By Greg Wilson
Research from IDC has shown a slowdown in the the North African telecoms market, primarily due to economic recession in Egypt and Morocco. CommsMEA crunches the numbers...
|~||~||~|After the record breaking growth between 2000 and 2001, North Africa’s telecoms market is expected to grow just 14% in 2002. According to research from IDC, Egypt’s recession and a tough economic environment in Morocco have combined to apply the handbrake on the region’s rapid telecoms development and forced operators to reconsider their respective ‘go-to-market’ strategies.“The continuation of the economic recession in Egypt, along with the country’s currency devaluation, dampened the growth in the local market, and affected revenue for the country in dollar terms,” explains Mohsen Malaki, senior analyst in IDC CEMA’s Telecommunications Group.Although not many telecoms executives elsewhere in the world would complain about 14% market growth, “the comparison here is the potential that the market could have had, had the economic recession not [occurred.] The numbers should have been much higher because these markets are still virgin. In particular, the mobile numbers should have been much higher,” he adds.Service operators in Egypt have been particularly hard hit by the weakening economy. The loans and infrastructure investments made by the operators have been in US dollars, but they are being paid in Egyptian pounds, saddling them with the conversion expense. “It has been the devaluation of the currency [Egyptian pound], which has hurt the operators because they tend to generate their revenues in local currency, but their cost base in US dollars,” comments Malaki. “[There is] a similar situation in Morocco, mainly because of the slowdown in tourism, as well as the drought that hit the agricultural sector,” he adds.Evidence from Arab Advisors Group also registers a significant slowdown in Egypt’s telecoms growth. According to the group’s Egypt analyst, Shahin Shahin, growth has nosedived from 70% in 2001, to just 20% in 2002. “The situation is bad, every operator has been affected by the devaluation of the dollar. The economic recession has really affected the growth of mobile subscribers,” he adds.With some signs that the macroeconomic condition of Egypt will improve during 2003, market analysts are confident the country’s telecoms market will make a recovery — and thereby help drive aggressive growth across the region. IDC predicts that the North African telecoms market, which includes Egypt, Morocco, Tunisia and Algeria, will rebound, registering 20% growth in 2003. The market upturn will be driven by renewed growth in Egypt’s telephony and mobile market, while mobile revenues in Algeria and Tunisia will also skyrocket. Overall, the North African telecoms market is expected to double its worth from US$3.79 billion in 2001 to reach US$7.19 billion by 2006.||**|||~||~||~|
Between 2001 and 2006 mobile services will see the strongest growth, followed by managed data network services. By and large the economic recession has had less of an impact on the corporate segment. “Demand for [managed data network services] from large corporates and multinationals has continued,” says Malaki. “The impact of the recession is much less severe on the spending of large corporates than on consumers. They have wide area networks (WANs) that need to be maintained no matter what,” he adds.According to IDC, despite the efforts of incumbent fixed line operators the landline telephony market witnessed just 2% revenue growth in 2002. The slow growth was typified by Egypt’s fixed line market, where connections grew by just 1% in 2002, but revenues declined by 5%. “This is due in part to lower spending by the end user, particularly lower fixed to mobile calls, and a devaluation of the [Egyptian pound,] which shows lower growth in dollar terms,” explains Malaki. Local telephony, including voice and data/internet traffic is expected to grow only modestly through to 2006. IDC statistics indicate the long distance call business is expected to show declining growth through to 2006, while fixed-to-mobile calls will show the fastest growth in the telephony market, reaching a value of US$552 million by 2006.After a tough 2002, all operators have been reassessing their strategies with the hope of developing localised initiatives to drive revenues and market growth. In effort to kick start the Egyptian mobile segment MobiNil and Vodaphone Egypt are expected to migrate away from a pre-paid business model that focused on activation costs and head towards a usage revenue strategy. “They have shifted away from a growth strategy that was dominated by pushing the pre-paid service [and generated] revenues from new customers and activation cots, and was less focused on the actual minutes of use,” comments Malaki. “[Operators] are realising they can’t address the low end customers with such high connection fees, so [they] are going to switch their focus to usage revenue and develop the high end customer space,” he adds.Egypt’s mobile operators started building up the usage revenues at the end of last year and they appear to “have been very successful so far. This strategy is going to continue for much of 2003,” says Malaki.According to Shahin, the switch in focus is reflected in the high numbers of pre-paid call customers migrating to post-paid.
“They haven’t increased their subscribers a lot, so they have been looking at maximising the revenues. [For instance,] MobiNil is trying to gain more subscribers and leverage the ones that it has. It is moving pre-paid subscribers to post-paid subscription to balance its revenues — if not increasing them,” he explains.The Egyptian market is likely to change direction once again when the third mobile operator enters the market. This is likely to cause another scramble for low end subscribers where the primary focus will be the generation of activation revenue.
“When the new entrant comes in they’ll have to catch subscribers. Then the the economy will be improving the lower segment population will be in a better position to buy mobile phones, so there will be a revenue generating opportunity,” predicts Malaki.Morocco’s GSM market is also heading towards a usage revenue model. The market registered strong growth in 2002, as competition between incumbent operator Marco Telecom and market entrant, MediTelecom in the mobile space intensified. However, the generous terms offered by the operators in a bid to attract new customers results in low usage revenue is for many customers. “The prepaid offers are very generous, [for instance], the pre-paid deal [enables users] to make calls for six months and receive calls for a year,” comments Hala Baqain, Morocco analyst, Arab Advisors Group.
“The market is dominated by pre-paid subscribers — more than 90% of mobile subscribers are prepaid in Morocco. This is because people are not actually using it as a mobile [phone.] most of them are using it as a pager [due to] the period that they can receive calls,” she explains.||**|||~||~||~|
The cheap mobile model in Morocco has also hamstrung efforts to breath life into the country’s fixed line business. Despite the efforts of Marco Telecom, the fixed line service is declining. “This is the first country in the region to witness an actual decline in fixed line subscribers,” says Baqain. The failure earlier this year, to license a second operator for the fixed line market has further undermined the situation. If and when a second operator enters the market “the government will have to give very favourable terms for the new license,” she adds.
In contrast to Egypt and Morocco, Tunisia and Algeria are bursting with pent up demand. Analysts predict that the mobile pre-paid subscription model will dominate both markets.
Tunisia is expected to witness rapid subscriber acquisition by the two operators within the next 18 months, as incumbent operator, Tunisie Telecom gears up to defend its position. However, in Algeria the new market entrant, partly owed by Orascom Telecom is expected to chase after the Algiers Telecom’s high end subscriber base.
“[Due to] the mess that Algiers Telecom is in — it is still very much a state owned company and the mentality reflects that — Orascom will leverage the competitive disadvantages that Algiers Telecom has and start skimming the market for the high end customers,” predicts Malaki. “Then they will start developing the pre-paid market aggressively. They have already surpassed Algiers Telecom in the number of prepaid subscribers,” he adds.
Regardless of the events of 2002, long term investment outlook for the North African market outlook still looks very strong, with strong market potential and operators still needing to develop value added services and invest in customer service. Obviously, the speed of that change will have a direct relationship with the economic health of the country. In the interim, local telecoms players will have to start investigating customer service innovation.