Eyes USD 1.8 billion in revenue from infrastructure lease
After series of negotiations and deliberations, the National Bank of Ethiopia (NBE) has finally given the greenlight to the national telecom company, Ethio telecom to start mobile money services.
Ethio telecom has submitted its application to the NBE asking for license to launch a mobile banking service in the country, last year. The management of Ethio telecom has been in talks with the central bank for more than a year. After marathon negotiations the regulatory body of the financial sector has given a nod to Ethio telecom to launch mobile money.
Last April, NBE issued a directive dubbed the Licensing & Authorization of Payment Instrument Issuers, allows transactions to be performed through mobile phones after customers deposit a sum with an agent. According to the directive financial transactions using any mobile money service will use the banks as a trust account for the deposited funds.
At a consultative meeting Ethio Telecom held with IT and start-up companies on the on-going national telecom reform program, CEO of the company, Frehiwot Tamiru, disclosed that NBE has given permission to Ethio telecom to start mobile money service. Frehiwot said Ethio telecom will establish a wing—strategic business unit—that will work on the mobile money service. “The new business wing will be regulated by the NBE not by the Ethiopian Communication Authority (ECA),” Frehiwot said.
According to Frehiwot, foreign firms will not be allowed to engage in mobile money services, as of now. ECA is in the process of licensing two foreign telecom operators. The NBE directive allows only Ethiopian nationals and Ethiopian diaspora to engage in financial transaction services. The telecom firms that will soon join the local telecom market will not be able to engage in mobile money services.
The Ministry of Finance (MoF) is also in the process to partially privatise Ethio telecom. The ministry hired Deloitte Consulting as its transaction adviser to look for a strategic partner that would acquire 40 percent stake from Ethio telecom.
Participants said that foreign firms are not allowed to engage in mobile money service but the international firm that would acquire Ethio telecom’s stake would indirectly engage in the mobile money business. “If mobile money service is reserved for only Ethiopian nationals how do you see the engagement of your future strategic partner?”
Frehiwot said the issue is being reviewed and a policy decision has not been made yet. Frehiwot told The Reporter that Ethio telecom would launch the mobile service as soon as possible. “I wish we could have started it two years ago,” she said.
A study conducted by Ethio telecom projects that the country can generate USD 13 billion from mobile money by 2025.
Meanwhile, Balcha Reba (Eng.) director general of the Ethiopian Communication Authority told The Reporter that the regulation of the mobile money service has to be reviewed properly. “Mobile money service involves two sectors—both the telecom and banking sector. Since it is a financial service it has to be regulated by the NBE. But, it also involves the telecom sector. Companies would provide the service using the telecom infrastructure; so ECA should also look at the telecom side. So ECA, NBE and Ethio telecom have to discuss the matter,” Balcha said.
With regards to the prohibition of foreign firms from venturing into mobile money service, Balch said the financial sector is closed to international firms for the time being. “But, there will be a financial reform program after three years and I hope that it will be addressed by then,” he said.
Local IT and start-up companies acknowledged the reform program Ethio telecom has been undertaking in the past two years under the stewardship of Frehiwot. The participants appreciated the leadership for bringing a change in service delivery. “Ethio telecom is reborn. We are witnessing a new company on the rise,” a participant said.
Some of the participants complained about internet down time and delay in maintenance service and weak mobile signal.
The local IT companies who were delighted to be invited to the consultative meeting by Ethio telecom expressed commitment to collaborate with the national telecom companies. “We want to partner and work with you. We need to have more similar forums,” they said.
However, some participants expressed their fear that the two international telecom firms that will soon join the market will lure away customers and employees of Ethio telecom. “They are coming to share your market and make profit. By delivering better service with lower tariff rates they could lure away your customers,” they said. “We do not want to see Ethio telecom disbanded we rather want it to continue operating in the competitive environment,” they added. They also asked why Ethio telecom has never gone out of Ethiopia and operate in other countries.
