Signs of encouragement: Infrastructure upgrades and service expansion aids sector prospects

According to the National Telecommunications Regulatory Agency (Agence Nationale de Réglementation des Télécommunications, ANRT), which regulates the Moroccan telecoms sector, the number of mobile customers grew by 8.73% in 2013, reaching approximately 42.4m. This far exceeded the target set under the government’s “Digital Morocco 2013” strategy, known in French as Maroc Numérique.

BY NUMBERS: Penetration levels as of 2013 reached 130%, up from 113.6% at the end of 2011. This is relatively high compared to other countries in the North African region, with Tunisia at 115% and Algeria at 100% over the same period, respectively.

Pre-paid customers dominate the local market with 95% of total subscriptions. “This number is quite typical for Maghreb countries,” Michel Paulin, the CEO of local operator Médi Telecom (Méditel), told OBG. “The rate is high because people want to keep control over their expenses and because of debt and repayment issues. It is also a question of habit.”

The post-paid segment is also on the rise, seeing a growth rate of 14.38% in 2013, year-on-year (y-o-y) over 2012. Exponential growth has largely been driven by a consistent drop in call rates. While these are not regulated, the ANRT has paid close attention to ensuring competition. As such, due to the high level of tariffs in 2008 and 2009, Inwi (formerly called Wana) entered the market as the country’s third operator, which had the effect of spurring market players into cost competition. Indeed, this was marked with a high number of package deals and promotions on voice calls, text messages, mobile internet and mobile phones, among other deals. In addition, per-second billing, introduced in 2012, added to a cut in singleuser invoices. Tariffs fell by 55% from 2010 to 2012, and this trend continued into 2013, with a drop of 23%.

Moreover, cheaper offers have also led to a significant rise in usage. In December 2013, the average number of minutes per user reached 83, up 11% y-o-y over 2012, while the number of calls increased by 23%. Further, the volume of outgoing text messages jumped from about 2.06bn per quarter in 2012 to approximately 3.54bn for 2013. Tariffs, meanwhile, have decreased significantly, resulting in a similar downward trend for average revenue per user (ARPU) levels, with call rates reaching Dh0.41 (€0.04) per minute in 2013, as compared to Dh0.53 (€0.05) in 2012 and Dh1.27 (€0.11) back in 2008.

The adverse impact on sector revenues in 2013 was exacerbated by a reduction in the mobile termination rate, which came into effect at the start of that year. As a result, industry revenues were down by 8% on 2012, reaching Dh32.7bn (€2.9bn). The sector is unlikely to see a similar trend in 2014 and should benefit from the planned reduction in interconnection fees, thus positioning the Moroccan telecoms sector among the most cost competitive in Africa.

ATLAS LION: At the top of the segment is former state-owned monopoly Maroc Telecom, which until recently was majority-owned by French telecoms and media major Vivendi. With 30% of the shareholding, the government still has a sizeable stake in the firm, while 17% of the shares are openly traded on the market. By the end of 2013, its mobile customer base had grown by 1.9%, reaching 18.19m users, equal to 43% of the market. This rise was due to expansion of both the prepaid segment, which grew by 0.9%, and the group’s post-paid company base, which increased by 15.1%. The 3G-customer base expanded 51.7% y-o-y to 2.3m customers. Despite the increase in subscribers, falling ARPU levels meant revenue from the firm’s mobile operations, which account for three-quarters of total revenue, fell by about 10% to Dh15.72bn (€1.4bn) in 2013. This affected top-line revenues, which dropped by 8.1% y-o-y and were only slightly improved by a 10% uptick in international operations. Fixed-line communications, meanwhile, including internet, asymmetric digital subscriber line (ADSL) TV and corporate data services, accounted for around 25% of total income and grew by 10.8% to reach Dh7.39bn (€656.2m).

