The Impact of Telecommunications Services on Doing Business in Ethiopia

December 2010

Dominique Baron Chief Executive, Horus Telecom & Utilities S.A.

and team of local consultants

Produced and distributed by Addis Ababa Chamber of Commerce and Sectoral Associations with financial support from the Swedish Agency for International Development Cooperation, Sida  Private Sector Development Hub/Addis Ababa Chamber of Commerce and Sectoral Associations, 2010

P. O. Box 2458, Mexico Square, Addis Ababa, Ethiopia Tel: +251 (0)11 550 4570, Fax: +251 (0)11 554 2404 Email: [email protected]

No part of this publication may be produced or transmitted in any form or by any means without the prior permission of the copyright holder. The only exception is for a reviewer, who may quote short excerpts in a review.

Disclaimer: The views expressed in the study do not necessarily reflect the views of the PSD Hub or the Addis Ababa Chamber of Commerce and Sectoral Associations or Sida. They are solely the responsibilities of the author. Table of Contents

List of Tables...... ii List of Figures...... iii Abbreviations and Acronyms...... iv 1 Introduction...... 1 2 Methodology of the Study...... 3 3 Telecommunications Sector Review...... 5 3.1 Ethiopia – Key Statistics...... 5 3.2 Market Overview...... 6 3.3 Regulatory Environment...... 8 3.4 Telecommunication Infrastructures and Capacity...... 10 3.5 Services and Customer Bases...... 16 3.6 International Benchmark...... 24 4 The Business Sector and Telecommunications in Ethiopia...... 33 4.1 Summary of the Ethiopian Business Sector...... 33 4.2 Telecom Equipment, Opinions and Needs of the Business Sector...... 36 5 Conclusions: Telecommunications Services and Business Activity in Ethiopia...... 45 6 Opportunity Costs of Telecommunications Service Weaknesses...... 47 6.1 Identifying the Direct and Indirect Benefits of ICT...... 48 6.2 Evaluating the Direct and Indirect Benefits...... 50 7 Proposed Short- and Medium-term Targets for Telecommunications Services...... 55 7.1 Bringing Ethiopia to the African Median...... 55 7.2 Responding to the Needs Expressed by the Business Sector...... 57 7.3 Summarized Target for the Telecommunications Sector...... 59 8 Required Investment...... 61 9 Business and Social Benefits from Improvement of Telecommunications Services...... 63 10 Main Constraints to the Improvement of Telecommunications Services...... 65 10.1 Internal Constraints of the Sector/Operator...... 65 10.2 Market Constraints...... 66 11 Conclusions and Recommendations...... 69 11.1 Conclusions...... 69 11.2 Recommendations...... 71 12 Glossary of Terms...... 77 13 References...... 81 Appendix. Company Survey Results...... 83 I List of Tables

Table 1. Country Statistics...... 5 Table 2. Telecommunications Statistics...... 5 Table 3. Fixed regional capacities...... 11 Table 4. Fixed line evolution...... 16 Table 5. ETC fixed to fixed/fixed to CDMA WLL and vice versa calling charges...... 17 Table 6. Mobile subscriber evolution...... 17 Table 7. Mobile GSM tariffs – post-paid access charge...... 18 Table 8. Mobile GSM tariffs – pre-paid access charge...... 18 Table 9. Mobile GSM tariffs – mobile to mobile normal call rate (ETB/min)...... 19 Table 10. Mobile to fixed/fixed to mobile normal call rate (ETB/min)...... 19 Table 11. Development of Internet users and subscribers...... 19 Table 12. Estimated Internet subscriber distribution per access technology...... 20 Table 13. Internet data – summarized tariffs. Dial-up Internet...... 21 Table 14. Internet data – summarized tariffs. Fixed broadband Internet service...... 21 Table 15. Subscription and usage charge for EVDO with full mobility...... 22 Table 16. Digital Data Network (DDN)...... 22 Table 17. International benchmark. Geographic & economic data...... 25 Table 18. International benchmark. Telecommunications data: fixed and mobile...... 26 Table 19. International benchmark. Telecommunications data: Internet data and tariffs...... 27 Table 20. Urban employment...... 34 Table 21. Summary of number of companies and employees 2010 in urban areas...... 35 Table 22. Size distribution of companies...... 35 Table 23. Distribution of employment by size of company...... 35 Table 24. Distribution of businesses by region...... 36 Table 25. Estimated impact of “additional GDP” linked to the mobile penetration rate...... 52 Table 26. Estimated impact of the mobile penetration rate on tax revenue...... 52 Table 27. Expected mobile market evolution...... 56 Table 28. Ethiopian Internet penetration vs. average African Internet penetration...... 56 Table 29. Sectoral distribution of companies in Addis Ababa...... 83 Table 30. Sectoral distribution of companies in regions...... 83 Table 31. Company activity, status, structure and size – Addis Ababa...... 84

II Table 32. Company activity, status, structure and size – regions...... 84 Table 33. Regional distribution of company sample...... 85 Table 34. Organization and commercial relationships – Addis Ababa...... 85 Table 35. Organization and commercial relationships – regions...... 85 Table 36. Telecommunications equipment...... 86 Table 37. Personal access to IT and telecommunications facilities...... 87 Table 38. Preferred means of communication – Addis Ababa...... 87 Table 39. Preferred means of communication – regions...... 87 Table 40. Internet use – Addis Ababa...... 88 Table 41. Internet use – regions...... 88 Table 42. Focus on e-mailing – Addis Ababa...... 89 Table 43. Focus on e-mailing – regions...... 89 Table 44. Web site – Addis Ababa...... 89 Table 45. Web site – regions...... 89 Table 46. Availability of the services – Addis Ababa...... 90 Table 47. Availability of the services – regions...... 90 Table 48. Quality of service...... 91 Table 49. Tariffs...... 91 Table 50. Global opinion about the telecommunications services – Addis Ababa...... 92 Table 51. Global opinion about the telecommunications services – regions...... 92 Table 52. Impact on doing business...... 93 Table 53. Frequency of key words in comments on expected developments...... 93

List of Figures

Figure 1. Planned GSM coverage...... 13 Figure 2. Existing transmission network...... 14 Figure 3. International connectivity schematic...... 16 Figure 4. Ethiopian mobile penetration rate vs. African mobile penetration rate...... 51 Figure 5. Mobile telephony penetration before and after the introduction of competition....74

III Abbreviations and Acronyms

ADSL: Asymmetric Digital Subscriber Line ARPU: Average Revenue Per User BSC: Base Station Controller BSS: Base Station Subsystem BTS: Base Transceiver Station CDMA: Code Division Multiple Access CPE: Customer Premise Equipment CSA: Central Statistical Agency (of Ethiopia) DSLAM: Digital Subscriber Line Access Multiplexer ETB: Ethiopian Birr EVDO: Evolution Data Optimized FDM: Frequency Division Multiplex FTTx: Fibre To The… (e.g. FTTH: Fibre To The Home, FTTO: Fibre To The Office) FO: Fibre Optic Gbps: Gigabit per second GDP: Gross Domestic Product GNI: Gross National Income GPON: Gigabit Passive Optical Network GSM: Global System for Mobiles HF: High Frequency HSPA: High Speed Packet Access ICT: Information and Communication Technology ISDN: Integrated Services Digital Network ITU: International Telecommunications Union kbps: Kilobit per second Mbps: Megabit per second MGW: Media Gateway MSAG: Multi Services Access Gateway Modem: Modulator Demodulator MSC: Mobile Switching Centre ISP: Internet Service Provider

IV IT: Information Technology OECD: Organization for Economic Co-operation and Development OPGW: Optical Ground Wire PABX: Private Automatic Branch Exchange PPP: Purchasing Power Parity PSTN: Public Switched Telephone Network RFID Radio Frequency identification RNC: Radio Network Controller SCADA: Supervisory Control and Data Acquisition SIM (card): Subscriber Identity Module SLA: Service Level Agreement TNMS: Telecommunications Network Management System TV: Television UHF: Ultra High Frequency UMTS: Universal Mobile Telephone Service USB: Universal Serial Bus USD: US Dollar VAS: Value Added Services VAT: Value-Added Tax VHF: Very High Frequency VSAT: Very Small Aperture Terminal WCDMA: Wideband Code Division Multiple Access WLL: Wireless Local Loop

1 Introduction In recent years, there has been a growing body of evidence that the spread of ICT (information and communications technologies) can have substantial benefits for economic development. The growing use of the Internet and email has, for many people and organisations, revolutionised the speed and ease of communications, both within their own countries and, especially, across international borders. It is not surprising, therefore, that studies have shown that growth in telecommunications generates a dividend in terms of additional overall GDP growth and that this is becoming especially significant in developing countries.

Conversely, in countries where the telecommunications infrastructure is weak, this can act as a significant brake on development and imposes economic costs on all groups in society: these include increased transaction costs for business, reduced efficiency of markets; and lower productivity, amongst others. Government is not im- mune from the effects either: improved communications technologies can increase the effectiveness of public service delivery and reduce its cost; poor infrastructure prevents the realisation of such benefits.

Regardless of the indicator used, Ethiopia’s telecommunications infrastructure is lagging behind. The existing weak telecommunications infrastructure in Ethiopia acts as a severe constraint on the development of the Ethiopian business community and imposes additional costs on business activities. This both reduces the private sector’s competitiveness and impedes access to foreign markets (and even its own domestic market).

Whilst these shortcomings of the Ethiopian telecommunications infrastructure are well known, no attempt has previously been made to quantify the costs to the economy, particularly the costs to business and to government. The Private Sector Devel- opment Hub therefore commissioned this study on the impact of the telecommunications systems on business in Ethiopia.

The objective of the study is to provide the PSD Hub with an initial assessment of the weaknesses of the Ethiopian telecommunications infrastructure and services and to assess the direct, indirect and opportunity costs incurred by business and government as a result. More specifically, the study: • Compares the Ethiopian telecommunications environment with that of other selected African countries; • Identifies constraints limiting the improvement of Ethiopian telecommunication services and propose ways to reduce these constraints; • Attempts to quantify the economic benefits of improved telecommunications infra-structure and the concomitant increase in access to telecommunication services for all parts of the Ethiopian society.

The scope of the work includes (i) reviewing the current status of the telecommunications sector in Ethiopia, both in absolute terms and in comparison with the situa-

1 tion in other sub-Saharan African countries; (ii) identifying the economic impacts, direct and indirect, on both government and business; (iii) estimating the nature and size of the benefits arising from improvements to the telecommunications infrastructure; and (iv) identifying potential mechanisms for accelerating such improvements.

