Decline of landlines hits Telecom Egypt

What's Down: Customer disconnections and theft of copper cable sees lower revenues at Telecom Egypt, prompting Nomura to revise its share-price estimates.

The global trend of customers abandoning landlines in favour of mobile phones has hit Telecom Egypt, the country's incumbent fixed-line operator.

Despite having a monopoly on landline connections in the North African country, Telecom Egypt reported a 15 per cent drop in its second-quarter net profit on Monday.

The brokerage Nomura yesterday lowered its share-price target for the company to 18 Egyptian pounds from 19.9 pounds, on the back of lower revenue expectations.

Customers substituting landline connections with mobile, and the theft of wiring was cited by Nomura for the lower revenues.

"Voice revenues declined owing to large number of customer disconnections (net 300,000 lines disconnected in the second quarter owing to mobile substitution), and loss of service to 750,000 customers for a period of 10 days owing to theft of copper cable," Nomura said.

Nomura reduced its Telecom Egypt revenue forecast for this year to 10.21 billion Egyptian pounds, down from 10.28bn. It also lowered its net income projections for next year and 2013.

Despite the share-target revision by Nomura, shares in Telecom Egypt closed up 0.95 per cent to 14.88 Egyptian pounds in trading yesterday. Telecom Egypt has been trying to increase its exposure to the country's growing mobile phone market, but its strategy on this "remains unclear", according to Nomura.

The company holds a 45 per cent stake of Vodafone's Egyptian operations. It had been tipped to bid for Egypt's fourth mobile licence, the allocation of which has faced delays in the fallout of the uprising.

Nomura also said it had reduced its expectations for Vodafone Egypt's contribution to Telecom Egypt.

Santino Saguto, a partner at the consultancy Value Partners, said the revenue declines for Telecom Egypt underlined the need for it to seek greater exposure to the mobile market. "It confirms that it's very important for the incumbent fixed-line operator to enter the mobile sector," he said.

Mr Saguto added that the political unrest in Egypt had hit the telecoms industry.

"The telecoms sector is always in a good correlation to the GDP of the country," he said. "For Egypt, we know the political and financial crisis has had an impact."