INVESTMENT PLAN: In 2013, Maroc Telecom announced a three-year, €900m investment plan targeting the modernisation and extension of its network, deployment of a high-speed optical-fibre network and replacement of old and obsolete parts of its installed infrastructure. The group has partnered with Swedish firm Ericsson to provide an internet protocol (IP) multimedia system in a bid to transform its fixed network to support a range of IP-based services, such as voice over IP and multimedia instant messaging. The objective is to consolidate Maroc Telecom’s position in the residential and corporate data and strategic growth segments, and to curb its eroding market share in the mobile segment due to pressure from Méditel and, in particular, Inwi.

In addition to Morocco, Maroc Telecom has operations in Mali, Burkina Faso, Gabon and Mauritania. Annual revenues in these markets were up 9.5% in 2013, totalling Dh7.75bn (€688.2m). Yearly growth was especially high in Gabon, where overall revenues rose by some 14.5%, while in the mobile segment it was up 28.5%, aided by a new pricing policy and improvements in service quality. Since early 2013, the company has been rolling-out a €360m investment plan across its international subsidiaries.

IN HOT PURSUIT: The country’s second operator is Méditel, which was created in 2000. At the end of 2009, investment groups Finance Com and the state-owned Deposit and Management Fund (Caisse de Dépôt et de Gestion, CDG) entered into the company’s shareholding, followed by French group Orange in 2010. The latter currently holds a majority share of 40%, which it intends to raise to 49% by the end of 2015. As a result of a reduction in call and mobile termination rates, the company also saw its subscriber base fall by roughly 500,000 in 2012, compared to an increase of 2m for Inwi. The trend was reflected in its annual turnover, which fell by 6.75% in 2012 to €499m.

The weak performance in 2012 led to a restructuring exercise by management in early 2013, overseen by a new CEO who entered into office in May. In 2013, Méditel had close to 12m mobile subscribers, just below 30% of the market and almost on par with newcomer Inwi. Since that year, the group’s strategy has taken a three-pronged focus, namely modernisation and expansion of the branch network, infrastructure upgrades, and an aggressive marketing campaign.

An investment plan of Dh4bn (€355.2m) is currently being rolled out targeting infrastructure upgrades and expansion by year-end 2015. Among other objectives, it call for the rollout of 3G technology across the entire network, compared to key urban areas at present. Initial beneficiaries are Casablanca, Tangiers and Marrakech. The firm has concluded deals with Ericsson and China’s Huawei for the delivery and installation of equipment that will accommodate convergence of current 2G and 3G connections into one single network. This will enable Méditel to support multi-service capabilities and provide a wider portfolio.

The firm is putting a particular emphasis on the dominant pre-paid segment, where losses have been most significant. As a result, Méditel has launched a range of new and simplified campaigns to promote low call rates as well as designated data and voice SIM cards.

By year-end 2013, the restructuring seemed to bear fruit. In the third quarter, while Inwi had conquered its place in the pre-paid segment, posting a 28.63% market share compared to Méditel’s 27.88%, by the end of the year, the latter had sold 800,000 new SIM cards, doubling Inwi’s total and regaining second place. Besides an improvement in voice capacity, the upgrade will allow for faster internet speeds; which are projected to rise from current rates of 14.4 MB per second (MB/s) for downloads and 1.8 MB/s for uploads to 42 MB/s and 5.7 MB/s by year-end 2015. Further, Méditel is also focused on the corporate data segment, which is dominated by Maroc Telecom. There are also aspirations to reinforce Méditel’s position in the ADSL and broadband connections. In a press conference in early 2014, Paulin said that such ambitions were dependent on the pace of regulatory modifications, in particular those bearing on infrastructure sharing. In addition, Méditel is pursuing partnerships with real estate developers for the roll-out of broadband services. One such example is Casa Green Town, a large real estate project currently being built on the outskirts of Casablanca, for which it partnered with CDG, a domestic state-owned investment group.

