North African potential: towers in Algeria

Algeria is one of the largest countries in the MENA region, with a population of 41.7mn (source: World Factbook). Since independence from France in 1962, Algeria’s primary political party, the National Liberation Front (FLN) has held sway, with President Abdelaziz Bouteflika in power since 1999.  

The Algerian economy relies heavily on hydrocarbons, accounting for roughly 30% of GDP and nearly 95% of export earnings. Algeria’s economy has been hit hard by declining oil prices, which have resulted in public spending cuts and increased taxes, putting pressure on Algerians’ spending power. GDP per capita has remained relatively flat at ~$15,000 for the last three years, with the Algerian dinar depreciating 4% year on year.

Operators and ownership 

The Algerian mobile market is tough, with a sluggish economy and an annual ARPU of $78 (source: The Economist), ranking Algeria as the 49th market for mobile revenue by ARPU globally. Pressures on MNO profit margins were exacerbated by tax increases implemented in January 2017, which increased tax on data from 7% to 19%, tax on voice from 17% to 19% and taxes on recharges going up from 5% to 7%. With tough competition in the market impacting data prices as well, Algerian MNOs have found revenue and EBITDA numbers have taken a beating over the last couple of years. 

There are three operators in Algeria, each with a very different background.

Mobilis

100% owned by Algerie Telecom, the state owned telecom operator in Algeria, which is active in fixed and mobile telephony, internet and satellite communications. There were rumours as recently as 2016 that Algerie Telecom may sell off or list part of Mobilis, but this has not materialised, and in fact the Algerian government has put a stop to any privatisation policies they had in the last few years.

Djezzy (OTA)

Djezzy was 100% owned by VEON, through their Egypt-based subsidiary Global Telecom Holding (GTH) until 2015. After several years of wrangling with the Algerian government left them unable to import infrastructure into Algeria or pay out dividends from local businesses, VEON overcame the issue by selling a 51% stake to the Algerian National Investment Fund (FNI) for $2.6bn. Although the minority shareholder, Veon, through GTH, retains control of Djezzy under the terms of the deal. This unsettled timecost Djezzy their place as number one in the Algerian market, losing out to Mobilis shortly after the deal was struck. Despite successful efforts to grow data usage and subscribers, Djezzy has seen revenues declining over the last 18 months due to new taxes and tough market competition.

Ooredoo

Ooredoo Algeria is owned by Qatari operator Ooredoo.Ooredoo Algeria has also struggled in the last few months, with customer numbers dropping 3% in Q1 2018 and EBITDA declining 23% yoy, which Ooredoo has put down to ‘the increase in taxes, weak economic environment and intense competition in Algeria’. 

Algeria’s relatively well developed infrastructure includes a national fibre backbone which was improved with a new subsea link to Valencia in April 2017. Algeria is also part of the 4,500km terrestrial Trans-Saharan Backbone network which will connect the national network with other fibre networks in the region. In Q118, Algerie Telecom launched Idoom fibre, as part of a $320mn network deal announced in October 2017. The deal has been controversial, with stakeholders complaining about the bidding process, won by Huawei. Algerie Telecom aims to connect 1.5mn homes in 725 municipalities in their initial rollout, with other regions coming on line subsequently. Algerie Telecom’s fibre network spanned 76,515km in 2017, with ambitious plans for further growth over the coming years.

All three Algerian MNOs (Ooredoo, Mobilis and Djezzy) launched 4G services in October 2016, after being granted licences which required them to each cover a different set of provinces, under a government scheme to accelerate nationwide rollout. Once this was achieved, each operator has been able to apply for permission to cover additional regions, with Ooredoo and Mobilis covering 31 wilayas (Algerian provinces) and Djezzy reaching 20 wilayas by February 2018, with Ooredoo the first MNO to receive permission from the Authority for Regulation of Post & Telecoms (ARPT) to expand to all 48 wilayas earlier this year. 

There are 18,000 towers in Algeria, with Djezzy having the largest portfolio with 7,500 sites, Mobilis 6,000 and Ooredoo 4,500. In addition, state-run Radio-Television Algerienne operates the broadcast media and carries programming in Arabic, Berber dialects, and French, and has around a handful of towers in Algeria. 

At present there are no independent towercos in the Algerian market. A company called Infrashare, launched by execs with strong North African credentials, including Malek Bouteraa, former CTO of Ooredoo Algerie, did look for opportunities in the Algerian maket, but was unable to get the traction needed to secure a deal. 

In terms of new site build, Mobilis plan to build a further 1,400 new sites, Djezzy have plan to deploy between 150-200 sites per year and Ooredoo have launched a site builder tender for three years for around 500 towers. These new build plans have been slow getting off the ground, however we expect to see them gather momentum over the next year or so.

The vast majority of sites are on-grid with very few generators (apart from core sites) – in this respect, Algeria is a developed market. Whilst the country has abundant sunshine, making solar a viable option, the low diesel costs (US$0.18/ litre) means that the business case for alternative energy sources is greatly reduced. The government of the oil producing nation has been proposing reductions to the generous fuel subsidies for a number of years. Whilst the economy has been struggling and there will most likely be a gradual withdrawal of subsidies, we don’t expect anything dramatic that would necessitate the use of alternative generation sources any time soon.

Whilst Mobilis and Djezzy signed a tower sharing agreement in 2014 to enable bilateral swaps on a few hundred towers, infrastructure sharing in the country has not been widespread and not carried out on a commercial basis. For all operators only 2% to 3% of their sites are shared, but the sharing activities are moving very slowly, mainly due to two main factors; firstly many applications for site sharing are rejected because the tower or rooftop site cannot receive additional equipment; and secondly due to disagreements between operators on which sites are fair swaps for each other, with each viewing a different “valuation” of their sites.

Ooredoo and Djezzy signed a RANsharing agreement in 2016, with plans to increase active sharing as they rolled out 4G, however, this was brought to an end by the Algerian regulator within six months, with no further plans for RANsharing in Algeria being made. 

Algerian law has stipulated since 2009 that all commercial companies in Algeria must be at least 51% owned by an Algerian entity, making the entry of a large international towerco into the market under current conditions seem unlikely. However, VEON-owned Djezzy has expressed an interest in tower divestment previously, and the Algerian government seems close to bowing to pressure to encourage external investment by dropping the ownership law. For a towerco (or aspiring towerco) keen to grasp an opportunity in the region, taking a gamble on acquiring towers sooner could pay off, however most towercos with the level of capital needed for such an investment are far more risk averse than they would need to be to jump into the Algerian market now.

As Algeria is one of the biggest North African markets, once the market opens up we may well see towerco activity developing quite quickly in Algeria. Eaton Towers have already attempted to enter North Africa, in their aborted deal with Orange Egypt in 2015. IHS, currently moving into the Middle East through a deal with Zain, may well have the appetite to expand further in the region. Larger international players such as SBA or American Tower may well investigate the opportunities in Algeria as well.

Despite the strict rules on ownership, Algeria has an MNO who would be keen to divest their towers, three solid potential tenants in the market, a regulator which discourages RANsharing, good grid coverage and plenty of room for growth: watch this space.