RANsharing and a potential tower sale in Algeria

Algeria’s is one of MENA’s largest mobile markets with 43mn subscribers. The country has experienced rapid growth in 3G and, with 4G licenses awarded to all three operators in May of this year, further investment in network rollout is underway. Co-locations on the country’s 18,000 towers have been limited to date, however a new RANsharing agreement between Djezzy and Ooredoo promises deeper infrastructure sharing in the country. Such RANsharing, along with limits on foreign direct investment however present key obstacles to be overcome if there is to be a tower sale in the market, a move that is being explored by leading operator, Djezzy.

Algeria is the largest country in Africa and then tenth largest globally spanning 2.4mn square kilometres. The country is divided into 48 wilayas (provinces) and has a population of 40mn of which 71% reside in urban areas, primarily along the coastal regions (Source: CIA Factbook).

The economy is dependent on the hydrocarbon sector, with oil and gas accounting for nearly 60% of budget revenues, 30% of GDP and 95% of foreign export revenues. Plummeting oil prices in the past couple of years have hit the economy hard, with revenues from the sector almost halving in the past two years (Bloomberg). In July 2016, the government introduced a new law to encourage investment in sectors outside of the oil and gas industry. The new law makes the provision that all imported goods and services intended for investment projects will be exempted from customs duties and VAT.

Private sector involvement in the Algerian economy has however been stifled by complex regulatory regimes and bureaucratic procedures. In 2009, regulation was introduced limiting foreign investors to a minority stake in investments in the country and as such, the economy remains dominated by the State and local partners are required for new international investment projects.

There are 43mn mobile subscribers in the Algerian market (Source: ARPT) equating to a mobile penetration rate of 108%. Of the 43mn mobile subscribers, 16.3mn (38%) are on 3G following the introduction of 3G licenses in December of 2013.

There are three tier one operators in the Algerian market; Mobilis (owned by Algerie Telecom, in which the government is 100% stakeholder), Djezzy (in which VimpelCom holds a 49% stake with the remainder being held by the State) and Qatari headquartered Ooredoo. The market is relatively evenly split between the three MNOs; Djezzy has the largest market share with 38% of the market, Mobilis is second with 33% and Ooredoo has 29%.

There have been talks around privatisation of Mobilis, the mobile arm of state owned telecommunications company, Algerie Telecom, for the past few years. Both Vodafone have Orange have expressed an interest in the company, however a listing of a 20% stake on the Algiers stock exchange appears the most likely outcome. Algerie Telecom has been evaluating strategies to raise funds to upgrade their network with CEO Azouaou Mehmel telling local media that the company planned to upgrade 70% of its infrastructure by the end of 2016.

Following the sale of a majority stake of the company to the Algerian National Investment Fund in 2014, Djezzy is now 51% owned by the state with VimpelCom retaining a 49% stake and operational control of the MNO. In July 2016, Djezzy appointed a new CEO, Tom Gutjar who was then serving as the CEO of Airtel Uganda.

Ooredoo, formerly known as Wataniya Telecom Algerie, has been steadily increasing its market share in Algeria. The Qatari headquartered company also has operations in Iraq, Kuwait, Oman, Palestine and Tunisia as well as across South East Asia.

Whilst Djezzy lead in terms of total number of subscribers (38%), their delay in rolling out 3G means they lag behind in 3G subscriptions holding 25% of the market compared to Mobilis’ 40% and Ooredoo’s 35%.

3G licenses were awarded in December of 2013 after a five year delay in the auctions, which is believed to be largely attributed to the government’s impending acquisition of a 51% stake in Djezzy. The award of the license was with the stipulation that each of the operators must reach country-wide coverage by the end of 2018. Uptake of 3G has been rapid, with subscribers hitting 8.5mn in December 2014 and almost doubling to 16.3mn by December 2015.

Whilst Djezzy lagged behind the two other operators in 3G rollout, the company received approval to rollout 3G to all 48 Algerian provinces, which it expects to do by the end of this year, and it has closed the gap on its competitors. Ooredoo currently offers 3G in 36 provinces whilst Mobilis has achieved 3G coverage in all 48 regions.

In May 2016, the Algerian telecoms regulator (Autorite de Regulation de la Poste et des Telecoms, ARPT) awarded 4G concessions to all three MNOs in the country. The launch of commercial 4G operations is scheduled for Q4 2016, with the operators required to provide at least 10% coverage for selected provinces within the first four years. Ooredoo announced the pre-commercial launch of Algeria’s first 4G network this July in the Tiemcen province, one of three wilayas the operator chose for the first phase of their 4G deployment.

There are 18,000 towers in Algeria, with Djezzy having the largest portfolio with 7,500 sites, Mobilis 6,000 and Ooredoo 4,500

At present there are no independent towercos in the Algerian market

In terms of new site build, Mobilis have just launched a tender for 1400 new sites, Djezzy have a five year master plan to deploy between 150-200 sites per year and Ooredoo have launched a site builder tender for three years (although TowerXchange do not yet know for how many sites).

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.

Both Ooredoo and Djezzy have signed an agreement to explore RANsharing in Algeria. The details of the agreement are yet to be ironed out and it is not yet clear how extensively this will be undertaken between the two operators, whether it will be limited to a small number of sites or across their whole network. However active infrastructure sharing is expected to play a key role in the rollout of the two MNO’s 4G networks. As a State owned entity that operates independently, it is not thought that Mobilis will join a RANsharing agreement with the operators.

Ooredoo had stated back in 2015 that they were proactively pursuing infrastructure sharing agreements and have already inked another RANsharing deal in North Africa, signing an agreement with Tunisie Telecom.

VimpelCom have commenced a strategy to monetise their tower portfolio globally, with processes underway in Russia, Bangladesh and Pakistan and further divestments expected across the CIS. A team has been appointed at Djezzy to assess the business case for a sale of their 6,500 Algerian towers.

In a market with three MNOs, where two are in discussions regarding active infrastructure sharing - whether a tower sale in the market could attract sufficient interest or value has been raised as a concern. In most markets where tower sale and leasebacks have been completed, active infrastructure sharing has only ever arisen post transaction.

What’s more, in Algeria, legislation limits foreign investment in organisations in Algeria to a minority stake. Whilst there is as of yet no regulation relating to towercos, existing legislation covering the broader business community suggests that such FDI limitations will also apply to them. A towerco looking to enter Algeria through an acquisition of Djezzy’s towers would need to enlist a local partner which has the available capital and/or experience for such a transaction.

With details regarding the nature of Djezzy’s RANsharing agreement with Ooredoo needing to be finalised before a tower sale could happen, the company is using this time to update their asset register and do general housekeeping on their towers. With processes underway in Bangladesh and Pakistan, the M&A team at VimpelCom has turned their attention to these more imminent transactions. Should a tower sale be processes be commenced by Djezzy, it is most likely to come to market around October 2016.

The market must now wait to hear details on Djezzy’s and Ooredoo’s RANsharing agreement, which will have a significant impact on both 4G network rollout and a potential tower sale. What’s more, should extensive RANsharing be decided upon there may be significant opportunities for decommissioning, consolidating overlapping towers in Djezzy and Ooredoo’s collective network of 12,000 towers.

As to whether the Djezzy towers will come to market, and whether there will be interest from international towercos given the potential glass ceiling on tenancy ratios from active infrastructure sharing (as well as limitations on FDI) - it is too early to tell. One thing is however clear, RANsharing is gaining increasing momentum amongst MNOs and is putting increasing pressure on the towerco business model.