Morocco's Second Try

Morocco's Agence Nationale de Reglementation du Secteur des Telecommunications (ANRT) is is set to re-launch its fixed liberalisation process, which ran aground in November 2002. Lucy Norton assesses the chances of success this time around.

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By  Richard Agnew Published  February 4, 2004

|~|fixed2.gif|~|Morocco is looking to bring in an alternative landline operator|~|Morocco suffered a harsh reality check in November 2002, when it was forced to abandon its fixed licence auction. After twelve groups requested the licensing documentation, none submitted a bid, even after the closing date was put back by a month. The result came in stark and sobering contrast to the country’s record-braking mobile licence auction, which raised US$1.1billion in privatisation revenues in 1998. Of course, the investment climate had deteriorated dramatically during the four years separating the tenders, as operator debt burdens swelled to unmanageable levels. So, while European heavyweights went head-to-head for the country’s mobile licence, not one requested the documentation for the fixed licence. As serious as the telecoms downturn was, however, it did not entirely explain the auction’s failure. Indeed, the slump only really accounted for the lack of fresh international interest in the auction — a high proportion of the bidders already had a stake in the Moroccan telecoms market. Rather, the fact no bids were received from the twelve groups was testament to fundamental flaws in the tender’s technical and commercial terms. An uncertain political environment was among the reasons offered by industry watchers and prospective bidders for the failure of the 2002 tender. Parliamentary elections were held on 27 September 2002 and the new government led by Prime Minister Driss Jettou was only announced the day before the tender was due to close. This no doubt compounded existing reservations about submitting offers for the licence. Indeed, one group reportedly stated that they simply did not know to whom to direct questions about the tender. However, a more fundamental brand of uncertainty was at the heart of the auction’s failure. The regulatory framework for Morocco’s first fixed licence was incomplete, unclear, and in some cases too stringent to lure private investors into the fixed sector. The interconnection regime that would apply to the fixed sector had yet to be agreed. Amendments to telecoms legislation affecting interconnection regulation were still to be ratified by the government at the time when bidders were expected to submit financial offers for the licence. Given that interconnection agreements are central to running a viable alternative fixed network, it is clear why no group wished to proceed with the auction. No mention was made in the licensing documentation of the legal status or otherwise of services such as voice over IP (VoIP). Without a clear legal framework for such potentially competitive services it would have been difficult to assess the value of the fixed licence. ||**|||~|liberalisation2.gif|~|The WTO deadline of telecoms sector deregulation is looming|~|Additionally, the universal service obligations (USO) attached to the licence were hefty, both in terms of roll-out obligations and USO fund contributions. The new entrant was expected to roll out infrastructure in Morocco’s seven largest cities before it could launch services commercially. Furthermore, the ANRT was expecting the new operator to contribute 6% of its annual revenues to a Universal Service Fund (USF), which far exceeded the 1% to 2% benchmark set by other deregulated markets. A lack of clarity on the pillar issues of interconnection and universal service, therefore, did mortal damage to Morocco’s chances of selling its fixed licence in 2002. However, it is likely that the trend of fixed to mobile substitution also helped to seal the fate of the auction, especially where the lack of international interest was concerned. The country’s fixed sector has been diminishing in size since 1999, as mobile services have proliferated. Teledensity currently languishes below 4% — 1.2m users — down from 5.3% in 1999. Meanwhile, Morocco’s mobile market has demonstrated some of the highest subscriber growth rates in the world since 1999, growing from 400,000 users at the end of that year to around 7m at the end of 2003. Fixed to mobile substitution is not the only negative subscriber trend that would cause concern for prospective private investors. Limited use of the internet is also contributing to weakened demand for wire-line connections as well as capping average revenue per user (ARPU) potential for fixed service provision. With users numbering just 550,000 at mid-2003, and only a negligible percentage of users paying a monthly subscription for internet access — the majority use internet cafes — Morocco’s internet market is far from well-developed. A lack of bandwidth is a key growth-limiting factor for the market, keeping quality of service (QoS) low and tariffs prohibitively high. The market could, therefore, hold much unrealised potential, were capacity levels increased. However, Maroc Telecom’s historical reluctance to invest in extra bandwidth or, until 2003, significantly cut its leased line tariffs, indicates a certain lack of confidence on the part of the incumbent in the mass market viability of the web. With the potential value of Morocco’s fixed market remaining unclear, the ANRT has to work harder to formulate a licence package that appeals to the commercial sentiments of the private sector. With the WTO deadline of full telecoms sector deregulation looming on the near horizon, and a new ANRT director general, Mohammed Benchaaboun, in place since September 2003, fixed sector liberalisation has been put back at the top of the agenda in 2004. The ANRT is currently evaluating proposals from international consultancies and will select a group to lead the re-launch of its fixed licence tender in mid-2004. ||**|||~||~||~|Key revisions to expect will be a relaxation of network roll-out obligations and USO fund contributions as a means of reducing the financial burden for new operators entering the fixed sector. This will, however, mean that the government will need to review its objective of achieving teledensity of 10% by 2005. A period of infrastructure sharing with Maroc Telecom may also be considered, to alleviate up-front network costs. The formulation of a comprehensive and transparent interconnection regime will also form part of the new licensing proposal. However, Morocco will arguably need to do more than fill in the regulatory gaps if it is to attract the kind of investment it would like in its struggling fixed sector. The government will need to address the negative demand trends blighting the market, if private investors are to take the bait. The most direct way to achieve this is to introduce cuts to both retail and wholesale internet access tariffs. The government is moving in this direction with reductions expected to both Maroc Telecom’s retail and wholesale tariffs. The introduction of ADSL services at the end of 2003 will also help to stimulate demand for internet services in the SME sector. However, the most effective and advanced step Morocco could take would be to liberalise the bandwidth sector. The way in which Morocco comes to balance out its fixed network investment needs with the profitability objectives of the private sector remains to be seen. One avenue that remains notably unexplored, but could prove central to future development of the sector, is the fixed wireless family of technologies. Although fixed broadband access networks are currently being trialled in the country, Maroc Telecom has yet to invest in wireless local loop (WLL). The newly redrafted fixed licence is likely to allow the new entrant to install less expensive WLL technology, as opposed to specifying more capex-intensive wireline infrastructure. Indeed, the new licence may go even further along the wireless route and combine some form of mobile service provision with fixed network investment as a means of sweetening the deal. But whatever formula Morocco finally adopts, it will no doubt help to shape future fixed line deregulation policy across the Maghreb. Lucy Norton is a senior telecoms analyst for the Middle East at the World Markets Research Centre, which provides daily monitoring of any developments that impact on the investment climate in telecoms markets worldwide. ||**||

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