Government-led consolidation set to increase competition in Cote d'Ivoire's telecoms sector

With high headline growth opening up new business opportunities, Côte d’Ivoire’s telecommunications sector is continuing to grow on the back of newly inaugurated 4G networks, expanding coverage and a series of regulatory reforms, which include the revocation of some licences for smaller operators and the issuance of a licence for a new entrant. Together, these moves are helping to reshape a market and sector that had previously been hampered by high competition, limited infrastructure and inconsistent service.

Although demand for voice services is close to stabilising, as is the case in many emerging markets, operators are gradually finding new revenue streams as they consolidate their 3G and 4G offerings. In parallel, a government-led plan to expand broadband infrastructure across the country is helping to improve fixed and backbone connectivity. Moreover, the surge of data consumption is being led by an increase in the volume of value-added services, including mobile money.

The country’s telecoms regulator, Telecommunications/ICT Regulation Authority of Côte d’Ivoire (Autorité de Regulation des Telecommunications/TIC de Côte d’Ivoire, ARTCI), is also putting pressure on operators to improve service quality, which suffered following years of underinvestment in telecoms infrastructure during the previous decade of civil unrest. With the number of market operators reduced by the government’s decision to revoke several operating licences from smaller firms, in conjunction with the arrival of a new telecoms player, the battle to increase market share and revenues is set to be revived under a new sector configuration.

Size & Scope

Despite the new challenges, the sector’s economic weight has been solidified over recent years. According to figures by ARTCI, the combined revenues of fixed and mobile communications, as well as fixed-internet services, amounted to CFA266.7bn (€400.1m) in the second quarter of 2016, although these figures did not include the revenues for the mobile internet segment, which were not available as of January 2016, despite the segment’s considerable expansion. Year-end 2015 combined revenues for the sector reached an estimated CFA1.1trn (€1.7bn), up from CFA994bn (€1.5bn) in 2014.

Overall, the telecoms and IT sector accounted for between 7% and 8% of GDP as of 2014, according to government figures. As of December 2015, the sector accounted for 150,000 direct and indirect jobs, according to international media reports.

Mobile Segment

As is the case in most of the world, the sector’s growth has been led by the mobile segment. The past decade has seen an upsurge in the number of mobile phone users in the country, which rose from 2.3m in 2005 to 25.4m by 2015, taking the penetration of mobile telecoms from 12.3% to 109.2% over that same period. This was largely a result of the high prevalence of multi-SIM card subscribers, who use different operators interchangeably to take advantage of inter-network discounts and rates.

Until mid-2015 the telecoms market had six operators, however, one operator stopped providing service in 2014, with three of those operators accounting for the majority of the market. For several years, the Ivorian telecoms sector had been characterised by an excessive number of competitors, which were vying to increase their share of the 23m people market. This led to a two-tier market, with the three largest operators — France’s Orange, South Africa’s MTN and Moov, owned by Maroc Telecom — accounting for 95.8% of mobile subscribers and 96.7% of mobile telecoms revenues, according to 2015 figures by ARTCI.

On the other side of the spectrum, the remainder of the telecoms market was, up until mid-2015, fought over by three smaller operators: GreenN, owned by the Libyan investment fund Libya Africa Portfolio, Lebanon-based firm Comium, which operated through its KoZ brand, and Ivorian firm Niamoutié Telecom, which began offering mobile services in 2012 through its brand Café Mobile. However, Café Mobile halted operations after having its licence revoked in 2014. The market will see the arrival of Libya’s Libyan Post, Telecommunications and Information Technology Company (LPTIC), which won the government tender for a fourth universal telecoms licence.

Revenues

Mobile communications revenues for the five mobile operators still active at the end of 2015 reached CFA851bn (€1.3bn), up from CFA742bn (€1.1bn) in 2013. However, investment in the mobile segment has been declining, going from CFA116bn (€174m) in 2013, to CFA106bn (€159m) in 2014 and CFA87bn (€130.5m) in 2015. Although this reduction was compounded by the gradual withdrawal of the smaller operators, the main driver has been lower investment levels from the three main operators, Orange, MTN and Moov, following an intense rollout in previous years for 3G and 4G infrastructure.

