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Business of Tech

Ethiopia would have liked Orange & Etisalat to bid for licenses

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Ethiopia's government had been expecting at least four operators to bid for two new telecoms licenses in the country, and it has revealed which companies disappointed.

"Out of the 12 [companies that initially showed interest], how many of those companies would have participated? In our view, only four, so we only missed out on two. That's Orange and Etisalat," said Brook Taye, senior advisor to the Ethiopian Ministry of Finance, who was speaking at the East Africa Com conference this week.

At the end of April, the Ethiopian Communications Authority (ECA) confirmed it had received only two offers for new telecoms licenses in the country, after the market expected a lot more interest.

The two bidders in the running are Africa's biggest mobile network, MTN, and The Global Partnership for Ethiopia – a consortium made up of Vodafone, Vodacom and Safaricom.

"Orange has its own reason why it didn't participate, Etisalat already gave us its reason why it didn't participate. You know, some legitimate, some probably not really understanding the market dynamics," Taye explained about the lack of bids.

"Of course, there's also an opportunity for them to work with Ethio Telecom and buy the 40% stake that will be offered. So I still insist that if you're looking for the best partners for the Ethiopian market, we got both of them, by way of a consortium, and then of course, MTN," he said.

The road to here

In June 2018, the Ethiopian government announced it would open up the telecoms sector in the country and award two new 15-year licenses and sell a minority stake in state-owned Ethio Telecom.

Since then, the process has had some delays, but on April 26, the ECA received the two bids which met its "strict technical qualification criteria."

With a population of over 110 million, the Horn of Africa nation's telecoms industry has for some time been regarded as a massive growth opportunity, if the telecoms monopoly could be changed.

"The addressable market is huge, and the demand is there, which obviously cannot be fully addressed by only one operator," Taye said.

The ECA said last June that Orange and Etisalat along with 10 others had shown interest in the two new telecoms licenses up for grabs.

Quality bids

Taye said there is a misconception that the government expected to get 12 or 15 companies bidding for the two new licenses.

"So out of the 12 companies that submitted their expression of interest, I think there are a lot of reasons for [them not bidding]. But I think primarily, though, our technical requirement was also very stringent."

He said that it had required the telecom operators to have at least a minimum of 30 million subscribers as of December 2020. This immediately ruled out a few of those initial interested parties with far fewer subscribers, who then dropped out.

"This was a deliberate decision because if you look at the dynamics of the current market structure in Ethiopia, you'd end up having a strong Ethio Telecom, obviously with the lion's share of the market. Then when the two new operators come in the next five years we expect them to have a 30-35 million subscriber base. If you end up inviting a company with 5 million or 10 million subscribers, and ask them to grow it to 30 million it would be very difficult for them. We wanted quality operators, so one of the thresholds was that."

He also admitted that other policy decisions by the government around mobile financial services and infrastructure could have deterred some potential investors.

"For other companies, the way they viewed Ethio Telecom kind of posturing to defend its market, for them it sent the wrong signal, I believe, to an extent that they assume that the government would favor Ethio Telecom versus the two market operators. But that's really far from the fact, but that's the perception that they have. So, there are a myriad of reasons why most of the companies did not participate in this tender," he explained.

New regulations last year stopped foreign telecoms tower operators building new infrastructure in the country and the government decided that only Ethio Telecom would be allowed to offer mobile money services initially.

Government regulations around infrastructure and mobile money might have deterred investors.
Government regulations around infrastructure and mobile money might have deterred investors.

However, he said the government was "very content" with the two "quality operators" who did bid.

As to when the process will be finalized, and Ethiopians will be able to buy a SIM card other than Ethio Telecom, he would not give a date saying the tendering process needs to be completed.

"Once that's completed, I'm sure the designated winners will make a whole lot of noise and announcements. But we're very excited, looking through their technical qualification documents. It's really wonderful in terms of what they're proposing, the number of jobs that they will be creating, the specific sector that they will focus on. Because they will bring in new money into the market which grows the economy," Taye added.

Mobile Money matter

As expected, on Tuesday Ethio Telecom launched the country's first mobile money service, called Telebirr.

It will work much like Africa's other mobile money services, allowing users to send and receive money, deposit or take out cash at appointed agents, top-up airtime, pay bills, and an international remittance element is being worked on as well to receive cash from abroad.

Ethio Telecom said it wanted to make 40% to 50% of Ethiopian economic transactions through the Telebirr service in the next five years.

There is also light at the end of the tunnel that the new licensees could get mobile money licenses in future.

Reuters quoted Prime Minister Abiy Ahmed saying at the launch ceremony that mobile financial services would be opened up to competition "after a year."

He did however also say that the government had foregone $500 million by denying bidders for the two new licenses the right to roll out mobile financial services.

"We expect Ethio Telecom to strive in a way to compensate this," he said.

Ethio Telecom stake

Taye said the privatization of Ethio Telecom was "on schedule" and that he expected some sort of announcement of details for potential investors will be made in the next few weeks.

The company is still doing its due diligence for the proposed sale of 45% of the company, with 5% targeted for Ethiopian nationals to own and 40% offered to international bidders.

He did clarify, however, that the 40% did not exclude domestic participation but was also open to the international market if there was interest. How the 5% will be sold locally has not yet been confirmed.

"We're not going to shy away from encouraging our domestic sector to own the 40% but, in reality, in terms of the quantum that will be expected to be raised and the technical requirement that we are part of the RFP, that may not result in a domestic investor acquiring that 40%. But there is no prior decision where 40% should be allocated for only international investors," he said.

Want to know more about regulation and deals in Africa? Check out our dedicated Business of Tech content channel here on Connecting Africa.

He said Ethio Telecom is very ready for the partial privatization and it had already internally completed a separation of its infrastructure and service side, to help with efficiency.

"As a company, obviously, they want to maintain their market share if not grow it, and it's up to the newcomers to really distinguish themselves and attract customers like ourselves to choose between different options.

"But competition in telecom sector [is good] and the net beneficiary is the public. So, the company will be ready and defend its turf and obviously grow, but at the same time would be in a very exciting opportunity for the public at large to have alternatives, to have choices," Taye added.

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— Paula Gilbert, Editor, Connecting Africa

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