Algerian ICT expands on digitisation and cybersecurity

Algeria has witnessed significant progress in the development of its ICT sector in recent years. Following strong investment in the recent rollout of key ICT infrastructure, the country has also updated its legal framework and introduced a series of new regulations to accompany sectoral growth. As the sector has continued to mature in recent years, telecoms companies have gradually been joined by a myriad of actors, creating new value-added activities. In a historic move, the mobile subsidiary of the state-owned Algérie Télécom (AT) – Mobilis – put an international bid forwards in 2018, with the aim of expanding its operations to neighbouring Mali after the latter opened a tender for the acquisition of a fourth telecoms licence. The authorities have stated that they are confident that Mobilis has both the technical and financial ability to enter the Malian market.

Telecoms

The telecoms sector is made up of three operators which brought in a combined revenue of AD429.4bn (€3.1bn) in 2017, down from AD444.5bn (€3.2bn) in 2016. The market leader, Mobilis, held 40.1% of the mobile market in 2017, increasing by more than three percentage points from the previous year. Orascom Telecom Algérie (OTA), known as Djezzy, was second with 32.6%. OTA is the local subsidiary of VEON, the Amsterdam-based telecoms group. In 2015 the government of Algeria, through its state investment fund Fonds National d’Investissement, acquired 51% of OTA for $2.64bn while leaving total control to VEON over the company’s management until 2022. The third operator, Wataniya Telecom Algérie, known as Ooredoo, is the local subsidiary of the Doha-based Ooredoo Group. In 2017 Ooredoo had a 27.3% market share.

Mobile Market

The mobile market is reaching saturation, with the penetration rate decreasing by two percentage points to 109% in 2017, an evolution explained by a slight population increase. However, subscriptions did register a marginal increase to hover around 45.8m, with over nine in 10 being pre-paid subscriptions. In terms of mobile income, Mobilis generated AD126bn (€914.8m) in revenue in 2017. Its competitors Ooredoo and Djezzy registered AD104.2bn (€756.5m) and AD101bn (€733.3m), respectively. The latter’s revenues fell by 9.9% with a decrease in its subscription base of 8% to 15m customers in 2017, the most recent period for which figures were available for the company. Ooredoo saw its income erode in the first half of 2018, experiencing a 20.5% decrease coupled with a 3% year-on-year decrease in subscriptions to 13.6m.

In line with global trends, mobile network operators (MNOs) saw their average revenue per user decrease by 7.5% in 2017 to reach AD603 (€4.38). This dynamic is explained by consumers’ preference for data over voice consumption, as data typically offers more services and is cheaper. Additionally, there are a large number of promotional offers following the introduction of 4G and fierce competition among operators to gain market share.

Furthermore, new taxes levied on MNOs’ revenues continue to erode profits. In 2017 value-added tax on services increased from 7% to 19%, and taxes on voice over internet protocol services gained two points to reach 19%. The following year, a 0.5% tax on recharges of pre-paid SIM cards was introduced by the budget law to finance the Universal Service Telecommunications programme and was raised to 1.5% by the complementary budget law. Altogether, MNOs saw the tariffs levied by authorities increase by nearly 30% in two years – a reduction in their earnings before interest, tax, depreciation and amortisation that may hamper investments in infrastructure.

Fixed Line

Fixed-line internet continued its expansion in 2017, reaching 3.17m subscribers at the end of the year, up 10.7% from the previous year. However, internet speed lags behind international levels. In October 2018 the website Speedtest.net ranked Algeria 129th out of 130 countries on fixed-line internet speed with a 3.84 Mbps broadband download speed, far behind the world average of 50.88 Mbps.

To improve connectivity in the country, AT launched the Idoom Fibre package in 2018, a high-speed internet product which is part of the Fibre To The Home/ Businesses (FTTx) project. In a contentious bilateral agreement, AT and Chinese ICT provider Huawei signed a AD38bn (€275.9m) contract in October 2017 for the rollout of the infrastructure. It is expected to deliver high-speed internet of up to 100 Mbps to households and 1 Gbps to private businesses. The plan is to connect around 1.5m homes located in 725 municipalities across the 48 wilayas (provinces) to the network. However, critics pointed out Article 20 of the contract that puts no obligation on Huawei for technological transfers to AT or other parties.

Fibre-Optic Network

According to the Ministry of Post, Telecommunications and Digital Technologies (MPTDT), Algeria had 123,000 km of fibre optics installed in 2017, making it the largest network in Africa, with an additional 7000 km planned to connect the southern wilayas. However, Ali Kahlane, a senior consultant in digital transformation and maturation, told OBG that Algeria has taken into consideration the intra-city metro fibre connections, with traditionally only long inter-city or intercontinental connections taken into account. The MPTDT has the overarching aim to improve bandwidth capacity, as well as navigate the challenges surrounding the introduction of two fibre-optic cables expected to connect Algeria to international connection points. The submarine fibre-optic cable Medex, connecting the eastern city of Annaba to the US west coast will have a capacity of 4.4 TB. In addition to Medex, the cable Orval will connect the west Mediterranean city of Oran to Valencia, on the east coast of Spain. The new connections, expected to be operational by the beginning of 2019, add to two pre-existing international cables, increasing Algeria’s internet bandwidth 10-fold to 6.4 TB. This increase will improve connectivity as little domestic content is available or stored in data centres.

