05 July 2006
The announcement by Morocco's leading operator that it is building a submarine cable came as another signal that the country's fixed-line business is set to resume growth in the years ahead, with the entry of two new operators.
Maroc Telecom announced on June 29 that it had launched the construction of Atlas Offshore, a submarine fibre-optic cable linking Morocco to France. The $34bn project will be managed through a partnership with France's Alcatel Submarine Network. The aim of the project is to meet an increasing demand for international broadband capacity and voice traffic, and respond to the brisk development of high-speed internet and call centres, as the cable will be able to transmit up to 500,000 calls simultaneously.
The planned cable will boast an initial capacity of 40 Gb, which could expand to 320 Gb in the future, and should be ready to launch commercial services by March 2007, according to Maroc Tlcom.
Despite an extremely low penetration rate of less than 4.4% at the end of 2004, the fixed-line segment stagnated during 2005. Maroc Telecom then the only operator in this segment had 1.34m subscribers at the end of 2005, up only 2.5% over 2004. During the second half of 2005 growth went into reverse, with the number of fixed-line subscribers falling by 0.6%.
Looking at market segmentation, households account for 66% of fixed telephone subscribers and corporate users for 22%, while the remaining 12% is made up of public pay phones or tlboutiques. These recorded 20% growth in 2005, generating revenues of $500m. Public phones are increasingly popular, as connection rates for mobile communications remain high in Morocco, exceeding those in many European countries.
Although quality has increased over the last couple of years, customer complaints about the performance of Maroc Tlcom remain frequent, especially for international calls.
Maroc Telecom, the country's traditional operator, has been at pains to achieve satisfactory profits in the fixed-line segment for some time. The gap in its mobile operations is striking. Between 2002 and 2004, Maroc Tlcom's investments in its mobile operations exceeded investments in fixed-line and internet infrastructure and services by 30%.
The fixed-line market underwent liberalisation in 2005, with the tendering by the National Telecommunications Regulation Agency (ANRT) of fixed-line based services to two newcomers. In July 2005, Medi Telecom, the country's second GSM operator, obtained the second fixed-line license with a bid of Dh75m ($8.6m), while Maroc Connect came in second, offering Dh50m ($5.7m). The license entitles Medi Telecom to operate local loop networks, interurban networks and international connections.
Upon entry, Medi Telecom took a position in the European market. It opened a branch in Paris to market its products to EU companies and Moroccan expatriate workers in France. With incoming calls accounting for 88% of the market, and 40% of incoming calls coming from France, the over 1000 French companies present in Morocco constitute a major market segment. In February 2006, Mdi Telecom also signed an agreement with French network supplier PSN, which specialises in VoIP connections.
After Medi Telecom won its licence, Maroc Connect a former France Telecom subsidiary now in the hands of ONA, the group that handles many of the King's investments and Egyptian operator Orascom Telecom (OT) were still competing for a second fixed-line licence for networks with limited mobility. These networks can be operated with wireless technology, but are limited to a 35-km radius around urban centres. Although seen as an outsider, Maroc Connect won the tender for the third license, thanks to the backing of ONA, which poured some Dh420m ($47m) into its subsidiary. Although OT had previously shown a strong record in winning bids across the region, it lost to the local competitor.
Maroc Connect started in the 1990s as an ISP. Given the weak profitability of the business due to Maroc Tlcom's protection of its own ISP Menara, the company survived by providing value-added internet services to large corporate customers. Maroc Connect nevertheless posted a 30% increase in revenues during 2004. With its own fixed-line licence, Maroc Connect will be able to revamp its ISP business as it is no longer be obliged to buy bandwidth from Maroc Tlcom and can rely on its own network. At least during 2006, it will concentrate its new fixed-line voice operations on the corporate customers already in its portfolio, before gradually broadening the scope of its operations.
At present, Maroc Connect is rolling out a CDMA-200 network supported by Wimax technology, using the existing network infrastructure of the National Electricity Office (ONE). Meanwhile, in January 2006, Medi Telecom started to roll out its fibre-optic network connecting the country's major towns using the infrastructure of the Moroccan railway network. The network is supposed to run 1000 km, requiring an investment of $42m. In addition, the company is constructing a network for the national railways as well, which contemplated entering the telecoms market itself by considering a bid for a fixed-line licence. The railways will also rent out part of the network to Medi Telecom under a 30-year agreement. Not to be outdone, Maroc Telecom recently launched construction of the new submarine cable.
