دراسة ماكينزي عن الشركة المصرية للاتصالات

Assessing Telecom Egypts
current strategic position and

the mobile opportunity
Presentation to the Board of Directors

January 5th, 2010
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
Executive summary (1/2)

1 Current business situation of TE not sustainable in the mid term; need to enter into the mobile market as an
operator to ensure future viability.
TEs fixed line business will cease to produce profits within the next 3-4 years, as a result of declining revenues
by 8-10%, mainly driven by retail (voice and access lines) revenue reduction and increasing cost base mainly
due to rising personnel costs, only partly offset by broadband growth
Furthermore, there are additional risks to TEs profitability as wholesale revenues, today representing 40% of the
total, can be significantly affected by increased regulatory and competitive pressures (e.g., another mobile
operator moving away from TEs infrastructure, reduction in international settlement rates, VoIP development)
As a consequence, in a few years, even considering a continuing positive cash contribution from its stake in
Vodafone Egypt, TE as a Group would be unable to either maintain its current dividend payout, or contribute to
the state through taxation, without changing its current annual compensation increase policy to its employees
This trend could only be temporarily postponed by 3-4 years through an aggressive revenue enhancement and
non-personnel cost reduction effort, but a full reversal would only be feasible if TE would be allowed to
participate directly in the mobile market by becoming an integrated operator, similar to most fixed line
incumbents in the world
2 After assessing several potential scenarios along financial, strategic, operational and feasibility criteria, two
alternative options emerge as preferable for TE: (a) acquiring control of an established operator, Vodafone
Egypt, or, should this not be possible, (b) setting up a new green-field operator through a new 3G license,
whose attractiveness would be directly dependent on a few core underlying assumptions (cost of license,
deployment Capex, achievable market share and ARPU levels after initial ramp up, etc.). Should TE fail to
proceed successfully with either of the preferred options within 6-12 months, alternative suboptimal options
would have to be re-assessed and pursued.
Acquiring control of an established operator would be the preferred option from a market structure perspective,
as it would not increase the already competitive market, while granting TE full access to a profitable mobile
opportunity. From this point of view, acquiring Vodafone Egypts remaining 55% stake would be value-creating
for TE at todays DCF calculated value of approximately EGP 15.3 and, assuming TE can execute a robust and
complex synergies-capture program, even if the purchase price increases for an acquisition premium, up to EGP
21.9 Bn (that would be the value obtained applying to Vodafone Egypt the implied multiples in the Mobinil
proposed transactions). We assume that acquisition of a controlling stake in Mobinil is currently not feasible
McKinsey & Company
| 1
Executive summary (2/2)

In case the Vodafone acquisition proves not feasible, TE should launch its own green-field mobile
operations as a 4th player in the market (assuming Egypt will have no more than 4 mobile players in the
long term), with a 3G play appearing attractive in the long-term, also enabling TE to position itself as a
market leading innovator. Short and medium-term financial attractiveness would directly depend on the
license award price, as well as assumed ARPU and market share uptake (need to achieve market
position at the very high end of the range for international 4th entrant examples), while rollout should be
carefully staged to ensure the EGP 4 Billion of Capex required for the 5,000 3G sites is gradually
committed.
In case TE is not able to act on either of the preferred scenarios within the next 6-12 months, it should
pursue alternative options to become a 4th mobile operator, to avoid its value being further depressed
and the viability of the mobile option becoming further reduced as the mobile market progressively
saturates.
3 Recommended next steps for TE to improve its long-term sustainability would consequently be: (a)
further enhancing/accelerating the ongoing profitability improvement program for TEs fixed line
business to protect current business to the degree possible, and (b) promptly engaging all
stakeholders with influence on the preferred mobile entry scenarios to present TEs case and
understand by mid 2010 which option could indeed be pursued within a short time frame
McKinsey & Company
| 2
Presentation agenda
1 Current business situation of TE not sustainable in the mid term; need to enter into the mobile
market as an operator to ensure future viability.
2 After assessing several potential scenarios along financial, strategic, operational and feasibility
criteria, two alternative options emerge as preferable for TE: (a) acquiring control of an
established operator, Vodafone Egypt, or, should this not be possible, (b) setting up a new
green-field operator through a new 3G license, whose attractiveness would be directly
dependent on a few core underlying assumptions (cost of license, deployment Capex,
achievable market share and ARPU levels after initial ramp up, etc.). Should TE fail to proceed
successfully with either of the preferred options within 6-12 months, alternative suboptimal
options would have to be re-assessed and pursued.
3 Recommended next steps for TE to improve its long-term sustainability would consequently be:
(a) further enhancing/accelerating the ongoing profitability improvement program for TEs fixed
line business to protect current business to the degree possible, and (b) promptly engaging all
McKinsey & Company
| 3
In the telecom industry value is shifting away from the fixed business
towards mobile example of OTE
Percent, Total EV in EUR Billion
Total Enterprise Value
100% =
15.4
9.1
10.7
29
CAGR EV/EBITDA
09E
-13%
4.1x
44
Domestic
Wireline
73
40
59
13%
5.4x
-5%
3.6x
Mobile
14
Rest1
13
16
12
Jun-2000
Feb-2005
Mar-2009
The contribution of
domestic wireline to
the overall enterprise
value of OTE Group
has been declining
1 Rest includes: RomTelecom, ArmenTel (until ), OTEnet, Telecom Serbia

2 Cosmote includes: CosmOTE, GloBul, Cosmofon (until 2007), Cosmote Bulgaria, Cosmote Romania, Cosmote Albania, Cosmote FYROM, Germanos
SOURCE: Deutsche Bank analyst reports dated Jun00, Feb05 and Mar09
McKinsey & Company
| 4
The competitive landscape raises several uncertainties about Telecom

