Inside the failure of Algerian telephone operator Lacom

2008-11-21

Private Algerian telephone company Lacom blames the company’s collapse on the failure of the ARPT to remain neutral after the market was opened up to competition.

By Lyes Aflou for Magharebia in Algiers – 21/11/08

[Getty Images] Egyptian Naguib Sawiris, chairman of Orascom Telecom, accused Algerian authorities of interfering in the telecom market.

When Lacom rolled out its own fixed-line telephone and internet network in 2006, the private company expected to create competition for state-run Algerie Telecom, while subscribers hoped for good service and prices.

Things did not exactly turn out as planned.

The decision to declare bankruptcy was made at a general shareholders' meeting in Cairo on November 9th.

"We have recorded losses of $42m dollars over 2006, and cannot continue to invest any more in Algeria," said Beshir Akil, CEO of majority shareholder Egypt Telecom.

Akil blamed Algerian regulatory authorities in part for the failure, for not having "followed up on [Lacom's] request concerning unbundling with historic operator Algerie Telecom".

Lacom is the trading name of the Algerian Telecommunications Consortium, which was formed by Egyptian firms Telecom Egypt and Orascom Telecom as part of a successful 65 million-dollar bid for the first private-sector fixed telephony licence in Algeria.

The company commenced operations in early 2006, rolling out its own fixed-line telephone and internet network across Algeria. It provided local, national and international service, using a 3G wireless network built on NGN (Next Generation Network) technology.

Banking on a boom in the telecommunications market in Algeria after deregulation, the company forged ahead, offering a telephone line and internet connection at an affordable price of 1,000 dinars, with free equipment and installation. The equipment included a modem, handset and external antenna. The services were backed up by a vigorous advertising campaign and reputedly excellent customer service.

Baya Merrad was an early Lacom subscriber. Merrad, who lives in the Bananiers district east of Algiers, said the company's employees would often call to check on her connection performance.

"They would come and ask if it was working properly, and would then go on to ask if any of our neighbours would like to know about Lacom and its services," she said.

They were even quick to change her modem at no extra cost when it was burned out by a power surge, she recalled.

But Lacom never attracted more than 20,000 customers, and even they began to complain of poor call quality and service.

Worse still, the company could not meet the commitments regarding national coverage contained in its operating framework, which prompted intervention by the Post and Telecommunications Regulatory Authority (ARPT).

Lacom management blamed the worsening situation on the failure of the ARPT and other institutions to remain neutral after the market was opened up to competition. This favouritism, they alleged, gave state-run Algerie Telecom an unfair advantage.

Orascom CEO Naguib Sawiris said the Algerian authorities' disregard for the rules of fair competition "killed us off".

"As soon as we started operations," he told reporters, "Algerie Telecom reduced its prices to below cost. We complained, but in vain."

In June 2006, the ARPT ruled against Algerie Telecom, putting a stop to a free offer made by the company that was judged to be unfair.

"We felt this offer was illegal and unfair, especially as Lacom had only just set up in Algeria and there was a long way to go before it could be a potential competitor," said Mohamed Belfodil, chairman of the ARPT board of directors.

Despite these early administrative challenges, however, it was the technology that may have killed Lacom. The Egyptian shareholders judged they had made a poor decision in opting for the Chinese WLL wireless system, which proved to be too slow to provide reliable internet service.

Short on cash, the company slashed its staff and closed a number of boutiques, leaving only a single store open in the capital.

Its financial constraints proved insurmountable, and Lacom was soon unable to honour its interconnection costs with mobile operators and Algerie Telecom.

The ARPT has defended its actions, citing a lack of guiding legislation on this matter. According to one ARPT manager, the agency refused to accede to Lacom's request to use WiMax technology, since the group had yet to honour its commitments regarding network coverage.

Furthermore, he said, Lacom's shareholders expected numerous concessions from authorities without taking any financial risk.

Speaking at a recent visit to the Sidi Abdellah Cyberpark in the Algiers suburbs, Post and Information and Communication Technologies Minister Hamid Bessalah said the government will soon invite new companies to bid on the fixed telephony licence.