Operators are working to expand their 3G networks

The long-awaited 3G launch in December 2013 kicked off a period of rapid expansion in infrastructure and upgrades to service quality that have created new avenues for growth in the increasingly competitive mobile telecoms sector. The Algerian market has shown rapid take-up of new technology in the last decade, with the mobile penetration rate jumping from 1.43% in 2002 to over 100% in 2013 according to data from the Regulatory Authority for Telecommunications and Postal Service (Autorité de Régulation de la Poste et des Télécommunications, ARPT). The spread of 3G technology should have knock-on effects for mobile applications, rural connectivity and public-private partnerships that will strengthen Algeria’s nascent digital economy.

Long Road

Algeria’s three mobile operators, Orascom Telecom Algérie (Djezzy), Algérie Telecom Mobile (Mobilis), and Ooredoo Algérie (formerly Wataniya Telecom Algérie, Nedjma), were all awarded 3G licences in December 2013, after the introduction of 3G service was delayed for nearly a decade by bureaucratic hurdles, a lack of political will and Djezzy’s three-year ownership dispute.

With years of stalled projects behind then, the government considered skipping directly to fourth generation long-term evolution (4G-LTE) technology in 2011, but instead opted to maintain their commitment to building a 3G network, largely due to the higher cost of 4G. The ARPT launched its first formal call for 3G bids in mid-2011, with a view to award licences in October and launch commercial service in early 2012. However, the discussions over Djezzy’s ownership status between the government and former majority shareholder Vimpelcom slowed the roll-out, largely due to the fact that current law prevents firms undergoing a change in ownership status from bidding for public contracts – something that would have placed the country’s largest mobile operator in terms of subscribers at a disadvantage for the 3G tender. With the sale of a 51% stake in Djezzy moving towards resolution by the end of 2013, the launch for 3G began.

The sale of Djezzy was eventually concluded in early 2014, and the 3G system has seen a rapid rollout – in part thanks to the long gestation time, with all operators having had plenty of time to upgrade their infrastructure. Mobilis, for example, first conducted initial 3G tests in 2004. Rabah Hazi, director-general of cable producer Catel, told OBG, “In the scope of the five-year development plan 2015-19, the government plans to modernise telecoms infrastructure. This will result in high fibre optic cable demand, and only a small number of local sector players will be able to meet the quality requirements.”

Licensing Fees

3G licences are valid for 15 years, after which they can be renewed for an unlimited number of five-year intervals. Licence fees include a one-time cost of AD5bn (€46.5m), in addition to annual variable fees equivalent to 1% of turnover generated by 3G service. These operating fees cover several elements; for example, operators will be required to pay about AD300m (€2.8m) for each 5 MHz channel used, as well as AD3000 (€28) for each LTE-compatible base station they operate.

In addition, 3G licence holders will be required to contribute 3% of annual turnover to Algeria’s fund for universal service, land development and environmental protection – the same percentage required of fixed-line, GSM and satellite licence holders. Most countries have universal service funds, which finance public telecoms services and infrastructure in areas that offer little financial return. Algeria’s 3% levy is on the high end of required contribution among Arab states, most of which are 1-2%.

Financial penalties will apply if operators fail to meet the quality or coverage requirements stipulated by the licences, which are capped at AD7bn (€65m) per year. Combined with investment in network infrastructure, the transition to 3G service carries a heavy price tag, but the potential benefit is just as important. Rising income levels and Algeria’s growing population, 45.8% of whom are under the age of 25, should see customers using more data, which will support the 3G take-off in the near-term.

Territorial Coverage

All operators were initially required to offer 3G coverage in four key provinces, or wilayas: Algiers, Oran and Constantine in the north, and Ouargla in the south. Beyond this, service is being gradually extended to cover all 48 wilayas and all major roadways by 2017. The ARPT has also allowed operators to have exclusivity in certain wilayas during their first year of operation.

Mobilis launched service in 10 mandatory wilayas in December 2013, including exclusive coverage in Batna and Laghouat, and was authorised to enter another nine wilayas in January after proving its initial service quality. Mobilis is slated to expand coverage to 16 more wilayas in 2015 and another 13 wilayas and the entirety of the East-West Highway by 2016. Within seven years, Mobilis is required to be present in all urban centres with over 2000 inhabitants. All other areas will be covered by infrastructure financed by the universal service fund.

Ooredoo is also active in 19 wilayas today, including exclusivity in Béjaïa and Ghardaïa. The two operators’ networks overlap in 13 of their 19 wilayas; in addition to the mandatory zones, this list includes Sétif, Tipaza, Ain Defla, Blida, Djelfa, Sidi Bel Abbès, El Oued, Biskra and Tlemcen. Djezzy launched service in seven wilayas in July 2014, including the four mandatory wilayas and Béchar, El Oued and Skikda.

Service Take-Up

The largest operator by market share, Djezzy, announced in the local press that it registered some 60,000 3G clients in the first three weeks of operation. Ooredoo Algeria announced that its profits rose 12% in the first half of 2014, driven by the 3G roll-out, from €69m in the first half of 2013 to €77m this year. The provider also reported it had added 1m new subscribers in the second quarter to bring its total to 10.93m users as of mid-2014. Consumer polling at the beginning of the year indicated that the majority of consumers found 3G package prices to be too expensive, but the arrival of the third actor has sparked a competition war, both in terms of price and innovation. In response to Djezzy’s latest round of price reductions in mid-July, Mobilis announced it would install 3G USB keys in taxis, turning them into mobile cybercafés. Ooredoo subsequently unveiled a push to offer subscription packs that included a free tablet.

Construction Infrastructure

Rising competition is expected to push operators to expand their infrastructure networks during the ongoing 3G roll-out. This will provide a boost to Algeria’s annual ICT spend, which has traditionally been low compared to regional standards. According to the most recent figures from UNCTAD’s Information Economy Report, Algeria spent €3.37bn on ICT in 2011, compared to €9.74bn in Morocco.

Ooredoo announced in July 2014 that its Algerian subsidiary had invested AD164m (€1.5m) in the first quarter of 2014 to roll-out 3G service, up 45% from the same period of 2013. Mobilis announced in 2012 that it would invest AD142bn (€1.3bn) over a five-year period to boost infrastructure in preparation for the 3G launch, including increasing its base stations from 5200 in 2012 to 9000. Djezzy’s capital expenditure jumped to €119.1m in the second quarter of 2014, compared to €12.5m at the same time last year, as it races to catch up with its competitors.

The licences stipulate that operators must ensure a minimum download speed of 7.2 Mbps and an upload speed of at least 5.76 Mbps at base stations during the first year. Operators’ efforts to increase the density of their 3G networks bodes well, but Algeria’s current international broadband capacity may not be able to meet higher demand for mobile data for long. An ongoing project to add a fourth submarine fibre-optic cable between Oran and Valencia is expected to come online in the first quarter of 2015, adding 1.5 Tbps in much-needed capacity.