New investments and expanding penetration support growth in Morocco's telecoms sector

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Since its liberalisation in 1997, Morocco’s telecoms sector has experienced substantial growth driven by the entry of new operators, the rapid increase in the number of mobile subscribers and rising consumption of voice and data services. With turnover of around Dh33.5bn (€3.07bn) in 2015, the telecoms sector accounts for 3.5% of Morocco’s GDP and is expected to post average annual growth of 5% until 2020, as a result of the recent rollout of 4G networks across the country, according to London-based consultancy Pyramid Research. Despite its growth potential, the sector has experienced a slowdown in user revenue growth in recent years as a direct consequence of the fierce competition on prices among the main providers. A capital-intensive push towards data offerings is among the options for operators hoping to find new springboards for growth in the next few years.

MARKET STRUCTURE: Three operators share the telecoms sector in Morocco, including the former incumbent, Maroc Telecom, which arose out of the breakup of the National Office of Post and Telecommunication in 1998. Initially 100% owned by the state, the firm was progressively privatised over the 2000s via a tender bid in 2001, which awarded 35% of the share to French mass media firm Vivendi, and an initial public offering in 2004, which saw 14.9% of shares floated on the Casablanca and Paris stock exchanges.

Following several changes in the shareholding structure, the company is today 53% owned by UAE-based Etisalat, which acquired all of Vivendi’s stake in 2014, 30% owned by the Moroccan state and 17% listed on the Casablanca and Paris stock exchanges. The company has remained the largest telecoms operator in all telephony segments, with a market share of 42.48% in mobile, 71.24% in fixed voice and a de facto monopoly (99.97%) in fixed data or ADSL in 2015, according to Morocco’s National Telecommunications Regulatory Agency (Agence Nationale de Réglementation des Télécommunications, ANRT). Médi Telecom is the second-largest telecoms operator in Morocco. It obtained its GSM licence in 1999 as the first private operator in the market and started commercial operations in 2000. Its shareholding structure was initially composed of local financial group FinanceCom, state-owned Caisse des Dépôts et des Garanties (CDG), Portugal Telecom and Spain’s Telefonica. After several changes in shareholders, the company has been 49% owned by France’s Orange Telecom since July 2015, with the remainder being equally split between FinanceCom and CDG. Médi Telecom is the second-largest player in the mobile segment, with a market share of around 32%, but it has a marginal footprint in the fixed-voice segment, with a 2% market share. The third operator is Wana Corporate, known by the brand name Inwi, which obtained its GSM licence in 2009. The company is a subsidiary of Morocco’s Société Nationale d’Investissement, which holds a 69% stake in the telco, with the remaining 31% owned by Kuwait’s Zain. In 2015 Inwi accounted for a 25.63% market share in the mobile segment and 26.73% of the fixed-voice services market, primarily through its service known as “restricted mobility”.

MOBILE SECTOR: As with many emerging markets over the past five years, Morocco has experienced a sharp increase in mobile usage at over 146%, which has mainly been driven by strong competition between operators and a 75% drop in telecoms prices. This was most noticeable in the wake of Inwi’s entry in 2010. The low-tariff environment has also been a consequence of efforts made by the ANRT, which year after year has lowered interconnection rates. In 2016 the regulator set tariffs for call termination at Dh0.14 (€0.01) per minute for all three operators.

The low tariffs and discounted prices were designed to stimulate an increase in usage. However, Yousra Acherqui, equity analyst at investment bank CFG’s research division, told OBG, “In recent years, the drop in prices has not been sufficiently compensated by an increase in consumption in voice services, which has eventually led to an erosion of the telecoms market’s turnover.” In 2015 the ANRT reported an annual drop in average revenue per mobile minute against an annual increase of 10% in outbound calls, a situation which has led to an 8% reduction in the telecoms sector’s revenues. Furthermore, this trend does it look like it will stop any time soon.