Egypts business sustainability
Potentially likely scenarios
Projections for TE
business, EGP billion
Today (2008 YE)
2014
Competitive scenario
description
Wholesale revenue
Retail revenue
Non personnel cost
Personnel cost
EBITDA
EBIT
Low
Current fixed voice
erosion trends,
increasing BB, mobile
growth from
Vodafone holding
2nd and 3rd 3P
licenses are awarded
Mobile players active
on fixed broadband
Loss of 1 mobile
client in wholesale
Moderate
Mobile operators using
aggressive pricing tactics
further strengthening
FMS, with concurrent
expansion of mobile data
offerings
Mobile pressure on BB
taking advantage of 3P
licenses, with focus on
B2B and high end B2C
segments, while also
attacking youth segments
Intense
Mobile operators
using all out price
war tactics,
spearheading the
attack with flat
voice and mobile
data tariffs
Mobile players
further investing
in expanding their
broadband attack
in most segments
10.1
3.9
6.2
11.1
4.4
6.7
9.7
4.4
5.3
9.1
4.4
4.7
5.1
7.0
6.9
6.8
3.0
2.1
3.5
3.5
5.0
4.1
1.9
0.6
3.4
3.5
3.3
3.5
2.8
2.3
-0.6
-1.1
McKinsey & Company
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due to a significant erosion in voice that is unlikely to be offset by Internet

growth, with declining quality of the revenues
Potentially likely scenarios
Projections for TE
business, EGP billion
Today (2008 YE)
2014
Low
Moderate
Intense
11.1
10.1
Access
2.0
2.0
9.7
1.9
2.5
Voice
9.1
1.8
1.6
1.2
2.2
1.8
1.7
3.0
Internet & other
1.2
Wholesale
3.9
4.4
4.4
4.4
39%
40%
45%
48%
9.61
9.8
9.4
9.1
0.4
1.8
1.4
1.2
% of total
# access lines (mn)
# broadband lines
(mn)
1 As of June 30, 2009; includes policy change in disconnections
McKinsey & Company
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Indeed, under a moderate competition scenario, TEs profits will erode

rapidly, increasing uncertainties about the business sustainability
EGP billion
2008
2014
2020
10.1
9.7
9.9
5.1
6.9
8.3
Top-line is expected to decline

slightly, since the loss in voice and
access will not be totally offset
by internet/broadband and wholesale
Personnel cost will drive the

increase in operational expenses
(7% p.a.) at a high pace
Margin erosion will result in a

significant decrease in operational
performance
Bottom-line erosion is expected to

translate into minimal dividends in 5
years
Revenue
Non personnel
Personnel cost
EBITDA
3.0
2.1
5.0
3.4
3.5
3.6
4.7
2.8
1.6
Income TE fixed
1.5
-0.6
-2.2
Income Vodafone
1.3
1.5
1.8
2.8
0.9
Net income
-0.4
Dividends received
by Government
Tax received by
Government
1.8
0.7
0.5
Under such scenario, without

Vodafones dividends TE could
become net income negative
by 2012
McKinsey & Company
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If competition becomes very intense, TEs bottom line is expected to

become zero within the next five years
EGP billion
2008
2014
2020
10.1
9.1
9.2
Revenue
Non personnel
Personnel cost
EBITDA
3.0
2.1
5.0
8.2
6.8
5.1
3.3
3.5
3.5
4.7
2.3
1.0
Income TE fixed
1.5
-1.1
-2.7
Income Vodafone
1.3
1.3
1.3
Net income
2.8
0.2
-1.4
Dividends received
by Government
Tax received by
Government
1.8
0.2
0.5
Despite increasing broadband

penetration, F2M substitution will
impact heavily over TEs top-line
Personnel cost will drive the

increase in operational expenses
(7% p.a.) at a high pace
As a result, EBITDA could almost

disappear by 2020
In a 5-year horizon, income from

Vodafone will not suffice to offset the
deterioration of the fixed-line business
Without Vodafones
dividends TE would become
net income negative by 2011
McKinsey & Company
| 8
Under a moderate competition scenario, a profitability enhancement

program could potentially delay TEs fixed business erosion by 4 years
EGP billion
2008
2014
2020
10.1
11.0
11.5
5.1
7.3
Revenue
Non personnel
Personnel cost
3.0
2.1
3.8
3.5
8.8
4.1
4.7
5.0
3.4
1.9
Income TE fixed
1.5
0.3
-1.1
Income Vodafone
1.3
1.5
1.8
2.8
1.7
0.7
1.8
1.4
0.7
0.5
0.1
EBITDA
Net income
Dividends received
by Government
Tax received by
Government
Top-line to grow slowly, boosted by

internet/broadband growth and
innovative pricing introduction of flat
rates and bundles
Reduction in non-personnel cost
growth through a focused program
Still a high increase in personnel
cost (7% p.a.) will pose challenges to
TEs cost structure
Margin erosion will result in a

significant decrease in operational
performance
Bottom-line erosion is expected to

translate into lower dividends in 5
years and will disappear by 2020
Without Vodafones dividends,

TEs net income would be
eliminated by 2016
McKinsey & Company
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If competition becomes very intense, a profitability enhancement program

could only delay the inevitable business erosion by 3 years
EGP billion
2008
2014
2020
10.1
10.2
10.5
5.1
7.1
8.6
Revenue
Non personnel
Personnel cost
EBITDA
3.0
2.1
5.0
3.6
3.5
3.9
4.7
2.8
1.1
Income TE fixed
1.5
-0.2
-1.8
Income Vodafone
1.3
1.3
1.3
2.8
1.1
Net income
-0.5
Dividends received
by Government
Tax received by
Government
1.8
0.9
0.5
Revenue enhancement program could

keep a slow growth in revenues
despite heavy impact of F2M on TEs
top-line growth
Reduction in non-personnel cost
growth through a focused program
Still a high increase in personnel
cost (7% p.a.) will pose challenges to
TEs cost structure
As a result, gross operating income

will quickly decrease over time
Income from Vodafone will only

offset the deterioration of the fixed-line
business for the next 5 years
Without Vodafones dividends,

