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Orascom Owner Looks For Opportunities In Cuba

Egyptian businessman Naguib Sawiris has said that his company, Orascom, is looking at possibilities in Cuba after the new Cuban President Raúl Castro lifted restrictions on the sale of electronic devices, such as computers and mobile phones. It is not the first time the telecoms magnate has considered looking at Latin American markets: he visited Cuba about six years ago looking for a potential venture and considered taking a stake in fixed-line operator Brasil Telecom in March 2007. Nor is it the first time Sawiris has considered moving into a closed market, having announced his intention earlier in 2008
to enter North Korea with a $400USmn investment.

Cuba’s mobile market certainly has great potential, given the current low penetration rate. Mobile subscriptions have been kept low by restrictions over the acquisition of mobile services but demand was shown to be high when, in the first 10 days after the lifting of these restrictions, 7,400 new handsets were sold, almost as many new subscribers as the whole of Q207. With only one operator, growth has been slow and the cost of services, almost six times the average monthly salary for a state worker, means that mobile ownership is beyond the reach of many.

Sawiris has noted that the opening of the market to allow ordinary Cubans to use services such as hotels and acquire DVD players and mobile phones could indicate a change in direction for the economy, and has equated the situation with North Korea. Orascom acquired a licence from the North Korean government in January 2008 the company
has earmarked $200USmn for the first year of its operations in the country, aiming for 100,000 subscribers. It plans to launch services in May 2008.

Much of Orascom’s previous success has come from identifying windows of opportunity and taking risks. It was one of the first operators to enter Iraq after the US-led invasion and is, at present, tackling the telecoms regulator in Zimbabwe over the revocation of its licence there. Its investments include operations in Bangladesh, Pakistan, Africa - including Algeria, Egypt and Tunisia - as well as its operations in the Middle East. Even after selling its operations in Iraq, Orascom still saw a 20.8% year-on-year increase in Middle East and Africa subscribers in Q108.

BMI believes the presence of more operators in the Cuban telecoms markets would significantly boost services, and we expect there to be considerable interest from regional operators. However, as yet there is no indication of the Cuban authorities looking to offer additional licences in the country. The impact on Cuba’s economy would, however,
be considerable, helping to boost local enterprise.