The recent 3G launch will deepen the market for mobile services

The telecoms market in Algeria has shown dynamic growth in recent years; as with many emerging markets, the mobile penetration rate has gone from zero to nearly 100% in less than 15 years and the market has demonstrated strong demand for new technologies. The public sector remains a key player via the state-owned operator Algérie Telecom (AT), but the sector has long attracted private investment, and with consumer spending increasing, competition is on the rise. The long-awaited launch of 3G service in December 2013 has helped to develop new sources of growth in an increasingly saturated sector.

A draft law was submitted to parliament in February 2013 that was expected to provide additional guidance to the developing sector. However, the bill’s passage was postponed following its withdrawal in September during discussions between the Ministry of Post, Information Technology and Communications (Ministère de la Poste et des Technologies de l’Information et de la Communication, MPTIC) and the Regulatory Authority for Telecommunications and Postal Services (Autorité de Régulation des Postes et des Télécommunications, ARPT). Despite the lack of additional guidance, sector revenue and internet usage have continued to expand in 2014.

Mobile Growth

As in many emerging economies, mobile technology has grown by leaps and bounds in recent years, largely eclipsing the fixed-line segment. According to the most recent ARPT data available at the time of publication, combined turnover from mobile telephony amounted to €2.57bn in 2012, compared to just €659.1m from fixed-line service. Algeria’s mobile penetration rose from just 1.43% in 2002 to 102.1% in 2013. As the market nears saturation in terms of subscriber numbers, it will rely on the introduction of higher-value items, such as 3G data service, to deepen the market.

The take-up of mobile technology spread rapidly in the first years of operation; starting from just 150,000 subscribers in 2001, the ARPT estimates that user numbers increased more than five-fold in the next few years, from 4.88m in 2004 to 27.56m in 2007. The rate of annual growth has slowed in the last four years, settling around 5.3% in both 2012 and 2013. Algeria surpassed the 100% penetration mark for the first time in 2013, with 39.52m mobile accounts among a population of 38.8m. Algeria trails neighbouring Morocco, which had a 130% mobile penetration rate in 2013 for a similar population size and a smaller economy. However, Algeria’s young population – of which 45.8% are under 25 – and rising income levels create room for growth.

Cash Flow

Average mobile usage per subscriber has increased steadily in recent years, from 150 minutes per user each month in 2009 to 200 minutes in 2012. According to the ARPT, average revenue per user (ARPU) for the mobile segment rose 10.5% from AD566.30 (€5.26) per month in 2010 to AD625.58 (€5.82) per month in 2012. Overall turnover from the mobile segment rose 23% over the same period to reach AD274.5bn (€2.6bn) in 2012.

As is common throughout the Middle East and North Africa region, the market remains anchored in pre-paid accounts, but the more lucrative postpaid segment is taking hold. Post-paid accounts represented between 5-7% of total mobile subscribers in the last five years, but rose to 9.05% of all accounts in 2013, its highest point in the last decade. Impressively, annual growth for post-paid accounts has outstripped that of pre-paid in the last four years; in 2013, the number of post-paid accounts increased by 36.8% year-on-year (y-o-y) to 3.58m, while prepaid accounts rose just 2.94% y-o-y to 35.94m.

With the market saturated in terms of subscriber numbers, future growth will be driven by market expansion, with the introduction of higher-value services, and Algeria’s three mobile operators are working to position themselves for this next stage.

Regulatory Framework

The authorities had drafted a new ICT law in a much-needed effort to update sector regulation in February 2013, but the bill was abandoned in September of that year. The current code dates to August 2000 and has been unable to keep up with technological advancement; for instance, it does not mention of the internet. Private sector actors cite the outdated regulatory context as one of the principle obstacles to innovation.

The bill was submitted to parliament in February 2013, but it was taken off the table in September due to ongoing discussions between the ARPT and the MPTIC. The proposed law would reinforce the ARPT’s independence from the ministry, but lightens the authority’s scope to regulate the sector. At the time of press, there had been no indication yet when the bill might be reconsidered.

Proposed Changes

The new law, if and when it is passed, would help to partially liberalise the sector, facilitate the introduction of services such as e-commerce and strengthen competition. A number of proposed measures would help to advance the sector, for example by allowing the creation of mobile virtual network operators, introducing local loop unbundling and liberalising radio spectrum.

The text was developed in collaboration with the Algerian Association of Internet Service Providers, which offered several amendments to the parliamentary commission reviewing the proposed law in April 2013. These changes included a reduction of state ownership and direction of telecoms, ICT and postal services, as well as limits for regulatory intervention and updated technology references. Other changes would help ensure competition by restricting public tenders to firms that are already active on the telecoms market at the time of issue. Private operators sought to reduce penalties on service providers for failure to meet their licence standards, from 2% of annual turnover to 1%, but this recommendation was still pending.

Other Legislation

While sector-specific measures have not been passed, operators in Algeria may be subject to a new system of financial penalties in 2015, should a draft Financial Act be approved by the National People’s Congress. The proposed amendment outlines the severity of possible financial penalties, stating they must be in line with the severity of the violations committed. However, few details and no official implementation date were available as OBG was publishing its report at year-end 2014.