TEs net income would be
eliminated by 2014
McKinsey & Company
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Telecom Egypt has to enter the mobile market: significant growth still
expected and market still fluid with high churn among players
Egyptian telecom market revenue distribution
2008, EGP millions
+29
2007-08 change
Overall Egyptian Retail Telecom market revenues: 28,615
All
players
+80
+33
1,590
+5
20,953
5,185
+61
891
+38
Competitors
572
383
10,611
+72
5,185
TE/
1,018
Vodafone
TE Fixed Wholesale
4,146
3,493
10,342 2,249 2,800
+83
508
+19
+24
Mobile
data1
2005
Mobile voice
06
07
2008
Fixed voice3 Fixed
data2
1 Calculated as a percentage of total service revenues, including SMS, Data cards

2 Includes only BB
3 Includes only retail
SOURCE: Pyramid, analyst reports, team analysis
McKinsey & Company
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Capital markets seem to value integrated and mobile operators more

favorably
EV/EBITDA 2009E
Fixed
Integrated operators
Mobile operators
7,3x
6,4x
Average: 5.5x
4,0x
Average: 5.0x
5,2x 5,4x
4,7x 4,9x 4,9x
3,9x 4,0x
4,7x
5,1x 5,2x
Zain
Mobinil
MTN
Orascom
Maroc
Telecom
Batelco
STC
Jordan
QTel
Omantel
Turk
Telecom
Etisalat
TE
Companies with more exposure to growing

mobile markets enjoy higher valuation multiples
SOURCE: Company data, broker research reports
McKinsey & Company
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Presentation agenda
McKinsey & Company
| 13
Mobile entry scenarios were assessed for alignment with Telecom Egypts
business priorities along several key dimensions
1
Key business
parameters
3
SOURCE: Team analysis
Financial
considerations
Operational
requirements/
prerequisites
Financial value creation expressed as TEs total equity

value, based on a set of reasonable business assumptions about
the combined fixed-mobile entity evolution
Operational parameters associated with potential constraints or

advantages in setting-up/operating the new mobile operator
(e.g., speed of deployment /attainment of significant market
presence, ability to leverage current infrastructure, lack of crucial
skills required in the commercial or network functions, etc.)
Strategic
objectives
Alignment with TEs long-term strategic objectives (e.g.,

ability to achieve a leading presence in the local mobile market,
potential to generate maximum value from fixed-mobile
synergies, having control of own infrastructure for the long-term,
etc.)
Practicality
assessment
Practical considerations, including availability of acquisition

targets, potential for raising funding, probability of being awarded
a license, ability to capture the theoretical synergies, technical
feasibility of offering competitive services, etc.
McKinsey & Company
| 14
Potential scenarios for Telecom Egypt entering the mobile market as an

operator
Possible permutations
Buy
Description
Acquire
Vodafone 100%
Acquire ownership and full operational control of Vodafone Egypt
Acquire
minority stake
in Mobinil
Additionally to existing Vodafone stake acquire 20% stake in Mobinil to enhance
3G license
Acquire 3G license and start services into mobile data and 3G-only voice,
position in mobile market and increase chances of commercial agreement

Strictly a financial investment
initially also leveraging roaming on 2G networks for mass market voice.

Gradually shift to 3G voice only as handsets become more available
Greenfield
Virtual
Operator
Universal
license
As above, plus 2G capabilities and voice services launched from the start
All other mobile operators offered full fixed licenses (all 4 operators become
universal operators)
CDMA
Leverage existing network and expand it to offer mobile data and voice
CDMA/MVNO
Leverage existing CDMA network and expand it to offer mobile broadband only
Offer mobile voice (and data) through an MVNO deal with an existing operator
MVNO
Offer full mobile services leveraging 3rd party network, with some control on products
More likely to leverage Vodafones network
Leverage TE brand value to resell 3rd party operators products, with limited
Commercial
agreement
input on product characteristics to benefit from margin and control FMS

More likely to collaborate with Vodafone in offering FMC bundles
McKinsey & Company
| 15
Financial attractiveness was based on a Discounted Cash Flow

analysis
TEs 45% stake
Equity value
in Vodafone
Egypt
DCF model
calculates
total
enterprise
value of fixed
line business
and stake in
VE
Two core
elements are:
ILLUSTRATIVE
Discounts in a
potential sale
TE fixed-line
VE
TE
Non-control
Liquidity
TE (market)
Operational
Operational
cash flows
Financial
premiums/
discounts
Implied DCF valuation based

on operational cash flows
Financial
Base case discount scenario: constant
dividend payout ratio expected, but no
control of cash flows (discount c.1030%). Discount could be up to c.30-40%
if dividends are in doubt and liquidity
concerns are high.
McKinsey & Company
| 16
Overview of mobile growth scenarios assessment

EGP billions
1 Evolution of existing (As Is) company structure under different market conditions
Way to
achieve
Options
to enter
Base Case
Low
competition
Moderate
competition
18.1
As is
Buy
stake
2 Mobile
market
entry for
Telecom
Egypt
31.8
Vodafone
Mobinil
stake
3G
Entry
to mobile
Green
Field
Universal
CDMA/
MVNO
CDMA
Virtual
Operator
MVNO
Comm
Moderate +
program
13.3 -4.8
24.4
Intense
competition
16.6 -1.5
Intense
+ program
11.6 -6.5
27.8
14.6 -3.5
20.6
23.6
13.7
11.1 -2.5
11.1 -2.5
9.0 -4.7
9.0 -4.7
35.5 19.6
15.9
40.1 4.5
27.3 14.4 -5.2

12.9 -3.0
30.4 3.1 -1.4
31.0 18.1 -1.6

12.9 -3.0
36.3 5.3 0.8
23.0 12.6 -7.0

10.4 -5.5
24.4 1.4 -3.1
26.2 15.8 -3.8

10.4 -5.5
28.7 2.5 -2.0
31.8 18.1
31.8
13.7
33.3 1.5
33.3
24.4 13.3 -4.8

11.1 -2.5
25.5 1.0 -0.5
27.8 16.6 -1.5

11.1 -2.5TE
29.5 1.7 0.2
20.6 11.6 -6.5

9.0 -4.7
21.1 0.5 -1.0
23.6 14.6 -3.5

9.0 -4.7
24.7 1.1 -0.4
30.3 19.4
10.9
32.6 2.3
32.6
25.1 14.2 -5.2

10.9 0.0
26.3 1.2 -1.1
28.7 17.8 -1.6

10.9 Value
0.0
32.3 3.6 1.3
23.9 13.0
23.9
Total Equity
10.9
26.9 3.0
26.9
9.0 -4.0
0.0
2.2 -0.8
19.91
Value
10.9
22.1
Total equity Value

