Expansion of data and satellite services aids Algeria's connectivity

Technological advances over the past decade have played a fundamental role in transforming business practices and promoting a new digital culture in Algeria. As a result of this expansion, a range of new innovations and trends has developed, leading to the reshaping of the telecoms industry. Government efforts to boost levels of internet penetration and expand the use of communication technologies have improved market access and also reinforced the sector’s  competitiveness. According to the Post and Telecommunications Regulatory Authority (Autorité de Régulation de la Poste et des Télécommunications, ARPT), the country had an internet penetration rate of 71.2% as of 2016, a marked improvement from 46.9% in 2015 and 25.6% in 2014. This places Algeria in third position in the Maghreb region, and among the leading countries in Africa, where the average internet penetration rate is 18%.

Ongoing government efforts aim to promote further diversification in the sector, and follow progress made in recent years through the unveiling of 3G and 4G services, which have boosted the reach of data packages across segments of Algeria’s society. Fixed-line and mobile internet operators recorded a combined turnover of AD444bn (€3.7bn) in 2016, according to the ARPT, a growth of 2.5% on 2015, with the expansion of 3G services and the implementation of 4G technologies credited as leading factors behind the uptick. By the end of 2016 there were 29.5m fixed-line and mobile internet users in the country, a 56.1% increase on year-end 2015 figures of 18.9m. The rapid rise in internet usage has been largely attributed to an overall shift towards digitalisation in Algeria’s business community, alongside local alignment with global digital trends.

Shifting Trends

The launch of 3G in 2013 was pivotal in transforming the sector. Figures from 2016 show mass migration from GSM to 3G usage, which was accompanied by a decline in the volume of voice calls. Following its launch in mid-2016, 4G services had a modest penetration rate of 3.5% by that year’s end. Both voice and internet use shifted from fixed to mobile, supported by the expanded rollout of 3G devices.

Although mobile devices have risen in popularity, the country has seen a moderate rise in the use of fixed telephone lines. Fixed lines now reach 43.4% of the country and had 4.3m subscribers in 2016, some 4.2% more than the year before. Even so, the government’s effort to enlarge the telecommunications network and reach more remote areas appears more likely to be achieved through a larger mobile network rather than fixed lines. “One of the upcoming opportunities for ICT in Algeria will arise from operators improving signal coverage in rural areas and in the south,” Zhang Chao, general manager for Algeria at ZTE, a China-based telecoms company, told OBG. “Telecom equipment  suppliers will work with operators in order to guarantee these network upgrades in these difficult regions.”

By the end of 2016 as much as 56.7% of mobile phone users were subscribed to either 3G or 4G services, representing the first time that mobile internet subscriptions had surpassed GSM usage. In the ARPT’s first quarterly report for 2017, it was estimated that 33.8m people primarily accessed the internet on a mobile device. In order to meet this demand, state-owned operator Algérie Télécom (AT) has invested AD40bn (€331.8m) in fibre-optic cabling production.

Mobile Operators

With a mobile penetration rate of 113.4% in 2016 – which signals some consumers have multiple contracts – Algeria has a mature mobile segment, where three operators compete for market share.

The largest provider is Algérie Télécom Mobile (ATM), subsidiary of the state-owned AT. The company operates under the brand Mobilis and had 17.3m subscribers, – or a 36.8% market share – at the end of 2016, representing a 4.2% rise on 2015. The company is set to be restructured, with Imane Houda Feraoun, the minister of post and ICT, announcing in April 2017 that ATM will be merged with other AT subsidiaries to form Groupe Télécom Algérie. According to Feraoun, the merge will save millions of dollars each year. Additionally, the new entity will be responsible for sector expansions in Africa.

Optimum Télécom Algérie, operating under the name Djezzy, is the second-largest provider in the country. The company had led the market in terms of business volume and GSM subscribers until 2016, when it fell behind ATM. Djezzy has a subscriber base of 16.4m, accounting for 34.9% of the total market. The company lost ground in part when it faced delays in attaining a 3G licence in 2013. To rebuild its competitiveness the operator announced its “Djezzy Speed” service in August 2016, which resulted in the provision of 3G coverage across Algeria’s 48 wilayas (provinces) by that year’s end. The ability to roll out the service so quickly was helped by the massive deployment of antennae by Nokia, with the rate of expansion reaching a peak of 130 sites per week throughout the operation. Djezzy’s management also included 4G-compatible technology within the antennae, allowing the company to launch its 4G connection across 13 wilayas in November 2016.

