Opportunities come online: The sector is growing within a defined structure

Despite its considerable population size, internet usage in Algeria remains low. With only 1m internet subscribers in a population of over 37m as of mid-2012, the sector demonstrates attractive expansion prospects. Both the government and key industry participants have demonstrated commitments towards developing the sector in line with growing demand, business expansion and rising consumer purchasing power.

STEADY EXPANSION: Growth indicators are encouraging, as subscribers grew to 1m in 2012 from 900,000 in 2010. The total number of internet users increased from 4m in 2009 to 5.2m in 2012, representing a penetration rate of 14%. A further indication is seen in rising per capita expenditure levels on information and communications technology (ICT), from €79.67 in 2007 to €89.51 in 2008, according to the World Bank.

Due to the underdevelopment of Algeria’s ICT sector as compared with regional counterparts, the interplay between market actors has been markedly more cooperative than competitive. “The market is still developing. There is high demand for these technologies, so there is no need to be aggressive or competitive and try to woo customers from other companies. There are so many customers and so many businesses to pick up as first business, that our strategy is focused on that rather than getting the customers of others,” Ryma Azzouz, wholesale manager at Icosnet, told OBG.

SECTOR LAYOUT: There are four main internet providers in Algeria: Algérie Télécom (AT) as the public landline operator, and three dominant private internet service providers (ISPs): AnwarNet, Icosnet, and SmartLink Communications (SLC). Established in 2000 by law 2000/03, fixed-line incumbent AT is the sole provider of internet to residences and the public, offering asymmetric digital subscriber line (ADSL) and other types of digital subscriber line (DSL) technologies. AT is represented in the internet market by its subsidiary, Algérie Télécom Internet Djaweb ( Djaweb), which was formed following a merger of three earlier subsidiary internet providers belonging to AT: Fawri, Anis and Easy ADSL.

Between 2004 and 2008, AT invested €2bn to improve satellite communications, logistics and information management systems, among other upgrades. Further investments have been made to improve its fixed-line internet services, such as by enlarging its ADSL and WiMAX networks. Investments totalling €4.8 will be made between 2010 and 2014 to improve the company’s fixed-line and mobile infrastructure, with an emphasis on the provision of sophisticated data services. AT has also partnered up with Canadian firm Irstel to form Algeria Connect, a new voice over internet protocol (VoIP) service that provides subscribers with virtual phone numbers to use direct inward dialling technology and receive calls anywhere in the world using an Algerian number at the cost of a local call.

DWINDLING DOWN: Presently, only state operator AT can legally provide internet services to domestic residences and government buildings. Private ISPs are restricted to delivering internet to private businesses alone. However, there were once a number of actors that competing in the public sector (state enterprises and residential homes). The Post and Telecommunications Regulator Authority (Autorité de Régulation de la Poste et des Télécommunications, ARPT) issued over 80 ISP licences since 1998, though many firms have since left the market. As the sector matured, several more serious ISPs emerged in 2003, and with the arrival of ADSL that year, three players invested in the new technology: Djaweb and two private ISPs, Icosnet and Eepad.

Competition intensified in the public sector market, with AT possessing a key advantage over price setting due to its control of the two international fibre-optic cables supplying bandwidth to Algeria’s three ADSL providers. Tariffs for access to the ALPAL-2 cable from El Djemila to Majorca and the SMW4 cable from Annaba to Marseille proved too high for Icosnet, prompting it to shift focus to solely servicing the private sector, or business-to-business (B2B) provision. The subsequent reduction of ADSL prices in 2008 by 50% by the Ministry of Post and Information and Communications Technology (Ministère de la Poste et des Technologies de l’Information et de la Communication, MPTIC) eroded Eepad’s ability to compete against AT, leading to the closure of the private operator in September 2009.

CROWDED OUT: A second public fixed-line provider emerged in 2005. Lacom, owned by an Egyptian joint venture comprised of Egypt Telecom and Orascom Telecom, received a 15-year fixed-line licence at the hefty price of $65m. The contract also included stringent obligations, such as a commitment to provide national network coverage. The high cost and commitments discouraged the entrance of other operators into the market, forcing Lacom to compete alone in the public sector market against AT, which possessed an inherent competitive advantage in terms of infrastructure.