The market is still driven to a large extent by pre-paid customers, who accounted for 99.5% of the total number of mobile users as of the second quarter of 2016. Reversing this trend, and increasing the percentage of post-paid customers in the market is set to be one of the largest challenges for the operators moving forward. Only 0.55% of Orange’s mobile customers were post-paid as of mid-2016, while MTN and Moov had 0.13% and 0.64% of their customers, respectively, under post-paid mobile contracts, according to ARTCI.

Mobile communications and the rising use of data services are set to remain the bedrock of competition in the sector. The average monthly revenue per user (ARPU) in the mobile segment reached CFA8398.86 (€12.60), according to second quarter 2016 figures from the sector regulator. Specific ARPU varied per company, however, with Orange leading the market with CFA9176.95 (€13.77), followed by MTN at CFA8614.40 (€12.25) and Moov with CFA6422.30 (€9.63). The market is sure to be impacted, however, by the removal of the three smallest operators.

Consolidation

The move towards government-led consolidation in the telecoms market has been building up for some time. In June 2015 Ivorian authorities announced the nationalisation of the three smaller mobile operators, Comium, Café Mobile and GreenN. These companies had accumulated debts related to operating licences and unpaid taxes totalling CFA90bn (€135m). A fourth operating licence was issued to Walid Telecom, based in Abu Dhabi, but the licence was never used, and was subsequently revoked.

The authorities also announced that the three companies would be fused into a single entity, to be put on the market and then sold to a private operator looking to enter the Ivorian market. The move was in response to international expressions of interest for a fourth operating licence in September 2015. “The government wanted to reduce the number of operators from seven to four. Some of the small operators had a considerable number of customers, but their service quality was poor so it was important to consolidate the market with fewer companies, but better service provision” Diéméleou Bilé, managing director at ARTCI, told OBG.

The arrival of a fourth operator was confirmed in September 2016. The council of ministers announced that LPTIC would be allocated the country’s fourth global telecoms operating licence, although the price for the licence was not disclosed. Authorities in the country also stated that the new operator would base its services on part of the infrastructure that had belonged to the three operators that had their licences revoked in mid-2015.

“Before the restructuring of the telecoms sector last year, we had seven operators. Clearly, for our level of population, the size of the market and the services being provided, the amount of operators we had led to problems. Some frequencies were allocated to operators that were using them at less than 20% of their capacity, and this created coverage issues,” Patrick M’Bengue, president of the Group of ICT Sector Operators (Groupement des Opérateurs du Secteur des Technologies de l’Information et de la Communication, GOTIC) a mobile telecoms association, told OBG. “After the restructuring, we now have four operators and we believe performance of the sector and customer service will likely improve.”

Fixed

Following international trends, the fixed-line segment has played a somewhat smaller role in the telecoms market, as mobile communications continue to expand and secure a dominant position in the sector. According to second quarter 2016 figures by ARTCI, the number of fixed lines in Côte d’Ivoire reached 283,481, down from a peak of 334,111 fixed lines in 2002. The majority of the segment’s customers, representing 272,508 lines, are held by Côte d’Ivoire Telecom, which accounts for 96.13% of the market, and a comparably smaller number of customers, representing 10,973 lines, are serviced by South Africa’s MTN Fixe.

Although the segment has experienced small variations, the overall trend is for fixed-line telephony to continue to account for a minute presence in the telecoms market. However, the investment flow into the segment has had to accompany these small variations in customer figures. For example, in 2009 the two fixed-line operators invested CFA15.8bn (€23.7m) in the segment, only to increase the volume of investment by 62.6% in 2010 to CFA25.7bn (€38.6m).

In 2014 investment into fixed-line telephony in Côte d’Ivoire rose 52.39%, after falling to 20.87% and 35.12% in 2012 and 2013, respectively. “Land lines were never a thing in Africa. The market went from no phones to mobile phones. In Africa mobile phones revolutionised people’s lives. The market will now go from 2G to 4G or even 5G,” Christophe Lepoivre, vice-president for West Africa and managing director at Gemalto, a digital security company, told OBG.

Although the improvement of business conditions might help support the segment over the coming years, as new domestic and foreign companies are set up and require fixed-line services, real expansion might have to wait until a more sophisticated telecoms market in Côte d’Ivoire expands its offers in terms of bundled services. In mid-2016 Orange Côte d’Ivoire increased its stake purchase of shares in fixed-telecoms operator Côte d’Ivoire Telecom. Previously the government owned 48.5%, while 51% was owned by Groupe Orange. The deal left the Ivorian government with a 15% shareholder position in the new company.

