Nedjma Repatriation Clouds Risk/Reward Outlook

The government of Algeria has indicated it would exercise its right of first refusal to buy out its international partners in the country's third mobile network operator if Qatar Telecom (Qtel) presses ahead with plans to take full control of Wataniya Telecom . The state already owns incumbent Mobilis and is negotiating to take control of second operator Djezzy , after that company ' s parent was acquired by Russia-based Vimpel Communications (VimpelCom) in 2011. BMI is more concerned than ever that total state control of the mobile market could lead to higher tariffs and a lack of service diversity, which would hit Algeria's already poor Risk/Reward Ratings score .

In August 2012, Qtel received approval from Kuwait's Capital Markets Authority to buy the 47.5% of Wataniya Telecom it does not already own, for approximately US$2.2bn. Wataniya, among other businesses, owns 46.3% of Nedjma , which launched Algeria's third mobile netw ork in 2004 and was serving 8.550 mn subscribers as of June 2012. As Qtel's direct and indirect stakes in Nedjma would change as a result of the transaction, so its local partner - the Algerian government - has the opportunity to sell its stake or buy out Wataniya.

Mobile Cash Cow At Stake
Mobile Market Indicators, 2001-2011

The government ' s stance is not particularly surprising, given its apparent hostility towards foreign investors in recent years. The state has used its position as the ultimate regulatory authority to hound Djezzy for alleged unpaid taxes, has limited that company ' s ability to import new SIM cards and other equipment and has prevented Djezzy from launching price-based promotional offers that would otherwise have affected the performance of Mobilis, the mobile arm of state telecoms utility Algerie Telecom . In addition, it has used VimpelCom's purchase of selected Orascom Telecom investments - including Djezzy - as an opportunity to claw back the company. The transaction is proceeding slowly as all parties disagree over the valuation the government has placed on the business. We therefore fully expect similar wrangles to arise over the repatriation of Nedjma.

Besides seeing this latest development as further evidence of the unfavourable business environment in Algeria - which warrants a further markdown of Algeria's telecoms Risk/Rewards scores - BMI is concerned about the impact the move will have on the mobile market in general. Our main concern is that, having invested heavily to take control of the businesses, the state will have insufficient funds to maintain and expand the mobile networks . This is despite the fact that revenue from th e mobile sector topped DZD35.38b n (US$ 442 mn) in 2011 . It may even force the operators to withdraw politically sensitive services such as social networking and impose restrictions on mobile internet use in response to concerns that mobile phones could be used to coordinate a popular uprising, such as those seen elsewhere in the region in 2011.

We also highlight the possibility that the state may impose higher mobile tariff rates to help cover the cost of buying out its partners and developing the networks in future . This would not be welcomed by consumers and would be inimical to the competitive dynamic that has favoured growth in the mobile market over the last decade. T he number of subscribers has grown rapidly , owing to competitive pricing provided by the privately-owned operators. Revenue from mobile services has also grown strongly as a result.

It is possible that the government would transfer the businesses to favoured public or private entities in order to keep the competitive dynamic or at least reduce their direct influence on state finances .However, we contend that few Algerian companies have the scale or the skill to successfully run a national mobile network and Algeria may have to target foreign investment once again. However, given the government's treatment of Djezzy in recent years, we believe few international investors would want to risk doing business under the current political regime.

Finally, BMI expect s that a long-term dispute between the state, VimpelCom and Qtel/Wataniya over the prices it is willing to pay to buy back the businesses would further delay the long-awaited introduction of 3G services in Algeria. The government had planned to initiate an auction of 3G concessions early in 2012, once it had concluded the take-over of Djezzy , but a speedy resolution looks as distant as ever . I t could therefore, still be many years before Algerians have access to adequate mobile internet and broadband services.

This article is tagged to:
Sector: Telecommunications
Geography: Algeria, Algeria, Kuwait, Russia, Algeria, Algeria, Algeria, Algeria, Algeria, Algeria

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