LATE BLOOMER: Inwi was the last to enter the sector in 2010. Its entry strategy has been marked by fierce rate competition supported by regulatory reform targeting lower mobile rates and encouraging infrastructure sharing. The company has performed well in recent years, posting a 27.9% market share by year-end 2013 behind Maroc Telecom and In fact, since 2011 – measured by subscriber growth rates and roll-out of new products and services – Inwi has been the fastest-growing operator in the North African region, with expectations of reaching profitability before year-end 2014.

“As the company with the least to lose, Inwi is currently in the enviable position of the market maker,” Mehdi Ammouri, equity research analyst at CFG group, a local financial advisory, told OBG.

Inwi’s shareholders include state-owned National Investment Company (Société Nationale d’ Investissement, SNI) with 69% of its capital, and Kuwaiti group Zain and Investment Fund Al Ajial making up the remainder with 15.5% each. In October 2013, Zain expressed an interest to increase its share in the company: a reversal of its divestment strategy in the North African region two years earlier following the advent of the Arab Spring. This succeeded earlier announcements by the SNI in 2010 that it was looking to reduce its proportion as part of a broader divestment strategy. However, at the time of writing, no confirmation on either such plan had been made.

Similar to other operators, Inwi is overseeing infrastructure investment targeting network upgrades. In March 2014, it launched a 3G+ service in Casablanca, Bouazza, Rabat, Salé, Temara, Skhirat and Mohammedia, in the process increasing local download speeds from 2 to 7.2 MB/s. Roll-out to the rest of the domestic network is due to be complete by year-end MARKET MOVEMENTS: In November 2013, Vivendi agreed to sell its 53% share in Maroc Telecom to UAEheadquartered Etisalat for €4.14bn. The move followed Vivendi’s earlier announcement to sell-off global assets outside of its media and entertainment business core, which attracted bids from Qatar’s Qtel, South Africa’s MTN and Korea Telecom.

While the decision was delayed due to the pending approval of regulators in foreign markets where both players are present, the latter eventually completed the acquisition in mid-May through a separate legal entity, Etisalat International North Africa. Under the agreement, Etisalat is entitled to receive Dh6 (€0.53) per share dividend for 2013, which will be remunerated by Maroc Telecom in June 2014.

4G LICENCE: In March 2014, the government gave the green light to ANRT to launch the 4G licensing process. Under discussion since 2011, the move has been delayed on a number of occasions mostly due to Méditel and Inwi’s lobbying efforts to allow for ample time to prepare their networks for a possible migration. At the time of writing, the tendering process was still ongoing. Interested parties will have up to two months to submit their proposals so that licences can be issued by the end of the year and infrastructure migration can start before 2015.

“We are expecting the roll-out of commercial 4G services in key urban centres before the start of 2015 at the very latest,” Azdine El Mountassir Billah, general manager of ANRT, recently told local media.

Given fierce competition in the voice segment, mobile data is likely to be a key segment over the next few years, especially given the ambitious infrastructure investments by all three operators. Further, Moroccan internet users have a strong preference for mobile access. Indeed, by end-2013, mobile internet accounted for 85.53% of the kingdom’s 6m internet users, up 50% on 2012. Nevertheless, high cost and steadily increasing revenue levels may affect interest levels.

The cost of the licence will be a core issue, while limited penetration of smart phones, estimated at 15% to 20%, will drag out the periods required to recoup investments. This could be of concern for both Méditel and Inwi, both of which are trailing Maroc Telecom’s liquidity levels. Though growing, the small size of the post-paid segment is another potential deterrent. Of the roughly 5% of users currently on contracts, only those with the highest levels of disposable income are likely to opt for a 4G connection.

FIXED LINES: The fixed telephone segment is marginal compared to mobile, accounting for a total of 2.9m subscribers in 2013, down 10.8% y-o-y over 2012, and equal to the penetration rate of 2007. Replicating this downward trend, annual growth in voice traffic nearly stagnated at 1.48% over the same period. Ongoing expansion of ADSL internet connections seems to be the only factor preventing a steep reduction in fixed-line communications across the country.