The report is structured as follows: • Chapter 2 presents the methodology of the study; • Chapter 3 is a telecommunication market review including the market overview, the review of current infrastructures and services and the international benchmark; • Chapter 4 presents the analysis of the Ethiopian business sector and the results of a survey carried out among 97 companies; • Chapter 5 presents the first conclusions regarding the state of the telecommunication sector and its impact on business activity in Ethiopia; • Chapter 6 analyzes the cost of telecommunication weaknesses in the business sector; • Chapter 7 proposes short- and medium-term targets for the development of telecommunications services; • Chapter 8 presents an estimate of the required investment; • Chapter 9 analyses the expected benefits for Ethiopia after improvements in the telecommunication sector; • Chapter 10 identifies the main constraints of the development in telecommunication services; • Chapter 11 presents the conclusions of the study and the consultant’s recommendations.

2 2 Methodology of the Study The methodology of the survey comprised three main steps: • A review of the state of the telecommunication sector through:

o The collation of detailed technical and commercial documentation; o Meetings with senior executives of the sector. This review has made possible an exhaustive analysis of the existing telecommunication infrastructure, ongoing projects and the current range of services, tariffs and customer bases. • An international benchmark comparing the Ethiopian telecommunication sector to those observed in seven other countries including:

o Four East and Central African countries: Kenya, Tanzania, Uganda, Ni- geria;

o Two West and North African countries: Ivory Coast and Egypt; o One South East Asian country: Vietnam. These countries were selected according to their location, size, income level (GDP per capita) and level of development of their telecommunications. • A survey carried out among 97 medium and large Ethiopian companies or- ganized according to sector of activity includes:

o 38 companies, mainly large sized (more than 100 employees) in Addis Ababa;

o 59 companies, mainly medium sized (less than 100 employees) in 11 other cities of Ethiopia.

The survey was carried out in July and August 2010 by a team from the Private Sec- tor Development Hub holding face to face interviews with executives (mainly the CEOs) of each company.

Prior to the survey, an analysis of the structure of the Ethiopian business sector had been carried out based on the statistics published by the Central Statistical Agency of Ethiopia.

In addition to these three main steps, a review of a number of international studies has enabled an identification of some international ratios in order to estimate the impact of ICTs on the economic growth of developing countries.

3 Telecommunications Sector Review

3.1 Ethiopia – Key Statistics Basic statistics on Ethiopia and on the telecommunications situation in the country are shown in Tables 1 and 2 below. Table 1. Country Statistics 1. General Surface area 1,104,300 km2 Population 80,713,434 Density 73 inh/km2 Rate of urbanization 17% Population annual growth rate (2003-2008) 2.6% 2.Economy GDP (nominal) USD 33,920 million GDP real growth rate 2009 9% GDP (nominal) per capita USD 420 GDP (PPP) USD 75,910 million GDP per capita (PPP) USD 940 GDP – composition by sector Agriculture 44% Industry 13% Services 42% 3. Socio economy Household size 4.2 Literacy rate (adult > 15 y.o.) 36% Electrification rate 15% Electric power consumption per capita 40 kWh Sources: ETC, World Bank, IMF, CSA Table 2. Telecommunications Statistics Telecommunications revenue (% GDP) 1.7% Fixed telephone Number of fixed-line operators 1 Fixed telephone lines in service Total number of fixed subscribers 960,700 Fixed teledensity 1.2%

5 Table 2. Telecommunications Statistics (continued) Mobile telephone Number of mobile operators 1 Number of GSM SIM cards 6,677,903 SIM card penetration 8% Estimated number of SIMs/subscriber 1 Number of GSM subscribers 6,870,000 Estimated number of Mobile CDMA subscribers 70,000 Total estimated number of mobile subscribers 6,940,000 Mobile teledensity 8.6% Public fixed telephones 5,241 Rural Com (Wireless) 15,359 Gota 341 Data and Internet Internet users (estimated) 550,000 Internet penetration 0.7% Data & Internet sub- Narrow Band (dial-up, 1X, GPRS) 110,000 scribers Broadband (ADSL, WCDMA, EVDO) 11,600 Data & Internet teledensity 0.151% Broadband teledensity 0.014% Universal Access School Net, Woreda Net, Agri Net 1,364 International Links Roaming Partners 326 International Links capacity 5,995 Total revenue 2009 USD 594 million Sources: ETC, World Bank, IMF and CSA

3.2 Market Overview • Ethiopia recently overtook Egypt to become the second most populous na- tion in Africa after Nigeria. However, as one of the poorest countries in the world (approximately 80% of the population rely on subsistence agriculture, which accounts for nearly half of the country’s GDP), Ethiopia has the second lowest telephone penetration rate on the continent (only Eritrea is lower). • The government tries to encourage foreign investment over a broad range of industries. Foreigners are allowed to hold up to 100% equity ownership. To permit private participation in telecom services the government amended the Investment Proclamation in 1998, providing for private companies, national or foreign, to invest in the telecom sector in partnership with the government.

6 • However, the government-owned service provider, Ethiopian Telecommuni- cations Corporation (ETC), has not been privatized and Ethiopia remains the last country in Africa to allow a national monopoly on all telecom services including fixed, mobile, Internet and data communications. The lack of liberalization of Ethiopia’s tele-communications markets is an obstacle to the country’s entry into the World Trade Organization (WTO).

The Ethiopian Telecommunications Authority (ETA) has been developing plans for partial privatization of ETC, but no time schedule has been set. • Despite the monopoly situation, subscriber growth in the mobile sector has been excellent, with a compound annual growth rate (CAGR) of almost 90% since its inception in 1999 and more than 100% in the past six years. How- ever, demand continues to be strong, and ETC has been unable to satisfy it. • Ethiopia’s mobile market penetration remains one of the lowest in the world at around 8.5%. • Fixed-line penetration is even lower, and this has also impacted on the development of the Internet sector. Broadband connection prices are excessive. • Improvements are picking up following massive investments in fixed wireless and mobile network infrastructure, including 3G mobile technology, as well as a national fibre optic backbone.

Ethiopia is investing an unusually large amount, around 10% of its GDP, into information and communication technology (ICT). The government has invested around USD 15 billion over the past ten years. However, telecommunications revenue has grown only moderately in comparison, at around 16% per annum over ten years, reaching an estimated USD 590 million in 2009. It remains below 2% of GDP, a low figure when compared to neighbouring countries and the African average of over 3%. • The recently announced management contract with France Telecom is expected to lead to improved performance by ETC in all market sectors and is seen as a first step towards liberalization. • ETC provides all telecom services including local, long-distance and international networks, mobile, Internet and public data services, Integrated Services Digital Network (ISDN), analogue and digital leased lines, telex services, repairs, assembly and manufacture of telecom equipment, as well as training services. • With around 8,000 employees, the corporation made a net profit of ETB 379.5 million in the first nine months of the 2005/06 financial year. Revenues were ETB 1.53 billion, of which ETB 622.7 million were from fixed-line services (41%), ETB 603.8 million from mobile services (39%), ETB 243.9 million from international services (16%) and ETB 61.7 million from Internet services (4%).

7 • ETC reduced its termination rate for incoming international calls to USD 0.23 per minute in early 2005. International traffic (particularly incoming traffic) used to account for up to 70% of ETC’s total revenues. However, following the reduction of international settlement rates and the spread of VoIP, the international portion of revenues now makes up less than 20% of the total, while a growing position is being taken by mobile and Internet services. • In 2009, with around 12,000 employees, the revenues reached ETB7,050 million, divided as follows (ETC):

o Fixed PSTN: ETB 1,067 million (15%) o International Revenue: ETB 1,270 million (18%) o Mobile (including roaming): ETB 4,482 million (64%) o Internet and Data: ETB 139 million (2%) o VAS and other: ETB 92 million (1%) • Thanks to the rapid growth of the mobile market, ETC’s revenues have mul- tiplied by 3.5 in ETB and 2.6 in current US Dollars (+27% per year), while the Internet and data revenues have shown growth of only 14% per year. Total revenues represent only 1.7% of GDP.

3.3 Regulatory Environment

3.3.1 Regulatory Authority

The Ethiopian Telecommunications Agency (ETA) was established as an independent regulatory authority in 1996 and is responsible for licensing and monitoring service quality. It operates under the Ministry of Communications and Information Technology and is responsible for the definition of national telecom policy, exclud- ing radio and television broadcasting.

ETA’s responsibilities include: • Specifying technical standards and procedures; • Licensing and supervising telecom operators; • Authorizing and supervising allotted frequency use; • Ensuring service quality; • Regulating tariffs; • Regulating types of equipment; • Ensuring the implementation of treaties.

The provision of terminal equipment is fully liberalized, subject to ETA type ap- proval.

8 3.3.2 Telecom Service Licences

Telecom service licences did not exist in Ethiopia prior to the reform of the telecom sector in 1996. The service was controlled by the government, which acted as operator, regulator and policy-maker. Since then, some moves have been made towards a structured licensing system to establish conditions and requirements for the provision of telecom services, with a view eventually to opening up the market to outside investors.

Licensing procedures and guidelines were established under Regulation 47/1999, and a licence for each of the services provided by ETC was drafted by the ETA. The licensee is obliged to comply with the conditions established in the licence regarding the quality of service, tariffs, etc. and has to fulfil rollout and service targets in line with the national telecom policy as set out by the government. However, the licences are still being discussed and ETC has delayed signing them.

3.3.3 Liberalization of the Telecom Sector

ETC has practically total control over telecommunications services in Ethiopia, except for the sale of customer premises equipment (CPE), which even for private use is still subject to ETA authorization. The use of any telecom technology that could bypass the local network is strictly prohibited. Currently no licences have been granted to private operators to sell or resell telecom services, either basic or enhanced. This also means that Voice over Internet Protocol (VoIP) and call back are illegal.

In terms of reselling services, the numerous street phone shops and the visible In- ternet cafes are tolerated by the authorities, although ETC is concerned about the possible use of VoIP and the consequent decrease of international traffic revenues. In 2006 ETC created a new organization, the Network Operation Centre, to fight illegal Internet telephony. In the last few years, around 20 entities have obtained special au- thorizations to have independent VSAT links supplied by ETC, including Ethiopian Airlines, the Civil Service College, which is running remote learning courses, the UN Economic Commission for Africa (UNECA) for its Internet connection, and the World Bank within the framework of development activities in Ethiopia.

3.3.4 Privatization of ETC

The government has been planning the partial privatization of ETC, aiming to allow the participation of a strategic investor, which should bring in new funding and new management techniques and skills. To permit private participation in telecom services, the Investment Proclamation was amended in 1998, providing for private companies, national or foreign, to invest in the telecom sector in partnership with the government.

In August 2002, the Ethiopian Privatization Agency (EPA) invited international investors to acquire a 30% stake plus management control in ETC. Although a number of companies expressed an interest in acquiring the stake, no further progress was

9 made until the government announced a new plan to sell off 49% of ETC in mid- 2005. Under a new CEO, however, this plan was once more taken off the agenda.

As a first step towards privatization, ETC awarded a two-year management contract to France Telecom (FT) in February 2010 after it won a tender against South Africa’s MTN and BSNL from India. FT will be paid an annual management fee.

