Evidence for ICT Policy Action Policy Paper 3, 2012
Understandingwhat is happening in ICT in Ethiopia
A supply- and demand- side analysis of the ICT sector
Dr. Lishan Adam Research ICT Africa Research ICT Africa (RIA) is an information and communication technology (ICT) policy and regulation research network based in Cape Town, South Africa, under the directorship of Dr. Alison Gillwald. As a public interest think tank, RIA fills a strategic gap in the development of a sustainable information society and knowledge economy. The network builds the ICT policy and regulatory research capacity needed to inform effective ICT governance in Africa. RIA was launched a decade ago and has extended its activities through national, regional and continental partnerships. The network emanates from the growing demand for data and analysis necessary for appropriate but visionary policy required to catapult the continent into the information age. Through development of its research network, RIA seeks to build an African knowledge base in support of sound ICT policy and regulatory design, transparent implementation processes, and monitoring and review of policy and regulatory developments on the continent. The research, arising from a public interest agenda, is made available in the public domain, and individuals and entities from the public sector, private sector and civil society are encouraged to use it for purposes of teaching and further research or to enable them to participate more effectively in national, regional and global ICT policymaking and governance.
Series Editor: Alison Gillwald Editorial assistance: Broc Rademan Copy-editing: Chris Armstrong Evidence for ICT Policy Action
Acknowledgements Research ICT Africa (RIA) is an information and communication technology (ICT) policy and regulation research network based in Cape Town, South Africa, under the directorship of Dr. Alison Gillwald. As a public interest think tank, RIA fills a strategic gap in the development of a sustainable information society and knowledge economy. The network builds the ICT policy and regulatory research capacity needed to inform effective ICT governance in Africa. RIA was launched a decade ago and has extended its activities through national, regional and continental partnerships. The network emanates from the growing demand for data and analysis necessary for appropriate but visionary policy required to catapult the continent into the information age. Through development of its research network, RIA seeks to build an African knowledge base in support of sound ICT policy and regulatory design, transparent implementation processes, and monitoring and review of policy and regulatory developments on the continent. The research, arising from a public interest agenda, is made available in the public domain, and individuals and entities from the public sector, private sector and civil society are encouraged to use it for purposes of teaching and further research or to enable them to participate more effectively in national, regional and global ICT policymaking and governance.
This research is made possible by significant funding received from the International Development Research Centre (IDRC), Ottawa, Canada, and RIA network members express their gratitude to the IDRC for its support. The network consists of members in 18 African countries, and RIA researchers in 12 countries were able to participate in the supply- and demand-side reviews of their national ICT sectors (as detailed in this and other national Sector Performance Reviews for 2012). The national reviews for 2012 were led by the following RIA network members: Dr. Patricia Makepe (Botswana); Prof. Olivier Nana Nzèpa (Cameroon); Dr. Lishan Adam (Ethiopia); Dr. Godfred Frempong (Ghana); Prof. Tim Waema (Kenya); Francisco Mabila (Mozambique); Dr. Christoph Stork (Namibia); Fola Odufuwa (Nigeria); Louise Karamage (Rwanda); Dr. Alison Gillwald (South Africa); Mary Materu-Behitsa (Tanzania); and Ali Ndiwalana (Uganda).
RIA’s Household and Individual ICT Access and Use Surveys and Informal Sector ICT Access and Use Surveys conducted in 12 countries – used to inform the national SPRs of 2012 – were led by Dr. Christoph Stork who, together with Mariama Deen-Swarray, was responsible for preparation of the statistical data and data analysis for the 12 sets of national findings – and the comparative analyses across the 12 countries. The Telecom Regulatory Environment (TRE) assessments, the compilation of supply-side indicators, and the collection and presentation of the pricing data, were coordinated across the 12 study countries by Enrico Calandro and Mpho Moyo. Additional peer-reviewing to that done amongst partners was undertaken by Steve Esselaar and Enrico Calandro.
Author Dr. Lishan Adam is an independent consultant and researcher specialising in ICT applications, policies, and regulations, with a focus on developing countries. In the period 1990-2002 he worked at the UN Economic Commission for Africa (UNECA) in Addis Ababa as a programmer, trainer, network manager, and a regional advisor. From 2003 to 2004, he was a Hewlett Fellow of Information Technology at the Centre of International Development and Conflict Management of the University of Maryland. Adam has also served as visiting Associate Professor at the Graduate School of Public Development and Management (P&DM), University of Witwatersrand, Johannesburg, and in the Centre for Knowledge Dynamics and Decision-making at Stellenbosch University’s Department of Information Science. He is the facilitator of Research ICT Africa (RIA) work in East Africa.
