Despite state-owned Ethio-Telecom maintaining a monopoly over the country’s telecommunications market, the Ethiopian government may be edging towards a more open market, embracing foreign investors and pushing to expand network, infrastructure and penetration.
Ethio-Telecom gets vast amounts of bad press for its monopoly over the market, and suffers accusations of very shady practices. However, it looks as though the government may be taking subtle steps to open up the long-locked-down telecoms sector.
Expansion through FDI
Signing a US$1.5 billion expansion deal in 2006, the government contracted three Chinese companies to carry out infrastructure upgrades across the country. This was the pivotal contract in the government’s 2007-2010 telecoms initiative.
The government’s aim was to increase mobile phone penetration to 7 million users, up from the 2006 figure of 1.5 million. Landline services were to grow to 4 million subscribers from 1 million. The companies were also responsible for installing an extra 6,000 kilometres of fibre optic cables to provide the country with a veritable fibre network structure.
The three companies, ZTE Corp., Huawei Technologies Plc., and the Chinese International Telecommunication Construction Corporation have since stayed in Ethiopia, helping the government with further expansion projects. Only last week a new $1.3 billion deal was awarded to ZTE and Huawei to carry out further expansions of the country’s network by 2015. The aim of the latest contract is to provide the necessary infrastructure to increase mobile subscription rates to 40 million.
All the expansion deals struck with the Chinese companies are subject to financing by those companies, demonstrating the acceptance by the Ethiopian government of the need for foreign direct investment into the telecoms sector.
Outsourcing management
On December 2 2010, Ethiopia also announced that it had outsourced management of Ethio-Telecom to France Telecom for a two year period, in a bid to improve organisation and service. This was the first tangible entry of a foreign entity into the internal mechanism of the state-owned company.
These agreements between the Ethiopian government and foreign investor companies strongly suggest that country may be looking to open up the telecoms market at some point in the future – the government finally giving other parties an entry into the infrastructure portion of the telecoms sector, but also granting external actors access to the internal runnings of Ethio-Telecom.
Homegrown manufacturing
Also going largely unnoticed in Ethiopia is the boom in the telecoms equipment manufacturing market. The government has endorsed 100 percent private ownership – even foreign ownership – of manufacturing companies, granting licences to over 20 proposed companies over recent years. At least three manufacturing companies have a stable output of mostly mobile telecoms apparatus from Ethiopian operations, and are even on the verge of exporting to other African destinations.
Techno Telecom Ltd just this summer entered a fourth stage of expansion that could see the manufacturer begin exporting mobile products across Africa. With over 300 employees producing 200,000 mobile devices a month, the company has seen extraordinary expansion rates since its entry on to the Ethiopian market in 2011.
Chinese company Smadl also has a good output from its Ethiopian manufacturing base, producing over 3,000 mobile handsets a day.
Tana Communication Plc is an Ethiopian-owned mobile device manufacturer, producing almost 5,000 units of apparatus per day at its regional factories at Bahir Dar.
With rumours rife that the country’s manufacturers are racing to launch Ethiopia’s own first smartphone handset by the end of the year, the manufacturing side to the telecoms business in the Horn of Africa country is already very productive, and clearly open to healthy competition from both local and foreign investors.
Growth potential
However, with a population of over 90 million people, current levels of penetration in Ethiopia still only form a drop in the ocean. Figures suggest that mobile penetration now stands at roughly 26 percent of the population, while landlines are used by 0.9 percent of the country. Internet subscription levels currently stand at 1.7 percent.
The population is growing, the need is there. With an emerging economy, Africa’s second most populated country has the potential to have a booming telecoms sector – given the sheer scale of development to be achieved. The only way to meet access demands across the country is to continue expansion – preferably by drawing in other actors to the market.
While many critics say that the government is gripping hold of the Ethio-Telecom monopoly, the indicators in fact all point to the fact that the country may be poised to see the opening of a free-er telecoms market in the relatively near future.
