With a population of 39.5m, concentrated along a narrow strip of coastline, along with comparatively high rates of consumption and a push for investment in fibre backbone infrastructure, Algeria offers significant potential for telecoms operators.
At a time when growth in the mobile segment – which accounts for the majority of voice traffic – was slowing, Algeria’s telecoms sector received a significant boost with the launch of 3G mobile internet services at the end of 2013. Since then, operators have continued to roll out 3G networks across the country, with one aiming to cover all provinces by the end of 2016.
The sector is now preparing for the launch of 4G long-term evolution (LTE) mobile networks, on which telecoms firms and the authorities have begun to complete some preliminary work – though the government is keen to ensure that operators are capable of making the necessary investments before doing so – as well as legislative reforms, which amongst other measures could open up the monopolistic fixed-line segment.
Traffic & Revenues
Total telephone voice traffic (including mobile and fixed-line traffic) stood at 90.6bn minutes in 2013, unchanged from the previous year, according to the latest available data from sector regulator, the Postal Service and Telecoms Regulatory Authority (Autorité de Régulation de la Poste et des Télécommunications, ARPT). The regulator put the total turnover in the telecoms sector at AD495bn (€4.55bn), up 8% on 2012, of which AD373bn (€3.43bn) came from telephone network operators.
Fixed-Line
According to ARPT figures, the number of fixed subscriptions fell by 1.3% in 2014 to 3.1m, 2.83m of which were fixed wired connections (up 4% year-on-year), while 272,960 were wireless local loop (WLL) subscriptions, down 35.3%. Penetration stood at 8.1% in 2013 in terms of individuals, down from a peak of 9.1% in 2007, and 41.2% for households. The state-owned company Algérie Telecom (AT) is currently the only licensed operator in the segment.
Another company, the Egyptian-owned Lacom, previously had a licence to provide fixed-line services via WLL networks and began operations in 2007 but, faced with the costs of building up its own network (due to the lack of local loop unbundling), folded in 2008.
However, a draft new telecoms law which is currently being worked on by the government is widely expected to include local loop unbundling measures. This could contribute to renewed competition in the Algerian telecoms market.
Mobile Subscriptions
The mobile market is substantially larger than the fixed segment. Mobile subscriptions stood at 43.3m at the end of 2014, up 9.3% on 2013 figures, according to ARPT figures released in August 2015, giving a penetration rate of 109.6%, up from 102.1% in 2013. Moreover, 80.35% of mobile subscriptions at the end of 2014 were GSM subscriptions, while 19.65% were 3G mobile internet subscriptions. GSM subscriptions were down 11.5% for the year as customers switched over to newly available 3G services (in December 2013), to 34.8m, bringing penetration down from 101.6% to 88.1%.
Meanwhile, 3G subscriptions rose from 308,019 at the end of 2013 to 8.5m, with penetration jumping from 0.8% to 21.5% in just one year. While more recent figures were not available at the time of writing, Algeria’s 3G subscriptions are likely to have witnessed further rapid growth during the course of 2015. This is evidenced for example by press reports that indicate a 50% increase in Djezzy’s revenues from 3G services during the first half of the year.
However, there still remains considerable room for further growth, although reported plans to raise sales taxes on the service (see below) may slightly lower the trajectory.
Voice network traffic (across both GSM and 3G connections) stood at 87.7m minutes in 2014, a 3% increase year-on-year. Traffic by user was down on the previous year, by 4.25% to 176 minutes of usage per user; however despite this, average revenue per user (ARPU) grew by 0.6% to AD651 (€5.99). The pre-paid market currently accounts for 88.9% of mobile subscriptions.
While the segment remains dominant, post-paid subscriptions have grown faster than the market as a whole in recent years, and more than doubled as a proportion of total subscriptions between 2009 and 2014, from 5% to 11.1%. There is also a higher proportion of post-paid subscriptions in the 3G market compared to the overall situation at 16.7%; given that the 3G subscriptions are set to grow faster than the GSM segment (which shrank in 2014), this suggests that the post-paid segment will continue to see its market share rise.
Mobile Operators
At present, there are three mobile network operators in Algeria: Mobilis, which is owned by AT and which launched services in 1999; Omnium (formerly Orascom) Telecom Algérie (OTA), whose services are branded as Djezzy and which was licensed in 2002; and Ooredoo, which is owned by Qatar’s Ooredoo (formerly Qtel); the company commenced operations in 2004 and operated in Algeria under the Nedjma brand name prior to being rebranded in November 2013.
Ooredoo acquired its stake in the Algerian operator through its purchase of a 51% controlling stake of Kuwaiti firm Wataniya, which was the main shareholder in the company, in 2007, before raising the stake to 92% in 2012.