Design and layout: Grant Logan, Creative Storm | Cover image: Amy DeVoogd, Photodisc Understanding what is happening in ICT in Ethiopia
Executive summary As demonstrated in Asian and European telecommunication systems characterised by adequate budgets and efficient administration, a state monopoly in the right circumstances can make rapid and major strides towards universal telecommunications access. Ethiopia has been trying to emulate such a trend in its own economy. Under a public monopoly, the information and communication technology (ICT) sector in Ethiopia has seen substantial growth over the last five years. Mobile telecommunications grew from a mere 1.2million subscribers in 2007 to around 22million subscribers by the end of 2012. Internet and data subscribers grew sevenfold from 31 400 in 2007 to 221 000 in 2011. By 2012, the voice communication coverage had reached 64%, a significant progression given Ethiopia’s start from a low base.
The government has been investing in communications infrastructure to offset low communications penetration. A vendor credit scheme supported by US$1.5billion in finance from the Export-Import Bank of China (EXIM) in 2007 and implemented by the Chinese firm Zhongxing Telecom Corporation (ZTE), has generated 10 000 kms of fibre and expansion of the mobile transmission network to provide for over 30million subscribers and deliver a CDMA wireless network covering rural towns.1
The Ethiopian Government has also been investing in human resources development and e-applications to aid its The Ethiopian expanding communications network. The national e-Government Strategy of 2011 lists over 200 e-services to be ICT sector grew rolled out over the next two years. The Ethiopian Government has also been building a national “IT Park” with the aim substantially over of attracting IT service companies such as those involved in business process outsourcing. the last decade However, the Ethiopian ICT sector remains underdeveloped compared to its peers in Africa, such as its neighbours but it remains Kenya and Sudan. The country’s global ICT index has only improved marginally over the past few years. Mobile underdeveloped penetration is three times less than that of the African average of 60%, at roughly 25% in 2012. The 2.7% internet access compared to its ratio is half the African average of over 5%. Broadband penetration, which has been found to increase competitiveness African peers in institutions and between individuals, is, at 0.1% in 2012, 40 times smaller than the African average of 4%.
Broadband internet speeds are extremely slow, operating far below advertised speeds, and frequently with a high contention ratio. The low broadband quality of service (QoS) is weakening the investment, economic growth, education, and entrepreneurship needed for the country to progress.
The potential for competitive ICT sector development exists, if the government’s efforts in infrastructure development can be accompanied by policy and regulatory reform. The experiences of neighbouring African countries show that the ICT sector fares better when the government creates a competitive and innovative environment. The ICT regulatory and ICT sector experiences in Kenya, cited on several occasions in this report, reveal that liberalisation of the ICT environment in Kenya has generated government tax revenue close to the amount that Ethiopia borrowed from China’s Export-Import Bank. Nothing prevents Ethiopia from making similar progress over the next five years, if careful policy choices are made to foster its ICT sector. In the short-term, the government needs to:
1 The vendor credit project entered a second phase in early 2013, via a new US$1.6billion loan from the Chinese bank EXIM. In terms of this second phase, ZTE and another Chinese firm, Huawei Technologies, will increase wireless telecommunications cover- age from 64% to 90%, the number of mobile subscribers from 17.5% to 45%, and the number of internet subscribers from 210 000 to 5million by the end of 2015. Evidence for ICT Policy Action
tintroduce competition in areas such as the internet, web content, and the domain registration market; and tlicense a second mobile operator to focus on broadband offerings (assuming the voice gap will be closed soon). A market-oriented The Ethiopian Government also needs to pay particular attention to availability, QoS, reliability, security, and policy and gradual affordability of the broadband network, which is critical to national competitiveness and improved delivery of liberalisation of the public services to citizens. The low broadband QoS in Ethiopia is derailing the country’s gains in the ICT sector, weakening public tax revenues and the overall competitiveness of the nation. Government can improve the quality sector is crucial for of information and ICT services by: competitiveness and economic tcarrying out ongoing analysis of ICT use and QoS; development tbuilding the capacity of the Ministry of Communication and Information Technology (MCIT) to enforce guidelines that improve service standards; timplementing service level agreements and customer service charters that bind Ethio Telecom to well-defined quality standards; and tputting in place an effective framework for consumer protection. It is evident from this report that while investment in the telecommunications sector has grown quickly, the revenue generated has not shown the same improvement. International direct dial and broadband prices remain high. A careful analysis of the telecommunications sector pricing is needed to ensure that tariffs reflect the sector’s the investments. The government needs to adjust cross-subsidies between international and domestic calls and ensure that prices are not burdensome to those at the base of the pyramid (BoP).