3.4 Telecommunication Infrastructures and Capacity

3.4.1 Fixed-line infrastructure

Although it has been continuously expanding since the 1970s, ETC’s fixed-line network is still among the least developed in the world with a teledensity of little more than 1% and a marked disparity between urban and rural areas. However, such a situation can be observed in most Sub-Saharan African countries, and growth has been accelerated by the large scale introduction of fixed-wireless access since 2005.

ETC started an investment program in 2001 to expand its fixed-line capacity to 800,000 (1% penetration) by 2005, and the target was overachieved with an installed capacity of 872,000. The programme was designed to meet all pending demands from both urban and rural populations. With little more than 600,000 lines in service, the official waiting list for fixed lines was still 59,000 in 2005, although that was a significant reduction from 157,000 the previous year.

For the 2005/06 financial year, ETC had an investment budget of ETB 5.4 billion (US 644 million) for the expansion of its infrastructure, including the rollout of 250,000 new fixed lines. The switching network has been 98% digital since 2004. In August 2006, ETC signed a USD 4.9 million contract with Huawei Technologies for the upgrade of 260 switches, to be completed by October 2006. At the end of 2009, the waiting list was less than 20,000.

The current fixed coverage is based on two different standards and consists of the PSTN network and a CDMA F-WLL network.

The PSTN Network

Around 600 cities benefit from fixed PSTN distribution. The current 920,000 customers are connected either through Cross Connection Cabinets (CCC) or through Optical Network Units (ONU and MSAG) or direct zones.

The current architecture includes: • 1,062 CCC, 295 ONU and 605 Direct Zones with an average capacity of 520 customers per zone • Around 2,000 MSAGs (Multi Services Access Gateways) with POTS capa- bility deployed by ZTE in Addis Ababa and 13 + 36 cities, but 850 have no distribution network.

10 • 19 GPON equipments (Addis Ababa plus 13 cities) to provide services to high usage customers • 570 DSLAMs deployed or in the deployment process: 9 in Addis Ababa, 75 in medium and large cities (1 per city) and 486 in small cities.

The current capacity of the PSTN is around 1.1 million lines, with an occupation rate of nearly 85%.

The Fixed CDMA Network

The F-WLL CDMA network consists of 12 BSC directly connected to the Fixed Switch (no MSC) and 93 sites in 450 MHz offering voice and dial-up services in the regions and 1 BSC and 16 sites in 800 MHz in Addis Ababa offering voice and 1X RTT services.

The capacity (soft switch) is around 70,000 subscribers, but the current number of customers is around 19,000 in the regions and 22,000 in Addis Ababa (including around 8,000 subscribers to the 1X RTT service).

Other Access Infrastructures

ETC has deployed a Digital Data Network to offer data services through leased lines. It consists of six points of presence (POPs) in Addis Ababa and 9 in the outer regions.

The corporation has also installed a network control centre at the Sululta Earth Sta- tion to conduct the operation of a VSAT network spread throughout the country and powered by one Intelsat Indian Ocean satellite. The VSAT network is used to provide connectivity to thousands of remote rural communities and provide Internet and digital TV services, telemedicine as well as interactive distance learning access.

The distribution of fixed capacities per area is presented in the table below.

Table 3. Fixed regional capacities

PSTN F - WLL CDMA PSTN+CDMA Region Capacities % Capacities % Capacities % Addis Ababa 460,577 39% 460,577 37% Tigray 65,525 6% 65,525 3% Afar 16,052 1% 16,052 1% Amhara 167,950 14% 167,950 7% Oromia 268,341 23% 268,341 11% Gambella 9,552 1% 9,552 0% Benishangul Gumes 9,140 1% 9,140 0% SNNP 105,161 9% 105,161 4% Somali 24,254 2% 24,254 1% Harari 18,020 2% 18,020 1% Dire Dawa 26,117 2% 26,117 1% Total 1,170,689 100% 70,000 6% 1,240,689 52% Source: ETC 11 3.4.2 Mobile Infrastructure

Ethiopia was one of only six countries in the world with a mobile penetration of less than 1% until 2006, when it finally broke this barrier. As the sole provider of mobile telephony services in the country, ETC operates a GSM network under the brand name Ethio-Mobile.

The mobile customer base has shown an increase of more than 75% per year since 2000 but the penetration rate remains low at around 8%. This rapid growth should continue in spite of the poor quality of service.

In addition to the GSM service, ETC installed a Wideband CDMA (WCDMA) 3G pilot project in 2007. Prepaid services were launched in Addis Ababa in January 2009 at 49 upgraded base station sites, offering data transmission speeds of up to 384kbps. It should be upgraded to offer HSPA services.

The mobile infrastructure includes a mobile CDMA network that has been upgraded to offer EVDO services. The current mobile coverage is based on two different standards and consists of the GSM/UMTS network and a CDMA mobile network.

The GSM/UMTS Network

The GSM network architecture includes: • 12 GSM MSC (Mobile service Switching Centres – 5 in Addis Ababa and 7 in the regions) and 2 Transit MSC (both in Addis Ababa) • 16 MGW (Media Gateways) – 7 in Addis Ababa and 9 in the regions • 45 BSC (Base Station Controllers) – 18 in Addis Ababa and the others in the regions • 1 RNC (Radio Network Controller) in Addis Ababa for the UMTS coverage • Around 2,200 BTS (Base Transceiver Stations) plus 700 in the process of being deployed. This includes 400 BTS in Addis Ababa (including 50 UMTS/ WCDMA sites) and 2,500 in the regions.

After the completion of phase 3 of the network, the total number of BTS should reach 3,500 and the capacity deployed will be 14 million subscribers. Phase 3 should increase the capacity to 20 million subscribers. According to the technical assumptions of ETC, the network should cover 60% of the territory. The planned GSM coverage is presented in the map below.

12 Figure 1. Planned GSM coverage

The CDMA Network

The mobile CDMA architecture includes: • 2 MSC in Addis Ababa • 7 MGW co-located with 7 BSC, 1 in Addis Ababa and 6 in the regions • 161 Mobile 800MHz BTS (61 in Addis Ababa) and 600 Mobile 450-800 BTS in the regions

The total capacity of the CDMA network is 2.4 million subscribers and the network should cover 90% of the territory. However, the current number of subscribers is around 70,000, with 50,000 in Addis Ababa.

13 3.4.3 Transmission

The current transmission network is shown in the map below.

Figure 2. Existing transmission network

The domestic backbone network connects almost all regions of the country. It comprises one national centre and six district centres selected according to traffi c density. The district centres are interconnected by high-capacity FDM microwave links that also carry a one colour TV broadcast channel. Some rural centres are served by open wire carrier systems, HF or VHF/UHF radio.

By early 2004, the national transmission network consisted of 127 microwave links, 40 UHF links, 244 point-to-multipoint terminals, over 325 VSAT terminals (including fi ve DOMSAT ground stations, the fi rst of which had been installed in 1994), 152 point-to-point VHF links and 28 HF radio stations.

In 2004/05, ETC budgeted a record ETB 4.2 billion to be spent on developing its backbone infrastructure, including 3,200km of optical fi bres. In early 2005, Sie- mens was commissioned to supply fi bre optic backbone technology worth around USD 15.4 million by the middle of the year for ETC’s fi xed and mobile network in the north and centre of the country. The contract included approximately 1,700km of fi bre and Siemens’ transport network management system TNMS. The system supports a transmission rate of 2.5GB/s. A similar contract, worth € 14 million, was

14 awarded to Alcatel in early 2005 for the eastern and southern parts of the country. By mid-2007, around 4,500km of fibre had been deployed, including links to international fibre optic submarine cables via Sudan and Djibouti.

By the end of 2010, the national backbone will include: • A legacy of 4,300km fibre optic network • 2,700km fibre optic deployed in phase 1 • 3,700km fibre optic deployed in phase 2

Additionally, OPGW cables that can be installed on the aerial electricity network will provide redundancy for international connections in particular.

3.4.4 International Connectivity

The Ethiopian network is linked to the rest of the world via more than 4,000 circuits, including 2,100 satellite circuits, 1,800 submarine cables circuits and 177 microwave radio circuits.

Optical links to Sudan, Kenya and Djibouti with connections to SMW3 submarine cable and soon EASSy cable provide a total international bandwidth capacity of more than 2.4 Gbps.

Satellite circuits to Belgium, Canada, Italy, Japan, South Africa, Sweden, Tanzania, the UK and the USA provide a total capacity of 26 Mbps.

Microwave links to Djibouti, Somalia and Soudan provide an additional capacity of 930 Mbps.

ETC has signed roaming agreements with 251 foreign telecom operators.

The international traffic from and to the various networks is handled through three international transit switches as shown in the following diagram.

15 Figure 3. International connectivity schematic

The AXE 10 switch in Addis Ababa has an international capacity of 111 E1 (222 Mbps) and the Bole Transit switch has an international capacity of 59 E1 (118 Mbps). The architecture of the international gateway switching causes a bottleneck for international traffi c.

3.5 Services and Customer Bases

3.5.1 Fixed voice services

Table 4. Fixed line evolution

Number of subscribers Year AAGR Teledensity Waiting List PSTN F-WLL CDMA Total 2000 232,000 232,000 0.4% 155,000 2005 610,000 610,000 21% 0.8% 57,000 2006 725,000 725,000 19% 1.0% 35,000 2007 880,000 880,000 21% 1.1% 16,500 2008 897,000 897,000 2% 1.1% 19,000 2009 900,000 15,000 915,000 2% 1.1% 18,500 2010 919,700 41,000 960,700 5% 1.2% Source: ETC 16 The number of subscribers is about 360,000 in Addis Ababa City, shared among 52,000 business subscribers, 22,000 government lines and 286,000 residential subscribers. The overall penetration rate is 12% of the population and the residential penetration about 40% of all households.

In the regions there are 90,000 business lines, 50,000 government lines and around 460,000 residential lines. The overall penetration is less than 0.8% and the residential penetration around 2.5% of all households.

The fixed services include: • Basic telecom facilities (voice and data connectivity) through VSAT and Digital Radio Services to 15,000 - 18,000 rural communities that bring together nearly 80% of the population. • Nearly 5,000 public phones.

The tariffs for fixed voice services are summarized in the table below.

