Reforms and investments are improving Tunisia's ICT sector

With high bandwidth, coverage and network reliability, Tunisia has well-developed telecoms infrastructure, particularly by regional North African standards, though competition is low in some segments, leading to high prices for international calls. However, following the launch of a mobile virtual network operator (MVNO) in 2015 and the completion of a new undersea cable the previous year, infrastructure and competition are set for a further boost in 2016 through the planned activation of 4G networks, which may also see the arrival of a fourth mobile operator.

Economic Contribution

The Tunisian telecoms industry is a substantial component of the economy and has been growing rapidly in recent years. According to figures from the National Institute of Statistics (Institut National de la Statistique, INS), the contribution of the telecoms and postal sector to GDP at current prices stood at TD3.81bn (€1.75bn) at the end of 2015, which was equivalent to 6.8% of total national GDP. This was an increase on TD3.75bn (€1.72bn) the previous year, when the sector accounted for 4.6% of the total economy. Industry expansion has been even stronger over the longer term, with the sector’s compound annual growth rate in real terms standing at just under 11% between 2009 and 2014.

Operators

There are three active mobile and fixed voice network operators in the country: Ooredoo Tunisie, Tunisie Télécom (TT) and Orange Tunisie. These three players are also the only providers of international voice telecoms communication services. The government owns a controlling 65% stake in TT, which was a former monopoly prior to sector liberalisation in 2002, while Dubai-based Emirates International Telecommunications holds the remaining 35% equity share, a stake it first acquired in 2006.

Ooredoo Tunisie is 90% owned by its Qatari parent firm Ooredoo, with the remaining 10% held by the Tunisian government. Launched as a mobile operator in 2002, the firm was the first private entrant in the sector, and was previously known as Tunisiana, before being rebranded as Ooredoo in 2014. It was founded as a joint venture between Egyptian firm Orascom Telecom and Kuwaiti operator Wataniya – which was acquired by Ooredoo, then known as Qtel, in 2007. The firm is now shared between Ooredoo and state-owned company Zitouna Telecom.

Orange Tunisie joined as the third operator after receiving a licence for both fixed and mobile services, including 3G data services, in 2009, marking the end of TT’s monopoly in the fixed-line market. The firm was established by France Telecom, now Orange Group, with a 49% stake, and local firm Investec. The three operators hold the majority of the market share in the mobile segment, but late 2015 saw the arrival of a new MVNO, Tunisia’s first, with UK-based Lycamobile, which is using TT’s infrastructure.

Mobile Subscriptions

The total number of mobile subscriptions stood at 14.5m by late September 2015, according to the latest available data from the National Telecommunications Authority (Instance Nationale des Télécommunications, INT). The figure was up from 14.3m at the beginning of 2015 and 13.8m in September 2014, equivalent to a year-on-year increase of around 5%. This means a mobile penetration rate of 129.7% in September 2015, up from 128.9% in January and 125.4% a year earlier. According to the World Economic Forum (WEF), this is the 46th-highest penetration rate out of the 140 countries covered in the 2015-16 Global Competitiveness Index.

The GSM Association, which represents the interests of mobile operators worldwide, put the number of unique subscribers at 5.9m in 2014, giving a unique subscriber penetration of 53% and suggesting that there is still room for growth in the market. Factors explaining the higher number of subscriptions include the fact that, as is the case in many emerging markets, Tunisians often hold SIM cards from more than one operator to take advantage of promotions and cheaper inter-network rates.

In line with many of its North African peers, prepaid subscriptions are overwhelmingly dominant, accounting for 95% of all mobile subscriptions, with 4.9% of total subscriptions being classified as business accounts. In a contrast to several other telecoms sectors in the MENA region, Tunisia’s mobile market is relatively competitive among the three operators. According to the INT, Ooredoo had the largest subscriber base, with a 43% share of the total as of September 2015, followed by TT at 34.2% and Orange with 22.8%. The Qatari-owned firm also led in terms of market share for voice traffic at the end of 2014, at 46.5% for the last month of the year, compared to 32.2% and 21.2% for TT and Orange, respectively.

However, the gap between the three operators steadily narrowed over the course of the first nine months of 2015, and by September TT had taken the lead at 37.6%, followed by Ooredoo and Orange with 35.8% and 26.6%, respectively.

Mobile Data

Following the broader regional trend, data consumption has become increasingly central to both headline internet penetration and operator revenues. Orange became the first Tunisian player to launch 3G services in the country in 2010, followed by TT in 2011 and Ooredoo, which was then known as Qtel, in 2012. Mobile internet subscriptions reached 6.7m at the end of August 2015, according to INT figures, including 5.09m 3G mobile phone subscriptions and 1.1m subscriptions using mobile internet smart-keys/dongles. The per capita penetration rate stood at 56.2%, up from 47.7% at the end of 2014. Business subscriptions accounted for around 6% of total mobile internet connections.

