Sunday, 07 March 2021

Not liberal enough: World Bank critical of Ethiopia’s liberalisation plans

by Harry Baldock, Total Telecom
Monday 22 February 21

The World Bank warned that restricting the operation of digital banking services and tower infrastructure to Ethiopian firms would mean less competition for Ethio Telecom and less rapid development in the market

The liberalisation of Ethiopia’s telecoms sector later this year is highly anticipated by many players all over the world, with the cessation of one of the world’s last telecoms monopolies in the form of Ethio Telecom offering a wealth of opportunities in an enormous market. Two new licences are up for grabs for foreign bidders, which has attracted the interest of numerous major firms from across the African continent and beyond. Alongside a consortiumconsisting Kenya’s Safaricom, Vodafone and Vodacom, named Global Partnership for Ethiopia…

The liberalisation of Ethiopia’s telecoms sector later this year is highly anticipated by many players all over the world, with the cessation of one of the world’s last telecoms monopolies in the form of Ethio Telecom offering a wealth of opportunities in an enormous market.

Two new licences are up for grabs for foreign bidders, which has attracted the interest of numerous major firms from across the African continent and beyond. Alongside a consortiumconsisting Kenya’s Safaricom, Vodafone and Vodacom, named Global Partnership for Ethiopia, other bidders include Axian, MTN Group, Orange, stc, Etisalat, Liquid Telecom and the Chinese mobile virtual network operator (MVNO) Snail Mobile.

Airtel Africa has notably said that it will not bid, instead focussing on its other African markets.

According to the Ethiopian Communication Authority (ECA), there is currently no shortlist of bidders for the licences, with the deadline for submissions set for the 5th of April.

“We wish to clarify that to date no bidder has been shortlisted, and none excluded or disqualified from responding to the RFP. There is no shortlist. It is an open competitive bidding process,” said an ECA statement.

Alongside these two new licences, the Ethiopian regulator has also mandated the sale of a 45% stake in Ethio Telecom. 

But, while this is, of course, excellent progress for Ethiopia, there is still more that can be done.

In a blog post, Ousmane Dione, World Bank Country Director for Eritrea, Ethiopia, South Sudan and Sudan, noted that Ethio Telecom was still being somewhat protected by the measures currently set in place by the regulator.

For example, the regulator has stipulated that only Ethiopian firms may offer digital financial services in the country, and foreign infrastructure companies will also be restricted from entering this market. Both of these policies are good news for Ethio Telecom, with the former allowing them to potentially dominate the national digital financial market, while the latter meaning new players will be largely reliant on leasing their infrastructure, at least in the short term. 

“Ethio Telecom has the most to gain from the expansion of the digital economy, but it is also at risk from losing market share if it fails to compete effectively. So, what approach should the government take? Should the government attempt to shelter Ethio Telecom from competition? This seems to be the motivation behind policy announcements that seek to restrict the operation of digital financial services to Ethiopian firms and nationals,” explained Dione. “But this may slow down innovation and investment in the market and may actually hinder Ethio Telecom’s own ambitions to attract a strategic investment partner from abroad.” 

“Ultimately, policies that seek to protect Ethio Telecom’s infrastructure by allowing it to charge high prices for interconnection will end up harming the company. The new operators will be Ethio Telecom’s biggest customers if prices are set fairly, through market competition. Ethio Telecom has the potential to become a regional powerhouse, but only if it is well-prepared for the competitive environment,” he said.

It should be noted that the World Bank is no mere onlooker in this liberalisation process; its private sector arm, the International Finance Corporation (IFC), is playing a major role in assisting the ECA with this transition. 

For Dione, Ethiopia’s liberalisation is a major opportunity for Ethio Telecom, but the government’s attempt to shield them from some of the initial competitive barrage offered by a newly liberalised market could in fact be hindering their development for years to come. To truly succeed, the liberalisation of Ethiopia’s telecoms sector must take that one final step to creating a freer market.

“To benefit fully from competition does not mean offering preferential treatment to Ethio Telecom but rather creating a level playing field on which it can compete fairly with its new rivals,” concluded Dione.

 

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