Like AT’s previous competitors, Lacom could not compete with the incumbent’s low prices and simultaneously meet licence requirements. After less than two years in the market, the company incurred losses up to $45m and was dissolved in November 2008. Since, AT has reigned as the single fixed-line provider for the public sector in Algeria, maintaining a state monopoly over the segment, while private ISPs compete to service foreign and domestic private businesses.

BUSINESS-TO-BUSINESS: Nevertheless, rising demand for sophisticated internet services in the private sector has boosted business for many private ISPs. Algeria’s oil and gas reserves and the increasing number of infrastructure projects tapping these has bolstered big business, attracting many large multinational companies with a need for advanced technology, higher bandwidth and dedicated lines. Private ISP Icosnet estimates that 80% of its clientele are corporate actors and international firms with bases in Algeria. ICT firms like China’s Huawei and Algeria’s Webcom, have also grown as these various industries develop, and have joined with value-added partners to improve the productivity of key local businesses, such as banks, insurance providers and mobile operators like Djezzy and Nedjma.

BUILDING THE BASE: Meanwhile, private ISPs recognise the growing potential of small and medium-sized enterprises (SMEs) to become clients. “Constituting the majority of Algerian companies, SMEs are the future, and the market has a lot of potential. By creating a variety of products to attract SME customers and informing them of all of the different technologies available today, we are trying to motivate demand for new services that can help improve their business,” Icosnet’s chief sales officer, Sami Karim, told OBG.

Demand for high-end services has prompted a rapid evolution of offerings by private ISPs. “ADSL prices are already among the lowest in Africa, and many Algerian ISPs are implementing their own WiMAX wireless broadband infrastructure. The full liberalisation of VoIP telephony is enabling them to become players in the voice market as well,” Karim Cherfaoui, general manager of Divona, a local ISP providing satellite-based services, told OBG. Given their specified market demographic, in addition to providing better, faster internet services and long-distance voice packages, ISPs target improvements in their offerings that help increase business connectivity, such as with products like “webmeeting” and similar conferencing capabilities that allow for continuous access to client and other businesses actors.

Relative to public internet access, these new technologies are considerably more expensive, with VoIP service costing as much as €300,000 per year, compared to €100 for non-VoIP ISPs. Prices for products such as “webmeeting” cost AD3990 (€38.30) per month at Icosnet, while conference call packages are tailored to the number of users, with three different packages ranging from AD1990 (€19.10) to AD3990 (€38.30) per month. Although sophisticated services such as WiMAX or VoIP are not yet generally in high demand, private firms are beginning to incorporate these new technologies to improve their business performance.

With new technologies, businesses are better equipped to realise “best practice” solutions, guided by experienced private national and international IT and ICT firms. “ISPs propose solutions and help integrate them into enterprises to augment the competitiveness of clients, bringing valuable growth to the economy and aiding development,” Abdelkrim Tegguiche, general director at Webcom, told OBG.

PERSISTENT CHALLENGES: Despite growth opportunities in the private sector, there are several difficulties. Though partnerships exist between AT and private ISPs, enabling the latter to take advantage of the physical networks of the incumbent, Algeria’s regulatory environment has ensured that the majority of internet customers remain with AT. According to the International Telecommunications Union (ITU), broadband internet subscriptions reached 900,000 by the end of 2010, the majority of which were subscribed with AT.

This has not only restricted the client base of private ISPs, but also resulted in the market exit of over half of the country’s ISPs in 2011 when several failed to pay their licence fees. This prompted private ISPs in August 2012 to demand that the state liberalise the national fibre network and the international landing station currently under the control of AT. They also proposed the creation of an independent company to oversee the national fibre-optic network and infrastructure for communications, attributing Algeria’s slow development of online services to AT’s monopoly. “From what you hear in the media and the president’s discourse, you can see that the government wants to promote information technologies. However, there are certain legal and regulatory decisions that inhibit investment in specific areas, affecting operators. There were once 80 ISPs in Algeria, and now there are only 11. There used to be 11 VoIP operators, and now there are only 3 – is that the way to promote technology?” Tegguiche said.

