Vodafone Egypt gets media friendly

The telecom operator wants to provide value-added content for its users.

Smart move: Vodaphone Egypt's purchase of a controlling interest in Sarmady will bring value-added content to the mobile network.

The Egyptian arm of one of the world's largest mobile operators has entered the media business, acquiring one of the country's most prominent online publishers. Vodafone Egypt, the local division of the global Vodafone group, has purchased a controlling stake in Sarmady Communications (Sarcom) for an undisclosed sum.

Sarcom runs Arabic and English-language websites, as well as a printed monthly guide to Cairo's nightlife and cultural scene. The company has also launched an online advertising service and is building a network of affiliate sites to display ads from its partners. "This acquisition is pivotal in moving Vodafone into the heart of the internet space in Egypt and we can see both significant opportunities for advertisers and a great experience for consumers as a result," said Richard Daly, Vodafone Egypt's chief executive.

The acquisition is part of an emerging trend of mobile operators acquiring content providers. Industry watchers think that as basic voice and data services become commoditised, mobile network operators will need to become providers of value-added content to remain competitive. In late 2006, Vodafone Egypt acquired the internet service provider (ISP) Raya Telecom. All three of the mobile operators in Egypt are now linked to internet providers, with the UAE's Etisalat - the most recent entrant to the market - acquiring stakes in two local ISPs from the state-owned Telecom Egypt.

Last year, Vodafone Egypt and Sarcom entered into what was at the time the largest-ever website sponsorship agreement in Egypt, a one-year contract valued at one million Egyptian pounds (Dh686,000) for sponsorship of Sarcom's sport website, Filgoal.com. This close working relationship laid strong foundations for the acquisition, said Con O'Donnell, Sarcom's co-founder and managing director. "We already had a good relationship with them, and they knew who we were and how we operated.

So when, as part of their internet strategy, they decided to look for a strong content partner, they didn't have to look far." Ghassan Hasbani, an analyst at Booz & Company and author of a study on the convergence of mobile and content businesses, said the Sarcom deal is a good example of the changes taking place in the telecommunications industry. "Telecom operators do not know how to produce content, because it is not their business," he said.

"Media companies do not understand the telecom world. This is driving the industry to create closer ties than simple transaction-based models." A number of content-related acquisitions by Middle Eastern mobile companies are in the pipeline, according to Mr Hasbani, with small players taking a strong position. "Nobody really has extensive experience in new media, so start-ups are on an almost equal footing," he said.

"I wouldn't be surprised if they took a big share of this new market." Mr O'Donnell, who has lived and worked in Egypt since 1995, said that for a number of reasons, it made more sense for Vodafone to acquire his company than to start its own content division. " The first [reason] is the time to build and launch, and the second is that we were here and are already a proven market leader in digital content," he said.

"The third is that they would also then be competing with us and, finally, they might not be able to do it." [e-mail]