The combined revenue of the three operators reached AD324.1m (€2.98m) in 2014, up 8.1% on the previous year. Djezzy was the largest operator by subscriptions at the end of the year according to ARPT data, on a figure or 18.6m, representing a market share of 43%. It was followed by Mobilis on 13m (30.1%) and Ooredoo on 11.7m (26.9%).
Djezzy was particularly dominant in the GSM market, with fractionally under half of subscriptions (49.9%, compared to 26.5% and 23.6% for Mobilis and Ooredoo, respectively). However, the picture was more mixed for 3G uptake, with Djezzy taking 14.7% of the market, compared to 44.9% for Mobilis and 40.4% for Ooredoo. This is likely due to Djezzy launching its 3G services seven months after the other two operators.
Despite being the smallest operator overall, Ooredoo is the market leader in the post-paid segment, which is dominated by corporate business, with subscriptions of 2.55m at the end of 2014, according to ARPT figures. In a press interview published in August 2015, Ooredoo Algeria’s CEO Joseph Ged said it was looking to “rebalance the market” towards post-paid contracts through promotional offerings and by focusing on the segment in its customer communications strategy. Mobilis was the second-largest player in the segment on 1.25m, followed by Djezzy on 0.99m.
New Operator
In October 2015 local media had reported that the Minister of Post and Information and Communication Technologies, Iman Houda Feraoun, had said that the government was considering bringing in a fourth mobile operator, but Feraoun shortly afterwards denied this, saying that her remarks had been misreported and that the entry of a fourth operator into the market was neither commercially desirable nor – owing to the lack of available frequencies – technically possible at the moment. The sector may see increased competition in the form of the introduction of a mobile virtual network operator (MVNO) under planned regulatory changes (see below).
Ownership Shake-Up
In February 2015 Algeria’s sovereign wealth fund the National Investment Fund acquired a 51% stake in OTA, which operates Djezzy, from its previous owner, Egypt’s Global Telecom Holding (GTH), which was previously known as Orascom Telecom Holding and which is majority-owned by Russian-owned Vimpelcom for $2.6bn.
The transaction represented the implementation of an agreement reached in April 2014. GTH retains a 45.57% shareholding in the operator and under the purchase agreement remains responsible for its operational management. The transaction marks the end of what has been a lengthy process of transferring ownership dating back to 2010, and involving problems related to back tax payments and investor rights, but industry players say that the end of the dispute will be positive for the sector. “Djezzy will now be able to catch up on delays in terms of launching 3G and expanding its infrastructure,” Ali Azzouz, owner of local ICT firm Icosnet, told OBG. The transaction leaves two of the country’s three mobile operators under majority state ownership.
However, a shake-up in ownership may also be in the cards for state-backed Mobilis, which according to the minister could soon see the entry of private money into its capital. In 2013 government body the State Holdings Council (Conseil de participations de l’état) approved plans for the floatation on the Algiers Stock Exchange of eight state-owned firms including the mobile operator. While this has yet to take place, in October 2015 Feraoun said that the government still intended to sell a 20% stake in the firm and suggested that Mobilis could be spun off into an entirely separate company from its parent firm AT.
In March 2015 Feraoun’s predecessor Zohra Derdouri said that Orange and Vodafone had expressed interest in taking a stake in the firm. In October Feraoun appeared to suggest that the plan remained to privatise the stake via the bourse rather than through a sale to a strategic investor. There has been occasional discussion of also privatising a stake in AT itself; Feraoun ruled out any such move due to the company’s strategic nature.
3G Rollout
December 2013 saw the commercial launch of 3G mobile internet services in Algeria, with Ooredoo and Mobilis both launching their networks that month. Djezzy followed in July 2014. The launch has been widely viewed as a success, with a strong uptake of services. “The operators did not expect 3G to take off as fast as it did, but Algerians are no different to anyone else and want access to technology and popular services such as YouTube and social media,” Ali Kahlane, president of Algerian IT services firm and internet service provider Satlinker, told OBG.
Algeria’s telecoms operators are continuing to roll the service out across the country. By the end of 2014 Mobilis had launched 3G coverage in 35 of the country’s 48 wilayas (governorates) and aims to cover all of them by the end of 2015. As of September 2015, Ooredoo provided 3G services in 32 wilayas, while Djezzy’s website listed 25 wilayas in which it provided coverage. Mohammed Gouasmia, CEO of local ICT firm Anwarnet, said that the high-speed service was working well in the zones of coverage. “Algeria has achieved success in the mobile internet market thanks to the competition that exists between operators, which has seen prices come down and quality go up,” he told OBG.
Infrastructure
Operators, who are expected to further expand their coverage in coming months and are obliged to offer coverage across the entirety of the country within seven years of the receipt of their respective licences, are continuing to invest in infrastructure to bolster and expand their services.
