Morocco consolidates voice services and expands data offers in ICT sector

The expansion of the telecommunications sector in the kingdom has been comparatively fast, even by emerging market standards. In recent years, penetration levels of mobile and internet services have increased on the back of reduced prices and foreign investment, as well as rising purchasing power and a government strategy that aggressively seeks to expand IT access, known as “Digital Morocco 2013”. The improvements in headline indicators have helped lead to the proliferation of a number of spin-off industries, ranging from software development to call centres.

New Opportunity

But growth has presented new challenges for the operators, which have seen a reduction in margins brought about by aggressive price competition. “In Morocco, growth is definitely stalling, and excluding internet – broadband in the fixed segment, and 3G in the mobile market – it is very difficult to see revenue growth,” Yousra Acherqui, a telecommunications analyst at CFG Group, told OBG. This has put an emphasis on competition for the best customers, but also for positioning operators in terms of new value-added services. The stakes are getting higher, and as one growth cycle slows down, operators are trying to determine from where the next big push for the telecommunications market will come. Data services, and the upcoming 4G broadband network, set to become operational between late 2015 and early 2016, point the way forward.

Government Strategy

The development of the sector has in large part been guided by a series of rules known as General Orientation Directives (Notes de Orientation Générale, NOG) produced by the National Agency for Telecommunications Regulations (Agence Nationale de Réglementation des Telecommunications, ANRT), Morocco’s telecommunications regulator since 2004. Aiming to establish a type of roadmap for the sector, several NOGs focused on different subjects have been introduced.

The first of these directives to be published was the 2004-08 NOG, which underlined the importance of market liberalisation, followed by the 2006-08 NOG, which focused on the expansion of telecommunications services across the more isolated areas of the kingdom. Issuance of a third NOG was announced by the ANRT in 2010 to encourage the continued development of the sector up until 2013, putting an emphasis on the need to attract private investment into telecommunications, and align industry goals with those established for the general IT sector, under the Digital Morocco 2013 plan. Currently under preparation is the fourth NOG , which will cover policy goals for the sector through 2018, and is expected to focus on new areas of growth for telecommunications, such as the expansion of data services.

Figures

In a report published in 2014, the Ministry of Economy and Finance estimated that the telecoms sector accounts for roughly 5% of Morocco’s GDP. Although undergoing a slower growth pattern after repeated years of expansion, the mobile segment has led growth in usage volumes as in most other regional markets. According to figures by the ANRT, mobile telecommunications subscriptions increased by 4% in 2014, reaching 44.1m at the end of the year, a penetration rate of 133%.

This surpasses penetration levels in neighbouring countries like Tunisia and Algeria, but also includes a certain amount of unused mobile phone subscriptions, which can be left registered but idle for three months, and counts customers who own multiple SIM cards, a common trend in emerging economies, with customers switching between providers to follow promotional offers. “The current price war has a washing machine effect on the sector, prompting people to buy a SIM card, and then discard it after a few months, because another operator has a better price,” Reda Ibenchekroun, general manager at Tenor Distrib, which operates a chain of telecommunications services distribution stores for telecommunications operator Inwi, told OBG. To address the issue, the government is pushing through a new SIM card registration law that will limit the purchase of multiple unused cards, and will also improve overall transparency by requiring users to provide government-issued identification when purchasing a SIM card.

The trajectory of growth is impressive. Mobile penetration rates in the country doubled from 41% to 81% in the 2005-09 period, and grew steadily afterwards, reaching 120% by 2012, according to figures from the ANRT. The number of voice minutes has also experienced expansion over the past decade, rising from 4.2bn minutes in 2005 to 48.2bn by 2014.

The mobile market remains fundamentally led by the pre-paid segment, which accounts for 95% of mobile subscribers. Although this trend is typical of regional markets, it has become especially marked in Morocco’s telecommunications business. “The operators have all attempted to move the market into post-paid, but I think they have in a sense failed. Even people that have enough money sometimes prefer to be pre-paid, because they can control their costs better,” Ibenchekroun told OBG.

Sector Form

Former state-owned incumbent Maroc Telecom remains the largest operator by customer base, according to figures from the ANRT, although competition from the other two providers is narrowing the difference. In December 2014 Maroc Telecom had 41.3% of mobile subscribers, compared to 46.8% in 2011. Despite the tougher market conditions over the past few years, the operator has been able to hold on to its dominance of the post-paid mobile segment, of which it retains a 59.9% market share, compared to 60.5% in 2011. Still underway is a three-year investment programme valued at €900m, which was started in 2013 to revamp existing infrastructure, extend the network in place, and expand its high-speed optical fibre.

The company has undergone some changes in recent years. Majority holder and France-based Vivendi sold its 53% participation in Maroc Telecom to Abu Dhabi’s Etisalat for €4.2bn in late 2013. The Moroccan state still owns 30% of the company, with the remaining 17% traded on the Casablanca Stock Exchange. Following the acquisition by Etisalat, the Africa operations of the two operators were merged under Maroc Telecom, with the North African firm taking over responsibility for Etisalat’s operations in West Africa, branded as Moov.

