July 2000

Egypt Update Memo

The following report outlines new developments in the past three months and the state of on-going developments.

1 - Introduction and Summary

New developments over the past 3 months have been recorded in the fields of telecommunications and the internet, as well as the field of education.

In the area of telecommunications the main developments have been the launching of a government internet based phone service and the announced plans for 2 more mobile phone operator licenses over the next few years. In education the Ministry of Communication and Information Technology (CIT) has announced a program with the private sector, specifically the IBM company for comprehensive IT training at the graduate level.

As reported in the Quarter IV Master Report, the market for Radio and TV is monopolised by the state-owned Union of Radio and TV of Egypt which consists of 13 TV stations and 11 radio channels. The market for broadcasting TV and radio programs is monopolised, whereas the market for subscriber TV is also monopolised by the state owned company CNE, which broadcasts for the subscribers a set of five TV channels (CNN, M-Net, etc.).

The existing radio and TV stations fall under the jurisdiction of the Minister of Communications. The Radio-and-TV Union issues all the relevant licenses.

All operating stations have to comply with the code of conduct described in the laws mentioned in the regulatory framework section.

2. Information Society Policy

2.1 Historical Overview and General Legislation

2.1.1 Historical Overview

Media: The market for radio and TV is monopolised by the Egyptian Radio and TV Union, which operates 13 subscriber TV stations, 11 radio channels and one subscriber TV station called CNE. In this respect, there are no privately owned broadcasting TV stations in Egypt.

Telecommunications: Telephone services were first introduced in the late 19th century. In 1918, the Egyptian telephone and telegraph administration was established and operated until the Egyptian telecommunications organisation was founded in 1957.

The Arab Republic of Egypt National Telecommunications Organisation (ARENTO) was established under law 153 in 1980. In 1998, it was renamed as "Telecom Egypt", and some telecommunications services were liberalized. Telecom Egypt operated under the supervision of the Minister of Transport and Communications until September 1999, initially as the sole provider of certain telecommunications services in Egypt.

In 1977, the telephone system was severely congested and became virtually obsolete, as a result of the cable networks being in poor condition. The telecom network consisted of 375,000 lines of switch equipment therefore the expansion of the telecom infrastructure was essential. Transmission networks were increased from 8,900 in 1981 to 90,000 in 1994, fibre optic cables and digital switches replaced copper ones. From 1981 to 1992, the number of telephone lines increased 4 times at 17% per annum, and in 1996 the number of telephone lines reached 4.2 million. Nowadays the number of telephone lines has increased to reach 6.7 million.

The capacity of telecommunications networks increased from 160 circuits to 3680 in 1991. In 1996, the number of international circuits nation-wide reached 5560.

In 1996, Telecom Egypt announced the establishment of new venture for operating GSM telephones. In November 1997, Telecom Egypt invited qualified international companies to submit proposals for the implementation, financing and operation of a second GSM 900 network.

In the first quarter of 1998, Telecom Egypt finalized the concession of the pay-phone service to two private companies, and proceeded with the privatization of the state-owned GSM network.

In late September 1999, a new ministry was established" the ministry of telecommunications and information" to undertake the responsibility of transferring the Egyptian society to the second millennium towards an information-based society, and Telecom Egypt fell under the responsibility of the said ministry.The Ministry of Telecommunications and Information, headed by Dr. Eng. Ahmed Nazif, aims at enhancing the usage of technology and telecommunications systems in all the government organizations. This, in return, will help simplify the provision of services to citizens, eliminate bureaucracy, and maximize productivity. The ministry created a number of working groups during December 1999. The private sector and Telecom Egypt massively participate in these groups which comprise the following :

• A legal working group which is assigned the drafting of a new Telecommunication Act for Egypt. This would recommend a stronger private sector participation in the operation industry, as well as many other issues such as the quality of services. The draft is expected to be ready late January.
• A technical planning working group aimed at assessing the current infrastructure and the convergence towards an integrated master-plan for telecommunications in Egypt. It is a plan that covers all telecommunications players, these being the GSM operators, the payphone operators, the data communication operators as well as Telecom Egypt. This plan should be ready to be implemented by next June and should take care of interconnections between the various players now and in the future.
• A business development and service definition working group that works on the short term on marketing and pricing recommendations for existing and new services offered by Telecom Egypt. The private sector will help bringing these new services to the end users. An example is the Intelligent Network (IN) services which use the premium rate and toll free services (800) in greater Cairo. The premium rate, based on revenue sharing between Telecom Egypt and the ISPs, has been already announced and introduced with some providers while the 800 service will be introduced soon for the different business sectors. Pilot implementations have been already completed. The ISDN primary rate using 128kb/sec has been tested on national and international level and is being priced with affordable prices. ISDN primary rates up to 2 Mb/sec will be tested and announced soon. This will help the international video-conference with bandwidth-on-demand facilities. The long term objective of the said working group is to help on issues like the development of a business plan for the telecommunications services in Egypt, taking into consideration the privatization of Telecom Egypt which is expected to take place in the first quarter of the year 2000
• The fourth working group is concerned with human resource developments in telecommunications and IT, and negotiates a new human resource development plan in cooperation with multinational organizations.