Frehiwot said that Ethio telecom has been preparing itself for competition in the past two years. She said the objective of the reform program is not to disband national telecom company which is 126 years old. “We have outlined a three year business strategy dubbed BRIDGE that would enable us to make Ethio telecom a competitive, preferred and profitable operator that would continue to thrive,” she said.
Frehiwot said that for the first time Ethio telecom is eyeing foreign markets. “We are working on a business strategy that would enable us to operate in foreign markets and we will make it public when we finalize the strategy,” she said.
Levi Girma, CEO and founder of BRAVOCOM, asked if the money that would be generated from the sale of Ethio telecom’s stake would be used to recapitalise Ethio telecom or if it goes to the state coffer. “Is it going to be a cash infusion or cash injection? If the money is used to expand Ethio telecom the company can be more competitive,” Levi said.
One of the most debatable issues in the telecom liberalization program is the infrastructure. The international telecom firms will have two options—to build their own telecom infrastructure or lease mobile towers and optical fiber lines. Telecom infrastructure companies (infracom) are vying to tap into Ethiopian market by building and leasing mobile towers to the new entrants. However, Ethio telecom does not want the infracoms to enter the local market.
“So much has been said about the telecom infrastructure. But we would like to hear from Ethio telecom about its infrastructure,” Levi said.
According to Frehiwot, Ethio telecom has 7,213 mobile towers and 22,000 km long optical fiber cable line. “With some enhancements, we would be able to lease our telecom infrastructure to the two operators. They could join the market swiftly if they lease our infrastructure. If they want to build their own infrastructure it would be capital intensive and it take longer time to reach out to the market. But, if they use our infrastructure it will give them an advantage on the time to market factor,” she said.
Fikru Yefter, representative of ISON Tower, furiously protested the idea of barring foreign infrastructure companies. “When the government launched the national telecom reform program we were very optimistic but now it is protecting the market,” Fikru said. “Ethio telecom has a limited capacity. Most of the mobile towers are roof top towers which cannot serve other operators. These days, telecom firms have sold out their telecom infrastructure to telecom infrastructure companies and they focus on only their core business. If you liberalize it liberalize it fully,” he added.
Frehiwot said when the telecom market is liberalized there are certain rules and regulations attached to it. “There are guiding policies and directives. We are not opening up completely,” Frehiwot said.
According to Frehiwot, the Ethiopian government has invested heavily on telecom infrastructure in the past years and should recover the investment cost. “We have established a department that will deal with the infrastructure business. There was a debate on whether the service and infrastructure divisions should be separated legally or if they should operate as business units. And we decided to keep them as business units-separated structurally.”
According to Frehiwot, the government could earn USD 1.6-1.8 billion from the lease of telecom infrastructure.
IT and start-up companies, privatization advisory council members and board members of Ethio telecom have participated in the consultative meeting. The meeting was organised up on the request of Prime Minister Abiy Ahmed (PhD). The feed backs would be compiled and presented to the prime minister in the coming few days.
Ethio Telecom has 1027 partners that provide value added services and 249,000 SIM card and voucher card distributers. Ethio telecom has 45.8 million mobile voice subscribers, 24.3 million internet and data, 248,000 fixed broadband 984,000 fixed line subscribers. As part of its effort to eliminate entry barriers, the company annually spends up to USD four billion to avail affordable devices.
Frehiwot urged local IT companies and start-ups to partner with Ethio telecom and develop local content. “Mostly, our customers use the internet to interact on social media. I strongly encourage you to develop local value-adding services. Our headache is job creation,” she said.
Tele density has reached 47 percent and coverage in terms of population 95 percent and geography 85.4 percent. The company earned 47.7 billion birr revenue in the 2019-2020 Budget Year. The company made a net profit of 28.1 billion birr. It generated 147.7 million dollars from international services. The foreign currency earning has been dwindling in the previous years due to telecom fraud. But, the company managed to revive the foreign currency earning by taking measures on telecom fraud and making tariff reductions.