Connections have been rising rapidly in recent years, having grown from 5.8m at the end of 2014. The vast majority of this increase was accounted for by mobile phone data connections, with dedicated connections via keys/dongles having remained more or less static over the period. Ooredoo was responsible for 35.4% of mobile data traffic in August 2015, followed by TT with 35.3% and Orange at 29.3%. Connections are likely to grow in 2016 as Tunisia launches 4G long-term evolution mobile data, following the November 2015 bidding round for licences to offer the service, which will be sold at a cost of TD155m (€71.1m) each. Services are expected to be launched around six months after the completion of the round, in March 2016 (see analysis).

MVNO

As noted above, competition is strong in the mobile market. “There is already enough competition as regards pricing, which cannot go much lower, though there is a need for operators to compete more on service and to offer more value-added services in particular,” Mohamed Ben Rhouma, CEO of Tunisian mobile phone manufacturer Evertek, told OBG. Competition in the segment received a further boost in October 2015 through the launch of a next-generation virtual mobile network, which is being operated by UK MVNO Lycamobile, via TT’s infrastructure. Tunisia is the first Arab market in which the UK company, which operates in 19 other countries, has established a virtual network. Lycamobile is concentrating in particular on the international calls market, targeting customers who have friends and family overseas. The company estimates the size of the Tunisian diaspora at around 1.2m. The Tunisian authorities first opened up the market to MVNOs in 2014, but initially did not receive any applications from virtual operators.

Regulation

The sector is regulated by the INT and the 2001 Telecommunications Code, which has been amended on several of occasions, most recently in 2013, when several new provisions were introduced, including moves to increase financial penalties applicable to telecoms operators. The changes also allowed institutions operating private telecoms infrastructure, such as the roads and rail administration, to lease out excess capacity to telecoms providers. In 2014 the INS also made a number of changes to the mobile segment’s regulatory framework aimed at bolstering the rights of consumers, and announced that it intended to introduce other reforms, including moves to encourage infrastructure sharing between operators. The latter initiative has borne fruit, bolstered by competitive pressures and investment costs incurred by operators rolling out 4G services only several years after having built their 3G networks. In January 2016 TT and Ooredoo launched the country’s first mobile telecoms infrastructure sharing project – Ooredoo and Orange had already been cooperating on a shared submarine cable – in the Zaghouan governorate.

August 2015 also saw another notable regulatory change, when the regulator and the three main telecoms operators signed an agreement to implement number portability – the ability for customers to change network operator while keeping the same phone number – for both mobile and fixed lines starting in early 2016 in order to boost competition. The INT had originally planned to launch number portability in 2013. In late 2015 the INT rejected a TT request to delay implementation of the new regime, with the telecoms firm citing implementation challenges.

Sector Competition & Costs

Despite the existence of strong competition in several key areas – notably the mobile voice and data market – other areas are less competitive, which can lead to high costs in some segments. Indeed, a 2014 World Bank report titled “The Unfinished Revolution: Bringing Opportunity, Good Jobs and Greater Wealth to All Tunisians” stated that the “prices of telecommunications in Tunisia remain some of the highest in the world” due to what it described as low levels of competition and barriers to market entry.

In particular, the World Bank study cited TT’s large share of the fixed-line segment, which it described as a “monopoly”, the fact that all operators still utilise TT’s national backbone connection infrastructure, and the fact that only the three main operators are allowed to provide international voice communication services, and each only to their own respective customers.

As a result, international calls in and out of Tunisia are expensive. The World Bank report puts the Skype-out rate, which is the cost to call a Tunisian standard phone line via voice-over-internet-protocol provider Skype, at $0.40 per minute, which is 20 times the international market rate and double the average rate in the MENA region. The cost of outgoing international calls runs at around 10 times the international market rate, leading to low rates of international voice call activity. The study also noted that such high costs serve to discourage foreign investment generally, and competitiveness in the ICT and offshoring sectors in particular. Raouf Mhenni, president of the state’s digital economy initiative Smart Tunisia, told OBG, “The big companies present today in the ICT sector – and that are still investing – are companies that have been in the country for a long time and are aware of the potential for growth.”

Fixed Line

As is the case throughout North Africa, and the emerging world in general, fixed-line usage has been under pressure. There were 929,360 fixed-line subscriptions in Tunisia as of August 2015, according to the latest available INT data, leading to a household penetration rate of 33.4%. These figures were down from 947,440 and 33.7%, respectively, in August 2014. The WEF’s 2015-16 Global Competitiveness Index put the per capita fixed-line penetration rate at 8.5%, ranking Tunisia 87th out of 140 countries. A total of 745,502 fixed-line subscriptions were residential lines as of August 2015, while 183,858 were registered as business lines.

