Saturday, February 9, marks the deadline for a new round of bids on Tunisia’s first private GSM license. Five companies have purchased the documents required to participate: Spain’s Telefónica Móviles, Holland’s Mobile Systems International (MSI), Egypt’s Orascom Telecom, Kuwait’s Wataniya Telecom and Telecom Italia. In an earlier tender held in summer 2001, the Ministry of Communications (MoC) rejected a bid by Telefónica Móviles for about $380 million.
The MoC has repeated its July 2001 asking price of 800 million Tunisian dinars ($537 million) for the license in this North African country of nearly 10 million people. The tender will be closed—each bidder is to submit a non-negotiable offer—in a format designed to extract each company’s highest bid.
This analysis assesses the Ministry’s threshold of tolerance for new bids, explores Tunisian mobile market conditions and their impact on the value of the license, benchmarks the license asking price with fees paid in other North African and Middle Eastern countries, and concludes with a view on whether the license is worth the asking price.
THE PYRAMID PERSPECTIVE
Eased terms and added incentives signal the Ministry’s ambitions…
Tunisia’s MoC turned down a $380 million bid for a GSM license when global telecoms market conditions were already poor. In this, its second tender for the license, there is every indication that the Ministry remains determined to come close to its $537 million asking price. It eased the barriers to entry for participants in the tender. The revised terms of the license also feature reduced interconnection fees and an expanded license duration—from 15 years to as many as 25 years pending two five-year renewal applications.
In advance of this week’s bid deadline, the MoC has also moved to change a tax law exempting Tunisie Telecom from value-added taxes (VAT). The state-owned operator had been paying an annual fee to the government in lieu of taxes. With the company’s formal privatization and licensing, Tunisie Telecom will join its new competitor in paying an 18 percent VAT on gross earnings, in addition to a five percent tax on net revenues. This added transparency and parity is another selling point designed to indicate added value to bidders.
… But robust subscriber growth hinges on reduced connection fees
To what extent does market potential warrant the government’s asking price? Our forecasts for mobile penetration in Tunisia point to robust uptake in the years ahead, provided both incumbent operator Tunisie Telecom and its new rival dramatically reduce connection fees from the current rate of TD150 (about $100) to $10 or less.
Over the past year, the introduction of prepaid subscription plans and more affordable handsets thrust GSM services into the range of affordability for more of the country’s middle- and lower middle-income classes; pent-up demand more than double the current 375,000 subscriber base has been the result.
The communications ministry’s year-end goal of one million mobile subscribers is within reach, but only if the new operator commences operations by the fourth quarter of 2002 and the incumbent’s network expansion plans aiming to double capacity win the government funding that they require.
Though falling, Tunisia’s ARPU remains higher than is neighbors’
High ARPU (Average Revenue Per User) may be a critical distinguishing factor for the Tunisian mobile market. Mobile subscriber ARPU in Tunisia remains among the highest in North Africa, ending 2001 at approximately $35 per month. This relatively high figure stems in large part from the preponderance of postpaid subscribers, still more than 65 percent of Tunisie Telecom’s mobile client base.
Prepaid services became available for the first time last year, and uptake has been brisk. Not only do most first-time subscribers opt for prepaid plans; some current postpaid customers are switching over to prepaid due to the prevalence of billing errors experienced with Tunisie Telecom. We predict that mobile subscriber growth in Tunisia will be fueled by prepaid subscribers, mirroring a regional trend. A commensurate drop in ARPU will be likely over the next few years. Nevertheless, it will consistently outstrip Moroccan ARPU.
Regional benchmarks: Tunisia’s asking price is steep but not outlandish
Exhibit 3 compares the price per head proposed by Tunisia’s MoC for its GSM license with license fees per capita paid in Morocco, Algeria, and Turkey. It bears noting that differences in the terms and duration of each license complicate dollar-for-dollar comparisons. Nevertheless, Tunisia’s aggressive asking price emerges clearly enough against this regional backdrop.
The MoC can plausibly argue that Tunisia’s $2,070 GDP (Gross domestic product) per capita relative to its neighbors’—approaching twice that of Morocco—makes the value per head of its GSM license that much greater. Although Algeria’s $1,800 GDP per capita runs a close second to Tunisia’s, the distribution of wealth is less proportionate due to the predominance of Algeria’s oil industry and the toll taken by years of violent domestic conflict.
Tunisia stands in a unique position in the North African market in terms of a GSM operator’s revenue earning potential per head. The new operator will enter a relatively high-income but raw market and compete with a single state-owned rival. Whether these factors are worth the $15 to $25 per head premium that the government demands is another question. At around $40-50 per head, Tunisia’s license fee would be steep, but hardly outlandish compared to similar licensing in emerging markets or 3G licensing in Europe. Above the $50 per head mark, we believe it is an extremely risky proposition.
In the end, the success of this tender from the government’s point of view may boil down to a question of timing, given the current lack of appetite for costly telecoms projects in financial markets.
Joseph Braude, Pyramid Research
This Perspective provides Pyramid’s view on a significant development in the communications industry. Perspectives are a component of Pyramid’s Advisory Services.
© 2001 The Economist Intelligence Unit Ltd. All rights reserved. Pyramid Research is a division of the Economist Intelligence Unit
© 2002 Mena Report (www.menareport.com)
