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Cablegate: Telecom Egypt: Stable Stock, Guaranteed Future?

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 CAIRO 009379

SIPDIS

SENSITIVE

STATE FOR NEA/ELA AND EB/CIP
USTR FOR SAUMS/AUGEROT/MCHALE/NEUREITER
USAID FOR ANE/MEA MCCLOUD
COMMERCE FOR 4520/ITA/MAC/ANESA/TALAAT

E.O. 12958: N/A
TAGS: ECON ECPS EINT EINV ETRD KGIT EG
SUBJECT: TELECOM EGYPT: STABLE STOCK, GUARANTEED FUTURE?

REF: A. CAIRO 06163

B. CAIRO 09080

Sensitive but Unclassified. Please protect accordingly.

-------
Summary
-------

1. (SBU) Following the privatization of 20% of Telecom Egypt
(TE) (reftels), share prices have stabilized, diminishing
fears of a quick sell-off. Sherif Karara, Managing Director
of EFG Holdings, and TE Chairman Akil Beshir recently told
Econoff that TE has taken measures to combat losses from the
approaching end of its monopoly. They implied also that the
GOE may be guaranteeing TE's continued predominance in the
marketplace. End summary.

------------------------
TE stock on an even keel
------------------------

2. (SBU) Almost one week into trading of TE shares on the
Cairo-Alexandria Stock Exchange (CASE), the price of TE stock
had leveled off to LE 20-21/share, following a two-day slide
from LE 30.01/share to LE 19.85/share as experienced
investors sold their holdings. The current value is
considered realistic by local experts, who now anticipate the
price per share may reach a maximum of LE 25 this month, and
around LE 30 over the medium term. Fears of a mass sell-off
did not materialize, as individuals new to the market held on
to the shares in anticipation of future profitability; Sherif
Karara, in a meeting early last week, told Econoff he did not
expect a significant downturn in TE shares until at least
late 2006. Although trade on TE shares contributed to a
boost in total market capitalization to LE 441 billion at the
end of last week, compared to LE 424.6 billion the preceding
week, TE trading has not had a significant impact on market
direction.

--------------------------------------------
Countermeasures against the loss of monopoly
--------------------------------------------

3. (SBU) Fears of TE faltering when its monopoly over
international telecommunications gateways ends this month are
inflated, according to Karara. He noted, for instance, that
despite possible competition on the international side,
domestic tariff increases could help maintain TE's overall
financial health. According to Karara, local call tariffs in
Egypt were subsidized at around 2 piasters/minute, and a
raise in rates to a mere 4 piasters would allow TE to break
even on domestic sales - if the GOE "had the courage" to
implement an unpopular subsidy reduction. Several days after
Econoff's meeting with Karara, TE in fact announced it would
revise domestic tariffs on the basis of actual cost, in
coordination with the National Telecommunication Regulatory
Authority (NTRA). (Comment: Karara may have made his
statement to Econoff with the benefit of inside information
on the coming announcement. TE's failure to provide a
timeline with the low-profile announcement underscores
Karara's doubt over the GOE's determination to follow
through. End comment.)

4. (SBU) Akil Beshir explained to Econoff that TE had
already taken measures to lock up international profits, as
well. TE has signed exclusive agreements through 2007 with
Egypt's two mobile providers, MobiNil and Vodafone, for use
of TE gateways, thereby securing 55-60% of international call
revenues; Beshir noted that TE was working on similar
agreements with European operators at the other end of
international calls. He asserted that, given these measures
and others, and general growth in the telecommunications
market, TE international call revenues could remain stable or
even increase slightly.

5. (SBU) Comment: We suspect Beshir's confidence indicates
that the GOE has already assured TE it will not lose
profitability at least through 2007. Certainly, NTRA could
regulate market entry in such a way as to guarantee that TE
remains on top. Similarly, TE has been rumored as a
candidate for a much-anticipated third mobile license, and
the GOE could tailor the RFP so as to favor TE, which would
then drop its 25.5% share of Vodafone in exchange for the
more profitable third provider business. End comment.


JONES

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