Sector Operators

Three mobile operators compete for market share among Algeria’s population of 38.8m. The historical incumbent operator, AT, is still 100% state-owned. AT obtained a GSM licence in May 2002 and launched service under its mobile brand, Mobilis. Mobilis has generally been the second-largest operator by market share and it accounted for 31.5% of all mobile users in 2013, up from 28.3% in 2012. It made some €1.5bn in investments in 2013 in the hope of achieving 45% market share, and the operator reported that its subscribers rose 17% y-o-y to reach 12.45m in 2013. AT employs a total of over 25,000 staff across all of its branches.

Orascom Telecom Algérie (OTA) obtained a GSM licence in July 2001 as part of the Egyptian group Orascom Telecom Holding, becoming Algeria’s first foreign-owned operator. OTA’s mobile brand, Djezzy, has led the mobile market in terms of subscribers for the last decade. Its market share dropped slightly from 47.5% in 2012 to 44.5% in 2013, but it remained in the lead with 17.54m subscribers at year-end 2013. After lengthy ownership negotiations, the state bought 51% of the operator in 2014.

Wataniya Telecom Algérie, 80% owned by the eponymous Kuwaiti group, obtained the third GSM licence in July 2004 and launched service under its brand, Nedjma. The Qatari operator Qtel subsequently obtained a 92.1% stake in Wataniya, and the operator was rebranded Ooredoo Algeria, using Qtel’s mobile brand name. Ooredoo is nipping at Mobilis‘ heels today, with a 24% share of total subscribers in 2013, compared to 24.14% in 2012.

Foreign Capital

The telecoms sector has some of the most visible foreign capital participation in Algeria, with large multinational brands such as OTA and Ooredoo engaged in high value and high spending activities, but the sector has seen a measure of uncertainty as well, with the government keen to ensure that the sector’s growth provides sufficient multipliers for the domestic economy.

To that end, Algeria’s 2009 complementary finance law gives the state the right of first refusal on the foreign sale of domestic assets and this was recently applied to the telecoms sector. Following protracted debates over back taxes from Djezzy, the brand’s parent company, Amsterdam-based holding company Vimpelcom, and the government have been working through the finer details of a potential sale since 2011. Although Vimpelcom was willing to sell, negotiations dragged on for three years, exacerbated by allegations of regulatory breaches on both sides.

The situation was resolved in April 2014. The national press announced that Algeria’s National Investment Fund (Fonds National d’Investissement, FNI), had successfully acquired a 51% stake in Djezzy for €1.91bn. While the FNI will be the majority shareholder, Vimpelcom will maintain operational control and a 49% stake in the country’s top operator.

The ongoing ownership discussions were one of the reasons behind the repeated delays of the 3G licence tender, and their resolution has finally cleared the way for the market to expand. (see analysis) FIXED LINE: AT maintains its monopoly over the fixed-line market, which continues to offer steady revenue streams although the mobile segment is quickly taking over. A second fixed-line operator, Consortium Algérien de Télécommunication,, was created in 2005 as a 50:50 joint venture between Orascom Telecom and Telecom Egypt. The firm obtained a 15-year operating licence and began offering wireless local loop (WLL) fixed-line service in 2007. However, it ceased operating the following year, citing regulatory and competitiveness issues.

Fixed telephone service is provided both through conventional lines, which accounted for nearly 84% of the fixed market in 2012, and WLL technology. The total number of fixed-line subscribers has increased steadily in the last three years, bucking the general trend, particularly for emerging economies. AT counted 3.29m fixed-line users in 2012, representing a per capita penetration rate of 8.7% and 41.1% of households. This puts fixed-line penetration back on par with 2007-08 levels, after dipping to 2.58m users in 2009, representing 7.22% of the population and 34.2% of households.

Despite this recovery in absolute terms, average monthly usage has declined slightly from 114 minutes per user in 2009 to 108 minutes in 2012, nearly half the monthly usage of mobile service. ARPU from AT’s fixed-line activities rose a slight 3% y-o-y from AD1783 per month (€16.50) in 2011 to AD1839 in 2012 (€17.10), but remains below 2010 levels. Total revenue from fixed-line services rose slightly from €597.9m in 2010 to €659.1m in 2012, but this is still equivalent to just one-quarter of the total revenue generated from the mobile segment.

3G Launch

The roll-out of 3G service stands to change the structure of the market considerably in the near-term. Algeria has been working to introduce 3G service since 2008, but the licence tender was repeatedly delayed by several factors, including efforts to preserve competition, consideration of the benefit of 3G versus 4G technology and, most recently, the Djezzy ownership discussions.

