Telecommunication market in morocco: development, liberalization, and competition
- Autores: Soumaya Amassaghrou
- Directores de la Tesis: Carlos Gutiérrez Hita (dir. tes.)
- Lectura: En la Universidad Miguel Hernández de Elche ( España ) en 2022
- Idioma: español
- Tribunal Calificador de la Tesis: Nikolaos Georgantzis (presid.), Jose Antonio García Martínez (secret.), Vicente Royuela Mora (voc.)
- Programa de doctorado: Programa de Doctorado en Economía por la Universidad de Alicante; la Universidad de Murcia; la Universidad Miguel Hernández de Elche; la Universidad Nacional de Educación a Distancia y la Universidad Politécnica de Cartagena
- Materias:
- Enlaces
- Tesis en acceso abierto en: RediUMH
- Resumen
Telecommunications Market in Morocco: development, liberalization, and competition.
TESIS DOCTORAL Programa de Doctorado en Economía (DEcIDE) Presentada por: Amassaghrou Soumaya Director: Carlos Gutierrez Hita Executive summary. An overview of the Moroccan Telecommunications Sector.
The development and expansion of telecommunication services is crucial for sustained economic growth, especially for developing countries such as African countries. Indeed, to keep up the pace of growth behind developed countries, African countries are supposed to increase the competition in their market. Moreover, they need to adopt the new technological progress in the industry sector as well as in the telecommunications sector at a faster rate to improve the quality of the services offered and drive down costs. Concerning the telecommunications sector, the privatization of the state-owned company (the incumbent), along with an efficient liberalization sector under clear regulatory rules, are necessary measures to achieve sustained economic growth.
The attractiveness of the developing countries for foreign direct investment would be closely connected to the development of telecommunication services in these countries. Indeed, the process of privatization has been realized through the attraction of private investors. Developing countries have been active in this sense; they have applied many strategies to bring foreign investments into the market. One of these strategies that have stood out for its controversial effect is the exclusivity period, which implies a concession of monopoly power to the newly privatized incumbent, that allows it to operate as a monopoly for a few years. However, this strategy raises debate over its real effect on the market. Wallsten (2000) shows that the exclusivity period has a negative impact on investments in the market, reducing the number of infrastructures deployed.
Generally, privatization took place in the continent in the early nineties, in order to overcome the poor performance of the state-owned company, to accomplish the rules of international organizations (for instance the World Bank), foster competition, and allow the market to effectively absorb the technological progress. However, despite the process of privatization in the continent has been carried out progressively, in 2008 only 44% of the state-owned companies were fully privatized (ITU 2008). Although privatization is an ongoing process, the dominant position of the incumbent company in the fixed-line market (including voice and broadband facilities) has not undergone any significant change. In contrast, the mobile market is getting more competitive. Gebreab (2002) analyzed the impact of privatization, among other factors, on the diffusion of the mobile market and showed that privatization fosters competitiveness in the market. Furthermore, he outlined that the fixed lines segment is a complementary service to the mobile market, and attributed this relationship to the positive externalities, where the increase of fixed lines subscribers has an impact on the upsurge of mobile subscriptions.
African countries follow almost the same patterns of development in the different segments of the telecommunications market. Gebreab (2002) points out that the mobile segment has evolved considerably in comparison to fixed-line services. For example, in the African continent in In 2004 almost 75% of telephone subscribers used mobile. Regarding the fixed infrastructure, one can say that, overall, the African continent remains unwired, mainly because there is a lack of investment in the broadband network. Indeed, Next Generation Access (NGA, hereinafter) technologies relate to 3G and 4G access, whereas fixed fiber connections remain scarce not only in the rural sector but also in medium and big cities across the continent.
Moreover, although the diffusion of the mobile network is wide, they are also dependent of the fiber optic infrastructure, which in turn becomes an entry barrier to new competitors. This underinvestment would hamper the competitiveness and economic growth in the continent. This African panorama is the context in which Morocco's telecommunication market is evolving.
The Moroccan telecommunications market The telecommunication market has undergone profound changes due to a deep technological progress in the last twenty years. This progress is the result of a downward trend of costs, which put in doubt the utility of the natural monopoly of the state-owned company. The liberalization of the market was also the response to huge demand increases and the new challenges of the internet society. Moroccan authorities were aware of the necessity of privatization, launching Law 24/96 1997, the first stone in this process. The main aspects of the law were the creation of two public companies: the telecommunication operator IAM (Itissalat Al-Maghrib), and the postal operator BAM (Barid al Maghrib), as well as the creation of the Agence National de Réglementations des Télécommunication (ANRT) the national regulatory authority of the Moroccan telecommunications market. The ANRT is not completely independent of the Moroccan government. Indeed, the agency is operating under the supervision of the prime minister and other 8 ministers through the board of directors.