The lack of human resources in the ICT sector is a major problem in Ethiopia. Progress has been made in raising overall knowledge levels in the ICT sector; yet Ethiopia still lacks highly skilled and experienced experts capable of dealing with complex ICT networks, markets, regulations, policymaking, and the implementation of large socio-technical projects. In the short-term, there is a need to: trun a series of comprehensive courses on communications and broadcasting sector planning, policy, and regulation for senior policymakers; tprovide training on IT-enabled services, focussing on upgrading the capabilities of local enterprises; tbuild communications research capacity; and timprove the private sector’s capacity to participate in IT-enabled services. Mobile banking The absence of mobile banking and other innovative mobile applications that support social and economic has tremendous development has been one of the major setbacks to Ethiopia’s ICT progress in recent years. The opportunity cost will be high if concerted efforts are not made to create the environment for developing mobile applications. This can be potential for carried out by forging collaborative partnerships with other countries in Africa, Asia, and Latin America, by linking local growth in Ethiopia developers with the private sector and by holding knowledge-transfer forums and “boot camps”. Table of contents
Introduction 1 Radio and television 32 Economic, political, and social development Mobile internet 34 and their implications for the ICT sector 1 Payphones 35 Ethiopian ICT sector performance on Social inclusion 36 international ICT indices 4 Patterns of communication in Ethiopia 38 ICT Development Index 4 Fixed and mobile phones 38 Networked Readiness Index (NRI) 5 Computers 38 Web Index 5 Informal business ICT access and use ICT sector policy framework 7 in Ethiopia 40 Policy, legal, and institutional arrangements 7 The Telecom Regulatory Environment Implications of the supplier credit scheme 9 (TRE) 42 Implications of the France Telecom Conclusions 46 management contract 10 Recommendations 47 Market and financial analysis 12 Policy and regulatory reform 47 The market 12 Human resource development 48 Financial analysis 12 Applications and services 48 Penetration 15 References 49 Fixed line, fixed mobile, and CDMA 15 Mobile GSM/CDMA 16 Internet/broadband 18 Pricing 21 Fixed-line pricing 22 Mobile pricing 24 Broadband pricing 25 Interconnection and termination pricing 27 Spectrum pricing 27 Demand for ICT services 29 Fixed lines 29 Mobile access 29 Internet access 30 Evidence for ICT Policy Action
Acronyms and abbreviations
ADSL asymmetric digital subscriber line ITU International Telecommunication Union
ARPU average revenue per user MCIT Ministry of Communication and Information Technology BOP base of the pyramid MPLS multiprotocol label switching CAGR compound annual growth rate OECD Organisation for Economic Co-operation CDMA code division multiple access and Development
CPE customer premise equipment OPGW optical ground wire
DSL digital subscriber line PPS probability proportional to size
EASSy East African Submarine Cable System QoS quality of service
EBA Ethiopian Broadcasting Authority RIA Research ICT Africa
EBITDA earnings before interest, taxes, depreciation, SIM subscriber identity module and amortisation SME small and medium enterprise EPRDF Ethiopian People’s Revolutionary Democratic Front SMS short messaging system
EVDO evolution-data optimised VoIP voice over IP
EXIM Export-Import Bank of China WCDMA wideband code division multiple access
FL-NGN flow label next-generation network ZTE Zhongxing Telecom Corporation gbps gigabits per second
GDP gross domestic product
GNI gross national income
GTP Growth and Transformation Plan
ICT information and communication technology
IDI ICT Development Index
IP internet protocol
IP/MPLS IP multiprotocol label switching
IP-NGN IP next-generation network
ISO International Organisation for Standardisation Understanding what is happening in ICT in Ethiopia
Introduction Economic, political, and social development and their implications for the ICT sector Ethiopia is located in the Horn of Africa bordering Sudan’s eastern, Eritrea’s southern, and Kenya’s northern borders, Ethiopia’s ICT sector as well as Djibouti’s and Somalia’s western borders. It also borders South Sudan. The Horn of Africa is well known is still fnding it for drought, hunger, and conflict, but Ethiopia has gained itself relative peace for the last 20 years. The country has difcult to heal seen political upheaval – from a feudal royalty to a socialist regime in the 1970s and then to a market-oriented one from the poor in the 1990s. The period of socialist rule (1974-1990) has had a negative effect on the country’s development and its information and communication technology (ICT) sector. Ethiopia is still finding it difficult to heal from the poor growth sufered growth suffered during the 1980s and 1990s when much reform took place in most other parts of the globe. during the 1980s and 1990s when Ethiopia is the largest country in the Horn of Africa and the second-most-populous nation in Sub-Saharan Africa. much global reform With a population of 84million in 2012, and gross domestic product (GDP) per capita of less than US$400, it is one of took place the poorest countries in the world, ranking close to the bottom of the UN Human Development Index (174 out of 179 countries) in 2011 (UNDP, 2011).
