The launch of 3G and fixed 4G service is set to boost internet penetration in 2014

The introduction of 3G mobile service in December 2013, followed in May 2014 by state-owned operator Algérie Telecom’s (AT) 4G fixed wireless data service, stand to significantly impact the IT sector in the nearterm, particularly in terms of consumption and demand. For years, Algeria lagged behind others in the region in terms of internet connection speeds, availability of mobile data service and IT penetration, due in no small part to the country’s slow-moving bureaucracy and AT’s monopoly over fixed-line connections.

The International Telecommunications Union (ITU) ranked Algeria 106th on its 2012 ICT development index out of a total 157 countries, after falling one spot from 105th in 2011. Private sector operators estimate that the IT sector contributes 1.3% of GDP, compared to 3.3% for the telecommunications sector. ICT penetration among businesses is still relatively low, particularly among small and medium-sized enterprises (SMEs) that make up the bulk of Algeria’s private sector. In the short-term, AT will focus on deploying fibreoptic and wireless internet infrastructure, which will help to strengthen Algeria’s nascent digital economy.

Internet Usage

The Algerian government estimated the number of internet users was 12m in May 2014, up from 11m a year before. However, the ITU put these figures much lower, at 16.5% of the population in 2013, or roughly 6m users, up from 15% in 2012. Still, the ITU estimated that 33% of youth between the ages of 15 and 24 were online in 2013, indicating that usage will expand quickly. The number of households with a computer rose two percentage points year-on-year (y-o-y) to reach 24.2% in 2012, and the percentage of households with internet access trailed close behind, rising from 15% in 2011 to 19.4% in 2012. By comparison, neighbours Morocco and Tunisia had internet penetration rates of 56% and 43.8%, respectively, in 2013.

The absence of 3G mobile service was one of the key reasons behind Algeria’s modest usage rates; in 2013, Algeria was one of just three Arab countries, including Djibouti and the Comoros, that had yet to launch mobile broadband access. Although reliance on 2G/EDGE technology and mobile USB keys spread quickly, slower connection speeds and higher prices limited the reach of mobile access prior to the 3G launch. INTERNET SERVICE PROVIDERS (ISPs): As the historic telecoms operator, state-owned AT manages the country’s international cable connections and the domestic infrastructure network. The market included another 20 private ISPs as of December 2014, down from 23 at the start of the year, and one-fourth the number a decade ago, prior to AT’s monopoly on broadband infrastructure. Of these, seven ISPs actually provide internet access, including the country’s three mobile operators. The remainder of the market consists of a variety of digital service providers.

AT retains the lion’s share of the fixed-line market, as residential and government subscribers are required to use its service. The state-owned operator created an ISP subsidiary in 2001, Djaweb, that covers the ADSL market. Other ISPs can provide service to private sector firms, but they are unable to lay their own cables, requiring them to purchase capacity from AT’s infrastructure. Satellite and WiMAX technology also play an important role in ensuring internet access, particularly outside of urban areas (see Telecoms chapter), although the market is generally converging toward mobile broadband technology through 3G.

Mobile Internet

The long-awaited 3G launch will drive down internet connection prices and provide a viable alternative to fixed connections, allowing a greater segment of the general public to access high-speed data services than ever before. The state announced that it aimed to reach 6m broadband subscribers by 2013 year-end, but with just 1.3m ADSL subscribers as of the end of 2014, that target was still far off.

According to Ali Kahlane, president of the private ISP Satlinker and of the Algerian Association of ISPs, “The recent launch of 3G service should be able to achieve milestones that ADSL service was unable to realise in the last decade. With Djezzy now joining Mobilis and Ooredoo on the 3G front in July 2014, the number of broadband internet users could well surpass the 6m mark even before the anticipated launch of 4G mobile service in 2015-16,” (see Telecoms chapter).

Broadband Capacity

According to Mohamed Fadi Gouasmia, the general manager of Anwar Net, told OBG, “Algeria was the second country in Africa to install high-speed internet in 2002. Today, the country is deploying a long-term-evolution (LTE) network to improve the fixed internet connectivity in the country.” Algeria has access to three submarine telecoms cables: ALPAL-2, which links Algeria to Spain; Med Cable, which links Algeria to the coast of France; and the international SeaMeWe-4 cable, which connects multiple countries in Europe, the Middle East, North Africa and Asia. Global Telecom Holding, the Vimpelcom subsidiary formerly known as Orascom Telecom Holding, also acquired the Med Cable from Orascom in February 2013.

This capacity will not suffice to meet rising demand for 3G and fixed 4G data service in the coming years. The ITU estimates that Algeria’s international internet bandwidth dropped from 8.9 Kbps per internet user in 2011 to 8.1 Kbps in 2012, as internet subscribers and traffic increased. An international broadband comparison compiled by NetIndex in July 2014 indicated that Algeria’s connection speeds are some of the slowest in the world. According to the report, tests turned up average speeds of 2.69 Mbps for fixed lines, and between 1-2.5 Mbps for mobile connections, placing Algeria 174th out of 189 countries. The report notes that the average speed nearly doubled from April to May 2014 with the launch of AT’s fixed 4G service, but much work remains to be done to meet growing demand.