Though a lack of competition in the public sector would generally translate into higher prices, ADSL services are already among the most affordable on the continent. However, good connectivity and internet usage are still considered a luxury for most Algerians, with the fixed-broadband access tariff priced at €21.89 per month in 2012 and ranking 42 out of 142 countries, according to the World Economic Forum. This will likely be reversed with improvements in purchasing power and the development of the IT industry. Indeed, with the evolution of mobile data services and the introduction of 3G technology, consumers will likely benefit from a steady decrease in internet prices.

Algeria currently ranks seventh in the Arab world for the affordability of ICT services, like internet provision, and 71st globally. According to ITU data, Algeria’s ICT price basket – or the total spending on ICT as a percentage of average per capita income – fell from 3.5% of yearly income in 2008 to 3% in 2010. While demand exists for these services, with overall internet penetration reaching 12.5% in 2010, only 2.5% of the population is subscribed to broadband internet access.

THE ROLE OF THE STATE: More affordable and better quality internet will also be facilitated by a number of government initiatives. The state plans to invest €100m into the national fibre-optic lines under the current five-year plan (2010-14), with designs to upgrade access networks and national and international fibre infrastructure to an IP-based next-generation network. These improvements will expedite the movement of voice, data and media information and services using various broadband and quality of service-enabled transport technologies, making for reliable and ubiquitous provision of services to subscribers. “Today, ICT is present in all aspects of daily life. It is impossible to imagine a business that does not need a connection. Indeed, broadband has been classified by the UN as vital need,” Azouaou Mehmel, chief executive officer of AT, told OBG.

One of the government’s key projects to boost Algeria’s internet service capacities began with the MPTIC’s offer in June 2012 for bids to lay the €49.6m Algiers-Abuja fibre optic link. Initiated in June 2010, the 4500-km-long fibre-optic cable will connect the capital cities of Algeria and Nigeria (via Niger) with internet broadband. This will improve telecommunications and internet access in the three countries, enhancing regional integration and lowering international transmission prices. The project costs will be divided equally between the countries, and as of May 2011, feasibility studies for the 2700-km Algerian portion, between Algiers and the Niger border, had been completed. In June 2012 the Algerian government began the process of issuing a $62m tender for the project, which is estimated to take 18 month to complete once construction begins.

Another major state-funded initiative is the laying of the Oran-Valencia undersea cabling project. Using six optical fibre cables spanning over 500 km, the project will link the Algerian city of Oran with the Spanish city of Valencia, providing 80 GB of capacity to AT in the first year of service, and 1.6 TB thereafter. It will allow for a variety of telecoms services, such as fixed and mobile telephony, as well as broadband data.

With tenders launched in September 2012, the $250m Oran-Valencia cable will become the third project of its kind after the Algeria-Tunisia link from Annaba to Bizerte and the Algerian-French connection from Algiers to Marseilles. The Annaba-Bizerte and Algiers-Marseilles links are part of the South-east Asia-Middle East-Western Europe 4 (SEA-ME-WE 4) optical fibre submarine communications cable system that has 17 landing points across 18,800 km, serving as the backbone to internet access between Europe, the Middle East, the Indian subcontinent and South-east Asia.

PRIVATE SECTOR INVESTMENTS: Government initiatives are complemented by private sector investments. Icosnet has invested in the use of a second international link, which will give users access to the two major international undersea cables, SWME4 and ALPAL2, promoting better quality access and increasing the capacity of services from 155 GB to over 600 GB.

