1.4 percent to 2.72 billion pounds.

Egypt’s economy is expected to expand 1.4 percent this year, the slowest increase since 1992, analysts at HSBC Holdings Plc estimate. Telecom Egypt reported an 11 percent drop in quarterly revenue generated by calls from local fixed lines to points outside the country, citing a “continued drop-off in general business activity” in the country.

Telecom Egypt, 80 percent owned by the government, said it has seen a “notable” traffic increase at its international wholesale division, which handles infrastructure for other operators. For every outbound minute, it receives 10 inbound minutes under contracts with 70 telecommunications operators in the region, the company said. First-quarter sales at the unit rose 5.7 percent to 1.23 million pounds.

“We’re pleased with our performance in the first quarter, despite a challenging economic environment,” Chief Executive Officer Mohamed Amin El-Nawawy said in a phone interview.

Mobile License

The company is in talks with local regulators on an application to provide mobile-phone service “with an eye to receiving the license by mid-July,” El-Nawawy said. Telecom Egypt announced plans on May 12 to carry out its first mobile-phone test call this week.

Egypt’s government is considering new rules to allow its four telecommunications providers to offer mobile, fixed-line and broadband services under a single license. The move would enable the Egyptian Co. for Mobile Services, which operates the Mobinil brand, as well as Vodafone Group Plc (VOD)’s local division and Emirates Telecommunications Corp.’s Etisalat Misr (ETISALAT) unit to offer land lines, while Telecom Egypt would add mobile services.

“Our retail business continues to face challenges with the impact of mobile substitution,” Telecom Egypt said. Fixed-line subscriptions declined to 7.2 million customers as of March 31 from 7.3 million at the end of 2012.

Stock Declines

Telecom Egypt fell 0.3 percent to 13.36 pounds at at the close in Cairo, the fifth-worst performance on the benchmark EGX 30 Index. The phone company’s shares have dropped 5.6 percent this year, exceeding the index’s 1.1 percent decline.

Telecom Egypt won’t be required to sell its 45 percent stake in Vodafone Egypt to obtain a mobile phone license, since it’s a minority shareholder, El-Nawawy said. The company will consider what to do with the holding a year after starting its own mobile phone operations to maintain its value, he said.

“If we buy new spectrum in the future, we don’t want to be in a position where we are duplicating two competing capital intensive assets,” El-Nawawy said.

Telecom Egypt would use its 7 billion-pound cash position to acquire new spectrum, he said. For the first year of operation, it plans to use the existing networks of mobile phone providers in Egypt, and then set up its own.

The company is claiming 1.2 billion U.K. pounds ($1.83 billion) in an arbitration dispute on interconnection fees with Mobinil and Vodafone Egypt. Telecom Egypt claims that competitor Mobinil paid lower rates to Vodafone. El-Nawawy said he expects a decision on the case this year or early in 2014.

To contact the reporter on this story: Nadine Marroushi in Cairo at nmarroushi@bloomberg.net

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

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