Table 5. ETC fixed to fixed/fixed to CDMA WLL and vice versa calling charges CDMA WLL Service Type Wireline” (Rutel)* Subscription fee (ETB) 242.00 Free Monthly Rent Residential 8.00 Free (in ETB) Business 17.00 With in a town 0.20 Between different towns of the same tariff zone 0.40 Between different tariff zones 1.20 Usage Charge Within a town 0.20 (in ETB per minute) Between different towns of the same tariff zone 0.25 Between different tariff zones 1.00 7 to Djibouti & 10 for International Destinations the rest of the world Source: ETC

3.5.2 Mobile voice services

Table 6. Mobile subscriber evolution

Number of subscribers Year AAGR Teledensity GSM CDMA Total 2000 22,000 22,000 0.01% 2005 411,000 411,000 79% 0.5% 2006 950,000 950,000 131% 1.3% 2007 1,850,000 1,850,000 95% 2.4% 2008 2,730,000 2,730,000 48% 3.2% 2009 3,390,000 3,390,000 24% 4.2% 2010 6,870,000 70,000 6,940,000 105% 8.7% Source: ETC 17 Service offerings are very basic, including prepaid and post paid voice services, SMS, voice mail and some basic value-added services such as call waiting, barring and diversion. However, mobile data services were launched in mid-2009 and the GSM customer base has about 6,000 3G subscribers while the mobile CDMA customer base has 8,000 EVDO subscribers (90% in Addis Ababa).

A number of services exist in theory but have not been launched commercially: • WAP (Wireless Application Protocol) • MMS (Multimedia Message Service) • CRBT (Colour Ring Back Tone) • FPH service (Free Number) • VPMN (Virtual Private Mobile Network) • Friendly Number service (Friends & Family groups)

Other services such as MCN (missed called notification), CTD (call time discount), Tele voting and Credit Transfer are planned to be launched in the next few months.

Despite the huge increase in the mobile customer base during the last three years, in sharp contrast to most other developing countries, the use of mobile phones has not yet become widespread in Ethiopia.

The tariff plan per zone is quite complicated but overall, the cost of the mobile service is relatively affordable compared to other countries (calls within the same tariff zone are charged at ETB 0.72 (around USD 0.05) per minute, while calls between different tariff zones are charged at ETB 1.50 per minute). Tariffs for mobile voice services are summarized in the tables below.

Table 7. Mobile GSM tariffs – post-paid access charge Access Fee (ETB) Total Including Customer Category Stamp Fee VAT (15%) Sub-Total VAT Duty All type 356 53.4 409.4 5 414.4 Monthly Rent 25 3.75 28.75 - 28.75 Source: ETC

Table 8. Mobile GSM tariffs – pre-paid access charge Access Fee (ETB) Default Airtime Fee (ETB) Stamp Duty Fee VAT (15%) Sub-Total Fee VAT (15%) Sub-Total 120.95 18.15 139.1 5 21.74 3.26 25 Source: ETC

18 Table 9. Mobile GSM tariffs – mobile to mobile normal call rate (ETB/min) Calling / Called Number Segments 0911,0912,0913, 0916,0917 0914 0915 0918 0911, 0912, 0913, 0916, 0917 0.72 1.50 1.50 1.50 0914 1.50 0.72 1.50 1.50 0915 1.50 1.50 0.72 1.50 0918 1.50 1.50 1.50 0.72 Source: ETC

Table 10. Mobile to fixed/fixed to mobile normal call rate (ETB/min) Fixed Tel. Tariff T4-T7, International Zone/Mobile Num- T1, T3 T8, T9 T2 T10, T11 call ber Segment 0911, 0912, 0913, 7.72 to Djibouti and 10.72 0.72 1.50 1.50 1.50 0916, 0917 to the rest of the world 0914 1.50 0.72 1.50 1.50 0915 1.50 1.50 0.72 1.50 0918 1.50 1.50 1.50 0.72 Source: ETC Reduced Charges: For ETB 0.72 and ETB 1.50 normal charge calls, reduced charge will be ETB 0.30 and ETB 1.25 respectively for both Mobile-Mobile and Fixed-Mobile. 15 % VAT will be added to all charges. Peak Hour: 8am-8pm Mondays - Saturdays. Off Peak Hour: All other times & Public Holidays. Post- paid users are charged per 1-second base while prepaid customers are charged per 10-second base.

3.5.3 Internet/Data Services

The Ethiopian telecommunications network has made available a number of technical solutions and enough national and international capacities to provide Fixed and Mobile Internet and Data services.

Despite a project relating to the issue of ISP licences to other companies, ETC’s Ethionet has so far remained the only ISP in the country and the current market remains very limited.

Table 11. Development of Internet users and subscribers Number of Number of Years AAGR Penetration AAGR Teledensity Internet Users Subscribers 2000 10,000 0.002% 2,500 0.001% 2005 164,000 75% 0.2% 17,600 48% 0.02% 2006 238,000 45% 0.3% 25,700 46% 0.03% 2007 291,000 22% 0.4% 31,400 22% 0.04% 2008 360,000 24% 0.5% 34,100 9% 0.04% 2009 450,000 25% 0.6% 50,000 47% 0.06% 2010 550,000 22% 0.7% 70,000 40% 0.09% Source: ETC

19 Table 12. Estimated Internet subscriber distribution per access technology Fixed subscribers Mobile subscribers Region Dial Up ADSL CDMA 1X WCDMA CDMA EVDO Addis Ababa 2,200 6,021 549 7,239 Tigray 158 354 36 Afar 21 8 3 Amhara 295 561 89 Oromia 337 707 122 Gambella 33 2 Benishangul Gumes 49 2 SNNP 126 117 17 Somali 76 126 92 Harari 42 Dire Dawa 98 264 99 Total 100,000 3,353 8,240 549 7,701 Source: ETC, Consultant estimates

Accurate figures for the number of subscribers are not easy to obtain. However, the number of active subscribers should not exceed 70,000 of which: • 70% have the benefit of only a dial-up connection through the PSTN and the 450 F-WLL networks with a speed lower than 56 kbit/sec • Less than 15% (8,000 to 10,000) have the benefit a 1XCDMA Data access with a speed lower than 70 kbit/sec. • 5% (less than 3,500), mainly companies in Addis Ababa, have the benefit of a broadband ADSL access with a speed ranging from 128 to 1024 kbit/sec • 10%, mainly in Addis Ababa, have the benefit of a mobile EVDO access with a speed of about 384 kbit/sec.

1,400 centres, including 684 high schools, 631 woredas (regional government bodies) and 49 agricultural institutions have universal access to broadband services through VSAT.

The VSAT network is also used to provide a range of applications including video- conferencing, Internet/intranet access and VoIP solutions for a variety of government, banking and private enterprise customers.

An agreement to establish tele-medicine and tele-education centres was signed between the Ethiopian Information and Communication Technology Development Agency (EICTDA) and Telecommunications Consultants India Limited (TCIL) in early 2006. The Indian government has funded a project to link up African Union (AU) countries with hospitals and universities in India via satellite. Following a successful pilot project in Ethiopia in 2007, the system was expanded to other countries in East and West Africa. 20 ETC provide data services through leased lines (Digital Data Network) to address the demand for Wide Area Networks from customers in the financial sector, government ministries and international organizations.

Several campuses at the Addis Ababa University are connected to a fibre optic network called AAUNet. Adama University operates a self-developed e-learning programme, the first of its kind in Ethiopia. Seven courses were offered at its launch in October 2009, with plans to add more in the future. The platform is linked to the e-Library system whereby students and lecturers can access journal databases from the international scientific community as well as relevant eBooks. It is also planned to export the programme to other universities in the country.

The tariffs of Internet and data services per type of access are summarized in the following tables.

Table 13. Internet data – summarized tariffs. Dial-up Internet Monthly Fee Inclusive Above Subscription Charge/ including rental Bundle Bundled Application Time Fee (in ETB) minute (in ETB) (Minute) Rate Up to 1300 0.07 Off Peak Hours 600 min- minutes 0.10 Peak Hours 101.74 40.00 utes > 1300 0.07 Off Peak Hours minutes 0.10 Peak Hours Source: ETC Peak Hours: 8am - 6pm from Mondays - Fridays; 15% VAT will be added on all charges

Table 14. Internet data – summarized tariffs. Fixed broadband Internet service Charge (ETB) CPE ADSL Total Speed Initial Monthly Monthly Monthly Subscription Subscription payment payment payment payment 64 kbps 1,109 1,567 1,042 184 2,151 1,751 128 kbps 1,109 2,350 2,151 2,534 256 kbps 1,109 3,521 2,151 3,705 384 kbps 1,109 4,402 2,151 4,586 512 kbps 1,109 5,282 2,151 5,466 768 kbps 1,109 6,603 2,151 6,787 1 Mbps 1,109 7,923 2,151 8,107 2 Mbps 1,109 10,563 2,151 10,747 Source: ETC Note: 15% VAT will be added on all charges

21 Table 15. Subscription and usage charge for EVDO with full mobility Subscription Minimum Monthly Included Above bundle usage Data Plan Fee Usage charge (ETB) Bundle charge (ETB/MB) Data plan 2 GB Free 400 2 GB 0.4/MB Data Plan unlimited Free 3,521 Unlimited N/A Source: ETC Note: 15% VAT will be added on all charges

Table 16. Digital Data Network (DDN) For CPE type 27xxNTU Subscription Monthly Rental (ETB) No. Bandwidth (ETB) For CPE Usage Total 1 8kbps 6,923 110 126 236 2 16kbps 6,923 110 253 363 3 32kbps 6,923 110 506 616 4 64kbps 6,923 110 1,012 1,122 For CPE type 28xxNTU Subscription Monthly Rental (ETB) No. Bandwidth (ETB) For CPE Usage Total 1 128kbps 9,385 141 2,024 2,165 2 256kbps 9,385 141 4,048 4,189 3 384kbps 9,385 141 6,072 6,213 4 512kbps 9,385 141 8,095 8,236 5 768kbps 9,385 141 12,143 12,284 6 1024kbps 9,385 141 16,191 16,332 Source: ETC Note: 15% VAT will be added on all charges

3.5.4 Conclusion: strengths and weaknesses in Ethiopian telecommunications Strengths

Thanks to huge investments in telecommunications over the last ten years (around USD 15 billion), the Ethiopian telecommunications sector has made available the necessary technical resources to make up for lost time after years of under-investment. • The National Operator benefits from a strong network infrastructure operating a number of up-to-date technologies having made available large switching capacities and a portfolio of potential services. • Ethiopian fixed voice penetration (1.2%) is quite poor but in line with the African average.

22 • The mobile penetration is still very low but has been growing rapidly since 2006. • Ethiopian networks benefit from 10,000 km of national backbone (mainly FO) and from a strong international connectivity (2.5 Gbps).

Weaknesses

Despite the available resources, a number of technical and organizational weaknesses can be identified in various areas.

1. Fixed voice services • The legacy of PSTN secondary network is not suitable for international standards of Quality of Service; • The Fixed network design (PSTN/CDMA) is not really optimized and suffers from overlapping; • Due to a lack of demand forecasting at local levels in marketing, the access capacities (last mile) and nearly half of the installed MSAG have no distribution networks.