In December 2014 Ooredoo announced it would deploy a high-capacity optical transport network built in conjunction with Alcatel-Lucent between major cities Algiers, Oran in the west and Constantine in the east as well as several smaller towns, which it said would be the first Alcatel-Lucent 400-gbps backbone network in Africa.
Rachid Chihani, head of customer unit, Maghreb, for Ericsson, told media in March 2015 that Algerian operators had rolled out their 3G network much faster than other North African countries and that Algeria had become the largest market in the region for Swedish firm.
Huawei, which has been present in Algeria since 2010, has been growing within the country at a rate of 20% annually. Other providers operating in the country include Nokia Networks, which amongst other projects has worked with AT to deploy its fixed 4G LTE service, and Chinese ZTE.
4G Plans
In May 2015 Ooredoo announced that it and its partner Ericsson had successfully tested a pilot 4G project in Algeria, reaching a download speed of 300 megabits per second, which it said it was the first mobile operator to achieve. AT has already launched a 4G network, but this is essentially a fixed service aimed at circumventing bottlenecks to the rollout of DSL (see IT overview).
In August 2015 Feraoun announced the first version of terms of reference for the launch of a mobile 4G network had been sent to industry regulator the ARPT and said that she hoped these would be finalised by the end of the year. A revised version of the terms of reference was then submitted in October 2015.
Feraoun’s predecessor Zohra Derdouri in 2013 had said that mobile 4G services would be launched in the first quarter of 2016; although in October the ministry then clarified that licences would not be issued until the country’s operators were able to make the necessary investments in building up networks.
Regulatory Changes
The country’s telecoms sector appears to be heading towards substantial regulatory changes. In early 2013 the government submitted planned revisions to the country’s ICT law, which dates from 2000, to parliament, but these were withdrawn the following October without having been passed into law.
However, in August 2015 the new minister, Feraoun, who had been appointed the previous May, announced plans to draft a new Post and Telecoms law by the end of the year, with the goal of replacing the existing telecoms law.
Local media in August 2015 cited sources working on the project as saying that amongst the measures included in the new law would be the unbundling of local loops, opening the way for competition in the currently monopolistic fixed-line segment. Azzouz said the changes could open up significant opportunities for companies that were operating in the sector. “Opening up local loops would allow local operators such as ourselves to work directly with end-clients, which would have a major impact,” he told OBG.
Azzouz was supportive of a change suggested by press reports to be under consideration for inclusion in the law, namely permission for the establishment of mobile virtual network operators, which were also included in the previous draft law. “Currently there is not very intense competition in the mobile market, with two state-backed operators and one private operator, so changes to the law could bring about a lot of positive changes for consumers,” he said.
Further measures expected to be included in the law include moves to allow for internal roaming for mobile clients (in cases when clients travel to areas where their network operator does not provide network coverage but others do) and mobile portability. Speaking to OBG, Kahlane noted that “a telecoms sector policy was put in place at the end of the 1990s and if it had have been applied as planned, the sector would be in a much better position today,” he said.
“For example, Algeria in the mid-2000s had large numbers of internet service providers and a second fixed-line operator, and if the law’s definition of competition had been properly applied, many of those companies would still be around,” he said. “The [current reform] is better later than never and will hopefully see the creation of new companies, but the failure to implement it before now has seriously held back the development of the sector, which has fallen around 10 years behind those of neighbouring countries,” Kahlane added.
The reception to the proposed revisions has been broadly supportive. Gouasmia told OBG that existing regulations have had a limited impact on competition, but that he was optimistic for real change. “There appears to be a real political will now to open up the sector and bring in more competition, which is badly needed,” he told OBG.
Tax Increase
Although much of the sector will welcome the measures planned under the new ICT law, changes to fiscal regulations governing the sector amidst a period of reduced government oil revenues may end up making the operating environment in the country somewhat more difficult for telecoms companies.
Further to this, in September 2015 local media outlets reported the draft 2016 budget includes a measure to raise the value-added tax (VAT) chargeable on 3G internet usage (but not fixedline internet access) from the current reduced rate of 7%, to the country’s standard VAT rate of 17%. In addition, the draft document proposed doubling a tax imposed on the turnover of mobile operators from 1% to 2%.
Outlook
The mobile data market remains in its relative infancy and uptake is likely to continue to increase rapidly for at least several years. Based on current trends, the small post-paid mobile market should see further growth in coming years, bolstered by corporate business and 3G subscriptions, though planned tax increases may put some downwards pressure on growth.
Moreover, legislative changes are expected to boost competition in the fixed-line market, which will over time help to drive down costs and put pressure on operators to improve services.
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