The economy is based on agriculture, which contributes 41% of the total GDP and provides 80% of the nation’s employment. The major agricultural export crop is coffee, providing approximately 30.6% of Ethiopia’s foreign exchange earnings in 2010-11, down from 65% a decade earlier due to the increase in other exports (US State Department, 2012). Access to ICTs in the rural areas of Ethiopia is constrained both by limited network coverage and a low level of electricity penetration – which stood at 17% in 2011 (Ethiopian Government, 2012).
The telecommunications sector in Ethiopia, including fixed-line, mobile, and internet services, is structured under a public monopoly which is inherently inefficient and provides low levels of investment. The World Bank ranked Ethiopia 111th out of 183 countries for “ease of doing business” in its Doing Business 2012 report (World Bank and IFC, 2011). The lack of finance to enterprises (either through banks or microfinance institutions), the ownership of land by the state, and low-quality telecommunications and physical infrastructure are regarded as the main bottlenecks to investment.
Official statistics indicate that Ethiopia’s average annual GDP growth was 11% between 2006 and 2012, although the economy has begun to feel the pressure of high inflation and a difficult balance of payments situation. The annual end-of-period inflation, which stood at 16.5% in February 2011, more than doubled to reach 36% in February 2012 (World Bank, 2012). The problem was exacerbated by high fuel and food prices that had a chilling effect on Because telecom- customers’ ability and willingness to pay for ICT services. munications Politically, Ethiopia has remained stable since the current ruling party (the Ethiopian People’s Revolutionary remains centrally Democratic Front [EPRDF]) took power in 1991. The EPRDF has led an ambitious reform effort, adopting a more controlled, the ICT democratic system of governance and decentralising authority. This has involved devolving power and mandates private sector has first to regional states, and then to districts (woredas) and village authorities (kebeles). However, much of the core not strengthened infrastructure, including telecommunications infrastructure, remains centrally controlled and the relevant institutions, in addition to civil society, remain very weak. 1 Evidence for ICT Policy Action
Due to the absence of expertise in the policy and regulatory framework in the country, the ICT sector remains largely off the radars of civil society and the media. Investment in the ICT sector is regarded as a public-sector affair and discussions about the need for competition in the telecommunications sector often raise eyebrows in the public sector. ICT’s private sector is still the least competitive in Africa, constrained by extremely poor broadband infrastructure, complex and unnecessary red tape, corruption,1 an inadequate enabling environment, and limited access to capital.
The situation on the ground is inconsistent with the National ICT Policy in terms of its implementation which began in 2006, and which aims to develop the ICT sector into a globally competitive industry and engine of growth (Federal Democratic Republic of Ethiopia, 2009).
Progress so far The telecommunications sector is one of the strategic pillars in the government’s Growth and Transformation Plan shows a large (GTP) of 2010, in which the state sets an ambitious plan to increase telephony penetration threefold from 18% in gap between 2012 to 60% by 2015. The main strategies put forward in the GTP for attaining rapid infrastructure growth include upgrading the existing ICT network, improving the network quality of service (QoS), providing universal access, expectations building the human resource capacity, and launching various network-building projects to benefit from converged and the actual and affordable services (Ministry of Finance and Economic Development, 2010). Progress so far shows a large gap performance of between expectations and the actual performance of Ethiopia’s ICT sector. Ethiopia’s ICT The longstanding obstacle to ICT development in Ethiopia stems from inadequate realisation of the implications that sector sector policy has for sector performance. The ICT policy process in the country takes place in a manner whereby very few actors make decisions on the sector. The government’s apprehension about its loss of control (if competition is introduced) is another complicating factor. The absence of public debate on matters of telecommunications sector reform and the historically weak private sector mean that the decisions about the fate of the ICT sector are made centrally by the Prime Minister, through the Council of the Minister of Communication and Information Technology. Ethiopia has neither reliable sector research to inform decision-making, nor policymakers willing to move towards a competitive ICT environment by gathering international experience and expertise. Experience in regulation is non- existent and thus the necessary regulatory skills need to be developed.
External factors, including the recent availability to the state of low-interest vendor-led loans, have also played a part in the government’s continuation of a monopolistic stance in the telecommunications sector. In 2007, the Ethiopian Government earned a US$1.5billion credit loan from the Export-Import Bank of China (EXIM) through the Chinese equipment vendor Zhongxing Telecom Corporation (ZTE), with a payback period of 13 years. While the loan has been useful in increasing ICT penetration, it has perpetuated state dependency on supplier credit.2
The comparative sector growth statistics between Ethiopia and Kenya, in Figure 1, reveal the inadequate sector performance that is a consequence of Ethiopia’s choice of a non-competitive, monopoly market structure without regulation.