2. Mobile services • The mobile network design (GSM/CDMA) is complex and not optimized, due notably to a lack of integration of the different roll-out projects; • In order to respect the regulatory commitments in terms of coverage, the roll-out is based on optimistic technical assumptions of radio propagation (GSM BTS radius of 8 km and CDMA BTS radius of 20 km). Therefore the coverage target of 60% of the territory results in a poor average quality of service.

3. Internet services • The broadband ADSL access capacity (and the dial-up QoS) is restricted by the low quality of the secondary PSTN network; • The CDMA 1X service is not suitable for professional use; • Both EVDO and UMTS/HSPA capacities seem to be quite restricted; • Despite a range of different technologies and commercial offers for Internet and Data access, both the availability and quality of services are poor within Ethiopia, in Addis Ababa and more so in the regions, and tariffs remain very high.

4. National backbone and connectivity • The 10,000 km of backbone provide good coverage of the territory but part of the 4,300 km legacy backbone (about 500km) suffers from low quality (cable cuts) and insufficient redundancy (Eastern ring and International links). 23 5. International connectivity • Despite strong international capacities through FO cables, microwave and satellite links, international traffic suffers from a serious bottleneck at the two transit switches: both outgoing and incoming fixed and mobile voice international services are very poor (call efficiency and call drops). The broadband Internet speed is very low compared to the theoretical international capacity.

3.6 International Benchmark An international benchmark of Ethiopian telecommunications was carried out against a sample of seven countries. The selected countries were: • Four East and Central African countries with GDP per capita close to Ethio- pia’s (except Nigeria):

o Kenya o Tanzania o Uganda o Nigeria • One West African country and one North African country:

o Ivory Coast o Egypt • One South-East Asian country:

o Vietnam. The benchmark includes: • Geographic and economic data; • Detailed telecommunications data regarding:

o The usages and penetration rates per service o The tariffs per service o The prices of the services expressed in % of GNI per capita (basket indicator from ITU) • Various other indicators.

Key data are presented in Tables 17-19 below.

24 4.2 1% 728 260 331 84% 12% 70% 94% 38% 40% 22% 28% 6.2% Viet Viet 2,787 1,072 86.21 Nam 92,439 240,292 81 5.8 2% 98% 36% 81% 66% 49% 38% 13% 43% 4.7% 1,465 5,762 2,306 81.53 1,001 Egypt 469,800 188,000 5.5 2% 137 164 924 46% 12% 31% 72% 27% 41% 33% 48% 6.0% 2,242 1,147 151.21 Nigeria 339,000 173,400 64 5.8 9% 2% 178 322 73% 36% 49% 49% 26% 25% 49% 3.2% 1,113 1,730 20.59 Côte 35,630 22,910 d’Ivoire 53 5.0 9% 6% 3% 495 131 241 24% 74% 52% 26% 23% 13% 4.0% 1,332 31.66 42,180 15,660 Uganda 82 45 5.7 2% 6% 3% 522 947 11% 72% 37% 17% 45% 26% 4.5% 1,353 42.48 57,500 22,160 Tanzania 67 4.0 4% 3% 151 779 580 14% 58% 74% 54% 19% 27% 22% 1.8% 1,639 38.77 Kenya 63,520 30,210 40 73 4.2 4% 3% 940 420 15% 33% 36% 42% 13% 44% 17% 9.0% 80.71 1,104 75,910 33,920 Ethiopia Table 17. International benchmark. Geographic & economic data Table Electric power consumption per capita (kWh) Electrification rate (%) Gross enrolment ratio - Tertiary 2008 (%) Tertiary Gross enrolment ratio - Gross enrolment ratio - Secondary 2008 (%) Literacy rate (adult > 15 y.o.) 2008 (%) Literacy rate (adult > 15 y.o.) 3. Socio-economy household size (#) Average Services (%) Industry (%) GDP - composition by sector GDP Agriculture (%) GDP per capita (PPP) (USD) GDP GDP (PPP) (USD million) GDP GDP (nominal) per capita (USD) GDP GDP real growth rate 2008 – 2009 (%) GDP 2.Economy (nominal) (USD million) GDP Population annual growth rate (2003-2008) (%) Rate of urbanization (%) Population density (Inhbt/km²) Population (million) 1. Geography & Demography Surface area (1000 km²) Sources: World Bank; ITU; PNUD World Sources:

25 7 2.1 9% 3% 4% 3.05 67% 70% 4.7% -35% 103% 35.6% 30,693 88,566 57,568 Viet Nam Viet 3 3.0 3% 2% 3% 2.70 68% 51% 95% 3.7% -25% Egypt 12.6% 10,313 55,352 41,514 10 5.7 5.7 6% 1.65 12.6 11% 39% 48% 31% 14% 83% 3.4% 0.9% -35% 1,419 356.9 73,099 47,515 Nigeria 1,004.6 2,527.9 5 282 1.45 21.7 29.7 30.1 32% 85% 27% 65% 42% 10% 80% 14% 5.5% 1.4% -35% 8,675 Côte 13,346 3,057.4 d’Ivoire 3,539.4 3,914.3 6 9.9 5.7 1.5 1.5 234 1.30 15.0 11% 50% 28% 30% 19% 23% 3.2% 0.7% -35% 9,384 6,099 100% 100% Uganda 7 173 1.17 12.2 10.9 17.3 54% 33% 41% 27% 65% 15% 28% 2.3% 0.4% -35% 11,355 17,470 1,422.9 2,102.5 3,272.1 Tanzania 4 664 1.69 10.1 17.1 26.7 30% 54% 16% 50% 35% 83% 17% 12% 6.3% 1.7% -30% 2,862.5 4,165.5 5,663.5 Kenya 19,365 13,555 - 1 70 0.9 6.1 9% 9% 7% 961 1.03 64.2 38% 69% 10% 1.7% 1.2% 3.8% 6,870 6,870 6,940 1,436.6 1,637.7 2,644.7 Ethiopia 20%/60% Table 18. International benchmark. Telecommunications data: fixed and mobile Telecommunications 18. International benchmark. Table Telecommunications revenue (% GDP) Telecommunications ICT price basket value 2009 (% GNI per cap) ICT 4. Telecommunications 4. ICT Development Index (IDI) 2008 ICT Fixed telephone lines in service (‘000s) Fixed-line teledensity (%) Urban share of residential fixed lines (%) Fixed telephone sub-basket 2009 (USD) Fixed Price basket 2009 (% GNI per cap) Number of SIM cards (‘000s) SIM cards penetration (%) Multi SIM correction (%) Estimated number of physical subscribers (‘000s) Total estimated number of Mobile subscribers (‘000s) Total Estimated real penetration (%) Estimated number of Mobile CDMA subscribers (‘000s) Estimated number of Mobile CDMA Number of mobile operators (#) Population covered by cellular network (%) Av. willingness & ability to pay for a mobile handset (USD) Av. Monthly expend. as share of individual income (%) Mobile Price basket 2009 (% GNI per cap) Average expected cost of a mobile handset (USD) Average New users at USD 20 for a handset (‘000s) New users at USD 15 for a handset (‘000s) New users at USD 10 for a handset (‘000s) Sources: World Bank, ITU, Research ICT Africa, Consultant estimates ICT Bank, ITU, Research World Sources:

26 ------8 11 93 18 0.04 21% 5,241 2,592 2,649 2,403 27.8% 6.08% 3.01% 3.07% 10.2% 24,000 Viet Nam Viet - 97 15 22 35 5% 106 0.01 0.03 0.63 0.03 2,809 1,731 1,078 1,995 20.4% 3.45% 2.12% 1.32% 13.1% 16,636 Egypt - - - - 82 65 42 62 99 905 823 139 125 0.13 0.17 0.20 38% 13% 109% 29.1% 0.60% 0.54% 0.05% 12.0% 43,982 Nigeria 8 18 10 25 17 34 32 71 7% 144 968 168 0.09 0.10 0.25 0.14 54% 17% 4.7% 1.4% 11.96 1,518 0.09% 0.04% 0.05% Côte d’Ivoire 6 30 24 29 42 43 43 72 2% 7% 112 148 0.11 0.05 0.05 0.19 3.61 1.6% 3,200 555% 0.09% 0.08% 0.02% 10.1% Uganda - 11 24 37 58 2% 9% 676 581 131 0.06 0.12 0.29 0.03 2.64 1.6% 2.5% 173% Tanzania - - 8 36 95 0.1 8.3 247 0.01 0.17 0.06 0-36 15% 62% 32% 6.3% 3,996 23.98 18-60 30-84 10.3% 0.02% 0.00% 0.02% 54-120 Kenya 12 15 1% 9% 110 550 122 134 158 107 232 342 507 0.01 0.08 0.63 0.50 0.7% 0.2% 4,500 0.15% 0.14% 2085% 0.015% 0,05/0,09 Ethiopia Table 19. International benchmark. Telecommunications data: Internet data and tariffs Telecommunications 19. International benchmark. Table 5. Internet Internet users (‘000s)) Internet users (% penetration) Internet subscribers (‘000s) Total Narrowband (‘000s) Broadband (‘000s) Internet subscribers (% penetration) Narrowband (% penetration) Broadband (% penetration) Fixed Telephone Local Call/min Telephone Fixed National Call/min Telephone Fixed International Call/min Telephone Fixed Mobile On Net Minute Peak Hour/min Subscription ADSL Broadband Monthly Fee – 128 kbps ADSL Broadband Do you ever use the Internet? (%) International Internet bandwidth/ user (2008) (bit/s) Broadband Price basket 2009 (% GNI per capita) Internet usage Do you know what the Internet is? (%) Proportion of households with computer (2008) (%) Ranking on the ease of doing business (/183) (excl. taxes, in USD) Tariffs 6. Subscription Telephone Fixed Monthly Fee Residential Telephone Fixed Broadband ADSL Monthly Fee – 256 kbps ADSL Broadband Broadband ADSL Monthly Fee – 512 kbps ADSL Broadband Monthly Fee – 1,024 kbps ADSL Broadband (Sources: World Bank, ITU; operators) World (Sources:

27 3.6.1 Geographic and Economic Data

Compared to the selected sample, Ethiopia is characterized by: • Its large surface area and population comparable to Egypt and Vietnam (population); • An average population density (but 3.5 times lower than Vietnam); • A low rate of urbanization (but comparable to Kenya and Vietnam); • The lowest GDP per capita among the sample (nominal & PPP), only comparable with Uganda and Tanzania but 2.5 times lower than in Vietnam and 5 times lower than in Egypt; • The greater impact of agriculture and lower impact of industry in GDP; • One of the lowest electrification rates among the sample (6 times lower than in Egypt and Vietnam); • The lowest rate of literacy (two to three times lower than most of the selected countries, especially Vietnam).

From an economic point of view (average income) and socio-economic point of view (impact of the agricultural sector), Tanzania is the closest in comparison to Ethiopia. However, Ethiopia’s economic growth rate since 2008 is comparable to that of Vietnam.

