Bidders’ new ring of confidence




Market set to expand 20-fold as appointment of second mobile licence operators leads to price cuts

By Mark Huband in Rabat

Financial Times, 20 December 1999

Competition has been like a rush of cold wind through Morocco’s once comfortably inactive and extortionately priced telecommunications system.

Reformers have been successful in breaking the state monopoly and contributing Dollars 1.14bn to state finances. The sale of a second mobile telephone licence to a private sector consortium last August forced critics of liberalisation to tone down their resistance.

Meanwhile, private sector operators and government regulators share similar visions for future modernisation and rapid expansion of the system. As well as achieving the world record price, the sale of a GSM licence by the Moroccan government achieved a level of transparency which has since become a benchmark for other privatisations.

Seven bids were placed for the licence, which was won by the Medi Telecom consortium including Telefonica of Spain, Portugal Telecom, the local BMCE bank and the Moroccan industrial group Afriquia.

The $1.14bn paid by Medi Telecom was $700m more than the government had expected to receive, and was explained in part by low penetration and the high potential in the Moroccan market.

Only 170,000 of Morocco’s 30m people are mobile phone subscribers, despite it having an infrastructure in place to cover about 60 per cent of the population. Analysts estimate the potential size of the GSM market at 3m subscribers by 2004 and 5m in 2010.

The progress of the second GSM licence sale was accompanied by drastic cuts in the cost of services offered by IAM, the state-owned fixed telephone operator.

IAM has operated a GSM service since 1994. The threat of competition led to two price cuts of 25 per cent in 1998, and inspired the company to broaden its base of subscribers.

Within the first half of 2000, up to 20 per cent of IAM, which operates under the name Maroc Telecom, is expected to be sold to a strategic partner.

The value of IAM is being assessed, and is expected to be worth $4bn-Dollars 5bn. Its sale is being regarded as a prelude to the licensing of a second fixed line network.

“The privatisation of IAM is the only game in town,” says Mostafa Terrab, managing director of the National Telecommunications Regulation Agency (ANRT). e envisages IAM retaining around 60 per cent of its current market share, while new operators are expected to offer services ranging from internet access to international call centres.

Much of the success of the liberalisation so far has been put down to the transparency with which the ANRT has operated.

Both the losing bidders for the second GSM licence and donor agencies such as the World Bank regarded the bidding process as exceptionally fair. However, investors are now looking for a clear strategy for the development of the telecommunications sector.

“The real question now isn’t liberalisation or not. It is: what pace the liberalisation?” says Saad Bendidi, director for investments at BMCE Bank, part of the consortium which won the GSM license.

“I am for liberalisation, and the sooner the better. It would improve the chances for the current operator.”

But the question now facing the government as it seeks to expand the liberalisation of the sector, is whether or not it should retain IAM’s monopoly in the fixed line network to allow its expansion.

While the government’s strategy appears set upon liberalising the sector, there’s concern the pace may now slow down despite investor interest in the Moroccan market.

“If you privatise before you liberalise, you create a private monopoly. And there is only one thing worse than a public monopoly, and that is a private monopoly,” says Mr Terrab.

“The zero-sum mentality is still to be found, as is the fear of damaging IAM. But I estimate that IAM will retain 60 per cent of its market share. Which means it’s a win-win situation.”

© Financial Times