19.6
14.4 -5.2
30.6
30.6
including
value 25.4
creation/
10.9
10.9 0.0
35.0
28.5
destruction
from
entering
35.0
4.4
3.2 -1.2
2
mobile
market
30.3 19.4
25.1 14.2 -5.2
fixed
22.8 11.9 -1.1

10.9 0.0
26.8 4.0 1.1
29.0 18.1 -1.6
10.9 0.0
33.4 4.4Value
0.0
10.9
33.0 2.7
33.0
10.9 0.0
27.0 1.9 -0.8
-1.6
28.7 17.8creation
10.9 0.0
32.4 3.6 1.0
32.3 19.6
32.3
12.7
35.5 3.2
35.5
24.7 14.4 -5.2

10.3 -2.4
27.2 2.5 -0.6
-1.6
28.3 18.1 Mobile
10.3 -2.4
32.1 3.8 0.6
32.3 19.6
12.7
33.0 0.7
24.7 14.4 -5.2

10.3 -2.4
25.1 0.4 -0.3
28.3 18.1 -1.6

10.3 -2.4
29.2 0.9 0.2
30.3
23.4
vs.12.5
10.9
As
23.5is
-6.9
0.0
0.1 -2.2
Value
7.7 -5.3
10.9 0.0
vs.
20.1 1.5 -1.5
18.6
As
23.6 12.6 -7.0
10.9 0.0
25.6
vs. 2.0 -2.4
As
12.5
23.4is
is
26.5 15.6 -3.8

10.9 0.0
28.9 2.3 0.1
21.1 10.2 -2.8
10.9 0.0
Vodafone
24.2 3.1 0.2
stake
26.8 15.8 -3.8
10.9 0.0
29.9 3.1 -1.3
-6.9
10.9 0.0
24.6 1.2 -1.5
26.5 15.6 -3.8

10.9 0.0
29.3 2.7 0.1
entry
12.6 -7.0
20.9 option
8.2 -4.5
1.9 -1.2
24.0 15.8 -3.8

8.2 -4.5
27.1 3.0 -0.2
20.9 12.6 -7.0

8.2 -4.5
21.0 0.2 -0.5
24.0 15.8 -3.8

8.2 -4.5
24.6 0.5 -0.2
22.8
McKinsey & Company
| 17
Preliminary assessment of leading mobile entry scenarios for TE along

key dimensions
Entry Scenarios
Acquire
Vodafone
3G license
Financial
+ Base case for value of
55% stake could be
EGP 18 Bn (20%
premium vs. DCF
value), total additional
value extracted EGP
6.2-8.5 Bn
+ Value creation even if
price is EGP 21.9 Bn
(implied by Mobinil
controlling stake
valuation)
Operational
Strategic
Practicality
+ All critical skills for
+ Most attractive market + Once deal decided,
mobile operations and
structure
no complex set-ups
distribution network
+ Full Fixed-Mobile
Willingness from
come ready-made
Collaboration (FMC)
Vodafones side to
+ Financial integration
potential
sell? (linked with their
(profit accretion) can + TE becomes mobile
future funding needs)
start immediately
operator with highest
High funding needs
+ Commercial and back- (revenue) market share
for TE
end integration can
+ Operator already well FMC cost synergies
commence at a later
positioned in high end,
also expected
stage without
potential to expand
through personnel
impeding cash flows
with no-frills brand
reduction
+ Full control of own
infrastructure
License cost assumed

significantly lower than
the full 3rd license which
also included 2G
Vodafone stake will
impact financial value
depending on timing and
discount of potential
disposal
NPV break-even
requires market share
and ARPU at the very
high end of the range for
international 4th entrant
examples
+
+
Existing infrastructure
(buildings, towers) to
be leveraged
No complex MVNO
agreement needed
Technologically simple
towards customer (vs.
CDMA solution) and
allows roaming
High CapEx required
to offer full coverage
and high capacity (but
can be staggered)
Scarce mobile
operator skills in TE
+
+
+
+
+
Simpler 4G roadmap
than alternative
technologies
Full FMC potential
TEs brand equity can
be fully leveraged
Full control of own
infrastructure
Full commercial
flexibility (capacity not
an issue vs.VNO)
Difficulty in capturing
voice market share in
the short-term only with
3G (handsets)
Realization of option
may depend on
license price
McKinsey & Company
| 18
Preliminary ranking of mobile growth options
Highest
PRELIMINARY
Lowest
Possible permutations
Financial
Operational
Strategic
Practicality
1 Buy: Acquire Vodafone

100%
2 Greenfield: 3G license
Greenfield / Virtual
Operator: CDMA / MVNO
Greenfield: Universal
license
Virtual Operator: MVNO
Greenfield: CDMA
Virtual Operator: Reseller
Buy: Acquire minority
stake in Mobinil
N/A
McKinsey & Company
| 19
Acquisition of Vodafone: sensitivities on Vodafone valuation and

acquisition premium
EGP billion
16,5
17,2
5,0x
5,2x
18,7
20,1
5,6x
6,0x
21,9
12,9
Value of 55% of
Vodafone Egypt
x EBITDA1
4,0x
6,5x
With maximum FMC value

creation of EGP 11 Bn, a price
of EGP 21,9 Bn is still value
creating (premium of 43% over
DCF value)
Vodafone stake at
DCF calculated value
is ~EGP 15,3 Bn
Equivalent
Mobinil share
price (EGP)
2082
222
245
273
Mobinil share
Premium (%)
18
31
8.6
10.0
11.5
13.2
Additional
funding
required3
4.3
7.9
1 Vodafone EBITDA EGP 6.5 bn