1 According to a World Bank study, the telecommunications sector is one of the sectors most prone to corruption in Ethiopia. See Plummer (2012). 2 This dependency was evidenced by a second round of state borrowing in 2013 that amounted to US$1.6billion (divided equally 2 between Huawei and ZTE) in order to expand infrastructure. Understanding what is happening in ICT in Ethiopia
80% 72 70%
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30% 25 20% 19
10% 3 1 0.6 0% Mobile penetration (%) Internet penetration (%) Fixed line penetration (%)
Ethiopia Kenya Ethiopia’s policy Figure 1: Comparison of sector growth between Kenya and Ethiopia choices not Source: Ethio Telecom Annual Report 2012 and CCK (2012) only limit the The lack of competition means that Ethio Telecom continues to behave as a monopoly by, for example, setting its opportunities own prices and cross-subsidising high international call rates with relatively cheap domestic communication tariffs. for social and Consumers are left with a typically monopolistic environment – fewer choices, higher costs, and lower QoS. economic growth A glance at neighbouring Kenya’s ICT sector – one structured on open-market principles and competition – shows but also restrain that Ethiopia’s policy choice restrains the development of the ICT sector as an engine of social and economic growth. the ICT sector as an Towards the end of 2012, Kenya had well over 30million mobile subscribers (CCK, 2012), compared to 22million in engine of growth Ethiopia, and had an international bandwidth of 575 gbps for Kenya’s 43million citizens, a hundred times greater than the 5.75 gbps available for the close to 90 million citizens of Ethiopia. A comparison of the bits per second per capita available to Kenyans shows that Kenyans have access to about 13 kbps/capita compared to 0.066kbps/ capita for Ethiopians – meaning Kenya has 200 times the per capita bandwidth of Ethiopia. Meanwhile, Kenya’s mobile broadband access is about 40 times that of Ethiopia. Kenya fares very It is evident from Figure 1 that Kenya has fared very well compared to Ethiopia due to a policy choice based on well compared to prioritisation of competition, private-sector growth, and innovation. Kenyan mobile revenue was US$1.6billion in Ethiopia due to a 2011 – three times that of Ethio Telecom’s revenue of US$518billion during the same year (CCK, 2012). Enhanced policy choice based by the spillover brought on by the availability of ancillary services, Kenya’s tax revenue from the ICT sector alone is estimated to have been well over the revenue of Ethio Telecom for 2011, making Ethiopia’s choice of a public on competition, monopoly supported by supplier credit loans the costliest path for ICT-based economic development and innovation. private sector growth, and This RIA Ethiopia Sector Performance Review (SPR) assesses Ethiopian ICT sector performance against the objectives innovation set out in the GTP and in ICT policies – using supply-side data from Ethio Telecom, international organisations, and the 2012 RIA Ethiopia ICT Access and Use Survey. It also assesses whether annual targets, including a five-year target set by Ethio Telecom in 2007, were met. 3 Evidence for ICT Policy Action
Ethiopian ICT sector performance on international ICT indices
Ethiopia’s standing Analysis was carried out to see if Ethiopia has improved in international ICT standings over the last decade. A review of in international the International Telecommunication Union (ITU) ICT Development Index (IDI) and the World Economic Forum (WEF) indices is well Networked Readiness Index (NRI) indicates that, despite marginal improvement, Ethiopia remains one of the least- connected countries in the world. below other African countries ICT Development Index
The IDI is one of the indices that measures ICT readiness using three sub-indices (detailed below): infrastructure and access, use, and skills (ITU, 2012). tThe infrastructure and access sub-index captures ICT readiness and includes five indicators (fixed telephony, mobile telephony, international internet bandwidth, households with computers, and households with internet). tThe use sub-index captures ICT intensity and includes three ICT indicators (internet users, fixed [wired] broadband, and mobile broadband). tThe skills sub-index captures ICT capability and includes three proxy indicators (adult literacy, gross secondary enrolment, and gross tertiary enrolment). This sub-index is given less weight than the other two sub-indices in the computation of the IDI. Ethiopia ranked very low, at 150th out of 155 countries, on the 2011 IDI. Ethiopia’s standing was well below Rwanda, Mozambique, Tanzania, and Zambia, countries that also scored low in the IDI.
