Arab Advisors Group
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Tunisia's second GSM license: Is the emphasis on upfront license fees hurting the GSM markets in Arab North Africa?
Wednesday, March 27, 2002

A new research report from the Arab Advisors Group examines the award of the second GSM license in Tunisia to Orascom Telecom. The dear upfront license fees paid for North African GSM licenses may not bring about an optimal situation, Arab Advisors Group points out.

The Tunisian second GSM license saga is finally over. After delays, and even a cancellation of a tender process, the tender has finally been awarded to Orascom Telecom which bid US$454 million for the license. Tunisia's GSM tender attracted several international investors. One bidder was Telefonica Moviles, which bought Morocco's second GSM license in 1999 as part of the Telefonica and Portugal Telecom consortium. Another bidder was Telecom Italia, which paid US$2.25 billion for Turkey's third GSM license, not including US$344 million in value-added tax payments. Kuwaiti National Mobile Telecommunications (Wataniya), one of the duopoly GSM operators in Kuwait was also one of the bidders.

A new report, entitled Orascom Telecom snatches Tunisia's second GSM license, was released to the Arab Advisors Group's ( Strategic Research Service subscribers on March 27, 2002.

"Orascom Telecom's consortium, has, by acquiring the Tunisia GSM license, managed to increase Orascom Telecom's GSM licenses in the Middle East and Africa to 21. Naturally, with Orascom Telecom slated to sell its controlling stake in Telecel (the pan-African GSM operator) it stands to shed nine of its sub-Saharan African licenses and to remain with 12 GSM operations." Wrote Ms. Hala Baqain, Arab Advisors Analyst in the report.

"The new license gives Orascom Telecom an envied presence in Tunisia after it secured one in Algeria last year. Both countries have notoriously underserved GSM markets and have lower affordability barriers than in Egypt and Morocco, two Arab north African countries with a far more impressive GSM uptake than Algeria and Tunisia" Ms. Baqain said. As www.arabadvisors.comshows, by year-end 2001 Tunisie Télécom, The GSM penetration rate in Tunisia stood at 3.6% which is one of the lowest in the Arab World (higher only than Syria, Algeria and Sudan amongst the major Arab markets).

It worthy of note that North African GSM licenses have been selling at dear prices. In 1998 Egypt sold each of its two GSM licenses at more than US$0.5 billion. It was followed by Morocco, which sold its second GSM license at close to US$1.1 billion and then came Algeria in 2001, which sold a second GSM license for US$737 million. The Tunisia license sale confirms the trend: Comparing the value of Tunisia's license per capita with the other countries, Tunisia has the highest value per capita at US$45. Naturally License terms differed markedly, which makes strict per-capita-comparisons not very accurate. For example, the Egyptian government collects hefty annual license fees on each subscriber from the two operators while the Moroccan, Algerian and Tunisian governments simply collect the upfront license fees and even offer tax incentives for the operators. Moreover, Algeria and Tunisia stand to collect the fees in two installments. Finally, the three countries of Algeria, Tunisia and Morocco offered international gateway rights for the operators and in the cases of Tunisia and Algeria extendable license durations.

The Arab Advisors Group believes that the emphasis on upfront license fees may not carry optimal results for the Arab communications markets and consumers. Like it or not, hefty license fees are financed by loans that operators will have to pay back. As such, license fees eventually come out of the pockets of consumers, who will pay higher rates than the global average. Moreover, operators burdened from the start by license fee loans, may be less inclined to invest heavily in their infrastructure and quality of coverage.

"Licenses that include revenue sharing over the license duration, as well as quality and coverage conditions, may be much better than licenses that are designed to maximize an upfront license fee at all costs" Ms. Baqain said. "The lifetime value (total cumulative value) of the Egyptian licenses -measured by total government collections over the license duration- will end up being the highest amongst the licenses examined even though it had the lowest per capita upfront license fee." She concluded.

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