Fears excise tax impacts telecom penetration
Ethio Telecom, the sole telecom service provider in Ethiopia, this week expressed its concern over the ongoing telecom liberalization process.
The newly-formed Ethiopian Communications Authority (ECA) has formulated a draft telecom regulatory framework which was open for the public for comment. Charged with regulating the telecom and postal service in the country, ECA is working to grant licenses to two international telecom operators by April 2020. The draft regulatory framework was posted on ECA’s website. The Authority held a public consultation forum last November.
In a press conference held on Wednesday, CEO of Ethio Telecom, Frehiwot Tamiru, said her company has concerns on some of the articles of the telecom regulatory framework. Frehiwot said Ethio Telecom has expressed its concerns during the public consultation organized by ECA. “We have concerns on spectrum, frequency allocation and roaming service. Some of the articles will create a difficult situation for Ethio Telecom to expand and provide basic telecom services. We need to tackle these challenges,” Frehiwot said. A spectrum auction is a process whereby a government uses an auction system to sell the rights to transmit signals over specific bands of the electromagnetic spectrum and to assign scarce spectrum resources.
Ethio Telecom has submitted its objection on the telecom regulatory framework in a written letter addressed to ECA.
According to Frehiwot, the management of Ethio Telecom held an exhaustive deliberation with officials of ECA at the headquarters of Ethio Telecom on the said articles which she fears would hamper the activities of the company. However, she said, the parties have not yet reached a general consensus. “We hope that ECA would reconsider our concerns,” she said. “We are waiting for the response of the regulatory body,” she said.
Ethio Telecom has undertaken a reorganizational program that divides the telecom company into five divisions. The company is internally splitting services and infrastructure departments. One of the new departments is infrastructure. Ethio Telecom is preparing itself to provide infrastructure leasing services to the foreign telecom firms. “Preparations are underway to lease mobile towers and fiber optic cables to the new entrants,” sources told The Reporter. “While we are able to lease telecom towers to the international telecom companies it is not appropriate to license foreign tower companies which want to secure a loan from local sources and build towers,” they said. “We believe that the draft regulatory framework favors the foreign telecom operators and harm Ethio Telecom,” sources said.
ECA said it has individually acknowledged receipt of the comments submitted during the Public Consultation period which ended on November 22, 2019.
The comments received include those from national and international operators, tower companies, equipment manufacturers, internet service providers, social media companies, professional associations, consumer rights groups, ICT experts, and the general public.
“The ECA is grateful for the significant number of comments and questions from all stakeholders and is in the midst of considering the submissions with the aim to provide a comprehensive response shortly,” the Authority said.
The reformist Prime Minister Abiy Ahmed (PhD) wants to end the 126 year state monopoly in the telecom sector this year.
The other hurdle that the state monopoly is facing is the proposed new excise tax regime. The draft excise tax law proposes to levy five percent tax on telecom services. Ethio Telecom fears that the proposed tax would negatively impact telecom penetration in the country. Frehiwot told The Reporter that the excise tax would deter telecom subscribers particularly the low income community. According to Frehiwot, excise tax could reduce telecom penetration by up to fifty percent.
Ethio Telecom has written a letter to the Office of the Prime Minister, Ministry of Revenues, Ministry of Finance and Standing Committee for Budget Affairs protesting the planned excise tax.
Ethio Telecom has security concerns. Telecom infrastructure vandalism has cost the company 100 million birr. Reports of fiber optics and copper cables theft has increased alarmingly. Frehiwot said the company is working with law enforcement forces to ensure the wellbeing of the telecom infrastructure. The company employs 19,000 contract personnel to guard the telecom infrastructure.
Political instability has exacerbated the situation. Sources told The Reporter that recently gunmen abducted three personnel of Ethio Telecom in Gonder, Armacho area. Sources said executives of Ethio Telecom, in collaboration with the Amhara Regional State, successfully negotiated the release of the three personnel who returned to work safely. Last October, manager of West Zone, Gemechis Tadesse, was shot dead near his home in Nekemte town.
In a related news, Ethio Telecom disclosed that its revenue has increased by a whopping 32 percent.
The telecom company has reported a remarkable six-month performance July-December 2019. Frehiwot revealed that the company earned a revenue of 22.04 billion birr in the first six months of the budget year. Frehiwot said the company for the first time in its 126 year history achieved 104 percent of its target adding that the revenue increased by a whopping 32 percent compared to the same period last budget year.
The state monopoly generated USD 73 million from international business services, up by 116 percent from the same period last year. The company paid 3.89 billion birr in tax and two billion birr dividend to the government. The company has serviced a loan amounting to USD 148.15 million in the stated period.
Mobile voice accounted for 50.4 percent of the total revenue, data and internet 27.3 percent, revenue from international business 9.8 percent, value added service 8.5 percent and the remaining three percent was generated from other sources.
Ethio Telecom’s customers has increased by 10.9 percent to 45.6 million – mobile voice subscribers reached 44.03 million, data and internet subscribers 22.74 million, and fixed services 1.01 million. Tele density has increased by 8.3 percent to 45.4 percent. Mobile voice and data traffic has surged by 22 and 82 percent respectively. Ethio Telecom for the first time in its 126 year history is to release its financial report under IFRS standards.
Ethio Telecom has hired the multinational auditing firm PricewaterhouseCoopers to conduct asset valuation work. Frehiwot said the asset valuation work is well underway. “Sixty percent of the work is completed. The asset inventory work in Addis Ababa is completed. The asset inventory work in the regions will be completed at the end of this month. The asset valuation work will enable us to launch the IFRS,” she said.