Wataniya Télécom Algérie is the third-largest company in the mobile market with 13.3m subscribers, or a 28.3% share. Owned by Kuwaiti and Qatari companies, Wataniya entered the local market in 2004 under the brand name Ooredoo. The company was the first in the country to launch 4G services, in September 2016, which led to a spike in activity. Ooredoo announced its subscribers surpassed 14m in the first half of 2017. This strong performance has enabled the company to further invest in the modernisation of network technology.

Connection Speed

There are currently two international submarine cables with bandwidth of 1040 Gbps connecting Algeria to the global network; however, real consumption is 840 Gbps. The deployment of 3G and 4G services has shifted the market approach towards enhancing the customer experience, with operators focusing on raising average revenue per user by promoting all-inclusive contract plans. These packages include a range of value-added services that provide high-speed packet access and wireless connections. However, operators are faced with insufficient infrastructure, which hampers their ability to deliver the expected quality of service. Broadband adoption speeds of 4 Mbps are still well below the global average of 7.2 Mbps, reducing both download speeds and performance for users. According to a study released in mid-2017 by the UK-based firm Cable, Algeria ranked 161st out of 189 countries for internet speed.

Telecoms Law

The sector is awaiting the implementation of a new telecoms law, with the draft bill adopted by the Council of Ministers in December 2016. The draft law could be pivotal in increasing competitiveness in the sector, as it would open up the nationalised communications market to private companies, with operators outside of AT given access to Algeria’s telecoms exchange. “The fact that private actors do not benefit from the same market access conditions as public entities is a big issue for the ICT sector. It means there is not enough competition within the market, which ends up impacting the final customers,” Fadi Gouasmia, CEO of AnwarNet, a local ICT firm, told OBG.

If enacted the bill would oversee the opening of the market by creating an independent authority that would be responsible for the regulation of the electronic and postal markets on behalf of the state. Its primary role would be to ensure fair markets and healthy competition, but it would also be tasked with ensuring quality standards in telecoms infrastructure, settling disputes between operators over sharing infrastructure, connections and data, as well as protecting the rights of subscribers. Elements of the bill have proven controversial, however, with concerns over provisions that would allow the widespread monitoring of international phone calls. Negotiations over the draft law are expected to continue into late 2017, but the government is hopeful it will be implemented by the end of the year.

Fiscal Pressure

Capitalising on data services has proven challenging for telecoms operators for many reasons, notably the high levels of taxation and the geographic size of Algeria. Furthermore, the tough economic conditions have led the government to scale back investment in the sector and enforce additional taxation measures to raise income.

In its 2017 budget bill the General Directorate of Taxes, a division of the Ministry of Finance, raised value-added tax (VAT) for data services from 7% to 19% after a reclassification of its tax category, while taxes on prepaid cards and electronic recharge increased from 5% to 7%. However, fixed-line internet access remains exempt from VAT reclassification until the end of 2020, staying at the reduced rate of 9%. These budgetary measures have affected sector development, as have laborious bureaucratic administrative processes. These delays have even more of an effect in a market that has both public and private contenders and interests, as private sector players have said they are at a disadvantage in this regard. In terms of mobile termination rates between service providers, Djezzy has called for an overhaul of the existing tariff system, with officials claiming the company pays between 35-45% more than rivals Ooredoo and Mobilis for the equivalent amount of traffic. The firm has taken its complaint to the ARPT, though at the time of print negotiations over adjustments to the existing rates were still ongoing.

Fixed-Line Internet

To boost internet access, the government is carrying out an FTTX plan to connect 7m homes to fixed-line internet by 2022, raising the penetration rate in households from 43.4% in 2017 to 81% upon completion. By end-2017 AT aimed to have deployed over 500,000 fibre-to-the-home lines with a 100-Mbps capacity, and to modernise existing lines. The operator has also set out to provide connection speeds of 1 Gbps to companies in industrial areas and developing business zones. Algeria had 2.9m fixed-line internet subscribers in 2016, according to the ARPT, which was down from the 3.3m recorded at end-2015.

Universal Telecoms Service

A key component of the government’s telecoms agenda is the Universal Telecommunications Service announced in 2016, which seeks to close regional disparities in connectivity. Salim Tamani, head of media and public relations at Djezzy, told OBG, “The Universal Telecommunications Service aims to use 3% of the yearly profits of the three operators to supply both wireless and fixed-line telecoms connections to the regions experiencing difficulties accessing these services.” In January 2016 the ARPT announced that AT, ATM and Optimum Télécom Algérie were successful tenders. This programme will upgrade services in 97 municipalities in 28 wilayas across southern Algeria, the Hauts Plateaux and border regions, collectively providing service to an additional 1.3m people.

