IHS Global Insight Perspective | |
Significance | After a range of problems in Algeria, Orascom seems to have only one option to divest from the country with minimal hassle. |
Implications | The operator was previously in plans to sell off its mobile operations to MTN; however, this was recently opposed by the Algerian government. |
Outlook | The interest is likely to be the only feasible solution for Orascom; however, it is still not certain how much the Algerian government will pay. |
The Algerian government has issued a statement saying: "The Algerian state wants to buy (Orascom Telecom Algeria), and in its entirety," via communications minister Hamid Bessalah, reports Associated Press (AP). Orascom was previously in talks with Sub-Saharan mobile operator MTN; however, last week the Algerian government opposed the deal stating that: "Any transaction concerning OTA will be void...and could lead to the withdrawal of the telephone license granted to the company," (see Algeria: 29 April 2010: Algerian Government Opposes Djezzy Sale to MTN). Prior to this, the Algerian government blocked Orascom from moving profits out of the country; further details on the matter were not provided. The operator has faced a range of battles with the regulator and government in the country. Other problems include a fine of US$597 million which was supposedly due to back taxes owed between 2008 and 2007. These problems stemmed from Orascom's construction unit selling its assets to French company Lafarge, without consulting the Algerian government; since then the operator has also faced anti-competitive behaviour issues and damage to its buildings after a football match between Egypt and Algeria.
Outlook and Implications
The Algerian government's plans to make Orascom struggle in the country seem to be because they wanted to simply buy the player. Djezzy is the leading player in the market and has been a top revenue earner for Orascom. It was clear that Orascom wanted to be a long-term player in this market making a sale very unlikely under normal market conditions. The Algerian government has put Orascom in a position where it will almost be forced to sell off Djezzy.
The Algerian government has been implementing the liberalisation process in the country over the past few years, the operator has done well to introduce three players into the market; however, by buying up Orascom's assets, the government is reversing the liberalisation process, making it an uncompetitive market once again. This is especially important now, when mobile penetration is among the highest in North Africa; products and services are needed to stimulate growth.
In July 2008 the Algerian government stated that it was against a tie-up between France Telecom and Djezzy. The governments' statement followed the announcement made by the French telecoms giant in June 2008 of considering entering the Algerian market either through the acquisition of Djezzy or the purchase of a 3G licence. Investment in Algeria would be of great advantage for France Telecom due to high call traffic between France and Algeria. FT has been in talks with Djezzy and Nedjma regarding potential acquisition or investment opportunities, having been in the past also interested in the acquisition of incumbent operator Algérie Télécom.