According to industry analysts, the issuance of the custom-made licences by ANRT was a regulatory success. These licences are open in terms of technology, services, infrastructure options and coverage targets. Once all three fixed-line networks are operational, customers will be able to make their choice by pre-carrier selection. Yet it remains to be seen whether the earlier row of conflicts between operators regarding mobile and international interconnectivity rates will repeat itself now that competition is stiffening and market structures have become more complex with different operators working in multiple market segments. The ANRT's Information Technology Observatory, which recently started operations, should help avoid such conflicts by providing data and analysis, thus improving transparency in the sector.
From an economic standpoint though, analysts were disappointed with the result of the tenders, as these attracted only a local ISP and one international telecommunications company, apart from the existing operators Mdi Telecom and Maroc Telecom. An industry source suggests that ANRT even had to convince OT to bid. Indeed, the fixed-line segment is lagging far behind the mobile business, requiring heavy investments for any new market entry and promising only weak returns during the first years of operations.
ANRT argues that the number of companies bidding was not a criteria and points to the failure of an earlier, standard fixed-line tender in 2002 to explain its strategy.
The question remains open whether the two newcomers will manage to revive Morocco's fixed-line segment.
Maroc Telecom reacted to the first-time competition by reducing its rates for intercity and international connections. However, Medi Telecom's focus on international connections, as well as the focus on corporate clients of both new operators, implies that ANRT has failed, at least for the time being, to reach a goal of its fixed-line tender which was to spur better and cheaper services for private households. Yet given the state of the Moroccan telecoms infrastructure and the weak profitability of fixed-line operations, Mdi Telecom's focus on corporate clients comes as no surprise. The company said in early 2006 it postponed the development of offers for private households to a later time, given the high investments needed to offer telecom services to end-users on a large scale. It also said its main target would be customers in the Casablanca and Rabat area, the country's leading economic regions.
Nevertheless, ANRT forecasts that the number of fixed-line subscribers will grow by 3m between 2006 and 2010, which would mean a household penetration rate of 51%, whereas some analysts suggest the subscriber base might double in 2006. But as far as private households are concerned, the main incentive to become a fixed-line subscriber will be access to high-speed internet connectivity, rather than attractive and diversified fixed-line telephone offers.
The announcement by Morocco's leading operator that it is building a submarine cable came as another signal that the country's fixed-line business is set to resume growth in the years ahead, with the entry of two new operators.
Maroc Telecom announced on June 29 that it had launched the construction of Atlas Offshore, a submarine fibre-optic cable linking Morocco to France. The $34bn project will be managed through a partnership with France's Alcatel Submarine Network. The aim of the project is to meet an increasing demand for international broadband capacity and voice traffic, and respond to the brisk development of high-speed internet and call centres, as the cable will be able to transmit up to 500,000 calls simultaneously.
The planned cable will boast an initial capacity of 40 Gb, which could expand to 320 Gb in the future, and should be ready to launch commercial services by March 2007, according to Maroc Tlcom.
Despite an extremely low penetration rate of less than 4.4% at the end of 2004, the fixed-line segment stagnated during 2005. Maroc Telecom then the only operator in this segment had 1.34m subscribers at the end of 2005, up only 2.5% over 2004. During the second half of 2005 growth went into reverse, with the number of fixed-line subscribers falling by 0.6%.
Looking at market segmentation, households account for 66% of fixed telephone subscribers and corporate users for 22%, while the remaining 12% is made up of public pay phones or tlboutiques. These recorded 20% growth in 2005, generating revenues of $500m. Public phones are increasingly popular, as connection rates for mobile communications remain high in Morocco, exceeding those in many European countries.
Although quality has increased over the last couple of years, customer complaints about the performance of Maroc Tlcom remain frequent, especially for international calls.
Maroc Telecom, the country's traditional operator, has been at pains to achieve satisfactory profits in the fixed-line segment for some time. The gap in its mobile operations is striking. Between 2002 and 2004, Maroc Tlcom's investments in its mobile operations exceeded investments in fixed-line and internet infrastructure and services by 30%.
The fixed-line market underwent liberalisation in 2005, with the tendering by the National Telecommunications Regulation Agency (ANRT) of fixed-line based services to two newcomers. In July 2005, Medi Telecom, the country's second GSM operator, obtained the second fixed-line license with a bid of Dh75m ($8.6m), while Maroc Connect came in second, offering Dh50m ($5.7m). The license entitles Medi Telecom to operate local loop networks, interurban networks and international connections.