In the future, in addition to the low income level, the main handicaps that the country will be facing are likely to be: • Its low urbanization rate and the importance of the agricultural sector, • Its very low literacy rate and especially the low rate of school enrolment in secondary and tertiary levels.

3.6.2 Telecommunications Data

The Ethiopian telecommunications sector today collects lower revenue compared to GDP than in other countries. Due to the very low mobile penetration, this rate (1.7%) is half that in Uganda, Nigeria and Egypt and three to four times lower than the rates in Vietnam, Ivory Coast and Kenya.

All the indicators used by the ITU to measure telecommunications activity are far lower in Ethiopia than in all the countries of the selected sample. • The IDI development Index compares developments in information and communication technologies (ICT) in 154 countries. This Index combines 11 indicators into a single measure, related to ICT access, use and skills, such as households with a computer, the number of Internet users and literacy levels.

o It is only 1.03 in Ethiopia when the average is 1.61 among the sample countries (2.5 in Egypt and 2.6 in Vietnam) 28 • IDI access sub-index. Five indicators are included: fixed line and mobile cellular penetration, Internet bandwidth per user and proportion of households with computers and Internet access.

o This index is only 1.23 in Ethiopia against 1.7 in the sample average • IDI Internet use sub-index: it includes Internet user penetration, fixed broadband penetration and mobile broadband penetration.

o It is 0.01 in Ethiopia against 0.26 in the sample average (0.5 in Egypt and 0.76 in Vietnam) • IDI skills sub-index: it includes the adult literacy rate, secondary and tertiary enrolment.

o 2.69 against 4.12 in the sample average (6.2 in Egypt and 5.8 in Viet- nam).

Fixed Telephony • With nearly 1 million subscribers, the fixed telephone density is 1.2% in Ethiopia. • The average rate among the sample is 6.7%, but in fact the average in the Sub-Saharan African countries is only 0.9% with nearly 13% in Egypt and 36% in Vietnam. • In the whole of sub-Saharan Africa, the fixed telephone density in 2010 was 1.6% and varied from 0.1% in Chad to 8.6% in South Africa. These rates have barely changed over the last 10 years (the South African fixed teledensity actually decreased from 10.2% in 2004 to 8.6% in 2009). This represents the main stumbling block to the wire line broadband access (ADSL) that will have to be compensated by innovative solutions of wireless accesses, much less costly on a large scale. However, the remaining problem is to deliver the level of service reliability and bandwidth required by large companies and institutions in line with their activity in terms of data transfer. • Compared to the other African countries, the problem in Ethiopia is not so much the number of fixed lines as the quality of these lines, especially in the regions, and their capacity to provide ADSL access. • In terms of prices, the nominal fixed telephone sub-basket in US Dollars calculated by ITU (Monthly subscription plus 30 local calls, 15 peak and 15 off-peak) is the lowest of the sample: ten to twenty times lower than in other African countries, three times lower than in Egypt and twice as low as in Vietnam. Measured against GNI per capita, the Ethiopian fixed telephone sub-basket (3.8%) is 5 to 6 times lower than in sub-Saharan countries in the sample, and can be compared to the sub-basket in Egypt and Vietnam.

As in Vietnam, it clearly reflects the strategy of the Ethiopian Government of promoting the development of the fixed service in the last twenty years.

29 Mobile Telephony • Despite its huge development since 2006, the mobile market is still very small in Ethiopia compared to the other developing countries in Africa and particularly in Asia.

However, the current penetration rate of 8% in Ethiopia with only one operator should not be compared with the SIM card penetration rate (total number of SIM cards compared to the population) but rather with the real penetration rate. This is estimated by taking into account the effects of the “multi-SIM phenomenon”: in most developing countries, a large number of subscribers have more than one SIM card in order to take advantage of the best tariffs of each operator for the On-Net traffic. The number of SIM cards per subscriber is directly linked to the number of operators per country.

Even after correction, the 8% penetration rate remains much lower than in the sub-Saharan African countries among the sample (20% to 40%), 6 times lower than in Egypt and 8 times lower than in Vietnam. • The official coverage of the territory, calculated using somewhat optimistic assumptions of average radius per base station for both GSM and CDMA networks, is 60% and is comparable to rates observed in the other countries of the sample. However, as stated previously, this rate does not seem to match international standards for quality of service (quality of signal). • Considering that the mobile ITU sub-basket (25 outgoing calls + 30 SMS), measured in nominal (USD) terms and as a percentage of GNI per capita, is lower in Ethiopia than in the other sub-Saharan African countries, the mobile market, until now hindered by the weakness of the offer, should continue to grow rapidly over the next few years to reach the observed penetration rates in these other countries. On the other hand, attaining the real penetration rates of Egypt (50%) and Vietnam (70%) could be difficult since the relative cost of the sub-basket compared to household income is three times lower in these two countries than in Ethiopia.

The monthly expenditure on mobile telephony as a proportion of average income is only 7% in Ethiopia compared to 10-17% in the other African countries and reflects the still low usage of mobile telephony by the Ethio- pian population. • The last figures in the mobile table show a large gap between the average willingness to pay for a mobile handset (6 USD) and the average market price (64 USD). This gap (a factor of 10) is much larger than in the other African countries of the sample (a factor of two). The current price of the handset could be a serious curb on the mobile market increase.

30 Internet and Data Services

Achieving the correct benchmark with regard to the penetration of Internet services is not easy since the definitions of “Internet users” and Internet subscribers’ “narrowband” and “broadband” are not clear and the figures are less reliable than for the voice services. • The estimated proportion of Internet users in Ethiopia is only 0.7% of the population, while it is 2% in Tanzania, 5-30% in the other sub-Saharan Afri- can countries, 20% in Egypt and 28% in Vietnam.

This rate can be linked with both the poor quality and the high prices of In- ternet access in Ethiopia, but also to the illiteracy rate. • The rate of narrowband subscribers from the official ETC figures remains within the average of the African sample, with the exception of Nigeria, but the rate of broadband subscribers (ADSL+EVDO) is two to three times lower and 20 times lower than the rate in Vietnam.

The very low penetration of Internet access can also be compared to figures relating to households equipped with a computer, i.e. 10 to 50 times lower than in the other countries. • On the other hand, it cannot be explained by a shortage of international bandwidth since the average available bandwidth per user is twice as high as in Vietnam and in Egypt and ten to thirty times higher than in the sub- Saharan African countries. • Finally, the benchmark of the broadband sub-basket clearly reflects the impact of the very high prices of the broadband offer in Ethiopia: the basket price is estimated by ITU at USD 490 in Ethiopia against USD 40-100 in the other sub-Saharan African countries, USD 8 in Egypt and USD 45 in Vietnam.

When adjusted for income, the difference is even more stark: the basket price represents more than 2,000% of the GNI per capita in Ethiopia whereas it represents from 50-100% in four African countries (500% in Uganda), 5% in Egypt and 20% in Vietnam.

Even if the ITU Basket calculated in 2009 does not exactly reflect the current tariff plan in Ethiopia, it is representative of the recent strategy of ETC to discourage demand in the face of the offer shortage.

31 3.6.3 Summary of the International Benchmark Analysis

The international benchmark analysis provides a clear abstract of the situation of the telecommunications sector in Ethiopia in 2010: • The development of the Ethiopian telecommunication sector suffers from three main handicaps:

o Low household income level o Low urbanization rate o Low literacy rate • Ethiopia benefits from quite a reasonable coverage and penetration for the fixed telephone network compared to the African ratios (without taking into account the possible weakness in terms of quality of service), but this does not compare with the situation in Egypt and Vietnam. • Ethiopia is at least 5 to 6 years behind in mobile market development: the average penetration rate in the whole Africa was 12% in 2005 (ITU). • Ethiopian households are not yet involved in the “Internet and computer world” and the business sector expects a higher quality service than the current supply.

32 4 The Business Sector and Telecommunications in Ethiopia A survey was carried out among a sample of 98 companies in Addis Ababa and 11 other main cities through face to face interviews. The purpose was to collect data relating to the companies’ telecommunications equipment and the executives’ opinion regarding the telecommunications services in Ethiopia and their impact on company activities.

To prepare the survey sample, a summary of the business sector was prepared from the statistics of the Central Statistical Agency of Ethiopia.

4.1 Summary of the Ethiopian Business Sector No overall registration of the total number of companies is available. The figures below are therefore not exhaustive but provide an estimate of the breakdown of the companies by size and sector. All the figures are from CSA official publications.

The agricultural sector accounts for at least 44% of GDP and 85% of employment. It is mainly oriented to subsistence agriculture and therefore self-employment. The current analysis concerns only the urban business sector and employment that represents about 4.5 million people, 1 million in Addis Ababa.

4.1.1 Urban Employment

Out of a total number of 9.6 million urban inhabitants over 10 years old, the active population represents 5.5 million people (57%) of which 4.5 (80%) are employed, but only 50% (2.3 million) are paid employees whereas the other 50% are unpaid workers. From the 2.2 million “unpaid workers”, 1.8 million declare themselves to be self-employed and 0.3 million to be unpaid family workers.

Addis Ababa represents 30% of the total urban population of Ethiopia but only 23% of the urban paid employment. According to the CSA data, only 26% of the paid employees receive more than 1,000 Birr per month.

This is summarized in Table 20 below.

33 5% 7% 6% 3% 20% 22% 37% 18% 26% 13% 28% 21% 16% 26% 410,805 1,168,591 Unemployed 80% 72% 611,710 237,687 861,379 813,759 336,450 264,127 568,530 145,224 488,975 376,586 4,547,266 1,062,772 Employed 1,011,229 2,338,650 1,170,260 Active in 5,715,857 1,473,577 last 7 days 43% 40% 952,978 4,124,660 Non-Active 57% 60% Active Table 20. Urban employment Table 5,453,281 1,414,081 All < 400 > 1000 400 - 699 700 - 999 9,577,941 2,367,059 Basic Occupation

Machine operators Craft Agriculture & Fishery Shop sales workers Clerks Professionals Managers - Urban population over ten years old Urban employ - ment Addis Ababa Addis Paid Employees Per monthly Amount (ETB) tion Per major occupa Source: CSA Report on Urban Employment Unemployment Survey – 2009 CSA Source:

34 4.1.2 Estimated Number of Companies

The number of registered companies was estimated from three documents published by the CSA: • The report on the large and medium scale manufacturing and electricity industry survey (Dec. 2009); • The report on the small scale manufacturing industries survey (April 2010); • The report on the distributive trade and service survey (February 2003).

The figures for 2005 for the large, medium and small-scale industries surveys have been updated to 2010 according to the observed growth rates 2003-2005. The figures for 2002 for the distributive trade and service survey have been updated with an average annual growth rate of 10%, slightly lower than the GDP real growth rate over the same period. The results, which have to be considered as estimates only, are summarized in Tables 21-24.

