VZCZCXYZ0002
RR RUEHWEB

DE RUEHEG #0511/01 0570756
ZNR UUUUU ZZH
R 260756Z FEB 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 3755
INFO RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS CAIRO 000511 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/CIP/BA, NEA/ELA 
USTR FOR HINCKLEY 
 
E.O. 12958: N/A 
TAGS: ECPS ECON ETRD USTR EG
SUBJECT: EGYPT: ANTI-COMPETITIVE TELECOMUNICATIONS PRACTICES 
 
REF: A. STATE 1035 
     ¶B. 2006 STATE 202978 
 
Sensitive but unclassified, not for Internet distribution. 
 
¶1. (SBU) Summary: For over a year, Egyptian telecommunication 
regulators have promised to offer new licenses for 
international connectivity, in accordance with commitments 
undertaken when Egypt joined the World Trade Organization 
(WTO), but have yet to do so.  The GOE may be delaying in 
order to protect jobs at state-owned Telecom Egypt, maximize 
revenues from the sale of licenses, and/or out of fears of 
creating chaos in the market.  Egyptian regulators say they 
will eventually provide new international licenses but will 
limit their number, which would not meet Egypt's WTO 
commitments.  End summary. 
 
-------------------------------- 
Foot-Dragging on WTO Commitments 
-------------------------------- 
 
¶2. (U) At the time of its WTO accession, Egypt agreed to open 
its international telecommunications connectivity market to 
competition, putting no limits on the number of international 
origination and termination providers, by January 1, 2006. 
State-owned Telecom Egypt's monopoly over this service 
officially expired on January 1, 2006.  Since then, however, 
no licenses have been granted, although Minister of 
Communication and Information Technology (MCIT) Tarek Kamel 
and Executive President of the National Telecommunications 
Regulatory Authority (NTRA) Amr Badawi have consistently 
promised that a limited number of such licenses would be 
offered "within a few months." 
 
¶3. (U) Engineer Amr Hashem, the telecom sector advisor to 
Minister Kamel, and Dr. Badawi told A/USTR Donnelly in late 
January that, when the NTRA offers international connectivity 
licenses ("in about a month"), they may offer them only to 
mobile phone companies or Internet service providers (ISPs). 
Local media has consistently reported that regulators would 
limit licenses to the current mobile operators or offer only 
a limited number for auction.  ICT contacts opined that 
Telecom Egypt increased its stake in Vodafone Egypt, one of 
Egypt's two operating mobile phone companies, to 49 percent 
in late 2006 for just this reason. 
 
¶4. (SBU) U.S. company AllVoice complained of such license 
restriction in the 2006 annual USTR section 1377 telecom 
trade agreements review process (refs).  AllVoice, in its 
attempt to establish a voice over Internet protocol (VOIP) 
call-center in Egypt, ran afoul of a law forbidding 
international VOIP origination and termination with any land- 
or mobile-line.  This law, in place for "national security 
reasons" according to Hashem, effectively criminalizes a 
technology that simplifies provision of international calling 
services.  Hashem told A/USTR Donnelly that AllVoice's 
problems stemmed from its disorganized and demanding 
requests, but this case shows that Egyptian regulators are 
dealing with requests on a one-by-one basis instead of 
adhering to the substance of their commitments. 
-------------- 
Why the delay? 
-------------- 
¶5. (U) Job losses:  Egyptian regulators are hesitating to 
offer licenses in part because they are walking the 
tight-rope between market liberalization and hurting Telecom 
Egypt, with potential resultant job losses.  Telecom Egypt, 
Egypt's only fixed-line and international connectivity 
service provider, employs approximately 120,000 Egyptians and 
is still 80-percent government-owned.  Mohamed Elnawawy, vice 
president of Telecom Egypt for strategic studies, told 
econoff that Telecom Egypt's international connectivity 
service is one of its few profitable sectors, and subsidizes 
other sectors that operate at a loss. 
¶6. (U) Maximizing revenues:  In recent years the GOE has 
earned significant revenues from auctioning licenses and 
privatizing state-owned companies.  Most notably, the license 
for the country's third mobile operator sold in 2006 for LE 
16.7 billion (USD 2.9 billion), which was significantly more 
than the GOE had expected.  The GOE now seems intent on 
repeating this success, and may be going slowly to best 
determine how gain the most from international communications 
licenses. 
 
¶7. (U) Fear of market chaos:  In delaying the opening of the 
international telecom services market, telecom regulators 
seem to have drawn a lesson from opening Egypt's ISP market. 
When ISP services were opened to competition, new companies 
flooded the market.  Now, ICT contacts told econoff, the GOE 
is regulating artificially low prices for Internet services 
to keep those firms in business, thus avoiding job losses 
that could be blamed on market liberalization.  This has 
diminished overall quality of service and stifled innovation 
in the market.  By limiting new international licenses, the 
GOE may be trying to avoid a similar problem. 
 
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COMMENT 
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¶8. (SBU) In the ICT market, as in other areas of the Egyptian 
economy, fears of short-term job losses are weighed carefully 
against potential benefits of liberalization.  Egyptian ICT 
officials argue that in liberalizing at all, Egypt is moving 
down the path to complete reform, albeit at a slower pace 
than the USG might desire.  This does not change the fact 
that proposed resolutions, even when implemented, will still 
limit competition in the market. 
RICCIARDONE