2.1.2 Present general legislation

Media: The Union of radio and TV which was established under law 13 of 1979. It is a dependent authority that follows the directions of the minister of Telecommunications and Information. It is managed by a board of directors from different ministries (information & media, planning, foreign affairs, commerce) and from the House of Representatives.

Telecommunications: Telecommunications Regulatory Authority. Important steps have been taken towards separating operations from regulatory activities in the telecommunications sector. The main elements of the regulatory framework were embodied in law 19 of 1998 which was followed by a presidential decree no. 101 on April 4th, 1998, establishing the Telecommunications Regulatory Authority (TRA), headed by Mr. Abdel Rahman El-Shaer. Telecom Egypt was incorporated as a joint stock company under Egyptian Companies Law 159. Presently the following telecommunications service providers operate in Egypt, functioning under the Telecommunications Regulatory Authority:

• Telecom Egypt
• Two licensed GSM companies (Mobinil & Misrfone)
• Two licensed providers of payphone services (Menatel & Nile Phone)
• Two VSAT Service providers (Local Alkan Trading Group and NEC)
• Low earth orbital satellite systems (Iridium)

2.1.3 Key legislative measures

TABLE 1 - Media:

TABLE 2 - Telecommunications:

2.1.4 Liberalisation Timetable

Minister of Communication and Information Technology (CIT) announce offering of up to 20 percent of Telecom Egypt during the fourth quarter of this year (2000). The offering, valued at around LE 19 billion, will be offered as IPO (Initial Public Offering) and as private placement on international markets.

2.2 Telecommunications and Internet

The government of Egypt has implemented its own internet-based phone service, having previously banned the private Net2Phone internet calling service, which allowed users to make inexpensive international calls through their computer in an effort to prevent erosion of Telecom Egypt's long distance profits. The government service, is driven by the Cabinet's Information and Decision Support Center (IDSC) website: www.support.idsc.gov.eg.

In another development the Minister of Communication and Information Technology (CIT) has announced that the government will award a cellular-telephone operators' license to the state-owned, fixed-line monopoly Telecom Egypt once the government's exclusivity agreements with Egypt's current license holders expire in December 2002. The announcement has prompted concern from Egypt's current GSM license holders, since Telecom Egypt also controls their access to the country's fixed-line and long-distance networks.

In turn, the ministerial committee for privatization established a timeframe for establishment of the third Egyptian mobile telephone network. The new network will take its place with existing two companies after the pair's terms of exclusively end-May 2001 for the first and November 2002 for the second. The ministry is currently discussing opportunities for granting another license, which would be publicly offered in an international tender, to a fourth mobile service provider.

MobiNil, the private telecommunications service provider announced last month the introduction of its Wireless Application Protocol (WAP) service. This is a strategic move in order to take an early claim in the future competitive environment anticipated for this service.

The private company Cisco Systems Inc. signed an agreement on 24, April with the Ministry of Communication and Information Technology (CIT) to develop human resources in the technology sector. Cisco will train Egyptian engineers for Egypt's three-year, $1 Billion investment program for creating "a high speed telecommunication network."

2.3 Education and Research

IBM and the the Ministry of Communication and Information Technology (CIT) in Egypt announced a joint initiative that will result in over 15,000 graduates receiving comprehensive IT training. IBM 's commitment is worth more than US$ 44 million over the course of five years. and will cover the development of the courses, the facilities used by the students, all materials and part of the training. The agreements were announced during President Hosni Moubarak's visit to the United States April 2000.

3. International Relationships and Agreements

In another development , it should be noted that, in a plan to reach "2 Million Web-Users by 20001", Telecom Egypt has signed an agreement with Network Solutions, Inc. (NASDAQ: NSOL), the world's leading register of web addresses, through which the former will join the latter's International Premier Domain Registration Service Program. Moreover, NSOL pledged to use its UNI-CODE character system for domain name registration so that it may be used for Arabic character domain names in the future. This agreement marks the first of its kind in Africa and the Arab World.