TECHNOLOGY-EGYPT: Small Service Providers Affected By “Free” Internet

By Cam McGrath Reprint | | Print |

Cam McGrath

CAIRO, Apr 3 2002 (IPS) - Nearly three months into Egypt’s “free Internet” experiment, Internet service providers (ISPs) are feeling the pinch of increased competition and slimmer profit margins.

On January 14, the Ministry of Communications and Information Technology and state-owned fixed-line monopoly Telecom Egypt launched “free Internet,” a service aimed at increasing the number of Internet users in Egypt and encouraging IT development.

No membership, no hourly rates, no time quotas – “free Internet” lets anyone with a computer and a modem access the Web simply by dialling a special local telephone number.

Of course nothing is really free. Users must still pay the cost of the local call, for which Telecom Egypt cedes a portion of the revenue to the ISP that provides the Internet access.

“It’s a revenue-sharing model between various ISPs and Telecom Egypt,” Hisham el-Sherif, CEO of Nile Online explained.

In its most simplified form, ISPs buy special telephone numbers from Telecom Egypt and purchase lines from a licensed data carrier. When a person logs on to the Internet using the ISP’s number, Telecom Egypt charges the user – as it does any Egyptian using a fixed-line phone to make a local call – for the telephone connection at a standard rate.

Through Telecom Egypt, the government takes 30 per cent of the revenue, distributing the remaining 70 per cent to the ISP that provided the Internet connection. After paying the data carrier its due, the ISP is left with “slim margins,” as one ISP manager put it.

“The ISP still has to pay the data carrier for renting ports in the (telephone) exchanges and using its equipment,” Essam Hosni, general manager of Internet Egypt, told IPS.

Only a handful of data carriers have the network infrastructure and licenses to provide server ports at government telephone exchanges. The ISP must lease enough ports in each exchange to accommodate all its users. Too many ports and the ISP wastes money; too little and it loses potential revenue.

“If somebody calls your number from a place where you do not have a port, then you are not paid,” said Hosni, adding that an estimated 25 per cent of all calls to Internet Egypt are routed through exchanges where the company does not have ports.

“ISPs must calculate carefully for routing and distribute ports at all public exchanges. It may tell a data carrier, for example, that it wants 30 ports in Heliopolis and 100 in Maadi. Maybe the provider doesn’t have enough, so the ISP must buy the ports from another company,” he said.

In the end, only those ISPs with enough money to purchase ports in every exchange and effectively market their special number are likely to turn a profit. Local newspapers are saturated with full-page advertisements promoting free dial-up numbers. The companies promise “the fastest connection rate” or “superior customer support,” but with dozens of numbers now operating, the differences are narrowing and the competition is growing fierce. Few are expected to survive long.

As there is no accurate market research on Internet user preferences, Egyptian ISPs are fumbling in the dark in an attempt to draw as much user traffic as possible. Some are offering – exclusively through their number – access to their added-value services such as mailboxes and news wires. Others are banking on easy-to-remember numbers, like Telecom Egypt’s 777-7777, which it purchased from itself in a number auction last year.

“For companies like Internet Egypt, we depend more on corporations for leased lines. They account for 85 per cent of our business,” said Hosni. Other companies have specialised in ISDN, satellite lines, web page hosting or network solutions.

Smaller ISPs, however, have found it difficult to compete.

Datum, once a small but flourishing Cairo-based ISP that boasted the “best pre-paid (Internet) account in Egypt,” decided to get out of the business altogether. The firm has downsized and no longer offers dial-up Internet service, a company representative said, adding that it shifted its business to computer hardware parts and sales.

Phone calls to the head offices of dozens of other small ISPs are greeted with dead lines and recorded messages of disconnected service. Users with pre-paid accounts were left to find a new ISP, though many say the “free Internet” numbers offer better service than their former paid accounts.

“I like the new system because if one number is down, I just dial another until I find a good connection,” says Noha Ismail, 22, a commerce student. “I tried all the free numbers until I found one that gives me a consistently good connection.”

Constantly changing loyalties is one factor behind the better service. Previously, users with paid accounts would not have switched companies if their server dropped them. Now they are switching the minute the connection fails. A downed line or busy signal can cost an ISP thousands of customers.

“The competition among ISPs is intense and only the largest will survive,” says Sabry Yakoub, technical support manager at Access Internet provider. “We expanded our circuits to accommodate the huge number of users connecting via our free number.”

Official figures indicate that Egypt had one million Internet subscribers in 2001, a meagre amount for a country of nearly 70 million people. While the government claims it launched “free Internet” to increase the number of users, the anticipated surge in users has not yet materialised.

Analysts argue that until the cost of computers comes down, the number of Internet users will not climb substantially.

“Monthly subscription was not the problem,” contends Tamer el-Gazzar, ISP manager of data carrier MenaNet. “The problem is that most people are unable to afford a computer at home.”

With low monthly salaries and an economic recession in full swing, few Egyptians can afford the 3,000 Egyptian pounds (640 U.S. dollars) that a “steal deal” Internet-ready PC fetches. If rumours of a new PC to be offered for under 1,000 Egyptian pounds with instalments prove true, this could all change and Internet usage could surge.

Until then, says one market analyst, “free Internet is just a clever scheme to increase the revenues of Telecom Egypt under the pretext of offering consumers more freedom.”