The ARPT awarded 3G licences to all three operators in December 2013, for a cost of AD5bn (€46.5m). Nationwide service have been rolled out gradually and all operators are required to offer 3G service in four key provinces, or wilayas – Algiers, Constantine, Oran and Ouargla. Some operators have already begun expanding beyond these four. "Unlike in neighbouring Morocco and Tunisia, the 3G licences were granted for a limited number of wilayas,” said Ali Azzouz, the CEO of Icosnet. This has slowed the roll-out somewhat. Ooredoo and Mobilis were the first to launch 3G service in December 2013, while Djezzy launched in July of the following year. At launch, Djezzy offered services in seven wilayas, while both Mobilis and Ooredoo were present in 19.

The ARPT had not issued official data on the number of 3G subscribers by the time of publication, but private sector actors indicated that an estimated 750,000 subscribers had migrated to 3G service by end-May 2014. Ooredoo announced that it picked up 1m new subscribers in the second quarter of 2014, bringing its total subscriber base to 10.93m, and the operator expects 2m subscribers to migrate to its 3G network in the near-term (see analysis).

Infrastructure & Equipment

Given the drawn-out licensing process, much of the work to upgrade national telecoms infrastructure was completed preemptively. For example, Mobilis conducted initial 3G systems tests in back in 2004 and has invested heavily in infrastructure upgrades in the last three years. Ooredoo Algeria announced that it began preparing for the 3G launch after the initial licence tender in 2011 and has invested over €735m on equipment and infrastructure upgrades through 2013.

The ramping-up process has created opportunities for ICT and construction firms. China’s Huawei has expanded its footprint in Algeria in recent years, contributing to the build-up of multiple operators’ networks. AT has relied on a number of providers for equipment, including Nokia (4G/LTE), Ericsson (fibre optic) and Huawei, among others. With a significant portion of the subscriber base expected to transition to 3G in the near-term, providers anticipate an uptick in demand for smart phones and handsets.

Future 4G Plans

Development of the 3G network was chosen as the priority in the short-term, but authorities have indicated that 4G may not be far off. AT began offering wireless 4G data service to business subscribers in May 2014 and plans to widen the service to individual consumers before year-end. AT’s wireless 4G service – a unique combination of technologies that has caused some confusion – is limited to data transmission, with no telephony component, and is only offered in fixed mode. According to company statements, AT has installed some 200 “eNodeB” sites – 4G/LTE-compatible base stations – in the capitals of all 48 wilayas. Subscribers can access wireless internet using a fixed router and SIM card, but the service is only available within a limited radius and cannot be used with a mobile handset or portable USB key.

Commentators have questioned the utility of 4G service without a mobile telephony component. However, AT has emphasised that mobile 3G service and fixed 4G data will not compete with one another. The 4G service is meant to serve a primarily business audience, in order to provide faster download speeds required to support a digital economy. According to statements in the local press, AT officials said that 4000 businesses signed up for wireless 4G data service in the four months from May and August 2014 (see IT overview). The MPTIC has stated that 4G mobile service could become available near 2015 year-end, although no concrete plans had been announced at the time of publication. In preparation for this transition, Algeria partnered with Huawei to build a post-graduate training centre for the development of LTE services and applications, located in the Sidi Abdellah technology park.

Alternative Technologies

Given its expansive territory and sparse rural population, Algeria has been well adapted to the use of very small aperture terminal (VSAT) satellite technology in order to extend communications services. VSAT was first introduced to the country in 1999, and the state subsequently licensed three providers: AT, OTA and Divona Algérie, a former subsidiary of Monaco Telecom that was purchased by the Algerian firm Smart Link Communication. According to the most recent ARPT data available, annual spending on VSAT technology amounted to AD3.34bn (€31m) in 2011.

Today, the voice over internet protocol (VoIP) market is limited by constraints on national bandwidth and ambiguous sector regulation, but it is set to expand considerably with the 3G launch. The VoIP market was opened to competition in 2004, and the ARPT currently lists three official providers: Anwar Net, Icosnet and Smart Link Communication. The state-owned operator’s satellite branch, Algérie Telecom Satellite (ATS), affirms that it also provides VoIP services for a select number of professional clients, primarily oil companies. However, restrictions on VoIP service and equipment in the existing ICT law are ambiguous, creating bottlenecks for potential providers; this key segment stands to benefit from streamlined regulation in the proposed ICT bill once the legislation is re-introduced.

In addition, there are three operators offering global mobile communications by satellite: AT, Thuraya Satellite Algérie and France Telecom. The nation’s total spending on global mobile service amounted to approximately AD370m (€3.4m) in 2011.

Outlook

The telecoms sector has become an important source of reliable private sector revenue and foreign direct investment, and this will only accelerate as the roll-out of 3G services continues. The delays in the adoption of more up-to-date regulation is not particularly surprising, given Algeria’s substantial bureaucracy and opaque public sector. The modernisation of sector regulation will be necessary in order to encourage further investment in this key market, which may provide the boost legislators need to restart work on the new ICT law.

The launch of 3G service will help to deepen the market and provide new sources of revenue for operators. The uptick in demand for data may stretch broadband capacity in the near-term, but if capacity can be met, broader and more cost-effective internet can support the emergence of the digital economy and stimulate activity in a range of sectors.