Vodafone Egypt, a subsidiary company of
Vodafone Group plc
(
VOD
) is likely to see its stakes sold by Telecom Egypt, which owns
approximately 45% of its shares. Telecom Egypt faces regulators
pressure to dispose its holdings in Vodafone in order to acquire
an MVNO (mobile virtual network operator) license.
We fear that the divestiture by Telecom Egypt would bring
Vodafone Egypt under direct competition with this biggest name in
the Egyptian telecom market, likely affecting its market
position.
The reason behind the sell out is the apprehension of
regulators towards Telecom Egypt's growing market leadership.
Once the company acquires the MVNO license to start up its own
mobile services while owning stakes in Vodafone, it could affect
the market scenario on the whole. The act can lead to Telecom
Egypt's complete monopoly over the mobile service market with
control over two giant companies, thereby affecting
end-users.
Telecom Egypt is considered to have a monopoly over the
Egyptian market. According to sources, the company dominates the
fixed-line business in Egypt and controls 70% of Internet
services within the country. Further, it remains the sole
provider of international telecom services. Through Vodafone
Egypt, the company dictates the mobile services market. This
subsidiary thus remains a significant revenue source for the
company.
Given the mammoth market profile of Telecom Egypt, it is most
likely that the regulator's impending decision to disinvest in
Vodafone Egypt remains detrimental for Vodafone Group. Currently,
Vodafone Group enjoys significant growth momentum in the emerging
market, which also includes Egypt. In the second half of its
fiscal 2013, the company saw a 4% rise in its revenues from
Egypt. In such event, increased competition in the mobile service
market would likely temper the growth trajectory of Vodafone.
The decision of Egyptian regulators is yet to be declared.
Telecom Egypt recently reported that it is waiting for the
regulators to decide whether to sell its total 45% stake in
Vodafone or just exit from the active governing body. If the
votes favor the former decision, it would also mean hurting
revenues for Telecom Egypt given its lion's share in the
company.
Based in Newbury, United Kingdom, Vodafone Group is the
world's largest revenue generating wireless communications
operator and the second largest carrier after
China Mobile Limited
(
CHL
) based on subscription.
For the short term (1-3 months), Vodafone has a Zacks #2 Rank,
implying a Buy rating. For the long term, we have a Neutral
recommendation on the stock.
CHINA MOBLE-ADR (CHL): Free Stock Analysis
Report
VODAFONE GP PLC (VOD): Free Stock Analysis
Report
To read this article on Zacks.com click here.
Zacks Investment
Research