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Ethiopia: Opening up Ethiotel to competition will be a big challenge

By Quentin Velluet
Posted on Thursday, 3 June 2021 13:01

Ethio Telecom headquarters in Addis Ababa. Eric Lafforgue/Hans Lucas

Ethio Telecom is increasingly the object of criticism within Addis Ababa’s highest spheres of influence. This has encouraged the Ethiopian government to initiate plans to partially privatise it as soon as possible.

Aware that its monopoly on the Ethiopian market will soon be nothing more than an old dream, Ethio Telecom (Ethiotel) has been preparing for several months to compete with its new adversary, the consortium formed by Britain’s Vodafone.

After proposing to buy mobile phones on credit, the operator with 50 million mobile customers recently launched financial services with Telebirr. This new service, which primarily targets rural areas, claims to have acquired one million customers just one week after its launch on 11 May, and expects to attract 21 million within a year.

A mobile money novice

But some experts – like this entrepreneur, who is familiar with Ethiopian Prime Minister Abiy Ahmed’s administration – are much more sceptical about this service that was created in five months by Huawei.

“Only two years ago, Ethiotel launched a call for tenders for training in data analysis. This illustrates their level of unpreparedness. There are already navigation problems with the application, so I wish them luck with data management and customer service.”

However, in an effort to modernise, the public company – established in 1952 – brought in Frehiwot Tamiru, a former Ethiotel employee, an entrepreneur trained in the UK and an expert in technological services, since 2018.

Although she has the right skill set for the job, this information systems engineer, a graduate of Addis Ababa University, is not expected to be able to quickly reform the national company’s bureaucratic functioning. “She is a bulldozer, she knows how to negotiate and protect sensitive infrastructure. Nevertheless, despite all her qualities, she cannot make things happen quickly,” says the Ethiopian expert.

Failing services

This is one of the reasons that pushed the Ethiopian government to open up the market and begin partial privatisation of a sluggish operator that disappoints even the highest levels of government.

“The heads of the ministries think like the average consumer. They are fed up with Ethiotel’s monopoly. Some institutions refuse to pay their bills because they do not feel that the service is up to scratch,” says a contact in Addis Ababa. And yet, according to him, Ethiotel still expects its strategic customers to pay their bills.

Partial privatisation (40% to a foreign investor and 5% to Ethiopian shareholders) is expected to help accelerate the transformation. “The documents for the upcoming transaction are being reviewed for internal approval. The expression of interest should be published within the next few weeks,” says Brook Taye, a senior adviser to the ministry of finance, without giving a precise timetable.

The first private operator licence, which was awarded to the Vodafone consortium, does not allow it to launch a mobile money business immediately. The idea is to give Ethiotel a head start to help boost its valuation.

Compensating for the loss of revenue from liberalisation

“Until now, Ethiotel could not launch this type of service because of old regulations that prevented it from doing so. The government wanted to ensure that the operator was not disadvantaged,” says Taye, who confirms the operator’s valuation is already known and should be increased following the opening up of Ethiopia’s telecoms market.

The company must now prove its capacity for innovation. “If Ethiotel does not manage to do what it needs to do, it will give room to others,” says the Ethiopian entrepreneur. In other words, although the government is inclined to favour its national flagship, if Ethiotel continues to disappoint, it will have no choice but to allow private competitors to launch their mobile money services.

The prime minister recently emphasised that his decision to cut the new telecoms licences for financial services represented a loss of revenue of $500m for the country, which Telebirr must compensate for.

Opening up to competition, therefore, appears to be a great challenge for the government operator. And the future shareholder will have a lot of work to do to make it move forward.

“Being a minority shareholder in Ethiotel will not be a pleasure because, as in any takeover of a public operator, it will be necessary to reduce wages and bring an ageing network back up to date, which today costs more than building infrastructure from scratch,” says Dominique Baron, general manager of the Horus Telecom & Utilities firm, which specialises in strategy and management of technology companies.

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