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0 IDI 2008 IDI 2010 IDI 2011 South Africa Botswana Namibia Kenya Ghana Nigeria Zambia Cameroon Uganda Tanzania Rwanda Mozambique Ethiopia
Figure 2: IDI scores for selected African countries 4 Source: ITU (2012) Understanding what is happening in ICT in Ethiopia
Networked Readiness Index (NRI)
Ethiopia fared slightly better on the NRI, which measures progress in: policy, legislative, and legal environments; readiness of institutions; actual use; and economic and social impacts (WEF, 2012). Ethiopia ranked 130th out of 142 countries in 2012. The ICT use score has improved but Ethiopia’s use and impact scores were still low compared to other African countries.
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Figure 3: NRI scores for selected African countries Source: WEF (2012)
Web Index
Ethiopia’s overall online information environment has not improved in terms of support for online access to government information or online transactions. The Web Index of 2012 ranks Ethiopia 57th out of 61 countries included in the study with an overall score of 10.89. Tunisia, South Africa, Egypt, Mauritius, and Kenya receive the highest African scores, while Ethiopia, Zimbabwe, Mali, and Burkina Faso scored poorly on almost all indicators (World Wide Web Foundation, 2012). The government is The Government of Ethiopia is watching the national scores on these international indices and has been seeking seeking Ethiopia’s ways to improve them. The Ministry of Communication and Information Technology (MCIT) went so far as to sponsor improvement in a PhD study to investigate how Ethiopia could improve its rankings on international ICT indices. The government- global ICT indices sponsored study did not look into the underlying causes of lower international standings – such as policy and regulatory environment, quality of education, and universal access to broadband infrastructure – but it did point to some measures that could be pursued to address the low scores. 5 Evidence for ICT Policy Action
The underlying reasons for Ethiopia’s slow ICT development related to its history of conflict and state control – in particular, the opportunities lost during the socialist regime when many significant telecommunications sector reforms took place around the globe. The quality of education has also been declining over the last three decades in Ethiopia, resulting in the country’s inability to create a critical mass of highly skilled ICT human resources. In sum, the ingredients for a high international ICT ranking, such as a competitive environment, skilled human resources, and high-quality broadband infrastructure, are absent. To improve its international ranking, Ethiopia needs to address all aspects of the ICT ecosystem – infrastructure, skills, policy and regulation, application and services, as well as intensification of use. There is a need for: An enabling policy an open and competitive ICT environment; and regulatory t environment will tbroadband infrastructure development, with attention to QoS, reliability, security and affordability; be the catalyst for tan improved business and regulatory environment that stimulates competition, investment, and innovation in entrepreneurship, the ICT sector; and network expansion, tpromotion of quality ICT education with a focus on research and development, industry certification, and afordable access, attainment of International Organization for Standardisation (ISO) standards. and ICT skills An enabling policy and regulatory environment is the necessary catalyst for the entrepreneurship, expansion of the development network, affordable access to broadband, and ICT skills development needed to underpin an improved ICT ranking for Ethiopia on global indices.
6 Understanding what is happening in ICT in Ethiopia
ICT sector policy framework Policy, legal, and institutional arrangements
Ethiopia’s ICT policy process reflects a scenario parallel to most other African countries – where policymaking lags far ICT policy lags very behind developments in the sector. Development of the National ICT Policy began in the early 2000s. The National ICT much behind the Policy that went through several iterations was approved in 2009. The policy’s “mission” is: development of [t]o develop, deploy and use information and communication technology to improve the livelihood of every Ethiopian, the sector with no and optimize its contribution to the development of the country (Federal Democratic Republic of Ethiopia, 2009). policy revision since 2007 The “goal” of the policy is “[t]o vigorously promote the ICT sector and enhance its contribution in political, social and economic transformation [...]” (Federal Democratic Republic of Ethiopia, 2009).
Accordingly, the government has crafted various programmes with the aims of: tcreating an enabling policy, regulatory, and legal environment for the growth and utilisation of ICTs; tdeveloping the necessary ICT human resources, infrastructure, rural access, standards, and local content; tstrengthening the capacity of public institutions to facilitate the mainstreaming of ICTs for socioeconomic development; and tfacilitating the use of appropriate technologies for development of applications and content for rural development, good governance, and service delivery in priority sectors.
