beyondbrics

It’s official: the Egyptian authorities have cut off the mobile telephone networks.

Vodafone, the British group which controls one of Egypt’s three mobile operators, said on Friday that the Egyptian authorities had ordered all mobile operators to suspend services in selected areas of the country.

The move highlights the risks of doing business when political turmoil strikes. But it should be seen in context – whatever happens in politics, Egyptians will still want to use their phones.

The UK company, which runs Vodafone Egypt through a joint venture with Egypt Telecom, the former monopoly, said it would comply with the instructions.

The authorities earlier cut internet links in Egypt. Their actions show their determination – and the possible impact on large listed companies of the growing protests.

Telecoms is a case in point, with telecoms companies prominent on the local stock market. Egypt Telecom is the country’s second largest company by market capitalisation with a value of $5.25bn.

The second big mobile operator is the Egyptian Company for Mobile Services- Mobinil, a joint venture between France Telecom and Orascom Telecom, a company controlled by billionaire Naguib Sawiris. ECMS is the seventh largest company with a market cap of $2.7bn and Orascom Telecom, which has big telecoms assets outside Egypt, the third biggest (market cap $3.7bn).

France Telecom said much the same as Vodafone: “The Egyptian Authorities have taken technical measures which prevent Mobinil from serving its customers. We apologize to our customers for this. We do not have any information at this stage on a return to normal.”

Vodafone and ECMS are fighting for market leadership with ECMS ahead on subscriber base (43 per cent versus 38 per cent) but Vodafone ahead on revenues, according to Nomura. Both have come under pressure in the last three years from Etisalat, the UAE-based state-controlled operator, which has expanded fast in Egypt with aggressive pricing and grabbed a market share of around 18 per cent.

Nomura’s Martin Mabbutt told beyondbrics that it was hard to say what would be the impact of the turmoil on the sector:

It should not have a big impact because at the end of the day there will be three mobile operators and one fixed-line operator (Egypt Telecom) and the valuations should not be affected in the long-term unless there’s a complete sea-change in Egypt.

So far, the sector is bang in line with the overall stock market. Egypt Telecom is down 16 per cent since its early January peak, Mobinil 23 per cent, and Orascom Telecom18 per cent – all compared with a 21 per cent drop in the EGX30 index.

Mabbutt later said in a report:

Given the differing exposures of the stocks to Egypt, this suggests selling has been indiscriminate. Both Telecom Egypt and Mobinil have the entirety of their operation in Egypt, while Orascom has about 15% of its EV accounted for by its stake in Mobinil.

[But] Although Orascom has relatively little direct exposure to Egypt, its headquarters and management are based in Cairo and it is closely identified with Egypt. Moreover with Algeria, Pakistan, Bangladesh and Korea dominating the rest of its portfolio, we find it unsurprising that Orascom should be suffering as badly as its immediate peer group.

Egypt Telecom chart

Barring a cataclysm, there should be no direct impact on Sawiris’s deal to sell key telecoms assets to Russia’s VimpelCom because Orascom’s Egyptian business is not included in the agreement. The plan is backed by one key VimpelCom shareholder – Russia’s Alfa Group – and vehemently opposed by the other – Norway’s Telenor. But Alfa is expected to get its way when the minority shareholders vote and the trouble in Egypt is not likely to influence the vote very much.