African Business / January 2001
By Larry Luxner
ADDIS ABABA -- The ringing of mobile phones is becoming a familiar sound at restaurants, hotels and offices throughout Addis Ababa, capital of one of the world's poorest countries.
With 60 million people, Ethiopia is the third-most populous nation in Africa after Nigeria and Egypt. Addis Ababa, with four million inhabitants, is home to the OAU and over 100 foreign embassies, making it the de facto diplomatic capital of Africa.
But years of Marxist dictatorship and a devastating war with neighboring Eritrea have taken their toll on the country, and even though Ethiopia now has a democratic government and is at relative peace with its neighbors, its annual per-capita income of only $120 makes it one of the 10 poorest nations on Earth.
Average life expectancy in Ethiopia is 43 years, and the literacy rate is only 37%. There are only 365,000 fixed telephone lines in service, translating into a teledensity of under 0.3 per 100. Over half of those existing lines are in Addis Ababa, meaning that hundreds of villages in rural areas are without phone service at all.
In the midst of this poverty, state-owned Ethiopian Telecommunications Corp. (ETC) has ambitious plans to expand its mobile network throughout this ethnically and geographically diverse African nation.
Operating under the trade name Ethio-Mobile, the GSM-900 network has 22,000 subscribers at the moment, with plans to expand to 36,000 in the near future. The network is supplied exclusively by Ericsson, which has been operating in Ethiopia since 1894.
"This is a poor country, the infrastructure is inadequate, and the investment need is huge," said Gunnel Bjørkert, general manager of Ericsson Ethiopia. "The recent border conflict between Ethiopia and Eritrea has had a serious impact on the economic situation. Nevertheless, the Western world has lately been focusing on sub-Saharan Africa, and this could open up possibilities for financing."
Since 1997, when Ericsson reopened its Addis Ababa office after five years of closure, the company has signed $50 million worth of contracts with ETC. Ericsson has so far installed around 30 cell sites in the Addis Ababa metropolitan area.
"We know that average per-capita GDP is very low, but we think up to one million Ethiopians could afford mobile service," says Bjørkert, who worked in China, Venezuela, Brazil and Guinea-Bissau before arriving in Addis Ababa last year.
At the moment, Ethio-Mobile charges a 613.20-birr ($74.25) activation fee, a 134-birr ($16.20) deposit, a 50-birr ($6.05) monthly fee and anywhere from 0.30 birr to 0.75 birr (3.6 to 9 cents) a minute for mobile service, depending on the time of day or night and whether the call is to another mobile number or a fixed number. The cost of an Ericsson 628 handset is 1,579.25 birr $191.20), which includes a small computer chip called a "sim" that adapts the phone to the local network.
Prices will likely fall, however, thanks to two recent developments: efforts to allow private firms other than ETC to sell handsets, and the planned privatization of ETC itself early next year.
Until now, ETC has been the country's only authorized importer of handsets, known locally as "shells." But mobile telephony has become so popular in Ethiopia that ETC has literally run out of them. The Ethiopian Telecommunications Agency is now awaiting word from the Prime Minister's Office on its proposal to allow private companies to import and distribute mobile handsets.
Telecom analysts say breaking ETC's exclusive lock on selling "shells" could benefit subscribers who would buy their phones from companies offering competitive prices. That, in turn, would benefit ETC because cheaper handsets would allow more people to sign up as subscribers.
Ethio-Mobile is also studying the idea of using prepaid calling cards for cellular users, another move that would expand the number of subscribers and boost revenues.
Meanwhile, the idea of privatizing ETC appears to be gaining steam.
"The government intends to look for a strategic partner with technical competence, management skills and strong capital. It can be one, two, three or even four companies operating in a partnership," says Berhe Seyoum, external relations manager at ETC, which enjoyed over 500 million birr ($60 million) in revenues last year.
Seyoum, whose office looks out onto a huge Marxist monument donated by North Korea -- a legacy of the 1975-91 Mengistu regime -- said that before being sold off, ETC will likely be divided into four units: public switched telephone network, mobile network, Internet and data communications.
Ericsson's Bjørkert said she expects the government to sell a 49% controlling interest in ETC to an outside investor; likely suitors include British Telecom, South Africa's MTN and Malaysia Telekom. As to ETC's value, it's hard to say, though Vodafone recently paid $22 million for a 49% share of Safaricom, the mobile network of Kenya. It hasn't been determined whether ETC's mobile network will be included in the overall privatization.
"Our experience has shown that it's very difficult for fixed if mobile is sold first, so it might be better if they sold everything at one time," said Bjørkert.
Last July, the Ethiopian Privatization Agency hired PricewaterhouseCoopers to oversee the divestment process, which includes auditing ETC and preparing bid documents. PWC's study will be concluded by mid-2001.
"Potential investors are very much interested in the Ethiopian telecom sector, which has been monopolized by the government for years," says Gezahgen Kebede, president of the Ethio-American Trade and Investment Council. "People are just now starting to wake up and smell the coffee. This sector is not only lucrative, but means a lot to the country's future development."
Adds Yusuf Reja, owner of an Addis Ababa recruiting agency: "A telephone is no longer a luxury, it's a necessity. And countries that have privatized their telecom networks have seen their economies grow substantially."
In the meantime, Ericsson will keep growing along with ETC.
"At the moment, people can't make mobile calls outside Addis, but we're now starting to cover Debre Zeit, Nazereth and other outlying areas. Our plan is to cover most major cities," said Bjørkert, adding that "we hope to be a supplier to ETC after the privatization as well."