The next step of the liberalization process was the privatization of IAM, the state-owned operator: the government sold 35% of the state´s equities to Vivendi group in 2001. The process of liberalization was gradual over two decades. In 2004 the government offers 14,9% of its capital in IAM through an international public offering. It was the first international equity offer of a Moroccan company. Later on, in 2005 Vivendi increased its stake from 35% up to 51%, whereas the other 2% was transferred to Vivendi in 2007 by the financial public company Caisse de depot et de Gestion (CDG, hereinafter). In 2013 Vivendi announced the change of the ownership stake, transferring its 53% to Etisalat. The last step of privatization was the offer of 8% to private investors, undertaken in 2019. We must mention that gradual liberalization was not always a response to the requirements of the liberalization and privatization of the market. In the last transaction in 2009, analysts point out that the sale of 8% of the state´s equities was a measure to increase the expenditures without increasing the taxes. It was a clear response to social discontent. The other channel aiming at fostering competitiveness in the market is the reduction of entry barriers, which may allow new competitors offer fixed and mobile services.
i. Players in the market There are three operators in the market: Etisalat al-Maghrib (IAM), Medi Telecom (MEDITEL), recently branded Orange, and WANA. IAM ´s shareholders are Etisalat which owns 53% of the total equities. The Moroccan treasury, which represents the Moroccan state, holds 22%. The rest of 17% are owned by IAM´s staff and listed on Casablanca and Paris stock exchanges. MEDI is owned by ORANGE group, which holds 49% of the equity. The rest of the shareholders are held by CDG, and Finance Com, a private investor. Both of them own 25,5%. Finally, WANA is a subsidiary of Al Mada and the Kuwaiti group Zain. The former owns 31% of equity and the latter the remaining 69%.
MEDI arrived on the market in 1999 after being granted a GSM license. It competed with IAM only in the mobile segment, despite it was granted an NGN license and 3G license in 2006. Indeed, MEDI has always favored investment in mobile infrastructure at the expense of fixed infrastructure. This bias was also manifested when ANRT mandated the local loop unbundling in 2008. Despite this measure, MEDI only made 200 requests to share the incumbent´s network infrastructure. In 2015 it obtained 4G license. WANA joined the market in 2006 when a 3G and NGN licenses were granted. Unlike MEDI, WANA showed more interest in investing in fixed infrastructure. For instance, it invested in CDMA (Fixed line restricted mobility), although it was unsuccessful. WANA also made 1300 requests until 2016 to share the incumbent´s network infrastructure. It acquires a GSM license in 2009, and 4G license in 2015. IAM, the former state-owned company, maintains its dominant position in the fixed broadband market (mainly ADSL connections) with a market share of 99.93 % (ANRT 2020). The competitors´ choices regarding not competing in the fixed market are mainly the results of the narrow demand and regulatory factors that are discussed in the following sections.
ii. Social impact of the telecommunication sector in Morocco.
The development of information and communication technologies (ICTs, hereinafter) has experimented a noticeable increase due to the commitment of public and private players to reach their objectives. Indeed, this sector is considered one of the drivers of other strategic sectors in the country. Following European Commission guidelines, ICTs are considered the technologies underpinning the digital economy. ICTs combine services and manufacturing industries whose products fulfill and enable the function of information processing and communication by electronic means including transmission and display (OECD). The development of this sector may trigger economic growth. It is well-known that technological progress contributes to the creation of wealth. Some works attempted to assess this impact. In Fernández et al. (2020) empirical results suggest that ICTs deployment and development have a positive impact on the economic growth of countries that are within the umbrella of European developed countries. A similar empirical study was carried out by Bahrini et al. (2019), where they found that the development of information and communication technologies, except fixed telephony, in the Middle East and North Africa (MENA) and Sub -Saharan Africa (SSA) is the main driver of economic growth. Indeed, the diffusion of mobile services brings about the reduction of digital breaches when reaching remote areas and thus, it contributes to integrating the rural population into economic growth, fulfilling the aim of an inclusive economy.