A project has been in the works since 2004 to establish a fourth submarine connection after natural disasters in 2001 and 2003 temporarily put two cables out of commission. The AD2.2bn (€20.5m) cable will connect Oran to Valencia, Spain and will provide an additional 1.5 Tbps of capacity. Three firms submitted bids to a May 2013 tender, and the project was awarded to France’s Alcatel-Lucent in December, with a €26m bid. Construction is slated to wrap up within 14 months, for a planned start date in the first quarter of 2015.

Fixed-Line Service

AT counted some 1.3m ADSL subscribers in 2013, of which just 4% are businesses. This may be partially due to the cost; according to the ITU, the price of fixed broadband access in 2012 was €10.36 per month, equivalent to 3.8% of monthly per capita gross national income (GNI). This puts Algeria on par with Morocco and Libya, where fixed broadband prices amounted to 4.0% and 4.9% of their respective GNI per capita in 2012. Infrastructure has proven difficult to maintain in the past, and demand for fixed-line connections consistently outpaced availability. This resulted in an estimated backlog of 2m demands in 2012.

To address this shortage, AT announced it would invest €4.8bn between 2010-14 to upgrade its network and lay new fibre. Working with the Ministry of Post, IT and Communications, AT plans to connect all northern towns with more than 1000 inhabitants and southern towns with more than 500 inhabitants to the fibre-optic cable network. This entailed deploying another 20,000 km of fibre, in addition to the existing 57,000 km network. However, the programme stalled in 2013 due to bureaucratic and technical delays, and AT now expects construction to wrap up in 2015.

In July 2013, AT formed a consortium with other national enterprises that lay and maintain their own fibre networks: the state-owned energy and electricity firms Sonatrach and Sonelgaz, which have a combined 15,000 km of fibre, and the national railway operator Société Nationale des Transports Ferroviaires, which manages 5000 km. The new structure, the Algerian Telecoms Infrastructure Company will centralise management of the country’s fibre-optic networks in an effort to increase efficiency.

Fixed 4G Data

In May 2014, AT became one of the first providers in the region to launch 4G service, but it is restricted to fixed-mode, wireless broadband service – an unusual combination of technologies. The service has no telephony component; instead, the wireless broadband signal will be captured by a 4G SIM attached to a fixed router, which cannot be used with smartphones or portable USB modems. AT states that it has deployed 200 eNodeB sites, or LTE-compatible base stations, across all 48 wilayas and aims to push this to 2000 stations by 2015. According to CEO Azouaou Mehmel, AT will need to invest around €40m to acquire the necessary LTE equipment.

Two plans are available in the initial phase: a 5 GB data allowance for AD3500 (€32.55) per month, or 10 GB of data for AD6500 (€60.45) per month. AT plans to provide upload speeds of 86.4 Mbps and download speeds of 326.4 Mbps, but once the monthly data volume is consumed, connection speeds will drop to 512 Kbps. For the time being, fixed 4G service is only available in provincial capitals, creating competition with AT’s ADSL subsidiary, Djaweb.

Given the high infrastructure and installation costs, AT is currently targeting businesses in the programme’s early phase, who have consistently demanded faster broadband connections. The operator reported that 1600 companies signed up for 4G service in the first few weeks, though commentators have estimated that real subscriber numbers may still be in the hundreds. Service was reaching individual and households clients at the end of 2014.

Digital Economy

In addition to connection speeds, cost and fixed-line infrastructure constraints, the development of Algeria’s digital economy has been held back by a lack of IT awareness amongst many companies. This is slowly beginning to change, and a larger class of IT businesses is emerging. Algeria has 65 listed call centres and other business process outsourcing firms, which benefit from proximity to Europe and widespread use of the French language.

The country’s first electronic payment systems are also operational, thanks to agreements signed by the Société d’Automatisation des Transactions Interbancaires et de Monétique with two foreign banks, Société Générale and AGB Bank. However, the lack of precedent for electronic payment, combined with an outdated ICT law, make banks wary of making major moves toward electronic platforms (see Banking chapter).

Regulatory Context

A draft ICT law was submitted to parliament in February 2013 and discussed with private sector players. The bill would replace the existing ICT law, which dates back to August 2000 and is badly outdated. According to Kahlane, “As it stands, the draft ICT law contains a number of elements that would partially liberalise the sector, encourage fair competition and create a regulatory context for the development of more sophisticated ICT services.” However, passage of the ICT bill was delayed due to disagreement between the ARPT and communications ministry over the role of the regulatory authority, as the new law would limit ARPT’s scope to intervene in the sector. The bill was taken off the table in September, with no indication of when, or in what form, it would be revisited.

Human Resources

The quality of Algerian graduates is relatively strong, thanks to effective IT education centres, but a larger pool of qualified engineers and technicians will be necessary to transition Algeria to a fuller digital economy. To this end, foreign and private partners will be critical to provide the necessary knowledge transfers and technology exposure. The sector would also benefit from greater contact with businesses in the sector, in order to better coordinate training programmes with labour market demand.

Outlook

The IT sector stands to contribute more to the national economy. Efforts to overcome the sector’s primary obstacles by adding a fourth submarine cable and raising the density of infrastructure networks stand to advance the industry. Over the long-term, the adoption of updated ICT legislation will be critical to providing the regulatory guidance needed to develop a strong, private sector-driven digital economy. The recent launch of 3G services should help Algeria to finally begin reducing the digital divide compared to Morocco and Tunisia.