Paradigm Shift In Ethiopian Telecommunication

Habtamu Wondim, Selamawit Getasew, Kebebush Meresaeta

Abstract—— In Ethiopia’s situation, privatization might have The lessons learned during the last four decades in terms
farreaching consequences, such as reducing the government’s of setting privatization objectives, identifying preconditions,
reliance on the supplier credit system and its over-reliance on This research is therefore focused on SMEs in Sub-Saharan
Chinese equipment suppliers to expand communications services
in the future. In addition to reducing debt, network development Africa using cloud technologies. This is to anticipate the future
through privatization is likely to result in increased revenue, acceptance of, and parallels with, cloud solutions on the mar-
which will benefit public tax collection and the reduction of the ket as well as challenges related to adoption of cloud-hosted
national debt. Privatization, on the other hand, generates a slew applications. Small and medium-sized businesses in Nigeria
of political, economic, employment, distributional, security, and regarded early adopters in sub-Saharan Africa. However, the
regulatory issues. If privatization is not properly implemented,
it may result in limited investment, higher service rates, or definition of SMEs will vary substantially from place to
the continuance of current low service quality levels. Because location to economy. executing a smooth privatization process,
reduction is often accompanied by privatization, the detrimental and dealing with post-privatization challenges are critical to
effects on employment would need to be limited. The privatization the initiative’s success.
process includes the enactment of a telecom law, reorganizing In Ethiopia’s situation, privatization might have farreaching
the incumbent to improve sales value, transaction design, asset
appraisal, and the formulation of tendering criteria, followed by consequences, such as reducing the government’s reliance on
transaction implementation. Although the establishment of a na- the supplier credit system and its over-reliance on Chinese
tional regulatory agency and the introduction of competition are equipment suppliers to expand communications services in
generally prioritized on monetary grounds, longer-term gains are the future. As important as the privatization process is the
best realized through the establishment of a national regulatory formation of a capable and competent regulatory authority that
agency and the introduction of competition. As important as the
privatization process is the formation of a capable and competent promotes competition, discourages anticompetitive practices,
regulatory authority that promotes competition, deters anti- protects consumers, examines and approves tariffs in non-
competitive behavior, protects consumers, examines and approves competitive markets, and manages scarce resources. Ethiopia
tariffs in non-competitive markets, and manages scarce resources. has not built a telecom policy or regulatory capabilities in
I. OVERVIEW the last three decades, and these features must now be de-
veloped quickly. In order for privatization to provide long-
According to the prime minister, transferring a state-owned
term benefits, it must be wellmanaged and under solid gov-
corporation like Ethio Telecom from public to private hands
ernment ownership. To reduce the possibility of corruption,
entails selling firm shares to foreign and domestic private
the privatization process must be transparent and equitable.
investors, with the government keeping a ”golden share” that
Implementing well-designed and sequenced reforms, as well
allows it to outvote all other shares. Multinational firms like
as establishing a robust corporate governance framework with
as T-systems in Germany and MTN in South Africa have
continual communication on the privatization process, should
expressed interest in the EthioTelecom privatization announce-
be prioritized.
ment. Ethio-Telecom’s assets have started to be valued by
the government. The prime minister established a twenty- II. THE ENVIRONMENT OF
one-member Privatisation Advisory Council in August 2018 TELECOMMUNICATIONS
to guarantee that the process is transparent and accountable. A. A SUPPLIER CREDIT LOAN FOR DEVELOPMENT IN
Rather than appreciating the higher dividends that would THE TELECOM SECTOR
result from a partially privatized company, as well as the
While the conditions of the loan have not been released,
corporate taxes of competitors who would expand the market
China EXIMbank concessional loans normally feature a 2
and thus the tax base for the government, there is concern that
percent interest rate, a five-year grace period, and a 10-year
Ethio Telecom’s annual revenue will be lost or decline as a
repayment period. According to a Wall Street Journal story,
significant source of revenue for the government.
the first tranche’s repayment time was 13 years. This means
that the first and second tranches of over 4 billion Dolar in
debt must be repaid by 2031. Using savings from the vendor includes four sub-indices, one of which is the environmental
financing plan and additional resources from the operator, indicator, which assesses the political and regulatory frame-
expansion proceeded in 2017. By the end of 2018, there were work as well as the business and innovation environment.