E-ALGERIE AND ITS LIMITATIONS: Submitted to the government in December 2008, the e-Algérie 2013 strategy was to promote a defined plan for ICT development in the country. With a budget of €3.2bn over a five-year span, the programme sought to develop a fast, efficient and accessible telecoms infrastructure. A priority of e-Algérie was the modernisation of national bureaucratic systems via online service platforms for about 450 administrative services. Such services sought to simplify important functions like tax filing and civil registration processes. The need for such initiatives was exemplified by the UN’s 2012 “E-Government Database” listing, which ranked Algeria 131 out of 190 countries, behind Tunisia at 103 and Morocco at 120.

E-Algérie also aimed to encourage internet usage among SMEs and the population at large. To encourage firms to use new technology, the government sought to promote development of applications to improve business performance. Meanwhile, mass popular internet usage would be facilitated by subsidising personal computers (PC), providing computer training to citizens and expanding internet services in public areas. Increased connectivity in schools was targeted as a key objective, with the investment of €100m to establish internet networks in every high school across the nation. Finally, e-Algérie envisioned the creation of a knowledge-based economy, facilitated by the widespread accessibility and application of ICT solutions.

Though the project was to be launched in September 2011, concrete efforts have not yet come to fruition. The project title has been reduced to simply “e-Algérie” (dropping the 2013 target date), joining a list of other ICT and telecoms initiatives that have yet to be realised, including the roll-out of 3G technology and the 2005 Ousratic project, which aimed to provide PCs to 6m families. Though the project was a step in the right direction to increased usage of information technologies, e-Algérie targets were arguably overambitious, seeking to boost internet subscription numbers to 6m by 2013. At present, internet subscription in Algeria remains low , with only an estimated 1m subscribers. However, improvements in purchasing power, along with the development of more affordable and accessible internet services, will likely aid the future realisation of the e-Algérie initiative. Additional incentives developed by ISPs, hardware and software manufacturers could further enhance the appeal of ICT products to the public by offering promotional offers and lower prices.

HARDWARE & SOFTWARE MARKET: Algeria’s hardware and software products are mainly supplied by key international companies like Cisco, IBM and Microsoft, with ICT technologies supplied by global leaders like ZTE, Huawei, Nokia Siemens and Ericsson. The majority of these products are imported from abroad, with ICT goods (excluding software) comprising 2.96% of total imports in 2010, according to a 2012 World Bank report.

However, significant potential for growth remains for local hardware and software production. Given the country’s low manufacturing costs, substantial labour pool that includes university graduates and local knowledge of key international languages, Algeria could indeed serve as a strategic production base. Moreover, 2012 may have witnessed the birth of a new industry with the commercial launch of new high-quality tablets constructed and assembled in Algeria. Regarding other products, “There is a growing market in Algeria for call centres servicing Europe, and we believe that Algeria will become an emerging market for software for both Europe and the US,” Azzouz told OBG. “It is evident that the local market is hungry for technology and software, so there is much potential for developing a large domestic market,” he said.

CENSORSHIP & CYBERCRIME: Though internet access is not restricted by technical filtering, Algeria’s cyberspace is monitored by the government. ISPs are legally required to survey web content under their internet infrastructure, and can face criminal charges if any material upsets “public order and morality”. With growing threats of cybercrime and terrorism and breaches of intellectual property rights, the state has introduced several initiatives since 2008 to regulate internet and mobile usage. The recent oversight wave began with a new cybercrime bill passed in May 2008 criminalising cyber activities like blackmailing, hacking, copyright infringement and promoting terrorism. That same year, the state required the identification of all anonymous SIM cards for security reasons, leading to the deactivation of an estimated 3m unregistered subscriptions. The cybercrime bill was complemented by the formation of a new cybercrime national security service in May 2009 that monitors and controls internet usage in internet cafes to limit potential terrorist activities.

OUTLOOK: Though internet usage remains relatively low compared to its neighbours, Algeria’s IT sector has a promising future. With continued improvements in internet quality and accessibility, businesses and the general public are becoming increasingly aware of the numerous benefits offered by the IT and ICT industries, which facilitate rising productivity and mobile communication and information. Increases in purchasing power will encourage growth of internet subscriptions and the utilisation of related technologies, generating economic expansion and job opportunities in the process.