2 Closing price when regulatory approval was announced
3 Leverage of 1x EBITDA PF (EGP 10bn) Vodafone and TE net debt (EGP 1.4 bn) provides EGP 8.6 bn available cash
McKinsey & Company
| 20
Presentation agenda
McKinsey & Company
| 21
Backup
McKinsey & Company
| 22
Basic Assumptions 1/4
2008
2014
2020
11.7
9.8
9.9
0.4
1.6
2.4
0.9
1.1
1.2
9.4
9.0
0.4
1.4
2.0
0.9
1.0
1.1
9.1
8.3
0.4
1.3
1.7
0.9
1.0
1.1
ALIS (million)
Low
competition
Broadband lines (million)

Revenues per lines (000
EGP per line)
11.7
ALIS (million)
Moderate
competition

EGP per line)
11.7
ALIS (million)
Intense
competition

EGP per line)
McKinsey & Company
| 23

EGP billion
2008
2014
2020
6.2
6.6
7.1
3.9
4.4
4.8
10.1
11.1
11.9
6.2
5.3
5.1
3.9
4.4
4.8
10.1
9.7
9.9
6.2
4.6
4.4
4.0
4.4
4.8
10.1
9.1
9.2
Retail
Low
competition
Wholesale
Total Revenues
Retail
Moderate
competition
Wholesale
Total Revenues
Retail
Intense
competition
Wholesale
Total Revenues
McKinsey & Company
| 24

EGP billion
Access Revenue
Low
competition
Access Revenue
Voice Revenue
Internet and other
Access Revenue
Intense
competition
2014
2020
2.0
2.0
2.0
3.0
2.5
2.6
1.2
2.1
2.6
2.0
1.9
1.8
3.0
1.6
1.5
1.2
1.8
1.8
2.0
1.8
1.7
3.0
1.2
1.1
1.2
1.6
1.6
Voice Revenue
Internet and other
Moderate
competition
2008
Voice Revenue
Internet and other
McKinsey & Company
| 25

EGP/month
2008
2014
2020
44.9
56.3
59.7
36.4
38.3
38.3
74.1
70.3
62.3
44.9
56.3
56.6
36.4
37.5
37.5
74.1
60.2
44.3
44.9
52.1
52.7
36.4
34.5
34.5
74.1
57.0
41.9
ARPU
Low
competition
Voice and Access
Broadband
ARPU
Moderate
competition
Voice and Access
Broadband
ARPU
Intense
competition
Voice and Access
Broadband
McKinsey & Company
| 26
Profitability enhancement program assumptions: moderate

EGP billion
Retail
broadband
market share
(%)
2008
2014
2020
60.0
55.0
55.0
60.0
60.0
60.0
45.0
47.0
48.0
45.0
56.0
57.0
3.0
3.0
4.0
4.0
Base case
w/ program
Delta
Base case
Retail ARPU
(EGP/mo)
w/ program
Delta
Base case
Advertising
costs as % of
revenue (%)
w/ program
Delta
1.0
1.0
McKinsey & Company
| 27
Profitability enhancement program assumptions: intense

EGP billion
Retail
broadband
market share
(%)
2008
2014
2020
60.0
50.0
50.0
60.0
55.0
55.0
45.0
43.0
44.0
45.0
52.0
53.0
3.0
3.0
4.0
4.0
Base case
w/ program
Delta
Base case
Retail ARPU
(EGP/mo)
w/ program
Delta
Base case
Advertising
costs as % of
revenue (%)
w/ program
Delta
1.0
1.0
McKinsey & Company
| 28
Sensitivities on personnel cost: EBITDA

EGP billion
2008
2014
2020
5.1
3.6
2.3
5.1
4.8
4.4
1.2
2.1
2.3
0.5
5.1
3.5
2.6
1.2
2.1
w/ personnel cost CAGR 9%

Low
competition

Delta
5.1
Moderate
competition

Delta
5.1
Intense
competition
5.1
Delta
1.9
3.1
-0.1
2.0
1.2
2.1
McKinsey & Company
| 29
Sensitivities on personnel cost: EBIT

EGP billion

Low
competition
2014
1.9
0.2
2020
-1.6
Delta

Moderate
competition
2008
1.9
1.4
0.4
1.2
2.1
-1.1
-3.3
1.9
1.9
0.1
-1.2
Delta
1.2
2.1
-1.5
-3.8
-0.3
-1.7
1.2
2.1
1.9
Intense
competition
1.9
Delta
McKinsey & Company
| 30
TE be negatively impacted if the government awards international

gateways to all operators
EGP billion
2008
2014
2020
10.1
8.6
9.3
Revenue
Low
competition
EBITDA
Net income
5.0
Revenue
EBITDA
Net income
5.0
Revenue
EBITDA
Net income
-0.1
-0.9
7.2
7.3
0.3
2.8
10.1
Intense
competition
0.8
2.8
10.1
Moderate
competition
1.7
TE would lose
more than
EGP 2bn in
domestic
transmission
and mobile to
international
wholesale
-1.0
-1.6
-3.0
6.6
6.6
-0.1
-1.6
-2.2
-4.0
5.0
2.8
McKinsey & Company
| 31
Communications Egypt vs. Turkey side-by-side comparison

Penetration of population (%)
Egypt
Turkey
Access
lines
14,6
15,0
15,3
15,5
27,4
26,9
25,8
24,5
Personal
computers
2,5
3,5
6,5
9,3
7,2
9,2
13,4
22,5
Broadband
0,1
0,3
0,6
1,0
2.3
4.0
6.4
8.7
61,1
83,6
89,0
54,5
71,7
2008
2005
2006
2007
2008
Mobile
18,1
24,9
2005
2006
40,8
2007
There seems to be a 3 year lag

between Turkey and Egypt in the
penetration of communication services
SOURCE: Government data; Pyramid
McKinsey & Company
| 32
Comparing key telecommunications trends in Egypt and Turkey