Infrastructure Investment

Access to the international internet network is currently provided by two submarine cables: ALPAL-2, running between Algiers and Palma de Mallorca in Spain, holding a bandwidth capacity of 80 Gbps; and SEA-ME-WE 4, carrying around 80% of Algeria’s international traffic (600 Gbps) and linking Annaba in the north to Marseille in France. SEAME-WE 4 also has a section connecting Algeria to Tunisia with a 40-Gbps capacity. Expansion of international connectivity has been a priority for the government. AT is the sole holder of the country’s international cables and has been allocating funds towards the implementation of its optical-fibre infrastructure.

As part of its fibre-optic-rollout programme, AT signed a deal with the Chinese equipment manufacturer Huawei in January 2017. This involves plans to install 1m high-speed internet connections across Algeria using fibre-to-the-home technology, providing a much-needed upgrade to internet speeds. The contract garnered a lot of attention from local press due to its high cost – at $90m for equipment and AD27bn (€2.5bn) for installation – and also because of its unusual tender process. The deal was granted through a private agreement rather than a standard call for bid, which triggered complaints among competitor technology providers, such as China’s ZTE and Sweden’s Ericsson, which had both been in negotiations with AT. However, this agreement is only the first of several unfolding programmes that are scheduled for 2018. For instance, a new 560-km submarine cable linking the city of Oran to Valencia in Spain is also expected to launch that year.

In addition, there is a non-operative cable owned by Djezzy that once linked Algeria to Europe, but has been blocked since 2009. Despite Algeria’s National Investment Fund owning 51% of the cable, the €25.3m investment remains underutilised, even though local press have reported that the cable could be operational within a week if the blockade were lifted.

Equipment Supply

There are various international equipment suppliers active in Algeria, including Ericsson, which owns 35% of Société Industrielle des Télécommunications, an ICT innovation-focused joint venture in which the state has the majority of shares. ZTE is also well represented and has agreements with the three main telecoms operators. In October 2017 ZTE signed a partnership with the National Federation of Young Entrepreneurs for the FTTX project, which will see the installation of high-speed internet through optic fibre. The programme aims to train small local companies in ICT skills, enabling them to take part in the national modernisation plan for internet connectivity. Finnish firm Nokia is another major supplier, which collaborates with network provider Ooredoo, among others. The two companies reached a connection speed of 1 Tbps during a test run in December 2016 between the cities of Algiers and Ain Defla.

Satellite Communication

Algeria’s first telecoms satellite Alcomsat-1 – which will secure connections and prevent delays in the event of fibre-optic service disruptions – is expected be operational by end-2017. Alcomsat-1 will improve the capacity of fixed-satellite systems and mobile satellite services, while also providing a boost to local voice and data services. In May 2017 Feraoun confirmed that Algeria had reached agreements to supply internet access to Mali and Niger, increasing access in both countries by up to 90%, while negotiations with Mauritania were ongoing. Alcomsat-1 represents a long-term, cost effective solution.

International Markets

In February 2017 Feraoun announced the launch of a tender to sell hundreds of kilometres of fibre-optic cables to Niger, Mali and Chad. This development forms part of an African Development Bank plan to provide the Trans-Saharan region with fibre-optic connections extending from Algeria to Nigeria, via Niger, Mali and Chad. The African Development Bank will finance the project to the tune of €43.9m. Initially, deployment of the plan will be administrated through the various AT subsidiaries, but the minister has said private companies are also invited to invest.

As part of efforts to raise Algeria’s presence in Africa, the ARPT announced in July 2017 a telecoms cooperation agreement with Mauritania that will see Algerian operators provide advice and assistance to Mauritanian counterparts regarding the implementation of its 4G network, a knowledge-transfer connection that could lead to new commercial partnerships down the line.

Outlook

While still under consideration, the approval of the proposed telecoms law could help boost investment and new projects in the sector. It is hoped that rising competition will improve the performance of market operators, raising prospects for Algerian companies to invest abroad, while expansions of the fibre-optic networks and international submarine cables will solidify the country’s internet connections, in turn opening possibilities for innovation, start-ups and partnerships. Overall, long-term government plans to embrace digitalisation and diversify the economy are well under way.