Table 21. Summary of number of companies and employees 2010 in urban areas Company size/type No. of Establishments No. of employees Medium/Large industry 2,112 0.3% 190,974 9.6% Small industry 54,206 8.3% 173,797 8.8% Trade and services 596,289 91.4% 1,616,124 81.6% Total 652,607 100.0% 1,980,895 100.0%

Table 22. Size distribution of companies Number of companies < 10 10 to 19 20 to 49 > 50 Total by size employees Large Industry 0 639 719 754 2,112 0.3% Small Industry 54,206 54,206 8.3% Trade & Services 585,268 9,134 1,644 244 596,291 91.4% Total 98% 1% 0.4% 0.2% 652,609 100.0%

Table 23. Distribution of employment by size of company Number of employees < 10 10 to 19 20 to 49 > 50 Total by company size employees Large Industry 0 8,913 21,501 160,560 190,974 9.6% Small Industry 173,797 173,797 8.8% Trade & Services 1,328,519 137,007 123,310 27,287 1,616,124 81.6% Total 76% 7% 7.3% 9.5% 1,980,894 100.0%

35 Table 24. Distribution of businesses by region Number of companies Medium & Large Small Trade & Total by region Industry Industry Services Addis Ababa 1,058 12,429 136,729 150,216 23% Tigray 264 2,997 32,973 36,234 6% Afar 11 520 5,715 6,245 1% Amhara 190 9,068 99,754 109,012 17% Oromiya 359 16,035 176,387 192,781 30% Somalie 11 1,294 14,231 15,536 2% Benishangul 4 1,060 11,659 12,723 2% SNNP 211 8,884 97,724 106,819 16% Gambella 4 650 7,151 7,805 1% Harari 447 4,917 5,364 1% Dire Dawa 823 9,048 9,871 2% Total 2,112 54,206 596,289 652,607 100%

A total of 652,000 companies have been identified from the various documents published by the CSA, but the total number of employees is only 2 million, to be compared to the 2.3 million paid employees registered in the 2009 Report on urban employment. Consequently the number of registered companies is probably under- estimated by 10% to 20% and the real number should be around 750,000. • The medium and large industrial sector represents only 2,100 companies, i.e. 0.3% of the number of companies but nearly 10% of the employment (average size: 90 employees). Half of them are located in Addis Ababa. • Small scale industry represents 8% of the number of companies and of total employment (average size: 3.2) and the trade and services sector represents 90% of companies and 80 % of employment (average size: 2.7). One quarter (23%) are located in Addis Ababa, which is consistent with the employment figures.

Finally, 98% of the companies have fewer than 10 employees and an average size of 3 employees whereas the medium and large sized companies account for about 12,000 establishments.

4.2 Telecom Equipment, Opinions and Needs of the Business Sector The survey was carried out in July and August 2010 by face-to-face interview with 98 companies, undertaken by a team of surveyors from the PSD Hub. The results of the interviews in Addis Ababa and in the other cities have been collated and analyzed separately. The detailed results of the survey are presented in the tables in the Ap- pendix and analyzed below.

36 Most of the interviewees were the general managers of the companies. The main themes of the interview were: • The current telecommunication equipment of the company; • The use of various telecommunications services within the company; • Satisfaction regarding the existing services (availability, quality and tariffs); • The estimated impact of the telecommunication services weaknesses on company activities and efficiency.

4.2.1 Survey Sample (Tables 29-35, pp 91-93)

97 interviews were carried out, 38 in Addis Ababa and 59 in eleven other cities. • The Industrial sector represents 38% of the sample and the Trade sector 59% (3% in the agricultural sector); • 40% of the companies interviewed had an international activity in the Addis Ababa sample against 20% in the regions; • 25% of the companies in Addis Ababa are public but only 4% in the regions; • 80% are independent companies; • The average size of the companies interviewed in AA is 565 employees against less than 100 in the regions. The average size of the total sample is 280 employees. Therefore, the survey is clearly focused on the large companies in Ethiopia. • Management represents 5% of the total staff while the employees represent 70% and the labourers 25%. • The companies interviewed in Addis Ababa had an average of six sites within Ethiopia whereas the companies in the regions had less than two. • The Addis Ababa companies have 18% international customers and 44% international suppliers whereas the companies in the regions have 14% international customers and 11% international suppliers. 30 of the 39 companies in AA and 20 of the 59 companies in the regions have international customers or suppliers. Finally, half of the companies interviewed have international customers and/or suppliers and are therefore concerned by international telecommunications services.

According to the sample, the survey is mainly representative of the large companies in Ethiopia in the industrial and trade & services sector in which about one quarter have an international activity (international customers) or at least international rela- tions with partners and suppliers.

37 4.2.2 Telecommunications Equipment (Table 36, p 94)

The executives interviewed were asked to give details of the telecommunication equipment in their companies per service.

Voice Services • Nearly 100% of the companies are equipped with fixed lines, ranging from 3 in the regions to 8 in Addis Ababa • 46% (regions) to 70% (Addis Ababa) are equipped with 1 to two international lines • About 70% provide from 10 (regions) to 18 (Addis Ababa) mobile phones to some of the staff (1 mobile for 45 staff in Addis Ababa but 1 per 13 staff in the regions) • Half of the companies in Addis Ababa are equipped with a PABX but only 14% in the regions • 16% of the companies in Addis Ababa have leased lines but none in the regions

Internet & Data Services • More than half of the companies in Addis Ababa are equipped with ADSL access but only 14% in the regions • 68% in Addis Ababa and 24% in the regions used a CDMA access • 74% in Addis Ababa use (additionally) the dial-up access and 37% in the regions • 16% of the companies in Addis Ababa have leased lines (and 3% are equipped with VSAT) but none in the regions • One third of the companies in Addis Ababa have an Intranet system against 7% in the regions

The level of equipment of the companies in voice services seems reasonable but the Internet and data penetration rate is quite low according to the average size of the companies interviewed: • Only half of the companies in AA (of which 80% have more than 100 employees) benefits from an ADSL access that provides the minimal bandwidth and speed for a professional use and most of them have to use a dial-up or CDMA access. • Less than 1 out of 6 companies in the regions has broadband access while the average size of the sample is near 100 employees.

38 4.2.3 Telecommunications Usage (Tables 37-45, pp 95-97) Personal Access to IT and Telecommunications Facilities • Only 60% of the management of the companies in the sample are equipped with a personal computer • The rate ranges from 11% (regions) to 18% for the employees • Only 23% (regions) to 32% (AA) of the management has a direct access to Internet • The rate is from 1% (regions) to 4% (AA) for the employees • The use of computers is still low in the large and medium sized Ethiopian companies • The use of Internet is clearly not yet well-established in Ethiopian companies

Preferred Means of Communication • The telephone remains the preferred means of communications, especially in the regions • The e-mail use is still very limited, especially with the Government Admin- istration

Internet Use • In Addis Ababa, only 8% of the people interviewed stated that they never used Internet, but only one third use it frequently. The use of Internet grows with the size of the company. The main reason for not using Internet is the poor quality of the service. • In the regions, more than 42% of the people interviewed never use Internet while 29% use it frequently (proportionally to the size of the company). The main reasons for not using Internet are the small number of connected partners and the poor quality of the service. • E-mail remains the main purpose for Internet use, especially in the regions, but a significant number of companies in AA state that they use it for marketing promotion.

Focus on E-mailing • Around one third of the people interviewed in Addis Ababa never use the e- mail service but 20% to 25% use it daily, particularly to communicate with their customers and partners abroad. • In the regions, nearly 50% of the people interviewed stated that they never used the e-mail service.

39 Website • 57% of the companies interviewed in Addis Ababa have a website, compared to 35% in the regions • In Addis Ababa, two third of the companies with no website intend to implement one, compared to 52% in the regions.

Due mainly to a low access rate to computers (only 60% of the managers) and to Internet (20% to 30% of the managers and 1% only of the employees), the telephone remains the preferred means of communication in large Ethiopian companies. Less than one third of the managers frequently use Internet, mostly because of the poor quality of the connections.

Although according to business managers e-mail remains the main purpose for Inter- net use, this particular means of communication is frequently used by no more than 25% of the managers interviewed.

Throughout the whole country, less than 45% of the (large) companies have a website.

The use of Internet is clearly not yet well established in Ethiopian companies.

4.2.4 Satisfaction Regarding the Telecommunication Services (Tables 46-49, pp 98-99)

Availability of the Services • Only 53% of the companies in Addis Ababa and 76% in the regions stated that they had sufficient fixed lines, mainly because of the non-availability of additional lines. • 10% to 20% of all companies would like to have more mobile lines but are dissuaded by the cost. • Only 35% have enough Internet access in Addis Ababa, but most of the 65% insufficiently equipped companies are dissuaded by the cost. Inthe regions, 42% are insufficiently equipped, experience non-availability or are dissuaded by the cost.

Quality of Service • 75% to 90% of the companies stated that they experience faulty lines and/or call drops with their fixed lines. • The mobile coverage in Addis Ababa is considered as sufficient by 70% of the companies but only 50-60% consider the national and regional coverage to be adequate. More than 90% complain about call drops.

40 • Two thirds of the companies consider the Internet and Data services as being poorly adapted for their companies: the main complaint concerns the access speed (50%), the service interruptions (30%) and the non-availability of the service (20%).

Tariffs • Fixed telephone tariffs are considered to be affordable by a majority except for the international ones. • Prices of domestic mobile calls are affordable but international prices are judged to be high or very high. • Both ADSL Installation fees and monthly fees are considered to be high or very high by 80% to 90% of the people interviewed.

In terms of availability, the business sector suffers from a lack of fixed lines, especially in Addis Ababa whereas the supply of mobile lines is sufficient overall. The main problem is the very serious shortage of broadband accesses, in Addis Ababa and even more so in the regions.

Most companies complain of the low quality of fixed and mobile voice services, especially in the regions, but above all the very poor quality of the Internet services in terms of access speed and reliability.

Domestic voice tariffs are considered reasonable, those for international calls less so. On the other hand, broadband tariffs are considered as prohibitive and discouraging for the medium sized companies, especially in regions.

4.2.5 Overall Opinion of the Telecommunications Services (Tables 50- 51, p 100) • Of the business people interviewed, only 11% in Addis Ababa and 22% in the regions consider the telecommunications services to be sufficient overall for their professional activity. • In Addis Ababa, the main problems mentioned are:

o The quality of service of Internet access o The availability of Internet access o The lack of fixed lines • In the regions, the main problems are:

o The mobile coverage o The quality of service of Internet access o The quality of service of fixed voice service o The lack of fixed lines and Internet access

41 4.2.6 Impact on Business Activity (Tables 52-53, p 101) • Only 9% of the people interviewed in Addis Ababa and in the regions consider the current telecommunications services suitable for their activity. • Half of them in Addis Ababa consider that it penalizes their activity against only 30% in the regions. • An improvement of the services could help the companies to increase their market. • The requirements for service improvements are quite different between Ad- dis Ababa and the regions:

o In Addis Ababa, it concerns mainly the availability and quality of service of Internet access.

o In the regions, it concerns first the coverage and then the quality of service of mobile voice services.