41.1 million active mobile SIM cards, with an anticipated The country’s readiness in terms of infrastructure and digital
36 million more on the way. According to Ethio Telecom, content development, affordability, and skills is assessed in the
18 million SIM cards are currently unused and ready to be second sub-index. Ethiopia is even worse off in the ITU ICT
redistributed. Development Index, where it ranks 170th out of 176 countries.
.
B. A CASH COW OR A LOW FREE CASH FLOW
Ethio Telecom is the country’s main source of revenue,
feeding the misconception that a public monopoly outperforms III. ETHIO TELECOM PRIVATIZATION
the private sector. Ethio Telecom’s earnings have risen at OPPORTUNITIES
an annual rate of between 7 and 31 percent over the years.
Although astonishingly great, this increase came from a very
modest starting point. The total revenue generated by telecom With a population of over 100 million people and an
throughout a fiscal year is the sum of all wholesale and retail estimated customer base of 40 million active mobile users,
MTN, one of the world’s leading mobile telecommunications Ethiopia’s communication system has a lot of room for growth.
carriers, is now offering cloud computing services to SMEs While some critics have linked Ethio Telecom’s privatization
in Nigeria and Ghana (SAinfo reporter, 2013). However, few to ”selling off the cash cow” or ”losing one’s national iden-
studies have demonstrated the direct impact of ICTs on de- tity,” the benefits of privatization will outweigh the current
velopment (Heeks,2010). Bass (2011) investigated the impact monopoly communications environment. Privatization will as-
of ICTs on development in Ethiopia by noting the impact sist the incumbent operator in expanding its network and re-
of establishing an initial ICT infrastructure in educational cruiting new capital and technology into the country, as well as
institutions and offering an ICT maturity model. To the best provide chances for foreign direct investment. Ethiopia’s total
of our knowledge, this is the first paper on the adoption of debt in 2018 is anticipated to be at US29billion, withU S12.1
cloud computing by organizations in Ethiopia. To summarize, billion coming from China during the last 15 years.
cloud computing is still in its infancy in the global south, and Ethio Telecom received almost a quarter of the Chinese fi-
our research adds by filling a gap in this growing area. nancing. Privatization is intended to lower the need for further
supplier credit loans and the incumbent’s excessive spending,
C. THE CONSEQUENCES OF PUBLIC MONOPOLY ON hence assisting in the reduction of foreign exchange shortages.
TELECOM DEVELOPMENT IN ETHIOPIA – A CROSS- Privatization proceeds will also aid in slowing the rate of
COUNTRY COMPARISON public debt growth and broadening the tax base, particularly
Ethiopia is one of the world’s last countries with a monopoly if competition is introduced. Aside from significant techno-
national telecommunications provider. Only Cuba, Eritrea, and logical injections that are likely to improve the breadth and
Ethiopia have not implemented the first set of reforms initiated scope of telecommunications services, the privatization of the
by other African nations in the 1990s since the liberalization of telecommunications sector is expected to pique the interest of
the Myanmar market five years ago. Ethiopia’s insistence on a non-telecom related businesses that rely on reliable broadband
monopoly telecom system has not only reduced the country’s access, such as those in the business process outsourcing
financial benefit from the industry, but it is also one of the industry.
key causes for the country’s ICT sector development lagging The Ethiopian government has tried a variety of approaches
behind all other countries. Ethiopia lags considerably behind to increase the efficiency of Ethio Telecom, including changing
China, which it aspires to be like. top management and outsourcing, with mixed success. A
two-year management contract between France Telecom and
D. ASSESSING POLICY OUTCOMES: BENCH MARK- the Ethiopian government, signed in 2010, with the goal of
ING ETHIOPIA’S PERFORMANCE AGAINST SELECTED improving and modernizing Ethio Telecom’s overall business
AFRICAN COUNTRIES approach through the implementation of a new organizational
Because to the lack of competition, Internet use is limited, structure, failed not achieve the expected efficiency. Priva-
with only 15 Percent of the country’s population utilizing it tization is likely to increase the incumbent’s management
in 2017. Between 2016 and 2018, ICT Africa conducted na- quality. Safaricom in Kenya has more than three times the
tionally representative surveys in ten African nations, finding revenue per employee of Ethio Telecom. -This means that
an average of two to three duplicate SIMs. In the lack of privatization can boost productivity, especially if employee
household survey data, international indicators were used to stock ownership schemes ensure employee ownership of the
compare Ethiopia’s ICT sector performance to those of other organization. Governments might add service responsibilities
African countries. In 2016, Ethiopia was ranked 120th out in contracts, create pro-poor initiatives like free public WiFi,
of 139 countries in the network readiness index. The NRI or implement innovative subsidy schemes to ensure that the
is a comprehensive measure of ICT sector performance that poor receive a larger portion of the benefits.
