Maroc Telecom has reinforced its strategic focus on Africa following its takeover in May by UAE operator Etisalat. Already present in four markets, the Moroccan company is now absorbing the operations of the Abu Dhabi-based group in six francophone sub-Saharan countries. This rearrangement makes sense for both parties.

Despite a recent upturn in results, Maroc Telecom faces fierce competition in its home market, where growth prospects are uncertain because mobile penetration rates are already high.

By contrast, sub-Saharan demand is dynamic and is likely to remain so as mobile telecoms play a critical role in the social and economic life of countries where fixed-line infrastructure is patchy.

Etisalat acquisition

Meanwhile, for Etisalat, the $650m earned from selling its West African subsidiaries to Maroc Telecom will help to defray the €4.2bn ($5.6bn) cost of buying the 53 per cent controlling stakein the Moroccan operator from France’s Vivendi.

“For Maroc Telecom, there are real advantages in belonging to a group that… wants to be one of the world leaders in the sector”

Mehdi Ammouri, CFG Group

Vivendi decided to sell its interest as part of a drive to see off peripheral assets and concentrate on its core media investments. Spotting a new expansion opportunity, Etisalat originally submitted an offer for the stake in January 2013. There was also a rival bid from Qatar’s Ooredoo, but it pulled out of the race in June last year.

Vivendi and Etisalat finally announced an agreement on a deal in November. But because Maroc Telecom has operations in Burkina Faso, Gabon, Mali and Mauritania, the sale had to be approved by several national regulators and was not concluded until May.

Etisalat now owns 53 per cent of Maroc Telecom’s share capital through a holding company in which it has 91.3 per cent, with the rest held by the Abu Dhabi Fund for Development.

The Moroccan government owns 30 per cent of Maroc Telecom, while the remaining 17 per cent is listed on the Casablanca and Paris stock exchanges.

Shortly after completing its takeover, Etisalat sought regulatory approval to make an offer to buy out the holders of the publicly listed shares; trading in the stock was therefore suspended on 20 May. However, the Moroccan regulator, the Conseil Deontologique des Valeurs Mobilieres (CDVM), refused permission for the sale to go ahead and normal trading in the shares resumed on 26 May.

Building on strengths

For Maroc Telecom, the new ownership brings several advantages.

Vivendi’s decision to reduce its engagement in telecoms and focus on media interests opened an era of uncertainty for the Moroccan firm. That has now ended with the move to majority ownership by a group for whom mobile telecoms remains a core business.

Moreover, the deal has opened the way for Maroc Telecom to build on its distinctive strength in francophone African markets through the $650m acquisition of Etisalat’s activities in Benin, Central African Republic, Ivory Coast, Gabon, Niger and Togo.

The company was already present in Central African Republic and Gabon, and will simply increase market share. However, the other four are new terrain. International operations outside Morocco – all in Africa – will now account for more than 40 per cent of Maroc Telecom’s turnover.

A strategic fit

“Maroc Telecom is attractive for Etisalat, which had difficulty making a success of its African operations,” says Mehdi Ammouri, telecoms analyst at the Casablanca investment firm CFG Group. “Maroc Telecom knows how to restructure an African business and deal with African governments, and there is a cultural affinity too. It has experience of developing a real business culture in these former state companies.

“And for Maroc Telecom, there are real advantages in belonging to a group that is 100 per cent telecoms and wants to be one of the world leaders in the sector.”

Ammouri points out that Vivendi was heavily indebted and, therefore, took careful consideration before approving Maroc Telecom investments. By contrast, neither Etisalat nor Maroc Telecom has heavy debts, so the Moroccan company is comfortably placed, should it want to raise funds for further Africa acquisitions.

Target markets

Like several other Moroccan service sector groups, Maroc Telecom has identified west and central Africa as important target markets for two main reasons: competition is less intense there than in Europe; and there is potential for faster growth rates than in its home market.

Mobile penetration in Morocco is about 130 per cent and competition between the three fixed-line and mobile providers has driven broadband prices down.

By contrast, the African businesses acquired from Etisalat already generate a combined annual turnover of €445m, yet are in countries where the average mobile penetration rate is only 63 per cent (excluding Gabon with 189 per cent).

Industry sources estimate there is scope for this to rise to 87 per cent in the near future.

Ivory Coast – one of Africa’s most dynamic and resource-rich economies – offers particularly attractive growth prospects.

The performance of the four African markets where Maroc Telecom is already present also offers encouraging portents. Economic growth in those countries outstripped Morocco in 2012 and 2013, and is projected to reach 6.1 per cent this year, compared with 3.9 per cent for Morocco.

In the first half of this year, Maroc Telecom’s client base in its home market grew by 2 per cent, compared with the first six months of 2013. Annualised growth rates for client numbers in Gabon, Mali and Burkina Faso ranged between 17 and 26 per cent (although there was a 6.1 per cent contraction in Mauritania).

On the revenue front, the contrast was even more pronounced: the operator’s Moroccan revenues shrank by 2.4 per cent in the first half of this year, whereas its four African businesses combined revenue grew by 10.9 per cent, with even Mauritania reporting a positive trend.

Overall, Maroc Telecom had 38 million clients at the end of June. The acquisition of the six West African operations should boost that total significantly.

Development issues

Although this expansion enhances the Moroccan company’s distinctive profile and strategic niche, this is firmly within the wider context of the Etisalat group as a whole. The new majority shareholder has appointed five directors to the Maroc Telecom board, including its own chairman, Isa Mohamed al-Suwaidi, and strategy director Daniel Ritz.

With the ownership change at last complete after 18 months of negotiation and transition, Maroc Telecom can also now focus on forward development issues, such as the expected fourth-generation (4G) licensing round.

The operator has signed an agreement with the government on a MD10bn ($1.2bn) programme of equipment and infrastructure investment. And it can test out implementation strategies in Gabon, where its local subsidiary has already been licensed for 4G mobile technology and the authorities hope to see an operational network in some areas by the end of this year.

However, Morocco’s telecoms regulator has postponed the 4G licensing round several times already. There is speculation it might go ahead in September, says CGF’s Ammouri, but that is not certain.

“Maroc Telecom is well placed to take on the cost of moving to 4G. But this would impose more strain on its competitors, Meditel – an Orange subsidiary – and Wana; they are still spending heavily on the development of their national networks, so they would prefer to postpone further expenditure on 4G,” he says.

Fixed-line growth

Meanwhile, there has been an encouraging return to growth in the fixed-line and internet business; demand for data transmission is strong. While broadband is doing particularly well, traditional fixed-line phone business has also picked up.

Still, against the background of intense pricing competition, the resumption of growth in turnover has not so far produced a parallel benefit to the bottom line. Profits for the first half of this year, at MD3.07bn, were 12.8 per cent down on January-June 2013.

At the end of June, Maroc Telecom had 90 per cent market share of the fixed-line sector and 42.3 per cent of the mobile segment. The latter was down from 45.1 per cent at the same time in 2013. Wana and Meditel have about 30 per cent each.

Key fact

Etisalat owns 53 per cent of Maroc Telecom’s share capital

Source: MEED