Competition spurs market growth

25 April 2008

Maroc Telecom and Meditel have expanded quickly, but could they do even better in a liberalised market?

The winner of the competition for Morocco’s second mobile phone licence set a record for the region in 1999. When Meditel, a joint venture of Spain’s Telefonica and Portugal Telecom, paid $1.1bn for the privilege of competing with the state-owned incumbent, Maroc Telecom, it was one of the highest bids for a mobile phone licence anywhere in the world. It demonstrated the bidders’ confidence that a licence to sell mobile phones in Morocco was guaranteed to make a lot of money.

Maroc Telecom and Meditel have grown swiftly since then. Meditel’s customer numbers have tripled from 2 million at the beginning of 2004 to 6.2 million at the end of 2007.

Maroc Telecom has kept its comfortable lead, growing from 5.4 million customers to 13.3 million over the same period. Its customer base is one of the largest in the region. Only Telecommunications Company of Iran, Saudi Telecom, Orascom Telecom-owned Mobinil and Djezzy have more customers.

Maroc Telecom’s 13.3 million customers is the same number as Vodafone Egypt, the joint venture of UK mobile phone company Vodafone and Telecom Egypt, even though Maroc Telecom is operating in a country with less than half Egypt’s population.

Maroc Telecom is one of only a few incumbent operators in the region to have prevented a second entrant from making serious inroads into its market share.

The company’s decision to privatise by selling a controlling stake to Vivendi, the French media conglomerate, in 2005 explains Maroc Telecom’s resilience. The incumbent has lost just 5 percentage points of market share over the past four years, falling from 73 per cent at the start of 2004 to 68 per cent at the end of 2007. Its market share is higher than Saudi Telecom’s 61 per cent share of the Saudi market after just two and a half years of competition from Etihad Etisalat, the local subsidiary of the UAE telecoms giant.

Maroc Telecom has done better than the state-owned operator in neighbouring Algeria. Algerie Telecom’s mobile phone business, Mobilis, has been overshadowed by the Orascom Telecom-owned Djezzy since its inception. Mobilis could even fall back into third place following the resurgence of Nedjma under new management appointed by its parent, Qatari operator Qtel.

Vivendi’s purchase of a 53 per cent controlling stake in Maroc Telecom in 2005 was followed by an improvement in the operator’s performance. Since Vivendi took over, Maroc Telecom has held on to its share of the market, with about 68 per cent of customers.

Given the incumbent’s health, should the country’s regulator, Agence Nationale de Reglementation des Telecommunications (ANRT), have any concerns about the growth of the market? About 19.5 million Moroccans have mobile phones, 62 per cent of the country’s 31.5 million-strong population. Mobile phone penetration in Morocco is much higher than in Egypt, where the two operators that entered the market in 1998 both managed to grow their customer numbers by more than 50 per cent in 2007. Just over 40 per cent of Egyptians have mobile phones. Clearly, the two Moroccan operators have been better at reaching out to different segments of the population than the Egyptian operators.

High penetration

The lack of competition in Morocco should be a worry for the regulator. Every other large Arab country has three or more mobile phone operators. Algeria, Egypt, Saudi Arabia and Iraq all have three. Jordan, which has about 15 per cent of Morocco’s population, has four operators and a much higher penetration rate.

Maroc Telecom and Meditel grew their customer numbers by 24 per cent and 16 per cent respectively in 2007, slower than the Egyptian operators and the three companies in Algeria.

Etihad Etisalat, in Saudi Arabia, recently reported growth of 85 per cent in its customer numbers in 2007, in a market where pene-tration is comfortably above 70 per cent. Even Saudi Telecom’s Al-Jawal-branded mobile phone business grew by 19 per cent. With mobile phones, increased competition leads to increased sales.

Meditel’s parent companies, Telefonica and Portugal Telecom, have enjoyed good financial results from a market with limited competition. The second operator’s revenues climbed from MD3.6bn ($506.5m) in 2004 to MD6.8bn in 2007. The 2007 revenues were 43.9 per cent higher than the previous year. Net profits were MD541m in 2007, up 18.1 per cent from 2006’s MD458m.

In-depth analysis of Meditel’s financial performance, including its quarterly results, is more difficult because the company only discloses its results once a year. Meditel is structured as a private company. The two biggest shareholders, Telefonica and Portugal Telecom, do not break down Meditel’s financial performance in their own quarterly results because the companies’ 32.2 per cent stakes in Meditel are too small to require disclosure. The remaining 35.6 per cent stake in the company is held by un-named Moroccan private investors.

The company has only disclosed its net profits for the past two calendar years. Before that, it produced different measures of operating profit in its annual reports.

Inigo Serrano, director general of Meditel, is understandably happy with his contribution to Telefonica and Portugal Telecom’s profitability without having to compete with multiple rival operators. “Meditel has grown its results strongly and this has happened despite a very competitive market,” he says.

Maroc Telecom’s results make less comfor-table reading for its European parent. While the company has maintained its market share, its management has been less able to control its financial performance. Revenues in its home market fell from MD4.9bn for the period January to June 2006, to MD4.7bn for the same period in 2007.

The Moroccan incumbent’s overall revenues are up 19.5 per cent for the first half of 2007 compared with the same period in 2006, because its management expanded into sub-Saharan Africa at the same time.

Maroc Telecom has purchased 51 per cent controlling stakes in three operators in Mauritania, Burkina Faso and Gabon. Mauritel, Onatel and Gabon Telecom have all expanded their revenues at a faster rate than the operation in Morocco. Maroc Telecom has even set up a mobile virtual network operator to target the large Moroccan population in France and Belgium. Mobisud offers cheaper calls to family and friends in Morocco than other networks.

Declining revenues

Abdeslam Ahizoune, president of Maroc Telecom, prefers to highlight the performance of the whole company instead of addressing the declining revenue in Morocco.

“Because of strong growth in our markets, stimulated by innovative and competitive offers, our results show a strong improvement and we know we can forecast further growth,” says Ahizoune.

Maroc Telecom’s large market share will be to its advantage if ANRT decides to issue a third mobile phone licence. The growth in customer numbers in Egypt and Saudi Arabia in 2007 was mostly caused by incumbent operators grabbing as much market share as possible before the launch of a third operator.

ANRT has left open the possibility of an auction for a third licence, but there is no indication of when this might happen. The Moroccan government, which had a budget deficit of 2.1 per cent of gross domestic product in 2007, needs the money from a new licence.

Virtual network operators - companies that use incumbent operators’ infrastructure to sell mobile phone services to customers - are illegal in Morocco. Even if ANRT were to legalise these operators in future, Maroc Telecom would not allow other companies to use its network.

“Maroc Telecom will not try to push for virtual network operators in Morocco because they are not needed,” says Matthieu Coutiere, director of strategic projects at Vivendi.

Maroc Telecom and Meditel should enjoy their Moroccan duopoly while it lasts. As other beneficiaries of uncompetitive markets have discovered, liberalisation is inevitable.

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