Turkey
Teledensity evolution 2004-08
Mobile penetration evolution 2004-08

100
30
Voice
Egypt
25
80
20
60
15
40
10
20
5
0
2004
05
06
07
2008
Broadband penetration evolution 2004-08
0
2004
05
06
07
2008
08
2009
PC penetration evolution 2005-09

30
25
Data
20
15
10
2
0
2004
05
06
07
2008
0
2005
06
07
McKinsey & Company
| 33
Overview of mobile growth scenarios assessment

EGP billions
1 Evolution of existing (As Is) company structure under different market conditions
Way to
achieve
Options
to enter
Base Case
Low
competition
Moderate
competition
18.1
As is
Buy
stake
2 Mobile
market
entry for
Telecom
Egypt
31.8
Vodafone
Mobinil
stake
3G
Entry
to mobile
Green
Field
Universal
CDMA/
MVNO
CDMA
Virtual
Operator
MVNO
Comm
Moderate +
program
13.3 -4.8
24.4
Intense
competition
16.6 -1.5
27.8
Intense
+ program
11.6 -6.5
20.6
14.6 -3.5
23.6
13.7
11.1 -2.5
11.1 -2.5
9.0 -4.7
9.0 -4.7
35.5 19.6
15.9
40.1 4.5
27.3 14.4 -5.2

12.9 -3.0
30.4 3.1 -1.4
31.0 18.1 -1.6

12.9 -3.0
36.3 5.3 0.8
23.0 12.6 -7.0

10.4 -5.5
24.4 1.4 -3.1
26.2 15.8 -3.8

10.4 -5.5
28.7 2.5 -2.0
31.8 18.1
31.8
13.7
33.3 1.5
33.3
24.4 13.3 -4.8

11.1 -2.5
25.5 1.0 -0.5
27.8 16.6 -1.5

11.1 -2.5
29.5 1.7 0.2
20.6 11.6 -6.5

9.0 -4.7
21.1 0.5 -1.0
23.6 14.6 -3.5

9.0 -4.7
24.7 1.1 -0.4
30.3 19.4
10.9
32.6 2.3
32.6
25.1 14.2 -5.2

10.9 0.0
26.3 1.2 -1.1
28.7 17.8 -1.6

10.9 0.0
32.3 3.6 1.3
23.4 12.5 -6.9

10.9 0.0
23.5 0.1 -2.2
26.5 15.6 -3.8

10.9 0.0
28.9 2.3 0.1
23.9 13.0
23.9
19.9
9.0 -4.0
10.9 0.0
22.1 2.2 -0.8
22.8 11.9 -1.1

10.9 0.0
26.8 4.0 1.1
18.6
7.7 -5.3
10.9 0.0
20.1 1.5 -1.5
21.1 10.2 -2.8

10.9 0.0
24.2 3.1 0.2
30.6 19.6
30.6
25.4 14.4 -5.2

10.9 0.0
28.5 3.2 -1.2
29.0 18.1 -1.6

10.9 0.0
33.4 4.4 0.0
23.6 12.6 -7.0

10.9 0.0
25.6 2.0 -2.4
26.8 15.8 -3.8

10.9 0.0
29.9 3.1 -1.3
30.3 19.4
30.3
25.1 14.2 -5.2

10.9 0.0
27.0 1.9 -0.8
28.7 17.8 -1.6

10.9 0.0
32.4 3.6 1.0
23.4 12.5 -6.9

10.9 0.0
24.6 1.2 -1.5
26.5 15.6 -3.8

10.9 0.0
29.3 2.7 0.1
32.3 19.6
32.3
12.7
35.5 3.2
35.5
24.7 14.4 -5.2

10.3 -2.4
27.2 2.5 -0.6
28.3 18.1 -1.6

10.3 -2.4
32.1 3.8 0.6
20.9 12.6 -7.0

8.2 -4.5
22.8 1.9 -1.2
24.0 15.8 -3.8

8.2 -4.5
27.1 3.0 -0.2
32.3 19.6
12.7
33.0 0.7
24.7 14.4 -5.2

10.3 -2.4
25.1 0.4 -0.3
28.3 18.1 -1.6

10.3 -2.4
29.2 0.9 0.2
20.9 12.6 -7.0

8.2 -4.5
21.0 0.2 -0.5
24.0 15.8 -3.8

8.2 -4.5
24.6 0.5 -0.2
10.9
26.9 3.0
26.9
10.9
35.0 4.4
35.0
10.9
33.0 2.7
33.0
McKinsey & Company
| 34
Discounted Cash Flow model overview

Mechanics
Retail revenue
Inputsfee
Access: connection
Subscriptions: subscription fee
Voice1: tariff, usage
Internet: BB subs, fee
Different forecast inputs are

based on views on growth
trends and contribution as
a percentage of revenue
Trends are supported by both

historical performance and
international benchmarks
Wholesale revenue
Domestic: tariffs, volumes
International: tariffs, volumes
For each scenario, the

model considers a different
set of assumptions to build
the forecasts and provide a
valuation
Market data
Penetration (lines, BB)
Market share
Operating expenses
Personnel, operating costs
Interc. fees, G&A, S&D
CapEx and Working capital
Vodafone Egypt KPIs,
EBITDA and CapEx
TEs and Vodafone Egypts

assumptions and KPIs are
linked to provide a
combined valuation
1 Includes local calls, long distance, fixed to international and fixed to mobile
BACK UP
Output
Yearly cash flows until

2020, after which a
normalized terminal value
is applied
For each scenario, the model
provides a value of TEs
fixed line business
operations and a value of
Vodafone Egypts operations
Apart from operational cash
flows, other factors affect the
current value of TE, namely
the financial
considerations around the
45% stake in Vodafone
McKinsey & Company
| 35
Overview of Vodafone-TE: potential EGP 11 bn value of synergies