The competition on prices continued in 2015 as Médi Telecom’s launched an unlimited mobile offering in May at half the rate of its competitors. This led to a rapid response by Maroc Telecom and Inwi, which aligned their prices through new offers in 2015. “Telecoms prices were expected to reach an inflection point in Morocco in 2016, but the new war on prices in mid-2015 has transcended expectations. Now we are expecting prices to level off no sooner than 2018,” Acherqui told OBG.

To foster improved transparency concerning telecoms prices, the ANRT revised the existing guidelines for retail tariffs. The new rule has three main themes. First, the regulator revised the method for setting the cost price of the services, below which operators cannot sell their services. The cost price will now be computed as the sum of fixed costs and variable costs, as opposed to just variable costs before. Furthermore, the minimum regulatory price should be automatically lifted. Second, as the leading operator, Maroc Telecom is required to sell services at a price equal to or above their cost price plus 20%. Third, unlike its competitors, Maroc Telecom cannot have differentiated prices for on-net and off-net calls and messages.

CUSTOMER BASE: Over the past decade, Morocco’s mobile penetration rate has experienced a steep increase, reaching 133% in 2014, before declining slightly to 127% in 2015. This five-percentage-point decrease is likely due to the decision by the ANRT to ban anonymous SIM cards, combined with the results of a new census conducted in 2014. As is the case elsewhere in North Africa, the mobile sector is largely dominated by the prepaid segment, which accounted for 93.8% of the 43m-strong subscriber base in 2015, according to the ANRT. Though marginal, the postpaid segment has grown substantially in recent years to stand at 2.6m subscribers by the end of 2015.

“Prepaid has remained the most popular billing system as a result of the existing income distribution in the country, with the three bottom deciles having volatile revenue sources and a limited budget. Moroccan companies have also not been very keen to develop post-paid as they are willing to limit their exposure to counter-party risks,” Acherqui told OBG. According to a 2015 report by Jordanian telecoms advisory firm ArabAdvisors Group (AAG), post-paid contracts in Morocco are the cheapest in the Arab world. As for prepaid rates, AAG ranked Morocco in the middle of Arab countries based on normal rates of Dh4.20 (€0.39) per minute, regardless of the promotional offers that are characteristic of the market.

MOBILE DATA: Since the award of the 3G network licences in 2006, mobile data consumption has experienced a steady and significant surge in usage. In 2015 mobile data counted 13.3m subscribers and Dh226.1m (€20.7m) in revenues, compared to Dh81.2m (€7.4m) in 2010, according to ANRT data. However, prices for mobile data have followed a similar trend to that experienced by mobile voice services, with a drop of 71% for mobile internet access over the 2010-15 period. Average mobile internet billing stood at Dh17 (€1.56) per month in 2015.

As is the case in most MENA markets, data is now considered to be the main engine of growth for Morocco’s operators and should help to offset softening voice revenues. “We have seen an increasing number of consumers shifting towards data services,” Azdine El Mountassir Billah, director-general of the ANRT, told OBG. “Due to the increased usage of smartphones, operators will need to develop further services in TV and music to stoke their revenues.”

While the country has seen an expansion in this segment, the rise in consumption and revenues has yet to stimulate a recovery in headline average revenue per user (ARPU) figures. As a result, operators are now hoping that faster connection speeds, a wider universe of mobile applications and improved coverage will bring that about, according to Acherqui. She told OBG, “As 90% of Moroccan internet users are now connected through a mobile device, operators expect 4G to provide an important boost to ARPU over the next few years.”

4G ROLLOUT: In March 2015 the ANRT awarded three 20-year long-term evolution (LTE) licences to the country’s mobile operators in a deal worth Dh2bn (€183.4m). Maroc Telecom paid Dh1bn (€91.7m) for Licence B, which includes the 800-MHz, 1800-MHz and 2.6-GHz bands, while Médi Telecom and Wana paid Dh500m (€45.8m) each for Licences A and C. The latter two cover spectrum on the 800-MHz, 800-MHz, 1800-MHz, 1800-MHz and 2.6-GHz bands.

