S. Abdallah Schleifer: Is CNE seriously considering a move from the VHF analog retransmission that's now offered to CNE terrestrial customers to digital terrestrial?

Abdel Rahman Hafez: Up to now we have not committed because of the expenses, and above all because of the price of the digital receiver, the decoders that would have to replace the present analog set-tops. We are watching developments and we are considering undertaking a serious study, but first the price of the receiver-decoder has to go down.

Schleifer: If the receivers went down in price, what would be the attraction of digital terrestrial?

Hafez: It means seven or eight channels coming off one transmitter, modified for digital, which right now gives the CNE terrestrial subscriber only one channel. So instead of five channels we could be offering 35 channels for more or less the same amount of money, at least for that portion of cost that reflects transmission. The same is true with cable. And digital terrestrial isn't our only option. We are going to discuss and negotiate with many groups in Egypt as well as various ministers about transmitting our programming via cable, which would involve far less expensive receivers.

Schleifer: What's the current status of the plan to offer Internet service to subscribers?

Hafez: CNE and Showtime have reached an agreement on this. If viewers buy Internet service from Showtime, the Internet service will be encrypted and distributed by CNE all over Egypt. As you know the rights, which were granted to CNE, are exclusive and include the Internet in addition to television channels.

Schleifer: What does it mean to CNE that Orbit is going to be allowed to sell their service openly in Egypt, to sell their own decoders here, to market their subscriptions openly, and to go on Nilesat?

Hafez: Up to now we (the ERTU) and Orbit have an agreement in principle that will permit them, if they meet certain conditions, to openly enter the Egyptian market and take transmission positions on Nilesat 102 without using the CNE encryption facilities. But that final agreement has not yet been signed and we are waiting to hear from them so we can settle this issue. I'd welcome Orbit going on Nilesat. A strong Orbit presence in our market will enrich the packages we are presenting to the viewers. Competition is good for everyone and Orbit would make a very good competitor while strengthening the overall attractiveness of Nilesat.

Schleifer: Who else would be on Nilesat 102?

Hafez: We are now negotiating with many other channels for them to come on Nilesat. The issues are now under negotiation; we're looking at another channel for Showtime, some Arabic channels, and we are talking with the Kuwaitis about their putting a cultural channel onto Nilesat 102.

Schleifer: Right now CNE terrestrial is using its fifth transmitter for MTV. But we understand that there is a plan to put that fifth transmitter to a different use. What will be transmitted instead and where will MTV fit into this?

Hafez: The whole issue of how to make better use of the fifth transmitter is still under study. We are negotiating to get the best product for this channel. We are considering moving more programs from different Showtime channels onto the terrestrial feed or perhaps creating an Arabic channel. If we put an Arabic channel up on CNE terrestrial I can assure you it will be a very attractive channel.

Schleifer: We both just attended an extraordinary annual meeting of the CNE General Assembly and Board of Directors, which you chaired, in which it was voted that both CNE and CNE's subsidiary Nile Commercial Network (NCN) would reorganize themselves to be part of the Media Free Zone. What are the implications of that? Why is it being done and what is the significance?

Hafez: What we did here tonight was to simply formalize a fact: that CNE and NCN are an intrinsic part of the backbone of the Media Free Zone. Four companies together play that role: the Egyptian Media Production City, which has many studios and outdoor filming locations available for rental to clients coming to the Media Free Zone to produce cinema or television programming; Nilesat, which uplinks the clients to their broadcasting centers outside of Egypt or directly for transmission to any of the satellites they are using; and NCN and CNE, which will be doing almost all of the encryption for the pay-TV Nilesat packages. The components of this infrastructure cooperate with each other and work smoothly together as one system. Add on to that the tax exemption and customs duty exemption; customs duty exemption is of particular importance for CNE, which is importing the encoding and encrypting equipment. And we have permission to classify the whole CNE system, including its transmitters at the New Maadi Satellite Dish Park, as part of the Media Free Zone and a beneficiary of its regulations and exemptions.

Schleifer: On December 28, 1998 the board voted to basically split CNE into two companies, CNE and NCN. Could you clarify the reasons for that decision? How are tasks divided now between CNE and NCN?

Hafez: First we divided tasks in the strictly corporate and accounting sense, NCN taking responsibility for CNE DTH and CNE retaining responsibility for the CNE terrestrial service and for any new ventures which will now evolve from within the new context of CNE as a Media Free Zone company. But at the time there were distinct advantages under Egypt's investment law for us to create NCN.

Schleifer: One of the things that is most interesting to me as both an observer and board member is that CNE in its DTH format has become significantly successful over the past few years. Do you want to comment on that success?

Hafez: About a year and a half ago CNE DTH moved solidly into the success column. That had to do to a large part with the reconcentration of our two pay-TV networks, Showtime and ART, with their getting back together again on one satellite and with an increasingly well-targeted marketing campaign. And of course there was the attractiveness of getting all that free-to-air programming on Nilesat as a bonus for subscribing to either of the CNE DTH packages. The packages are very good. You cannot find anything as good on any of the other satellites, nothing else that allows audiences to satisfy their needs for both Arabic and foreign programming.