A. PRECONDITIONS AND DETERMINATES OF PRIVATI- own backhaul networks will also aid in the expansion of
SATION broadband networks. Because regulation is often a learning
The government must make significant efforts to educate the process, privatizing in the face of an imperfectly implemented
general public, political parties, employees, business leaders, regulatory framework will succeed at first, but the lack of
potential investors, and customers on the privatization process a competition schedule will render the privatization process
and goals. - Privatization is prone to a variety of errors, inefficient.
ranging from manipulation by extractive political institutions
V. IMPLICATIONS FOR POST-PRIVATISATION AND
and elites to corruption. -Transparency in the privatization
CONCLUSION
process and account-ability of market valuation are also vital.
The privatization of Ethio Telecom is expected to be one of In a broader sense, privatization should be viewed as a
the government’s most major privatization projects. The sector, continuous process. As a result, activities like as restructuring
as well as the privatization process, are extremely important and establishing a competent regulatory body that began
because of the importance of telecommunication for economic before to privatization must continue after privatization. Im-
and social development. As a result, a thorough examination provements in corporate governance and telecommunications
of the following legislation affecting privatization will be Because of the government’s lack of experience in privatizing
required. the telecommunications sector and its insufficient regulatory
With ICT no longer being merely a sector issue, but rather capacity, it may be necessary to implement a phased transition
one that cuts across the economy and society, and the rest in which regulatory capacity is built and strong corporate
of the world preparing for the Fourth Industrial Revolution, governance of the privatized company is gradually established.
it is critical to begin the privatization process within the The government may also want to license a second national
context of a clear vision expressed in a digital policy for carrier. Interconnection, pricing, and infrastructure sharing
the country, which will include the establishment of sector become more important as a result of this.
law and communication sector regulations Ethiopia lacks a
VI. FINAL REMARKS
well-developed capital market through which to trade equities
and bonds. THE COMMERCIAL CODE HAS BEEN RE- The announcement of Ethio Telecom’s privatization has
VISED Ethiopia’s Commercial Code of 1960, which governs sparked widespread interest and increased Ethiopia’s chances
businesses, may need to be revised to ensure that the private of developing a competitive ICT sector. The privatization pro-
telecommunications company has solid corporate governance cess will not only alleviate the state-owned enterprise’s finan-
and meets its obligations as a shareholder company, such as cial burden, but will also establish a vibrant ICT environment,
reporting and auditing requirements. - which will result in more jobs and innovation. Privatization
There have been two major approaches to telecommuni- alone is not sufficient to bring about improvements in the
cations development around the world: one favors a speedy telecommunications sector. Experiences from throughout the
and complete reform process, while the other favors a more world demonstrate that the announcement of the incumbent
progressive process in which privatization is followed by operator’s privatization should be accompanied by a number
the gradual introduction of competition. Some countries that of activities. The following are the essential ingredients for a
chose privatization over liberalization ended up with private successful privatization
monopolies that did not help to strengthen the sector. With the ∗ Continuous communication of the privatization aims
partial privatization of Telkom in 1996, South Africa was one and process to ensure transparency and accountabil-
of the first African countries to do so. The short-term benefits ity to the state, private sector, and Ethio Telecom
of extending the monopoly for five years in order to maximize employees.
strategic equity partner pricing cost the country dearly in the ∗ Establishing complementing policies and a sector law
long run, with high communication prices and limited network to accelerate the privatization and liberalization of
expansion. the sector
∗ Restructuring the telecoms market and company
IV. SEQUENCING PRIVATISATION, REGULATION
∗ Establishing an independent regulatory agency with
AND COMPETITION
a plan for regulatory capacity building for staff and
Competition has been shown to have a good long-term in- decision-makers
fluence on consumer welfare, despite the fact that it may have ∗ Introducing competition in various segments of the
a negative influence on the incumbent’s price. Some countries telecommunications market
began the process by awarding a multi-year exclusivity period ∗ Implementing an innovative valuation process and
to the privatized telecommunications corporation, allowing it a proper sequencing of regulation, competition, and
to operate as a monopoly for a period of time. This means privatization, which are all important.
that the privatization process should be accompanied by a
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