LANDLINE: Unsurprisingly, given the global trend towards mobile usage over the past five years, the fixed-voice segment has not followed the same market dynamic as internet or mobile. In Morocco this is compounded by a low level of competition. However, the data and voice segments of fixed services have posted very different trajectories, with the former helping to stem the decline of the latter. Maroc Telecom is Morocco’s largest fixed-line provider, with a market share of more than 71%, followed by Inwi with 26.73% of the market through its restricted mobility services – a wireless proximity connection considered as fixed-line by the ANRT. Médi Telecom comprises a marginal amount of activity.

The fixed-voice segment has experienced a regression in terms of users and traffic volumes since 2010. In 2015 alone the number of fixed-line subscribers dropped by more than 10%, according to ANRT data. This decline has not only been due to the growing competition among mobile operators, but also the continuous increase in prices for fixed-voice services in recent years. ARPU for voice notably rose by almost 17% from Dh0.78 ($0.07) per minute in 2014 to Dh0.91 ($0.08) in 2015, according to the ANRT. As such, the fixed-voice penetration rate has fallen to a fairly low level, standing at 6.57% in 2015, with a total of 2.2m subscribers, including 470,344 for restricted mobility. This latter segment experienced an even sharper decrease in the number of customers in 2015, dropping by 41.96% in one year, and is expected to flatten completely within the next few years.

ADSL: Despite the poor outlook for fixed-voice activity, the landline segment posted 4.14% growth in 2015, driven by the fast-growing development of ADSL, the increased incomes from which have offset the decline in fixed-voice revenues. An ANRT-led study reported rapid growth in internet connections in 2015, with 66.5% of Moroccan households having web access in 2015, against 50.4% in 2014.

In 2015 the ADSL segment reported 1.13m subscribers, an increase of 15% in one year. With a 99.97% share of this market, Maroc Telecom had enjoyed a factual monopoly in the ADSL sector for years, until October and November 2015, when Médi Telecom and Inwi launched their first ADSL services for residential users in Casablanca. The two companies developed their own ADSL infrastructure under a local loop unbundling (LLU), but it has not materialised yet in Morocco, despite the existing legislation. In June 2014 the ANRT published regulations governing LLU, which required Maroc Telecom to provide a technical and tariff wholesale offer for passive access to its fixed local loop. Other operators already have access to LLU, but due to operational factors that the regulator is looking into, they have not been able to develop competitive offers or services.

PURCHASING EQUIPMENT: Bolstered by the rapid development of 3G and 4G networks along with the advent of new IT services, the consumption rate for new household equipment – both handheld and desktop devices – has experienced growth in recent years. While the number of individuals with mobile phones has plateaued at a very high percentage (94.4%), the proportion of individuals with smartphones in the market has increased rapidly, rising from 38.2% to 54.7% between 2014 and 2015.

One of the main factors behind the rise of smartphones has been the entry into the market of low-cost brands by Chinese firm Yezz in January 2016 and France’s Wiko in November 2015, and the launch of new competitive products by Huawei. Abdellah Idrissi, general manager of Sicotel Mobile, told OBG, “The competition is now focused on the low-cost segment, which has prompted historical smartphone producers to shift their offers towards business-to-business as a means to better compete and grab new market share. Since operators are no longer allowed to subsidise smartphones, quality smartphones are not competitive in the mass business-to-consumer segment.”

VOIP BAN: As with several other countries in the region, in January 2016 Morocco banned the four major voice over internet protocol (VoIP) apps in the Moroccan market – Skype, Facebook, Viber and WhatsApp. The regulator’s decision was in accordance with Article 1 of the ANRT/DG/No. 04-04 decree, which provides that VoIP services to the public can only be conducted by telecoms operators with a proper service licence. The decision was made to help stem a major drop in call volumes, mainly international calls, on operator networks, which account for 50% of Maroc Telecom’s turnover in Morocco.

PORTABILITY: Since May 2007 all operators are legally bound to port a customer’s number on request. However, due to technical difficulties the ANRT has granted operators extra time to set up the required systems. In October 2015 the ANRT amended the terms and conditions for number portability services under Decision No. 04/15. The updated legislation aims to improve the operational modalities of the number portability regime by reducing the time required to port a number and implementing a centralised number portability database, which should be operational by June 2017. The ANRT is set to award a contract for the supply, installation and operation of this centralised database before the end of 2016.