EGP billion
Vodafone
standalone
TE-Vodafone
integrated
Expected
synergies
(EGP bn)
1 TE fixed
revenue
synergies (%)
N(A
1%
1.3
10% reduction in disconnections
2 Market share
(%)
40%
45%
2.0
Additional 5% market share through

cross-selling and bundle offers
28% increased ARPU as an

integrated operator based on
innovative pricing and incumbent
advantage (higher value customers)
3 ARPU
(EGP/mo)
47
52
Rationale
3.5
ARPU differential between incumbent and third operator:
In Spain (2008):
TEF: EUR 30.40
Orange: EUR 23.13
= 26%
4 Opex savings
(%)
0%
In Greece (2008):
Cosmote: EUR 23.60
Wind: EUR 18.12
= 30%
7%
4.0
In Netherleands (2008):
KPN: EUR 27.75
Orange: EUR 20.58
= 35%
TEF 02 Cesky integration resulted in

27% of savings in FTE
McKinsey & Company
| 36
Acquisition of Vodafone: financial overview
BACKUP
EGP billion, average of moderate + program and intense + program scenarios
Base case assumptions
Market share: increasing

to 45%
ARPU: EGP 52
EBITDA margin: 50%
Revenue
EBITDA
Taxes
Capex
FCF
2010
2015
2020
14.7
6.8
1.0
2.8
21.9
10.9
1.7
3.2
27.0
14.3
2.2
2.7
3.0
6.7
9.4
Synergies assumptions
Market share: Vodafones standalone case assumes a flat market share, while for an integrated
operator we assume that market share will increase by 5% (bundles and cross-selling promotions)
ARPU: Todays ARPU of EGP 50 is expected to drop to EGP 47 in the standalone case base;
however, as an integrated operator TE will be able to better target high-end customers and keep or
increase the current level
OPEX: the integrated case assumes savings of 7% (i.e. TE O2 Cesky integration)

McKinsey & Company
| 37
3G license: sensitivities on license cost vs. Market share and ARPU

EGP billion, average of moderate and intense competition scenarios plus profitability program
License cost
1.3
3.4
4.4
20
26
% of Etisalats
License cost1
Discount equivalent to
French 4th license
Etisalats price + inflation

(9.5% in 08 and 18.3% in 09)
3G break-even curve:
License: EGP 4.4bn

License: EGP 3.4bn
License: EGP 1.3bn
Market share (%)
40
30
20
10
0
20
25
1 Without inflation factored in
30
35
40
45
50
55
60
65
70
ARPU
(EGP)
McKinsey & Company
| 38
Fourth entrant 3G: Free Mobile

Key country facts
2008
Population 64,1
Mobile penetration
million
End of year, percent, 2011
GDP/cap. 33.300
USD
+5% p.a.
Age profile
88 92 94 95 96
>14
18,6
78 83
73
69
64
<15-64 65
<65
CAGR
Mobile market overview and evolution

2002-2011
16,4
Mobile players
Market shares
End of year, percent, 2011
1
Orange
Other
2002 03 04 05 06 07 08 09 10 2011
44
43
43
36
36
35
34
34
34
34
33
16
17
17
17
17
17
17
17
17
2002 03
04
05
06
07
08
09
10
11
35
15
35
Free mobile a subsidiary of the broadband

provider Illiad was the only company to bid for
the fourth license
Competitor reactions
Orascom Telecom had earlier shown interest

in bidding for license but pulled out at last
Orascom chairman reportedly said that
regulatory conditions were too difficult
French MVNO Kertel too had expressed
interest in 3G license but withdrew from the
race as it was hoping to strengthen its
position in the prepaid market.
Bouygues Telecom was not satisfied with the
price of the fourth mobile license and filled
two complaints with France's highest
administrative court the Council of State
SOURCE: EIU Country Report, EMC World Cellular Database, McKinsey
32.75
35.46
44
Outcome
44
48
Free Mobiles action
45
49
Situation and market dynamics

France mobile market
dominated by three MNOs
and some MVNOs
4th 3G license was auctioned
in August with very specific
conditions (obligation to cover
a quarter of the population
with its own network in the
first 3 years) while allowing
the fourth entrant to use rivals
network to complete its
coverage
Orange, SFR and Bouygues
Telecom each had to pay
EUR 619 million for their 3G
licenses
47
50
SFF
Bouygues
Blended ARPU
USD, 2009
42.18
7
Free mobile paid EUR

240 mil for the fourth
license
The license will be
awarded this January
Modest market
position assumptions
rumored for the 4th
entrant
McKinsey & Company
| 39
International experience shows that entry as a 3rd or 4th player becomes

3 operator
increasingly difficult with higher penetration
rd
4th operator
Penetration in Egypt
High 50
45
Cosmote (Greece)
40
35
Idea (Poland)
30
Market
Shares
(2004)
Tele2 (Lithuania)
25
Orange (UK)
Amena (Spain)
20
Base (Belgium)
15
One (Austria)
Wind (Italy)
Orange (Switzerland)
DNA
(Finland)
Tele ring
(Austria)
10
Infoquest
(Greece)
Western wireless
(Slovenia)
Meteor (Ireland)
5
Low
0
0
Low
10
20
30
40
50
60
70
80
High
Penetration at launch
1 Gained market share through acquisition of Telia
SOURCE: EMC; McKinsey analysis
McKinsey & Company
| 40
Fifth operators enjoy low market share and are usually consolidated by
4 Entrant
stronger players
th
5th Entrant
Mobile penetration evolution
Market share evolution for fourth and fifth player
+5% p.a.
UK
85
91
117 122 126 129 130 131

103 112
T-Mobile
25
25
24
23
22
22
22
21
04
05
06
07
08
09
10
11
2002 03
04
05
15
14
24
25
3 (Hutchison)
2002 03 04 05
06
07 08 09 10 2011
2002 03
+14% p.a.
Mexico
26
37
30
45
54
65
73
78
84
88
Unefon
Nextel Intl
2002 03 04 05
06
07 08 09 10 2011
5
2
0
4
0
4
0
3
06
07
08
09
10
11
+6% p.a.
74
119 126 127 128

98 100 104 112
83
Netherlands
2002 03 04 05
06
07 08 09 10 2011
Ben
12
Orange
10
2002 03
11
04
14
12
05
15
27
27
26
26
25
07
08
09
10
11
12
06
A fifth entrant is usually able to enjoy only limited market share due to the already strong position of
other players and especially the first three ones
In many cases the entrance of a fifth player will lead to consolidation in the market mainly focused on
the fourth or the fifth entrant
McKinsey & Company
| 41
CDMA and MVNO: Scenario overview