Regulation

As evidenced by the aggressive approach to improving service quality in the mobile segment, much of the sector’s activity in recent years has been guided by a more active regulatory body. A new telecoms law, introduced in 2012, was implemented to refurbish the existing 1995 telecoms code, in part to help boost the sector after a decade of civil unrest that had left telecoms infrastructure damaged and in need of a significant revamp. The new law has made it easier for the regulator to monitor the way the operators’ investment plans are being implemented. Call quality, which had become a significant problem after the civil conflict due to damage to towers, is now closely monitored by ARTCI, with new monitoring equipment installed to measure dropped calls. Service quality audits have also become customary in recent years, and fines can now be applied both by the Ministry of Post and ICT as well as by ARTCI to non-abiding operators. As a result of the increased supervision, a series of fines were levied on all of the six mobile firms operational in Côte d’Ivoire in 2014. After the implementation of the 2012 regulation, financial penalties for non-compliance with call quality requirements can now reach between 3% and 5% of an operator’s annual turnover.

The largest financial reprimand was levied against MTN, which faced a CFA1.3bn (€1.95m) penalty. Moov and Orange were also fined CFA800m (€1.2m) each, followed by Comium and GreenN, which were scheduled to pay an estimated CFA46m (€69,000) and CFA5.5m (€8250), respectively. In October 2015 ARTCI published service indicators for the country’s operators in 2014. MTN presented the best performance for 2G mobile telecoms services, followed by Orange and Moov. In terms of 3G mobile service, the best service provider was Orange, followed by Moov and MTN. Regular service quality audits are expected to be an important tool for the regulator to encourage operators to invest in infrastructure improvements over the coming years. “The regulator is equipped to better control service quality criteria, and this has helped it mature in its sector governance capacity,” M’Bengue told OBG.

Number Portability

Another measure set to increase sector competition is the introduction of number portability. In 2014 ARTCI published a study about the measure, involving consumers as well as sector operators, in order to gauge the impact and potential challenges for the implementation of number portability regulations, which were already present in most other major West African markets.

This led to a March 2016 ruling ordering the effective implementation of the measure in the following 24 months, meaning that number portability will have to be effective in the Ivorian market before April 2018. ARTCI has already also established that once operational, the process to migrate consumers between operators while maintaining their original numbers should take no more than 24 hours.

Licence Renewal

The regulator has also increased the licence operating fees, setting the cost for a global licence — allowing both mobile and internet provision — at CFA100bn (€150m), up from the previous CFA40bn (€60m), and reducing the tenure of the licence from 20 to 15 years. The whole fee also had to be paid within three years of issuance. The price for the new licence was also considered expensive within the region’s mobile markets. In Cameroon, for example, telecoms operators had their operating licence fees set at CFA75bn (€112.5m), although the final price paid by three operators in that market was eventually lowered to CFA50bn (€75m), according to media reports.

With their existing licences having expired in 2016, the two biggest operators in the country, Orange and MTN, renewed their licences at the new price, although after negotiations with the government, it was agreed that the fees would be paid out over a period of 15 years, instead of the initial deadline of three years. The Ivorian government also requested that operators give a 50% advance on the global price of the operating licence before the end of 2015. In December 2015 MTN announced it had settled 75% of its global licence fee. Similarly, Orange paid CFA50bn (€75m) out of the total licence fee to authorities before the end of 2015. Although it still had 10 years left in its existing operating licence, Moov also announced it had paid 50% of its new operating licence in January 2016. Anticipating the acquisition of the new licence allowed the firm to offer 3G and 4G services.

4G

The deployment of 4G services is set to guide much of the operator’s expansion strategy over the coming years. In June 2016, for example, MTN announced the securing of a CFA140bn (€210m) loan to be channelled towards network modernisation and customer acquisition. The licence renewal fees recently paid by operators were a necessary step to give them access to the 4G network, which will be critical to expanding data offerings for users. “The impact of 4G will be linked to the services that the operators can provide consumers through it. So now the challenge is how to take advantage of this and create value-added services that can allow consumers to see a positive impact on their lives and on their businesses” M’Bengue told OBG.

Internet Connections

Progress has also been happening through increased penetration of internet services. Expansion of internet usage was somewhat delayed by the unrest of the previous decade, which deferred infrastructure expansion by both the government as well as private operators. However, usage rates have seen an upsurge since the return of peace.