In an effort to implement the ICT policy, the government has launched a series of high-profile projects including a National Data Center, interconnection of districts (via Woredanet), connection of secondary schools to facilitate centralised distance learning, and connection of universities and research institutions, including those dedicated to agricultural research. The online services rolled out during the 2006-10 policy implementation period include a Government Portal, a Justice Information System, a Drivers and Vehicles Management Information System, a National Records and Library Management Information System, a Public Sector Human Resources Information System, a Trade Registry System, and an Exam and Placement System. The ICT sector’s While the implementation of these projects, and many policy guidelines that were produced during the course of the policies and laws five years from 2006 to 2010 have increased awareness regarding various aspects of the ICT sector, Ethiopia still faces a in Ethiopia are substantial gap between its ambition for ICTs to support economic growth and the policy and regulatory instruments embedded in the to enable fulfillment of the ambition. monopoly of the ICT sector policy and laws in Ethiopia are embedded in the monopoly of the communications market (fixed, mobile, communications internet, international gateway) as described in Table 1 below. market
7 Evidence for ICT Policy Action
Table 1: Public policies governing the telecommunications sector
Service Market structure Policy
Fixed, mobile, and internet services Monopoly Telecommunications are an asset that should be controlled by government; competition will not promote universal access
Online web content Country top-level domain All websites with .et domain should controlled by government be hosted by the incumbent operator
VSAT services Provision allowed by international Local companies are not allowed to institutions on a case-by-case basis bypass the incumbent network subject to payment of high fees
Downstream value-added services Re-selling of services allowed Call-back and reselling of such as call centres, payphones, communication services using internet cafes modern technologies (e.g. voice over Internet Protocol [VoIP]) are barred and punishable by law
Source: Council of Ministers Regulation No. 10/1996, Council of Ministers Regulation No. 47/1999, ETC Strategy Paper 2004-2006, Proclamation No. 49/1996, and Proclamation No. 116/1998 There was some effort towards sector reform in the 1990s, following the adoption of a Proclamation that provides for the regulation of telecommunications services (Proclamation 49/1996, as amended). Herein the government created the regulator, the Ethiopian Telecommunication Agency (ETA), which was legally established in November 1996 but was not operational until December 1997 when the Minister of Transport and Communications appointed a general Financing and manager. This was followed by a change in the ETA’s management in 2002. The last general manager left the country management in 2009 and no further formal appointment was made. The government then decided in 2011 to terminate the ETA and transfer all its staff to a new Standard and Regulatory Directorate that falls under the MCIT. changes are necessary but The government views the telecommunications sector as a strategic asset of the economy. The state’s line of argument not sufcient has always been that the incumbent state-owned operator Ethio Telecom is best-placed to promote universal access conditions to communications services and that there is no need for regulation. It has also been argued that experiences in for building Europe and Asia show that monopoly incumbents with financial and administrative muscle can make rapid and major strides towards universal access. an advanced communications Ethiopia has attempted to fill the financial and management gap at the state-owned incumbent through the infrastructure aforementioned vendor credit from the Chinese EXIM Bank and through revamping the administration of the incumbent through a contract to France Telecom. However, the results to date show that financing and management changes at the incumbent are necessary but not sufficient conditions for building an advanced communication 8 infrastructure that stimulates innovation and sustainable growth. Understanding what is happening in ICT in Ethiopia
Implications of the supplier credit scheme
The injection of finance into Ethio Telecom through a vendor-guaranteed loan agreement of US$1.5billion was the first move made in recent years by the government to expand the telecommunications network. The vendor credit scheme works on the basis of China’s state-owned Export-Import Bank (EXIM) providing a loan to the government of Ethiopia on condition that the government buys only equipment and services from one or both of two Chinese companies – ZTE and Huawei Technologies. The proposal was attractive for the government, but came at the expense of reform in the telecommunications sector. The main factors that stimulated adoption of the vendor credit scheme included: tinadequate revenue for the incumbent to finance network development; tthe urgent need to expand communication to districts as per the government’s decentralisation programme; tan inability to attract large-scale foreign direct investment, due to the underlying economic and regulatory risk; tincreasing influence of the Chinese government and the prominence of network companies like Huawei and ZTE in Africa; and tthe availability of international cheap bandwidth through undersea cables, which addressed the cost and connectivity challenges associated with satellite communications and prompted the need for rollout of domestic backbone.
In the absence of competition, the supplier-credit scheme can be regarded as an essential move by the government to upgrade the country’s communications infrastructure using favourable loan terms with long grace and repayment periods and low interest rates. Furthermore, equipment from ZTE and Huwaei costs much less than that of their European and United Sates competitors like Alcatel-Lucent, Cisco, Nokia Siemens, Ericsson, Motorola, and QUALCOMM, resulting in savings for the Ethiopian Government (Chang et al., 2009).