While the firm already had a presence in Mauritania, Mali, Burkina Faso and Gabon through stakes in local operators, in early 2015 the company announced it had secured the $650m acquisition of Moov businesses in Côte d'Ivoire, Benin, Gabon, Niger, Togo and the Central African Republic.

Expanding the Market

Méditel, the second player in terms of market share, has been operating in Morocco since 2000, and is 40% owned by French telecommunications group Orange following a 2009 deal. Under the terms of the 2009 acquisition, Orange will also raise its stake in the Moroccan company to 49% by the end of 2015, through the transfer of 4.5% from each of Méditel’s two other shareholders, the state-owned Deposit and Management Fund and investment group Finance Com, both of which have a 30% stake each in the telecoms operator.

The change in its shareholding structure will lead to a re-branding of the telecommunications operator, set to become Orange Maroc. Méditel’s market share in the mobile segment has been slightly impacted since the entrance of the third operator, easing from 32.9% in 2011 to 30.8% by December 2014, according to figures by the ANRT, but the operator is aggressively looking to stoke future growth through a capital campaign. Between 2014 and 2015 the operator allocated Dh4bn (€435.2m) to expand its 3G services in urban areas in an attempt to improve coverage and service quality and allocated an additional Dh7bn (€761.1m) for the infrastructure development related to upcoming 4G offers.

The third operator, Inwi, entered the market in 2010. Its aggressive stance, coupled with a period of regulatory change, led to increased competition and the lowering of prices. The company has been able to steadily grow its market share, especially in the mobile segment, where it went from 20.23% of subscribers in December 2011 to 27.87% by December 2014.

In early 2015 the operator announced a Dh5bn (€544m) investment plan for the coming five years, putting a heavy focus on securing the needed infrastructure for expansion of its upcoming 4G services.

Competition

The past five years have marked a period of intense competition in the country’s mobile sector. The entrance of Inwi in 2010 sparked price reductions and promotions, and while usage rates increased, the three operators found themselves accommodating reductions in their margins in order to secure customers. The number of average minutes per customer per month grew approximately 11% in 2014, reaching 92 minutes, according to ANRT figures, more than double the average minutes per customer per month the previous year.

However, operators have faced declines in the average revenue per minute (ARPM). In December 2014 the ARPM reached Dh0.32 (€0.03), down from Dh1.12 (€0.12) in December 2010, according to figures by the ANRT. Following the same downward trend has been the average revenue per user (ARPU), which has experienced a reduction from Dh40 (€4.35) per month in December 2012 to Dh29 (€3.16) per month in December 2014, as shown by the ANRT figures. This has affected both the pre-paid as well as the postpaid sectors, as price rivalry between competitors has led them to develop more affordable post-paid options in an attempt to retain long-term customers.

Over the past two years, monthly ARPU figures in the mobile pre-paid segment have gone down from Dh30 (€3.26) to Dh21 (€2.28), whilst in the postpaid segment, monthly ARPUs have seen a reduction from Dh254 (€27.64) to Dh175 (€19.04) during the same period. These reductions have obviously had an impact on overall industry results.

Sales for the sector have also seen a decrease, dropping from Dh35bn (€3.81bn) in 2012 to just under Dh32bn (€3.48bn) in 2013. This trend has been exacerbated by regulation that focuses on call price reduction, which also had a considerable impact on sector earnings. In 2012 the ANRT introduced per-second billing, which was followed by a reduction of mobile termination rates in early 2013, both of which impacted operators’ bottom lines even further.

The manoeuvering over prices is not expected to continue in the long term, however. “Decreasing prices is not something that will be sustainable in the Moroccan telecoms market in the near future. This is because the market elasticity has been decreasing, so even if the prices are reduced, that doesn’t necessarily translate into new customers anymore. The price war is not sustainable for the operators, especially for Inwi and Méditel, which do not have the same financial muscle as Maroc Telecom at the moment,” Acherqui said.

Enter 4G

One means of alleviating price competition is the introduction of 4G, which is set to come online in 2015 and will allow operators to open new revenue streams in data and services. “The arrival of 4G can help improve the rate of internet usage and the growth of e-services in Morocco, since 90% of internet users use mobile internet,” Azdine El Mountassir Billah, the general manager of ANRT, told OBG.

The process for 4G began in 2011 and in March 2015, the sector’s regulatory authority announced it had allocated 4G licences to all three of Morocco’s telecoms operators, at a total investment of Dh2bn (€217.6m). The change will address the saturation in the voice segment, which has compressed prices, and pave the way for strong growth of the data segment. However, considering the amount of congestion on the 3G network, implementation will test the operators’ capability to design and market new voice and data services without affecting service provision.

Much of the potential for operators to recoup the heavy investments will depend on how fast the market can increase the level of smartphone penetration across Morocco, which is rising steadily, increasing from 16% in the first quarter of 2012 to 21.5% in the same quarter in 2013, according to figures by International Data Corporation (IDC), a consultancy specialising in the IT and telecommunications sector. However, perspectives for the earnings set to come from 4G remain unclear. “It is difficult to get an idea of the size of the market and the potential revenues once 4G becomes really monetised in Morocco,” Acherqui told OBG.

