With the telecoms market still distinctly subdued, it is likely to be some time before the European and US big hitters return to target investment opportunities in the Middle East and North Africa. When they do, however, international business development executives are sure to cast a keen eye over prospects in North Africa, where the dynamism of the Moroccan market has prompted change throughout the Maghreb telecoms sector.
As something of an economic backwater, with little of the wealth or natural resources enjoyed by many other MENA countries, Morocco was an unlikely candidate for the role of regional yardstick. But the combination of good timing and the creation of the region's most widely-respected telecoms watchdog, Agence Nationale de Reglementation des Telecommunications (ANRT), has enabled the country to earn record-breaking privatisation fees and seen telephone access surge. Mobile phone users numbered 6 million in 2002, compared with just 270,000 in 1999.
'The Moroccan experience has become a landmark for all other countries to follow,' says Ibrahim Kadi, head of the Arab Regional Office of the International Telecommunications Union (ITU). 'The kingdom's government realised early on that the need for reform was acute and that the only way to do this was to create an environment of transparency and fairness that would act as a magnet to international investment. Effective and proactive telecoms regulation in Morocco was instrumental in achieving a relatively successful transition of the telecom sector.'
With Morocco racing ahead in the telecoms stakes, its fellow Maghreb countries Algeria and Tunisia have also embarked on the liberalisation process. In 2001, they set up their own watchdog bodies, Autorite de Regulation des Postes & Telecommunications (ARPT) and Instance Nationale des Telecommunications, respectively.
Setting up regulatory bodies can be a political minefield, however. The regulation process is not static, but evolves as the market develops. Establishing an effective regulator involves not only a change in law but also, more importantly, a change in attitudes throughout a country's political and economic hierarchy.
It is easy to see why politicians may be reluctant to abdicate too much power to the regulatory authorities. With telecoms operating as a state monopoly, service tariffs can be manipulated to boost government revenues, while the operating company can provide a useful area for job creation in countries with high unemployment.
'Political independence is a priority for regulators, and legislated for in the new telecoms laws,' says one senior telecoms executive. 'But in many Arab countries there can be a discrepancy between the written rules and behaviour. Moreover, when the laws are fresh and not yet entrenched, it is easier for them to be subtly amended or even ignored.'
Problems arise when a communications ministry retains a role in the regulatory authority. 'There is a direct conflict of interests in having the regulator report to the communications ministry,' says one North Africa-based telecoms adviser. 'The minister is often the chair of the incumbent state operator and, as such, has an obligation to protect that company.'
The dangers were highlighted in Morocco where, following the success of the licence sales, amendments were proposed to the telecoms act. These included a move to bring the ANRT under the control of the Communications Ministry. Describing this as a serious attempt to attack the independence of the watchdog, the widely-respected Mostafa Terrab resigned from his post as head of ANRT. The legislation has yet to be passed, but the incident illustrates the continued pressure that regulators may be subject to.
Operators and suppliers accustomed to dealing directly with the government and Communications Ministry must also be prepared to play by the new rules. 'New laws may mandate certain decision making powers to the regulator,' warns the telecoms executive. 'But if the company perceives that the government does not take the regulator seriously, then it will continue to abide by decisions made by the government.'
The need to establish a credible reputation led Morocco's ANRT to wait a year and a half after its establishment before embarking on the sale of the first private GSM licence. The result was a winning bid that was three times higher than initially expected.
The Algerian and Tunisian regulators have not had such an opportunity to build up their international standing, but each country's specific circumstances have to some extent offset their inexperience. 'There is huge potential for foreign investment in Algeria's telecoms sector,' says Kadi. 'The country has a large population and a strong demand for improved telecoms services. ARPT is also working to raise its profile - for example it has joined forces with the ITU to organise a meeting for Arab telecoms regulators to be held in Algiers in April.' Tunisia's service-based economy, meanwhile, offers alternative opportunities for telecoms investors, not least because of its proximity to Europe and the high numbers of tourists visiting the country.
'Algeria and Tunisia have scored major achievements recently - setting up their separate regulatory authorities in 2001 and successfully auctioning their first GSM licences [in 2002],' says Kadi. 'These successes will act as a boost to their telecoms reform programmes and help increase international perceptions of their regulatory authorities.' Others are less positive. 'The attribution of both GSM licences to [Egyptian operator] Orascom Telecom will do little to enhance the effectiveness of the regulators,' says one UK-based telecoms executive dealing with the region. 'The regional operators lack the aggression of their international counterparts and are more prepared to work with the government than fight it.'
In this regard, the situation may seem bleak for the Maghreb regulators. With the international telecoms companies still licking their wounds in the wake of the industry's global meltdown, the upcoming raft of infrastructure expansions and licence sales slated for North Africa are likely to attract mainly regional operators.
'It is essential that the powers of the new watchdogs are not weakened,' says the telecoms executive. 'The eventual recovery of the international market will be accompanied by renewed prudence and foreign operators will pay closer attention than ever to the state of the regulatory environment before investing.'
Indeed, if the countries of North Africa are to improve their chances of attracting further foreign investment into the telecoms sector, they must broaden the reform process throughout the wider economy. 'Unless telecoms reform is part of a broader reform trend across the country, it has little chance of succeeding,' says the senior telecoms executive. 'Private investors need to see that the government is truly committed to change and they are increasingly unwilling to try and fit their investments into the old system where arbitrary decisions can come back and haunt them.'
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