By the end of 2013, Inwi held 51% of the fixedvoice market, down from 60% in 2012. Its success in the segment can largely be attributed to the launch of its limited mobile product, which allows users to speak from anywhere within a 1-km radius of where the fixed line is based. Meanwhile, the segment’s only other major player, Maroc Telecom, secured a share of 47%, up from 37% in 2012. This performance mostly reflects the boost in lines leased by Maroc Telecom’s mobile segment to its fixed-line segment for the provision of double play-rate plans and enhanced unlimited offers targeting residential ADSL users – a segment which grew by 22.6% over the year. Méditel accounts for about 1% of fixed lines.

Similar to mobile and fixed telephony, internet rates (all spectra included) have also dropped in recent years. On average, monthly invoices were Dh36 (€3.20) in the fourth quarter of 2013, 14% lower than the same period a year earlier. ADSL rates fell by 12% ( monthly invoices averaged €8.72), while 3G rates showed a more significant decrease of 22% (€1.87).

Despite the introduction of local loop unbundling regulations in 2008, access to Maroc Telecom’s dominant terrestrial network remains limited. The challenges are such that, by the end of 2013, Inwi announced a delay of its ADSL launch due to issues accessing its competitor’s network.

Aware of the limited impact of earlier regulations, the government approved regulatory modifications in January 2014. Following this, operators will be obliged to publish infrastructure-sharing offers as well as a full inventory of their network, sharing rates and updated coverage ratios.

Policymakers are hopeful that greater transparency will put market and public pressure on operators to fully embrace free market mechanisms. Operators that are non-compliant, meanwhile, may face financial sanctions that will be regulated by a newly established disciplinary division within the ANRT.

MORE FIBRE: Although Morocco’s optical fibre network covers most of the operators’ backbone, lastmile technologies are at present dominated by ADSL and microwave technologies, limiting of the potential high-speed data services and, as a result, the development of local content. A primary obstacle to the deployment of fibre-to-the-home (FTTH) is the high installation costs and small segment of the population that falls within reach – both physically and financially – of the commercial offering. As a result, the government set out a strategy in 2012 that projects high-speed broadband coverage for some 50% of the population by 2027 and 100% coverage of speeds of a minimum of 2 MB/s by 2022. In addition, public areas across the country are to be increased to 2 MB/s connection by 2017.

The strategy stipulates regulatory modifications that support operators’ investment in non-commercially viable areas as well as enforcement of existing rules encouraging infrastructure sharing. This will be followed by public funding to aid such projects. Specific focus will go out towards the ongoing construction of new cities across Morocco as well as expansion of specialised industrial and logistics parks.

OUTLOOK: Following rapid growth in SIM card sales and an even faster drop in tariffs, Moroccan telecoms operators seem to have entered at the tail end of the race for a market share of the voice segment. While sales and tariff promotions will continue to characterise marketing strategies in the short to medium term, all operators have taken a decisive turn towards mobile and, to a lesser extent, the fixed-data segment. As 4G licences are waiting to be awarded, mobile data is set to attract attention in 2014 and beyond, accelerating ongoing infrastructure investment plans and giving local content developers a boost. Meanwhile, fixed lines are sustained mostly for the benefit of ADSL connections, which are still at a nascent stage and are likely to see major growth as the regulator increases pressure on the sharing of terrestrial infrastructure by Maroc Telecom to its competitors, particularly for Inwi, which considers such technology to be a key pillar of its expansion strategy.

In the mid to longer term, the onset of FTTH, supported by a concerted public effort, is set to democratise internet access and boost connection speeds. A regulatory push, accompanied by significant public funding, will anchor Morocco’s digital position on the continent. As recent findings from McKinsey show, the kingdom already boasts the continent’s second-highest level of public spending on internet infrastructure. If all goes to plan, Morocco can achieve a similar position for nationwide broadband coverage.