Authorities are hoping that the introduction of 4G services will have other positive impacts on the overall economy. This was made clear in a 2014 report by the Ministry of Economy and Finance’s Studies and Financial Predictions Division, in which the government highlighted 4G as paving the way for the opening of a new business cycle, encouraging the acquisition of new equipment by consumers and the improvement of telecoms infrastructure, as well as opening up new opportunities for e-commerce in the kingdom and internet-based start-ups.

Fixed Lines

The expansion of mobile communications has – as is the case in most emerging markets – effectively relegated the fixed telephone segment to a marginal role. This has been underlined over recent years by a decline in the number of new lines. As of December 2014 fixed telephone subscribers stood at 2.5m, a 15% reduction compared to 2013 figures. Outbound voice traffic for fixed telephony also saw a reduction of 16%, reaching 4bn minutes by December 2014, according to 2014 figures.

The fixed-line segment had a penetration rate of 7.5% in 2014, similar to that of 2007, dependent largely on the business sector and ADSL internet connections. Despite a decreasing number of users, fixedline ARPU per month has risen from Dh88 (€9.57) in December 2012 to Dh94 (€10.23) in December 2014.

According to December 2014 figures by the ANRT, Maroc Telecom holds a 59.6% market share, followed by Wana Corporate at 38.9%, and Méditel, which focuses its fixed offer exclusively on the business sector, with a 1.5% market share. In terms of business clients, Maroc Telecom accounts for 88.8% of the market, followed by Méditel at 8.1% and Inwi at 3%. However, those numbers are likely to change in the near future, as competition in fixed-line access rises with new rules on infrastructure sharing.

Infrastructure Improvements

Infrastructure sharing has proved to be a useful way for regulators to encourage competition and operators to reduce costs in emerging markets, and Morocco is no exception. The push for infrastructure sharing comes on the back of a 2012 plan established by the government to cover 50% of the Moroccan population with high-speed broadband by 2027. Part of this will also entail financing support for operators investing in connecting less populated areas where commercial offers are not commercially viable. Despite the relatively well-established optical-fibre network across the country, deploying fibre-to-the-home (FTTH) infrastructure has been difficult due to high installation costs and the limited potential customer base for domestic commercial offers.

Existing optical fibre covers most of the operators’ backbone needs. In addition to Maroc Telecom’s network, which extended for 33,000 km as of 2014, the market entrants Méditel and Inwi were given the option to either build their own networks or lease existing infrastructure from other companies. These include some of the kingdom’s utilities, such as the Office National de L’Electricité et de L’Eau Potable (ONEE), Morocco’s water and electricity company, and the Office National des Chemins de Fer (ONCF), which manages the country’s railway infrastructure. In 2005 Méditel established a 30-year agreement with ONCF to both share some sections of the railway company’s existing optical fibre infrastructure, as well as to jointly build two fibre optic networks aligned with the railway links between the cities of Casablanca, Rabat, Tangiers, Fez and Marrakech. A similar deal between Inwi and ONEE allows it to use the utility’s existing optical fibre infrastructure.

Unbundling

In June 2014 the ANRT published the regulation managing local loop unbundling in the Moroccan market, in effect making all operators offer wholesale cost-based rates to access their passive and active FTTH infrastructure. For Maroc Telecom, the ANRT decision enforces the sharing of its aerial and underground infrastructure to other operators, at cost-based and with no limitations in terms of usage patterns. It also requires that Maroc Telecom establish different wholesale offers for other operators to access its local loop infrastructure, including virtual unbundling, physical unbundling and existing optical fibre links. As of early 2015, the market regulator and Maroc Telecom were discussing what the offer by the telecommunications operator would be, although the company has claimed in press reports that the process will negatively impact the infrastructure expansion in the Moroccan market.

Outlook

The Moroccan telecoms market has experienced a decade of heightened growth. This has been driven mostly by the expansion of mobile services, and translated into high penetration levels, reduced prices and a rise in competition between the three operators. Besides the positive impact that expansion has had on the economy, quick sector growth has put Morocco’s three operators in a critical position. Tighter earnings will continue to characterise the voice segment, forcing telecoms companies to re-focus their strategies on the still growing data business. The allocation of 4G licences to all three operators is promising to open a new cycle of firm competition, although the priority for the short-term will be to secure the necessary infrastructure, as the operators expect 4G investments to be recouped over the longer term.

Contrary to the mobile segment, fixed telephony has experienced decreasing subscription numbers over the years and remains relevant mainly due to the growing ADSL market. Although ARPU levels have risen, tighter competition as the government forces Maroc Telecom to share its terrestrial infrastructure with competitors might lead to a reduction in revenues. ADSL subscribers are set to continue to grow at a fast pace in coming years. Infrastructure expansion led by both public and private investment, especially in terms of FTTH links, will push internet usage further by increasing the number of Moroccans that have access to broadband. This will have a positive impact on the country, as it integrates into the global economy.