E-Commerce

The widespread use of new technologies has supported the development of e-commerce companies such as pan-African leader Jumia or the Algerian equivalent of eBay, Ouedkniss, a virtual classifieds shopping website. In addition to these, a myriad of micro-entrepreneurs are appearing and have brought a need for increased regulation. It is in this light that Parliament passed a major set of regulations, putting in place a legal framework to accompany the development of online commerce.

New Regulations

In June 2018 Parliament adopted Law No. 18-04, another major law for postal and telecoms services. The main measure was the unbundling of internet infrastructure that brings the monopoly of AT to an end and allows any telecoms operator to request a licence from the Regulatory Authority of Posts and Electronic Communications and use AT infrastructure to offer internet services to customers. However, AT still keeps the monopoly for the installation of fibre-optic infrastructure. Another major aspect of Law No. 18-04 concerns the double obligation imposed upon e-commerce owners to register their businesses both at the trade register and to host their website in Algerian servers with the domain name extension.com.dz. The law gives the sector’s players six months in which to comply. Failure to do so leads to fees ranging from AD50,000 (€363) to AD2m (€14,520). The sector is still waiting for decrees related to applications to evaluate the impact of the unbundling. However, the heavily anticipated privatisation of AT was ruled out by the ministry in January 2018. “The non-opening of AT’s capital and the consecration of its monopoly over the national bandwidth are a drawback for a sector that requires competition to thrive and grow,” Kahlane told OBG.

Furthermore, reflecting recent developments in the sector, Law No. 18-04 changes the name of the governing regulatory authority. The Post and Telecommunications Regulatory Authority becomes the Regulatory Authority of Posts and Electronic Communications, giving the institution rights that now go beyond the activities of infrastructure deployment to cover services delivered through these infrastructure nodes, such as e-payments.

E-Payment

Another long-expected regulation included in the post and electronic communications law was in relation to electronic payments. E-commerce owners are now obliged to allow their customers to pay electronically or by cash on delivery. According to the law, online financial transactions must exclusively go through Algérie Poste and be connected to AT payment terminals. Regarding transactions with a party that is established abroad, the law provides an exemption from foreign trade limitations for all products and services in which the transaction value in Algerian dinars does not exceed the current limits of the Bank of Algeria. Besides, e-consumers need to use their foreign currency accounts to perform transactions while proceeds from any goods or services sold via domestic e-commerce websites need to be paid to an Algerian bank account.

In addition to online transactions, the new regulation pushes for the widespread adoption of electronic payments. The law makes it obligatory for shop owners to have electronic payment terminals (EPTs) by the end of 2018, or face financial penalties. The EPTs will allow customers to pay with their debit or credit cards. In this regard, it is the National Enterprise of Electronic Industries (Entreprise Nationale des Industries Electroniques, ENIE) that was selected for the production of EPTs for a sale price ranging between AD40,000 (€290) to AD50,000 (€363) per unit.

The Groupe d’Intérêt Economique de Monétique was created in June 2014 to regulate the interbank electronic banking system. The authority was conceived by the Interbank and Automated Transactions Automation Company (Société d’Automatisation des Transactions Interbancaires et de Monétique, SATIM). SATIM accompanies the development of e-payment solutions and platform interoperability between Algerian banks, steadily making e-payment a reality.

Algerian banks now have an operating domestic interoperability system facilitating electronic transactions, and are working towards obtaining certifications from Visa and Mastercard to be able to offer international transactions. However, they find themselves competing with AT, whose operating system is independent. In mid-2018 SATIM had over 16,000 EPTs in circulation. The main challenge to the widespread use of electronic payments remains the interoperability between the SATIM and Algérie Poste systems.

Digitisation

A significant development in 2018 came from Djezzy, when it migrated all of its customers to a digital business support system overnight. This digital transformation, in partnership with Sweden’s Ericsson, allows the telecoms operator to realise most of its customer services such as billing, pricing and personalised promotions, digitally. “The successful evolution of Djezzy comes from a more holistic digital culture that the company has engaged upon since 2015. This new system allows us to address a higher number of customers’ needs,” Salim Tamani, head of PR and media at Djezzy, told OBG.

Public companies are engaging in the digitisation of their operations as well. At the smart city summit held in June 2018 in Algiers, some companies such as SEAAL presented their investments in digitisation. For example, the public water distribution company showcased its ICT applications to enhance the management, control and maintenance of its networks. “Our estimates show that about 15% of Algerian companies have engaged in a digital transformation. Besides, between 10% and 15% of professional investments are IT investments. Digitisation is costly and will only come with the opening of the country. Only companies competing in the global field feel the need for such an investment,” Kahlane told OBG.