Key assumptions
CDMA for mobile
broadband
2G MVNO deal for mobile

data and voice
CDMA
ARPU of EGP 62
EBITDA margin of 70%
Network roll-out x3 (additional 800
sites for a total of 1.200)
MVNO
Market share: increasing up to 10%
ARPU: from EGP 45 decreasing to
EGP 35
Wholesale contribution to MNO of
70%
SAC 6% of revenue (10% intl
benchmark, 4% o/w is handset)
Strategic considerations
Inability to offer wide

range of mobile voice
offers due to nature of
MVNO
Low future prospects

of CDMA technology
as LTE becomes the
dominant technology
McKinsey & Company
| 42
CDMA and MVNO: considering a potential hybrid solution, applying

sensitivities on operational assumptions
MVNO
Margin of 70% (intl
benchmark), and 55%
to account for
increased value from
Vodafone
Overall market share
of 10%
CDMA
Subscribers reaching
750k-1,350k in 5
years, implying a
mobile broadband
penetration as % of
mobile of 8-15%
ARPU of EGP 62
Basic coverage 3x
and full blown
coverage 5x existing
infrastructure
Standalone, CDMA data would

break even assuming 1,050 k
subscribers and a rollout of 5x
MVNO margin: 70%

Value Creation
4,2
5,3
4,7
Coverage 3x
MVNO margin: 55%

Value Creation
A more widespread roll out

(5x) would reduce EGP 0.7
Bn in value
6,6
7,1
7,7
750
1,050
1,350
Coverage 3x
CDMA Subs (000)
McKinsey & Company
| 43
CDMA and MVNO: considering a potential hybrid solution,

applying sensitivities on license cost
Current
assumption

License cost
0.025
0.1
1.7
3.4
5.1
17.0
% of Etisalats
License cost
10
20
30
100
750k CDMA subs

Value Creation
4,2
4,2
4,1
2,5
0,8
-0,9
1,050k CDMA subs

Value Creation
4,7
4,7
4,6
3,0
-12,7
1,3
-0,4
1,350k CDMA subs

Value Creation
5,3
5,3
5,3
-12,3
3,6
1,9
0,3
-11,7
In Romania, upgrading the license to provide mobile

data cost $1 mn for a population of 30 mn equivalent
ratio for Egypt would imply a license cost of EGP 22 mn
McKinsey & Company
| 44
CDMA and MVNO: considering a potential hybrid solution,

financial overview
BACK UP
EGP million, average of moderate + program and intense + program scenarios

MVNO
Market share:
increasing to 10%
ARPU: from EGP 45
decreasing to EGP 35
Wholesale
contribution to MNO:
70%
SAC: 6% of revenue
(10% intl benchmark,
4% o/w is handset)
CDMA
ARPU: EGP 62
EBITDA margin: 70%
Network roll-out x3
(additional 800 sites
for a total of 1.200)
2010
2015
2020
76
5
2
3
3.779
806
158
4
4.356
1.021
203
4
643
814
56
39
0
807
629
441
68
63
695
486
84
69
-768
310
333
150
950
1,050
MVNO
Revenue
EBITDA
Taxes
Capex
FCF
CDMA
Revenue
EBITDA
Taxes
Capex
FCF
CDMA Subs (000)
McKinsey & Company
| 45

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دراسة ماكينزي عن الشركة المصرية للاتصالات

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Assessing Telecom Egypts

current strategic position and

Presentation to the Board of Directors

Executive summary (1/2)

Executive summary (2/2)

McKinsey & Company

market as an operator to ensure future viability.

McKinsey & Company

1 Rest includes: RomTelecom, ArmenTel (until ), OTEnet, Telecom Serbia

McKinsey & Company

The competitive landscape raises several uncertainties about Telecom

Today (2008 YE)

due to a significant erosion in voice that is unlikely to be offset by Internet

Today (2008 YE)

Internet & other

# access lines (mn)

1 As of June 30, 2009; includes policy change in disconnections

McKinsey & Company

Indeed, under a moderate competition scenario, TEs profits will erode

Top-line is expected to decline

Personnel cost will drive the

Margin erosion will result in a

Bottom-line erosion is expected to

Under such scenario, without

If competition becomes very intense, TEs bottom line is expected to

Despite increasing broadband

Personnel cost will drive the

As a result, EBITDA could almost

In a 5-year horizon, income from

McKinsey & Company

Under a moderate competition scenario, a profitability enhancement

Top-line to grow slowly, boosted by

Margin erosion will result in a

Bottom-line erosion is expected to

Without Vodafones dividends,

If competition becomes very intense, a profitability enhancement program

Revenue enhancement program could

As a result, gross operating income

Income from Vodafone will only

Without Vodafones dividends,

Overall Egyptian Retail Telecom market revenues: 28,615

1 Calculated as a percentage of total service revenues, including SMS, Data cards

McKinsey & Company

Capital markets seem to value integrated and mobile operators more

Companies with more exposure to growing

McKinsey & Company

market as an operator to ensure future viability.

McKinsey & Company

SOURCE: Team analysis

Financial value creation expressed as TEs total equity

Operational parameters associated with potential constraints or

Alignment with TEs long-term strategic objectives (e.g.,

Practical considerations, including availability of acquisition

Potential scenarios for Telecom Egypt entering the mobile market as an

Acquire ownership and full operational control of Vodafone Egypt

Additionally to existing Vodafone stake acquire 20% stake in Mobinil to enhance

position in mobile market and increase chances of commercial agreement

initially also leveraging roaming on 2G networks for mass market voice.

input on product characteristics to benefit from margin and control FMS

McKinsey & Company

Financial attractiveness was based on a Discounted Cash Flow

Implied DCF valuation based

McKinsey & Company

Overview of mobile growth scenarios assessment

SOURCE: Team analysis

27.3 14.4 -5.2

31.0 18.1 -1.6