The scheme has drawbacks, however, in that it creates dependence on Chinese firms and experts fear it will slow down Vendor fnancing the reform process in the ICT sector and undercut local innovation and entrepreneurship in the long run. Evidence of will slow down the the negative impact of vendor financing schemes on sector reform is the government’s consolidation of the regulatory reform process in framework through the aforementioned abolition in 2011 of the fledgling sector regulator. the ICT sector and There has been significant professional training and support from ZTE, but at the same time it is Chinese technical undercut local personnel, who have limited command of the English language, who are managing the core telecommunications innovation and network. This makes it difficult for the local engineers to interact with the ZTE technicians and assume management entrepreneurship of the critical national infrastructure. In addition, the scheme does not allow for research and development and cooperation with local universities, meaning that the prospect for innovation comparable to neighbouring countries is virtually absent in Ethiopia.
The vendor-financing scheme has also made the government prone to increasing dependence on the Chinese EXIM bank. Ethio Telecom’s revenue is not growing as fast as its infrastructure, and therefore the incumbent can be expected to accumulate too much debt too quickly, to the point where the government could find itself unable to pay off the debt. In sum, while the vendor-credit scheme has taken a step towards improving the infrastructure, it has brought the country two steps backwards in terms of innovation and creation of a competitive information infrastructure. 9 Evidence for ICT Policy Action
Implications of the France Telecom management contract
The second The second step the state took to try to alleviate the troubles caused by the Ethio Telecom monopoly was changing remedial step the management of the incumbent operator to address the administrative bottleneck that was hindering network 3 against the growth. After a successive change of local managers that did not bring about the expected results, the government’s last resort was to engage a foreign firm that would bring in experts with a new attitude towards business, efficiency, monopoly was and QoS. A six-month search for external managers in 2010 resulted in selection of France Telecom to run the changing the incumbent, for an annual fee of US$40million and additional benefits, until the end of 2012.The two-year contract management of was aimed at knowledge transfer and “geared towards creating a world-class telecommunications service provider the incumbent capable of rendering international standard services” (Minister of Communications and Information Technology, 2011). operator After assuming the management mandate, France Telecom introduced a series of cost-cutting measures, including the unpopular retrenchment of 8 000 staff of the incumbent, which France Telecom rebranded as Ethio Telecom (instead of Ethiopian Telecommunications Corporation). France Telecom also introduced a host of changes, including streamlined single-window service at its public outlets, reduction of broadband tariffs, and handset and subscription bundles designed to increase mobile network use. However, the changes did not create a world-class telecommunications During the France service provider. During the France Telecom tenure, telecommunications revenue changed only slightly in relation to Telecom Tenure, the the (growing) number of subscribers (see Figure 4). telecommunica- 2 500 tions revenue only changed slightly compared to the 2 000 high growth in subscriber numbers
1 500
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0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Mobile subscriber growth (thousands) Revenue growth (US$ million)
Figure 4: Comparison - Ethio Telecom mobile subscriber and revenue growth Source: Ethio Telecom Annual Report 2012 10 3 For a detailed description of the ETC/Ethio Telecom management overhaul over the last decade, see Adam (2010). Understanding what is happening in ICT in Ethiopia
The year-on-year changes in compound annual growth rate (CAGR), as shown in Figure 5, show positive growth since Ethio Telecom was France Telecom took over, but that revenues did not grow as fast as the mobile CAGR. The mobile sector grew well unable to meet above 50% between 2010 and 2012, while revenue only grew by 20% in 2011 and 23% in 2012. Ethio Telecom was its own revenue unable to meet its own revenue targets missing by 11% in 2011 and 30% in 2012. targets – missing by 11% in 2011 and 120% 30% in 2012
100%
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0 2008 2009 2010 2011 2012 Compared to -20% relative network growth under -40% France Telecom’s management, Mobile CAGR Revenue CAGR government considered revenue Figure 5: Trends in CAGR of Ethio Telecom mobile subscribers and revenue Source: Ethio Telecom Annual Reports 2008-2012 gains inadequate
The government became apprehensive about the inadequate revenue generated through the management of France Telecom when compared to network growth. For its part, France Telecom in 2012 blamed a US$50million (7% of revenue) Ethio Telecom loss on the “grey market”, seeking to redirect the negative attention. The contract with France Telecom was terminated in 2012 and the management of Ethio Telecom transferred back to the local experts. Barriers to revenue growth include This France Telecom process makes it evident that management change can only play some part in the development of a communications sector. There are other more important structural barriers to Ethio Telecom’s revenue growth, lack of adequate including lack of adequate skills in the management of advanced networks, inadequate entrepreneurship arising from skills, inadequate entrenched civil service culture, and low network and customer QoS. Moreover, there are factors beyond the control entrepreneurship, of the incumbent, including administrative red tape, corruption, and the vandalism of its fibre network. and poor QoS
In sum, despite consistent efforts by the government, the telecommunications sector in Ethiopia has not achieved its desired development. 11 Evidence for ICT Policy Action