Cybersecurity

With numerous businesses working to ramp up their digital presence, cybersecurity is increasingly seen as a topic of interest. In April 2018 the western city of Oran hosted the 6th African Cyber Security Summit. The opening ceremony of the summit was an occasion for Xcom Agency to present the findings of its barometer on cybersecurity in institutions and companies. Although most of the respondents to Xcom’s survey understood the importance of cybersecurity, the majority of users remain unprotected, with little knowledge of possible threats and data protection. Nevertheless, over half of the respondents plan to increase their cybersecurity budgets in 2019, an increase from 21% in a study conducted in 2016.

At an institutional level, the government recognises the potential dangers that are inherent to new technologies and vows to develop legal and technical tools against cybercrimes. Since the adoption of the first legal text outlining cybercrimes in 2009, the government created a national organisation for prevention, leading the fight against ICT-related infractions in 2015. The latter, placed under the Ministry of Justice, centralises online information and coordinates the actions of the different institutions involved in their collective fight against the reach of cybercrimes.

In July 2017 the International Telecommunication Union placed Algeria 67th out of 193 countries in its updated “Global Cybersecurity Index 2017”. The country largely owes its score to the legal framework that has been put in place. The sub-indexes of the survey show that there still remains a lot to be achieved regarding both human skills development and the creation of technical institutions for cybersecurity.

In 2018 the topic was brought back into the public debate arena with the preparation of a legal framework and the establishment of a new institution for the protection of personal data. This newly established body, comprised of representatives of different institutions, is placed under the authority of the president. The upcoming legal text will cover a broad set of measures, such as the protection of citizens against the commercial abuse of their online data and the creation of recourse mechanisms against online fraud, as well as copyright infringements.

Digital Governance

In the July 2018 “UN E-Government Survey 2018” Algeria moved up 20 positions to 130th compared to 2016 in the e-government development index measuring online service, telecommunications infrastructure and human capital for the 193 UN member states. This gain was driven by an increase in the density of services pillar by 10 spots and the telecommunications infrastructure development pillar by 30 positions. Research for the latter pillar identified that 43% of Algerians use the internet, while there were 65.7 active mobile broadband subscriptions per 100 people. “The country performs well naturally in this index, considering the weight given to investments in infrastructure and quality of higher education in the final score,” Kahlane told OBG. “However, let’s not forget that where the value added to citizens is; that is, digital content and online services offered. In that regard, there is still large room for improvement.” Kahlane added that he realised that there was a lack of coordination between the digitisation efforts of the MPTDT and other ministries, and the absence of interoperability of their platforms that would allow them to enjoy important productivity gains.

National Production

Manufacturing of ICT products has begun to attract foreign investment in 2018. To rationalise the use of foreign exchange (forex) eroded by the slump in oil prices, the Parliament restricted imports on over 1000 products, including technological ones. In 2017 imports of smartphones alone represented $600m of forex. This limitation, coupled with the 2014 generous tax exemptions for products with at least a 40% integration rate, supported the expansion of local manufacturing and incentivised foreign companies to set up production facilities and assembly lines in the country. In 2018 Condor Electronics, which launched the first smartphone in Algeria in 2013, had an annual production capacity of 30m units of smartphones and offered over 30 different models. According to Statcounter. com, as of October 2018, Condor held 24.6% of the smartphone market for its 22nd month of presence in the segment, behind only Samsung at 29.5%. The company, already present in various regional markets, is now expanding to France, Italy and Spain, as well as the US where it just signed memoranda of understanding with local distributors.

An additional recent entrant in the segment is ENIE, which is engaged in the commercialisation of entry-level products sold under €100 per unit. ENIE plans to sell 200,000-500,000 units in 2018 and produce up to 1m units in 2019 with an integration rate of 5-7%, with forecasts to reach 15% by 2020.

Samsung opened its second international smartphone assembly factory in Algeria in December 2017. It is set to produce 1.5m units in 2018 and increase its output to 2.5m the following year. These companies are being joined by France’s Wiko, which intends to serve the African market with its Algerian production, as well as Huawei and OPPO, which announced in March 2018 the future opening of assembly lines.

The government is establishing an appropriate environment to support the development and growth of an ICT manufacturing industry, witnessed in part by foreign trade of the sector. Although marginal compared to imports, the exports of ICT products increased more than five-fold from 2011-16 to reach AD681m (€4.9m), while imports, although 400 times higher in volume, only doubled during the same period and registered a slight decrease from 2015, settling at AD267bn (€1.9m) in 2016.

Outlook

While telecoms still dominate the ICT sector, signs of diversification, digitisation and cybersecurity efforts are combining for a positive outlook. In a large market that is ideally located between developed and developing countries, with ample opportunities for growth for new players, increased competition and an educated workforce, policies taken by the government can turn the country into a regional leader.