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Bonaparte's battalions
Source: Al Ahram Weekly
Internet access is now free, but someone
still has to make money. Jasper Thornton
talks to the Network Providers about
their new business challenges
Con O'Donnell, an IT consultant with
Egypt's National Systems Research,
explained to the Weekly that the free
Internet model has been designed with
the end- user in mind, not for the
profit of the Network providers. Previously,
their income came from subscriptions
paid by users dialing up; that particular
rug has now been dramatically whipped
from beneath their feet.
Abdel-Wahid outlined the new business
model that replaces the subscription
one. Now, when a user dials in, the
Network Provider they choose to use
gets 70 per cent of the cost of the
call from Telecom Egypt. "The
battle, then, is to get customers,"
Abdel-Wahid says.
Good news for the Network Providers,
bad for the nation's phone company?
Maybe not. Basel Dalloul, high-octane
CEO of Network Provider Noor, explained
to the Weekly: "The 70/30 split
is a bit of a myth," he argues.
"Two-thirds goes straight back
to Telecom Egypt, who also get bigger
capacity, free." He explains:
"To qualify for revenue sharing
(70/30), the provider must 'co- locate'
their equipment in the same phone
exchanges that handle the Internet
user's call." The Network Provider
must also be able to handle the full
call, from dialler to receiver. "If
I get a call from Giza, but my equipment
is in Ramses, even if it is routed
partly through Ramses, I get no revenue.
I have to have equipment in Giza,
too," Dalloul says.
There's the rub. The only place Network
Providers can situate their equipment
is in Telecom Egypt's phone exchanges
(co-locating), so that the technology
can all be wired up. "I have
to pay rent to Telecom Egypt to co-locate.
I also pay for power, pay lease-line
charges between exchanges, pay the
license fees, hell I even pay rent
on the lines that connect my server
to the phone company's switches!"
Dalloul remarks. And, every time a
Network Provider's switches are used,
Telecom Egypt's switches are freed
to take other calls. So the phone
company loses nothing; and they get
their capacity increase paid for.
Network Providers say the cost of
fully co-locating is huge: Cairo has
90 telephone exchanges, while Egypt
as a whole has 4,000.
Abdel-Wahid thinks little of such
complaints. He pointed out that the
ministry has bargained to bring rental
costs down. "Previously, a square
metre in the phone exchange cost $5,000
a year to rent; now it is a mere LE1,000
a year," he said. "The cost
of transmitting between exchanges
is also 50 per cent less, the overheads
smaller." He also commented that
the new model gave Network Providers
a 20 per cent greater revenue each
hour, if the user logged on for an
hour, than the old one (based on subscription
cost of a pound a day).
So who's right? One network provider
told the Weekly they served 5.5 million
minutes of user time last month. At
current rates, the network providers
get 1.162 piastres a minute. So one
network provider should have earnt
about LE64,000 last month, assuming
they had already footed the bill of
co- locating equipment in all the
relevant exchanges, which almost certainly
they had not. That's not great, when
the cost of building capacity plus
other overheads is factored in.
So what do the experts think? O'Donnell
guesses that in a year, only two to
three providers will be left standing:
"Egypt just doesn't have enough
users to support them all," he
says. The providers agree: "There
will be consolidation and mergers,"
says Dalloul. "At the moment
there are four or five providers too
many for the market." And even
the winners, he thinks, will not start
earning for two to three years. Internet
use has increased by 30 per cent since
the free Internet arrived, says Abdel-
Wahid, (he guessed there were now
a million users) but gains will soon
stall; Egypt simply doesn't have enough
families that can afford PCs. The
ministry did tell the Weekly that
it was working on a stripped-down
LE1,500 computer built by a military
contractor. But such initiatives won't
kick in for a while.
So who will be left standing on the
podium? In the end, the biggest: those
who can win enough users -- with cunning
inducements, smart ads and good branding.
The Class A team are well placed to
compete for home-users: their international
pipe and ready bandwidth see to that;
moreover, only they can rent bandwidth
to the class C "virtual network
providers," pretty much guaranteeing
them income. For the class B providers,
pulses will be palpitating: "They
have six months to co-locate, after
which the revenue share deal expires,"
says Abdel-Wahid. Class B are particularly
well suited to connecting businesses
in Egypt, as they then do not need
then to pay rent on the international
pipe. Both class A and B will try
and persuade users that their service
is quicker, or less glitchy, than
rivals'. Egynet, for example, trumpets
its high speed DSL lines, while Noor,
Egynet and Nile On-line provide only
their own ISPs, running on their own
networks so, as they put it, "if
it goes wrong, it's our fault. We
can't pass the buck!"
For class C providers, who must hand
over most of their income to the class
A giants, the question, as Abdel-Wahid
puts it, is cutting costs (they only
really need a technical support and
advertising team), and working out
ways to offer premium services. "They
can still charge users through the
phone company; the charged lines still
work," says Abdel-Wahid. That
will require dreaming up ways to persuade
users to pay for what they can otherwise
get nothing. And so the free Internet
model may come full circle: to survive,
you friendly neighbourhood provider
may just start charging you again
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