SATELLITE: In recent years there has been increased interest in internet satellite among foreign investors. In 2015 the ANRT awarded five 10-year satellite communications licences, three of which were for VSAT services, to Maroc Telecom, Wana Corporate and the Société d’Aménagement et de Développement Vert (SAMV). The licence holders will each pay Dh19m (€1.7m) and are required to start service within one year. Furthermore, in March 2016 Moroccan operator Nortis, which was recently acquired by Spain’s Quantis, announced a deal with Spain’s satellite operator Hispasat to cover Morocco with Hispasat’s 30W6 satellite. The initiative should reach out to remote areas such as the Atlas mountains or the country’s south, where ADSL and cable are not yet available. The firm expects to reach 100,000 customers by 2020.

INFRASTRUCTURE: Operators are expected to invest some Dh16bn (€1.47bn) in infrastructure in 2016, primarily as they continue the rollout of the 4G network, but also to improve the density of their 3G networks and prepare for LLU. In March 2016 Médi Telecom announced a Dh7bn (€641.8m) investment plan to improve its network by 2021, including the transfer of 2G-covered areas to 3G and 3G-covered areas to 4G, as well as the development of solutions in mobile, ADSL and fibre-optic. The programme is funded through a Dh3.2bn (€293.4m) long-term credit agreement with Moroccan banks. Similarly, Inwi told local press that it had invested Dh10bn (€916.9m) over the past four years and plans to invest a similar amount in the next five years to modernise its network, develop broadband and extend coverage.

INTERNATIONALISATION: Encouraged by rising competition in telecoms prices in the local market, since the early 2000s Maroc Telecom has expanded into sub-Saharan countries, first acquiring Mauritel, the former incumbent operator in Mauritania, when it was privatised in 2001. Maroc Telecom went on to buy majority stakes in other incumbent operators, including Onatel (Burkina Faso) in 2006, Gabon Telecom (Gabon) in 2007 and Sotelma (Mali) in 2009. In January 2015 Etisalat, Maroc Telecom’s UAE-based majority shareholder, began the process of consolidating its Africa operations. The company had direct subsidiaries in an additional six West African countries beyond Maroc Telecom’s own holdings and has sought to streamline them under the Moroccan operator. As a result, Maroc Telecom acquired six Etisalat subsidiaries in Francophone Africa, including Côte d’Ivoire, Gabon, Benin, Niger, the Central African Republic and Togo, where the company has been present under the brand name Moov.

Following the restructuring, Maroc Telecom’s customer base rose by 26% between 2014 and 2015, to reach a total of 51m clients, of which 59% are sub-Saharan, according to the company’s 2015 annual report. Similarly, Maroc Telecom Group’s revenue leapt to Dh34.13bn (€3.1bn) in 2015, up 17% from 2014, mainly driven by the 62.3% growth of its African subsidiaries, which now account for 41% of turnover.

Inwi is also looking to expand into markets in sub-Saharan Africa. The company responded to the call for tenders by Côte d’Ivoire for a fourth telecoms licence. Inwi is competing with Vietnam’s Viette Group, the Swiss YooMee Group and Libya’s GreenN in its bid for the licence. Idrissi told OBG, “Telecoms services companies in Morocco need to investigate African market. The Francophone sub-Saharan market offers great potential.”

OUTLOOK: In 2015 the ANRT published a paper presenting the sector’s guidelines until 2018. According to the document, authorities will look to encourage investments and consolidate the telecoms market around global operators with the capacity to operate in all market segments, offering fixed voice, mobile and data for either individuals or private and public companies. Along with the national plan for developing broadband in Morocco, the authorities are also aiming to develop and implement new schemes to encourage infrastructure sharing. New regulations should come on-line in the short term, with a new legal framework to encourage competition in under-served areas such as telecoms services for business.

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