Subscriptions in the segment have gradually declined from 1.29m in 2010. The fall has been widely blamed on growing competition from mobile, as well limited competition in the fixed-line market. TT dominates the segment with a market share of 91.4% in terms of subscriptions and 89.4% for voice traffic as of August 2015, followed by Orange at 6.4% and 9.9%, respectively, and Ooredoo with 2.2% and 0.7%.

Fixed-Line Internet Connection

There are six major fixed-line internet service providers in the country, the largest of which is TT’s subsidiary Topnet, with a market share of 47.5% as of August 2015, according to the INT. As in the fixed-line voice market, subscriptions in the segment are falling. The total number of fixed internet connections stood at 500,437 as of the end of August 2015, according to latest available data from INT, down from 518,817 at the end of 2014 and 545,368 at the end of August 2014. Almost all were fixed-line connections, though there were also 515 WiMAX connections and 110 VSAT links. Nearly 87% of connections were residential, compared to 13% for business purposes. The household penetration rate stood at 15.6% in August 2015, down from 16.4% at the start of the year.

The levelling off of DSL usage is unusual, but, according to operators, could be explained in part by the high uptake of mobile data usage and improving mobile speeds. There is also scope to further unbundle the country’s local loops to increase competition and reduce prices. Nevertheless, the government is working to try to boost the segment.

In August 2015 Italian news agency Ansa Mediterranean reported that the Ministry of Communication Technologies and the Digital Economy (Ministére des Technologies de la Communication et de l’ Economie Numérique, MINCOM) was working on a study regarding the launch of a €100m, four-year plan to expand Tunisia’s broadband network and deliver high-speed services to poorer regions in the interior of the country starting in 2016.

Operators have also been seeking to boost connections speeds and add value to their commercial offerings through the provision of fibre-to-the-premises (FTTP). However, uptake has been held back by high costs, and value-added services offered through FTTP, such as video-on-demand, still risk being undermined by widespread use of pirated media.

International Connectivity

There are four international submarine telecom cable landing points in Tunisia, three of which are managed by TT. These are: the Sea-We-Me-4 international cable, which lands at Bizerte; the Keltra link, extending from Trapani, Italy to Kelibia, Tunisia; and the Hannibal cable, which links Mazara del Vallo, Italy, and Kelibia. A fourth, the Didon cable, entered into operation in September 2014 and is owned by Ooredoo and Orange. The 170-km cable, which also runs from Mazara del Vallo to Kelibia, was deployed at a cost of €6m and has a capacity of 18 Tbps.

MINCOM put total international bandwidth at 130 Gbps in March 2015, up from 60 Gbps in 2011. The World Bank put international bandwidth per internet user at 19.1 Kbps in 2013, which was date for which the latest data was available. This ranks the country 104th in the world, ahead of regional peers Morocco (138th at 8.4 Kbps), Libya (117th, 12.7 Kbps) and Algeria (125th, 10.8 Kbps).

Hardware

Supporting the increase in mobile data usage is a steady rise in the popularity of smart-phones, which account for more than half of the overall market. Smartphones are starting to dominate mobile phone sales, and Ben Rhouma told OBG that the local market for such handsets had grown quickly in recent years. “In 2013 sales of smartphones accounted for around 10% of total mobile phone sales, but they are now approaching 60%,” he said. “A key factor has been a drop in prices, with entry-level smartphones now starting at around $50, which is approaching the price of feature phones.”

In early 2015 TT put smartphone penetration at 25%, while 36.1% of Tunisians who responded to a mid-2015 INT survey reported owning smartphones. In terms of brands, the market has recently come to be dominated by Chinese firms Huawei and Lenovo, as well as local manufacturer Evertek, having previously been led by Samsung and Nokia.

Local Manufacturer

Evertek, Tunisia’s domestic mobile phone manufacturer, began selling phones in 2008, starting with a dual-SIM model. According to Ben Rhouma, the firm now sells around 50,000 units a month, making it the second-best-selling smart-phone brand in Tunisia, and third in the mobile market as a whole. The firm is working to produce tablets and feature phones, and is looking to expand its sales beyond Tunisia, initially into North Africa.

Outlook

The start of 4G services in 2016 will mark a major milestone in the development of the sector and could further boost competition in the mobile market by bringing in a fourth operator, building on the impact of the country’s first MVNO and the agreement to implement number portability. Investors in segments such as offshoring, however, are still looking out for further moves to bolster competition, in particular in terms of international traffic, without which costs are expected to remain high. Addressing these challenges will be key to future sector growth.