According to World Bank, the number of internet users — people that had accessed the internet at least once in the previous 12 months — rose from 2.9 per 100 people in 2011, to 21 users per 100 people in 2015. Although the country seemed to lag behind some of its close neighbours in terms of internet expansion, this difference has been reduced in recent years. For comparison, Ghana had 23.5 internet users per 100 people, Senegal reached 21.7 users per 100 people in 2015 and Nigeria, with higher internet penetration rates, had 47.4 users per 100 people in 2015.

Total revenues for the fixed-internet segment has shown a considerable increase in recent years, going from CFA30.2bn (€45.3m) in 2013 to CFA34.8bn (€52.2m) in 2015, however, the number of connections declined during 2016. There are currently five internet service providers operating in the market.

According to third quarter figures by ARTCI, Orange was the market leader with 85.87% of fixed-internet subscribers on its Aviso brand, followed by Switzerland-based Yoomee with 7.57%, MTN with 3.91% and Alink with 0.06%. Fixed-internet connections saw a 17.62% reduction between the first and the third quarter of 2016, settling at 83,892 connections as of September 2016, according to figures by ARTCI. This reduction might be partially explained by the fast uptake of mobile internet connections, which reached 7.5m as of September 2016, up from 6.7m mobile internet connections in March 2016, ARTCI reported.

On The Go

The rising number of options for mobile internet access are transforming the segment into an important revenue stream for operators. The number of mobile internet users in Côte d’Ivoire hovered around 7.5m in the third quarter of 2016, according to market figures by ARTCI. The segment is currently led by MTN with a 46.75% market share, followed by Orange with 36.11% and Moov with 17.14% of customers as of the second quarter of 2016.

Fibre Optics

Internet accessibility is set to rise considerably as the government completes the National Broadband Project, which is set to deploy close to 7000 km of fibre-optic infrastructure throughout the country. Planned to be established following central, eastern and western fibre-optic routes, the programme will connect up to 1000 communities with broadband internet access. The new infrastructure will also serve to advance Côte d’Ivoire’s e-government plans, by linking up social service providers and government offices with high-speed internet access. Authorities have also announced that a private operator will be in charge of managing the new fibre-optic network’s commercial exploitation (see analysis).

Mobile Money

As in other markets at similar stages of development, mobile money services have been gaining ground in Côte d’Ivoire and now constitute a critical offer segment of the operator’s portfolio, although they remain well below the performance seen in Kenya – which helped pioneer mobile money services in 2007 and where mobile money transactions are now equivalent to as much as one-third of the country’s annual GDP. The regulatory environment for mobile money was opened up in 2006, with the Central Bank of West African States establishing rules for electronic money transfers for non-banking institutions. This led to the establishment of mobile money services by the market’s three main telecoms operators, as well as by e-money institutions such as Qash Services and CelPaid.

Since then the total number of mobile money subscribers has risen to 6.7m in the second semester of 2016, roughly three times what it was five years prior. According to second quarter 2016 figures produced by ARTCI, the mobile money segment is led by Orange, which had 4.8m subscribers, followed by MTN with 1.5m and Moov with 426,245 subscribers.

In addition, mobile money services are increasingly being galvanised by an array of agreements between mobile operators and other businesses. Orange has partnered with the country’s water and electricity providers to facilitate billing operations for mobile users.

Another significant partnership between Orange and telecoms operator Airtel, which does not have a presence in Côte d’Ivoire, allows mobile money transfers between the two operators’ users in Côte d’Ivoire and neighbouring Burkina Faso. MTN announced in mid-2015 a partnership with international money transfer firm Western Union to allow customers to transfer money from the firm’s agencies to MTN mobile money users across the country.

Outlook

The telecoms sector is undergoing a fundamental transformation. The government-led consolidation efforts are expected to further reshape the environment for telecoms operators, and have the potential to bring about real advantages for consumers in terms of service provision. The arrival of a fourth operator will also bring dynamism to the market, especially at a time when 4G deployment is set to become critical, and operators look to data-reliant, value-added services to help boost their revenue streams. Regulatory steps, such as the introduction of number portability, are set to improve competition and network reliability.

Telecoms expansion will also benefit greatly from the completion of the National Broadband Project, easing internet and mobile access to some of the more isolated areas of the country. Given the current environment, and the introduction of new technology and generalised access, the telecoms sector is expected to continue its growth trend over the medium term.