The social impact of the development of the telecommunications market is reflected in the direct consequence of the development of ICT sector. Morocco's case illustrates the extent to which policy measures may support the ICTs sector, aiming at the creation of employment among the young population and stimulating firms to be at the forefront of technological progress. Indeed, the engagement of the government in investing in network infrastructure was fostered by cooperation with international programs such as The Rockefeller Foundation´s Digital Jobs Africa program, which aims at promoting youth employment in developing countries through the removal of remote work activities from developed countries to developing countries. The integration of the youth population into the ICTs sector aims also to provide this segment with digital skills that will contribute in the future to open new horizons for them.
Overall, it is an upsurge sector that benefits from the geographical proximity to Europe, lower labor costs, and high penetration rate of mobile connections (both voice and broadband services). It has consolidated the competitiveness of the telecommunications market, particularly mobile services. One of the sectors that is based and related to ICTs is offshoring, which is an important sector that has driven the development of the Moroccan economy. It has witnessed a huge amount of foreign investment. Moreover, it creates around 120.000 new employments. Investing in telecommunication infrastructure attracts offshoring outsourcing activities. The commitment to develop the telecommunications network infrastructure stems from the aim of the government to stimulate economic growth through the attraction of foreign investment by offshoring outsourcing. Business process outsourcing contributes 0,3% each year to GDP growth.
The above-mentioned consequence of the development of the telecommunication market, would hamper immigration by opening new horizons for the youth population and preparing the country to build up the basis of new economic tissue by creating an ICTs competitive sector capable to maintain a high rate of economic growth. The contribution of ICTs sector to GDP growth may enhance in somehow the propensity of the consumers to purchase higher telecommunications service quality, which in turn encourages the companies to upgrade their network and, consequently, create a reliable infrastructure that attracts foreign investment into ICTs sector. The Moroccan government must double the effort to develop ICT sector, in order to encourage the population to purchase broadband fixed service and reduce the incumbent market power. The development of next-generation access networks is entrenched to the competitiveness in the market.
iii. Economic analysis of the Morocco telecommunications market.
As we have mentioned above, developing countries experimented with a huge diffusion of mobile services to the detriment of fixed services. In this subsection, we will examine the relationship that exists between these two segments of the market. Despite the upsurge of mobile services, fixed infrastructure would never disappear, because mobile infrastructure also depends on it.
Furthermore, new technological progress such as NGA by fiber connections is provided through fixed infrastructure. This raises the question of the relationship that has to exist between mobile and fixed infrastructure in order to enhance competitiveness and innovation.
At the beginning of the liberalization of the market, we should assume that an interaction between the evolution of mobile technology and regulatory measures took place. Thus, the liberalization could have laid out the foundation of a rapid spread of the new technology, and vice versa, the emergence of mobile services has increased the regulatory authorities’ commitment to achieving their goals. However, the most interesting impact is how the mobile network affected the evolution of the fixed network. The relationship between these two technologies becomes explicit in 2002 when mobile subscribers overcame fixed-line subscribers (ITU 2003). Thus, in a decade customers’ preferences moved to the mobile network from the fixed line network. This trend stems from the lower cost and rapid deployment of mobile infrastructure, which in turn spur the interest of new entrants to invest in it. Furthermore, in most African countries, including Morocco, the fixed line infrastructure has been controlled by the former state-owned company.
As a result, the competitiveness was lower and private fixed-line operators found it impossible to compete by lowering the tariff. Nevertheless, some countries where the penetration rate of fixed infrastructure was higher, tried to integrate both technologies in order to gain more market share or maintain their customers’ loyalty in an attempt to stop the migration to other mobile competitors.
In the 2012 OECD report, it is highlighted some forms of fixed and mobile network complementarity. Indeed, fixed operators tried to adopt a dual mode to provide a single telephone service. This fixed and mobile network complementarity consists of making VoIP calls from mobile through Wi-Fi or broadband access at a reduced tariff (OECD 2012). Thus, the aim of this tool of integration between fixed and mobile infrastructure was to encourage customers to use their mobile handset through access to fixed infrastructure services and, therefore, impede the customers to link the mobile handset only to mobile infrastructure service. This strategy was implemented in the first decade of the XXI century, but it failed in most OECD countries, except France.
