UPDATE 2-Telecom Egypt eyes deal with government on mobile service

Mon Nov 12, 2012 5:44am EST

* Q3 net 633 mln Egyptian pounds vs f'cast 625 mln

* Revenue 2.48 billion pounds vs f'cast 2.38 billion

* CEO says wants to set up virtual mobile network

* Says talks with govt at advanced stage (Rewrites first paragraph, adds comments from chief executive)

By Edmund Blair

CAIRO, Nov 12 (Reuters) - Telecom Egypt is in advanced talks with the government on a deal allowing it to offer mobile services in addition to its traditional mainstay fixed-line business, where revenue is under pressure.

Telecom Egypt, which is 80 percent owned by the state, has been relying on its data business to boost revenue. It also has a 45 percent stake in Vodafone Egypt, which in the third quarter accounted for a third of net profit.

"The discussions (with the government) are in a very mature phase," Chief Executive Mohamed El-Nawawy told Reuters. He did not give a timetable for a deal on a universal telecoms licence, although he said agreement could be imminent.

"We would be a fourth total telecoms provider," he said. "We are interested in moving forward as soon as possible, as soon as we get a licence, offering a virtual service," or one based on existing mobile networks.

Nawawy's comments came after the company announced a 3 percent rise in quarterly profit, at the top end of forecasts.

Any agreement on a universal licence for Telecom Egypt would mean changing the licences of Egypt's three mobile operators - Vodafone Egypt, Mobinil, which is controlled by France Telecom, and Dubai-based Etisalat - to allow them to enter the same businesses, he said.

The CEO said the company could look to set up its own independent network in future.

"In 2014 we may be in a position where would be deciding if we would invest in new radio assets," the chief executive said. "If we invest in new radio assets, then obviously we have to look carefully at our Vodafone assets."

Nawawy said Egypt's population of about 83 million was expanding at a pace that could support a new mobile entrant.

Third-quarter net profit was 633 million Egyptian pounds ($104 million), compared with an average forecast of 625 million from seven analysts polled by Reuters. The firm restated net profit for the same period of 2011 as 615 million pounds.

Revenue rose 6 percent to 2.48 billion pounds, against a forecast for 2.38 billion. Its EBITDA margin of 36.8 percent was below a forecast for 41 percent.

In the results statement, Nawawy said the firm had a healthy balance sheet and strong cash generation profile, ensuring it was well positioned to become a total telecoms operator once the licence was in place.

Shares in Telecom Egypt were trading down 1 percent by 0930 GMT. The benchmark index was flat.

($1 = 6.1155 Egyptian pound) (Writing by Edmund Blair; Editing by Dan Lalor and David Holmes)