Upon entry, Medi Telecom took a position in the European market. It opened a branch in Paris to market its products to EU companies and Moroccan expatriate workers in France. With incoming calls accounting for 88% of the market, and 40% of incoming calls coming from France, the over 1000 French companies present in Morocco constitute a major market segment. In February 2006, Mdi Telecom also signed an agreement with French network supplier PSN, which specialises in VoIP connections.
After Medi Telecom won its licence, Maroc Connect a former France Telecom subsidiary now in the hands of ONA, the group that handles many of the King's investments and Egyptian operator Orascom Telecom (OT) were still competing for a second fixed-line licence for networks with limited mobility. These networks can be operated with wireless technology, but are limited to a 35-km radius around urban centres. Although seen as an outsider, Maroc Connect won the tender for the third license, thanks to the backing of ONA, which poured some Dh420m ($47m) into its subsidiary. Although OT had previously shown a strong record in winning bids across the region, it lost to the local competitor.
Maroc Connect started in the 1990s as an ISP. Given the weak profitability of the business due to Maroc Tlcom's protection of its own ISP Menara, the company survived by providing value-added internet services to large corporate customers. Maroc Connect nevertheless posted a 30% increase in revenues during 2004. With its own fixed-line licence, Maroc Connect will be able to revamp its ISP business as it is no longer be obliged to buy bandwidth from Maroc Tlcom and can rely on its own network. At least during 2006, it will concentrate its new fixed-line voice operations on the corporate customers already in its portfolio, before gradually broadening the scope of its operations.
At present, Maroc Connect is rolling out a CDMA-200 network supported by Wimax technology, using the existing network infrastructure of the National Electricity Office (ONE). Meanwhile, in January 2006, Medi Telecom started to roll out its fibre-optic network connecting the country's major towns using the infrastructure of the Moroccan railway network. The network is supposed to run 1000 km, requiring an investment of $42m. In addition, the company is constructing a network for the national railways as well, which contemplated entering the telecoms market itself by considering a bid for a fixed-line licence. The railways will also rent out part of the network to Medi Telecom under a 30-year agreement. Not to be outdone, Maroc Telecom recently launched construction of the new submarine cable.
According to industry analysts, the issuance of the custom-made licences by ANRT was a regulatory success. These licences are open in terms of technology, services, infrastructure options and coverage targets. Once all three fixed-line networks are operational, customers will be able to make their choice by pre-carrier selection. Yet it remains to be seen whether the earlier row of conflicts between operators regarding mobile and international interconnectivity rates will repeat itself now that competition is stiffening and market structures have become more complex with different operators working in multiple market segments. The ANRT's Information Technology Observatory, which recently started operations, should help avoid such conflicts by providing data and analysis, thus improving transparency in the sector.
From an economic standpoint though, analysts were disappointed with the result of the tenders, as these attracted only a local ISP and one international telecommunications company, apart from the existing operators Mdi Telecom and Maroc Telecom. An industry source suggests that ANRT even had to convince OT to bid. Indeed, the fixed-line segment is lagging far behind the mobile business, requiring heavy investments for any new market entry and promising only weak returns during the first years of operations.
ANRT argues that the number of companies bidding was not a criteria and points to the failure of an earlier, standard fixed-line tender in 2002 to explain its strategy.
The question remains open whether the two newcomers will manage to revive Morocco's fixed-line segment.
Maroc Telecom reacted to the first-time competition by reducing its rates for intercity and international connections. However, Medi Telecom's focus on international connections, as well as the focus on corporate clients of both new operators, implies that ANRT has failed, at least for the time being, to reach a goal of its fixed-line tender which was to spur better and cheaper services for private households. Yet given the state of the Moroccan telecoms infrastructure and the weak profitability of fixed-line operations, Mdi Telecom's focus on corporate clients comes as no surprise. The company said in early 2006 it postponed the development of offers for private households to a later time, given the high investments needed to offer telecom services to end-users on a large scale. It also said its main target would be customers in the Casablanca and Rabat area, the country's leading economic regions.
Nevertheless, ANRT forecasts that the number of fixed-line subscribers will grow by 3m between 2006 and 2010, which would mean a household penetration rate of 51%, whereas some analysts suggest the subscriber base might double in 2006. But as far as private households are concerned, the main incentive to become a fixed-line subscriber will be access to high-speed internet connectivity, rather than attractive and diversified fixed-line telephone offers.
Oxford Business Group 2006