Mobile infrastructure is cheaper than fixed infrastructure which attracts more consumers to the market. Thus, mobile technology is less sensitive to economies of density which encourage the entrants to reach remote areas and accomplish universal services. These savings in costs contribute to the interest of regulatory authorities in the relationship between mobile and fixed infrastructure. Therefore, the observed tendency is the replacement of fixed infrastructure with mobile one. The relationship between the two services is determined by several factors. On the demand side, if the costs of mobile services are lower, it may encourage low-income communities to get access to mobile service, which was previously unaffordable. Therefore, mobile services could have increased the penetration rate of telecommunication services helping to spread the use of this technology in low-income countries.
The OECD in one of its reports highlights the importance of competitive mobile infrastructure to enhance the spread of universal services. They state that in those markets where competition in both fixed and mobile networks is high, there are more prone to growth and innovation. However, this impact in relatively high-income countries is lower. Indeed, in such countries, there is a higher penetration rate of the fixed market and thus, access to mobile services would be encouraged to benefit from the added value that offers the mobile services connections. In this case, both technologies could be complementary. In general, fixed-line services are related to fixed broadband technology, while mobile services are bundled with mobile broadband technology.
Therefore, the veritable relationship between mobile and fixed infrastructure might be resumed by the interplay between fixed and mobile broadband technologies, as traditional voice services are becoming obsolete. This raises the following question, does the relationship between mobile and fixed infrastructure determine the evolution of the penetration rate of broadband infrastructure? If the answer is positive, regulatory authorities should take into account the fixed-mobile substitution in order to establish the optimal framework to encourage the expansion of broadband infrastructure.
In what follows, I present three chapters containing the main issues discussed in this work. For this aim, I set up a model that assesses the deployment of the NGA in the market. In addition, by using different data sources, I have conducted two studies assessing the evolution of the fixed and mobile Moroccan markets.
Description of the following chapters In chapter 2, I analyze the overall evolution of the telecommunications market. I use concentration indexes to study the extent to which the market evolves towards a somehow competitive market.
First, I focus on the fixed and mobile markets. Second, I present an econometric study where socioeconomic indicators and microeconomic variables are used as determinants of the Herfindhal-Hirshman index. The main conclusion of this chapter is that the mobile market is the sector that has introduced competition in the telecommunications market. However, the fixed market remains almost monopolized in hands of the former state-owned company.
The situation in the fixed market motivates chapter 3, where I present an oligopoly model to investigate access to the broadband market in the fixed sector. Indeed, access to the broadband market is crucial to introduce dynamism in the sector because the penetration rate is low.
As new customers show interest in accessing fixed broadband connections, the market may reduce the concentration. One of the features that determine the evolution of this market is the new generation technologies (NGA), mainly fiber connections.
In the model, I assume that a new entrant may offer broadband connections by accessing the unbundled local loop or investing in NGA. An important feature of the model is that these two types of connections can be viewed as perfect substitutes when the affordability of the service is the main concern of the consumers. Overall, I found that the entrant competitor may find it profitable to invest in NGA when the access fee to the local loop is higher enough and the fixed costs to deploy the new technology can be spread over a sufficient period of time. Moreover, consumer surplus is larger when the new entrant invests. Finally, these results strongly depend on the privatization decision of the state-owned company.
Chapter 4 is an assessment of the evolution of the mobile market, which is the most dynamic sector. In this chapter, I investigate the extent to which the Moroccan mobile market is a competitive market and its evolution during the period 2004III-2020IV. Our findings suggest that, after almost 20 years of the liberalization process, the Moroccan mobile market exhibits an increasing degree of competitiveness, where three active companies operate. The former monopolist, the state-owned firm IAM, has been largely privatized. By 2020, 78% of the total equities were in private hands. Market shares of the three operators tend to be similar. It was mainly because of the continuous market share losses of IAM in favor of INWI, which seems to be more aggressive when capturing customers. Moreover, the evolution of concentration indexes and results of the econometric analysis has shed light on the degree of competitiveness.
The evolution of operators’ competitive behavior during the period under study seems to be determined by the technology access, the regulatory body of rules, the evolution of the demand, and the level of privatization of the state-owned operator. As technology is widely spread and the demand is continuously increasing, the only way to increase profits is to compete for attracting customers, which yields lower prices. Indeed, as the market share increases, off-net prices decrease because the termination rates payment also decreases, yielding to overall lower prices.
As long as all the companies follow this behavior, market power cannot be exerted largely, keeping operators’ profitability at relatively normal levels and thus, enhancing consumer surplus.
Moreover, policy measures of privatization of the state-owned company, as well as market forces, such as the increase of the penetration rate, have incentivized companies to capture new customers contributing to become the market more competitive, especially with regard to prepaid programs.