An open question was asked at the end of the interview: “have you any additional comments regarding the expected evolution of the telecommunications services?”

The most frequently mentioned words have been sorted out by order of frequency: • In Addis Ababa, the most frequently mentioned words are “quality” and “Internet” which is consistent with the above mentioned wishes. • In the regions, the most frequently mentioned words are “quality”, “tariffs” but also “training”. Regional and smaller companies express a higher sensi- tivity to prices and perhaps a need for assistance for a better use of advanced telecommunications services.

The overall view of the business sector concerning the current telecommunications services is that it leaves much to be desired in terms of availability as well as in quality of services, and the harshest criticism in Addis Ababa focuses on the quality and cost of broadband services, and in the regions on the mobile coverage.

Even though only 9% of the companies consider the current services suitable for their business needs and half of them think that the weaknesses penalize their activities, they are not able to estimate quantitatively the negative impact in terms of turnover, profitability or efficiency.

4.2.7 Additional Information from Other Surveys

In 2002 and between 2007 and 2010, the CSA carried out a number of surveys among small and medium sized companies from both industrial and trade sectors in order to identify the major problems encountered when starting an activity and during operations. Telecommunication problems were not included in the questionnaires as possible difficulties and were therefore not mentioned in the results of the surveys.

42 When starting, the major problems mentioned were: • The lack of capital and credit facilities; • The obstacles from government rules and regulations; • The lack of supply of raw materials (industry); • The lack of information.

During the operational period, the major problems mentioned were: • The lack of working capital and credit facilities; • The shortage of electricity and water (industry); • The lack of raw materials and spare parts (industry); • The harassment from government bodies; • The lack of information.

Regarding the lack of information, the main issues mentioned concern: • The lack of sufficient market information; • The lack of information on appropriate machinery (industry) and where to obtain it; • The lack of information on where to follow the appropriate training.

4.2.8 Conclusions of the Survey among Companies

Although the survey focuses on quite a small sample and can therefore not be representative of the opinion of the whole of the Ethiopian business sector, it still provides some very clear information and lessons about the medium and large sized companies’ concerns and expectations regarding the telecommunications services. • Only half of the companies in Addis Ababa and 8% in the regions are equipped with broadband and the IT and Internet use is still uncommon. • The companies’ judgment is obviously very negative about the current availability and quality of each of the services: less than 10% consider it to be suitable for their activity. • For the companies of Addis Ababa, the main problems are:

o The shortage of fixed lines (50%) o The very poor quality (and the cost) of broadband Internet and data services

o For the companies in the regions, the main problems are: o The poor coverage and quality of mobile services o The poor quality of service of the fixed voice services o The availability, quality and cost of Internet and Data services 43 In other surveys carried out by the CSA, the telecommunication problems were not identified but the lack of information was part of the main difficulties mentioned by the companies “when starting the activity” as well as during the operating period.

The analysis of the survey carried out among 98 large and medium-sized Ethiopian companies clearly highlights the inadequacies of the current supply of telecommunications services; it is not adapted to the business activity and most probably penalizes its development in terms of communication within the companies and with the customers, partners and suppliers, as well as in terms of collecting technical, commercial, legal and financial information and marketing promotion.

However, the data collected from the interviews does not enable us to estimate in quantitative terms the negative impact of the telecommunication sector’s weaknesses on business activity.

A macro-economic analysis of this impact on GDP based on international ratios is presented in Chapter 7.

44 5 Conclusions: Telecommunications Services and Business Activity in Ethiopia The present conclusions result from the three main elements of the methodology used to carry out the survey: • The review of the current status of the Ethiopian Telecommunications sector; • An international benchmark; • A survey among companies in Ethiopia.

The review of the current status of the Ethiopian telecommunications sector has identified the main strengths and weaknesses of the sector: • Strong network infrastructure, large switching capacities, various available technologies offering a range of updated services, good, adequate international connectivity; • Reasonably priced and developed fixed networks, in line with African standards; • Fast growing mobile network.

But: • The overlapping Fixed Networks are not well adjusted to the local demand and the lack of access to capacities limits the ability to satisfy customer needs; • The quality of service is very poor for both fixed and mobile, national and international voice services; • Poor broadband ADSL and wireless Internet facilities that fail to meet corporate needs; • The national backbone suffers from low quality of the legacy backbone and insufficient redundancy; • The international voice and data traffic suffers from serious congestion due to a bottleneck in the international gateways that particularly affects the data access speed.

The International benchmark clearly highlights the main Ethiopian characteristics concerning the telecommunications sector’s recent and expected development: • Ethiopia benefits from a reasonable coverage and penetration of the fixed telephone network compared to the African ratios (without taking into account the possible weakness in terms of quality of service), but which is not comparable with the ratios observed in Egypt and Vietnam.

45 • Ethiopia is at least 5 to 6 years behind in the mobile market development and has not yet reached the observed average penetration rate for the whole of Africa in 2005. • Ethiopian households are not yet involved in the “Internet and computer world” and the business sector’s needs cannot be satisfied by the current supply. • Compared to the household income (GNI per capita) the current tariffs of voice services are in line with the African average, but broadband tariffs are totally unrelated to the ability and willingness of users to pay for the services. • The main handicaps in relation to telecommunications and especially Inter- net development could be low urbanization, and more particularly literacy rates, and the very low school enrolment levels in secondary and tertiary levels.

The results of the survey carried out among 98 companies in Addis Ababa and in 11 other main cities provide a very clear image of the gap between the current supply of telecommunications services and the companies’ requirements: • Only half of the companies in Addis Ababa and 8% in the regions are equipped with broadband and IT and Internet use is still uncommon; • The interviewed companies express a very negative opinion on the current availability and quality of the services; • 90% consider that these services do not meet their business needs and requirements; • Depending on their size and location, the companies particularly point out:

o The shortage of fixed lines; o The insufficient coverage of the mobile network; o The poor quality of the voice services; o The very low quality (and high cost) of broadband Internet and data services.

In addition, the difficulties experienced in obtaining market and technical information as well as training facilities are mentioned by a number of companies as major problems in starting and doing business in Ethiopia.

Despite the ambitious investment put in place by the telecommunications sector over the last few years and the huge growth of the mobile market, the current supply of telecommunication services do not yet match business sector requirements.

However, the surveyed companies are not able to estimate accurately the negative impact of telecommunications weaknesses on their efficiency and profitability. This impact can only be estimated at a macro-economic level.

46 6 Opportunity Costs of Telecommunications Service Weaknesses The above chapter has clearly highlighted the weaknesses in Ethiopian telecommunications and particularly the delay in the mobile market development since 2000.

It should therefore be interesting to estimate the direct and indirect costs incurred by both business and government as a result of the negative impact of the observed weaknesses during the recent period.

The survey among companies has shown that the business sector suffers from a lack of a reliable telecommunications services which leads to: • Less efficiency in internal communications, especially within the multi-site companies • Less efficiency and reactivity in communications with national and above all international partners • Difficulties in collecting both technical and commercial information • Difficulties in promoting the companies’ products and services on the national and above all the international market.

Some growing sectors such as tourism (tour-operators, hotels) are particularly penal- ized since most of the customers from Western countries are now used to collecting information and/or booking on-line. Therefore, the Ethiopian destination suffers from international visibility compared to other African touristic countries such as Kenya.

Moreover, the availability of a reliable Internet access within hotels is now one of the main criteria of choice among business visitors and tourists.

On the national market, the development of e-commerce is made impossible by the weaknesses of broadband access and the very low rate of connected households. In Western countries (e.g. US, UK, France), the average annual growth rate of e- commerce has been 30% from 2005 to 2010, especially in the sectors of tourism, textiles and IT/computers, but 60% (France) to 80% (UK) of the households are Internet connected.

Therefore, it is obvious that Ethiopian business development will be held back by the weaknesses of the telecommunications services.

However, it is not possible to estimate on a reliable basis the losses incurred by the companies from the results of the interviews since none of the managers were able to provide such quantitative information.

The estimation of the opportunity costs of the weaknesses of telecommunications services must therefore be done at the macroeconomic level of GDP.

47 Making this estimation supposes the possibility of: • Firstly, identifying the potential direct and indirect benefits of the ICT development and particularly the mobile development. • Secondly, being able to evaluate these benefits. • Thirdly, calculating the lost benefits over the recent period (2005 – 2010) due to the weaknesses of telecommunications services.

6.1 Identifying the Direct and Indirect Benefits of ICT A number of studies dedicated to this issue have been carried out over the last five years by both public (World Bank, ITU) and private institutions in the sector of economic research.

A report published in 2009 by the IC4D (“2009 Information a Communications for Development”) from the World Bank takes a closer look at mobile and broadband connectivity and analyzes the development impact of high-speed Internet access in developing countries:

The past 15 years have brought an unprecedented increase in access to telephone services. The total number of mobile phones in the world exceeded the number of fixed telephones in 2002. By the end of 2009 there were an estimated 5 billion mobile phones globally. No technology has ever spread faster around the world. Mobile Networks now constitute the World’s largest distribution platform and create a major development opportunity.

6.1.1 Identified Mobile Benefits

The mobile phone market is especially important for developing countries, where it is growing most rapidly and where it is seen as a “leapfrogging” tool. Mobile communications have a particularly important impact in rural areas: an important use of mobile phones in rural areas is to access market information. • TradeNet, a Ghana-based trading platform, allows users to sign up for short message service (SMS) alerts for commodities and markets of their choice and receive instant alerts for offers to buy or sell when someone else on the network has submitted an offer by mobile phone. Users can also request and receive real-time prices for more than 80 commodities from 400 markets across West Africa. • In India, access to market information through mobile phones has allowed fishermen to respond faster to market demand and has increased their profits; • In Niger, it has reduced price disparities in grain markets.

Once legal frameworks are in place, banking and payment services provided through mobile phones can bring many more people into the formal financial system. Mobile banking services offered by Wizzit in South Africa, Safaricom (M-PESA) in Kenya,

48 and Globe Telecom and Smart in the Philippines are such examples. These services allow mobile phone users to pay for purchases in stores and transfer funds, significantly reducing transaction costs.

Mobile phones can improve the effectiveness and reach of health programs that, in many countries, are some of the largest public budgetary expenses. Improved information systems that track service delivery, establish accountability, and manage patients for better health outcomes can result in major efficiency gains.

Mobile communications are evolving from simple voice services and text messaging to more broadband width intelligent systems that enable a diverse range of applications in locations where conventional services are not available in developing countries. “Smart” wireless phones now allow users to browse the Internet, download music, and access information services. This opportunity is especially exciting given that the developing world missed out on much of the initial Web revolution because it did not have adequate Internet infrastructure.

6.1.2 Identified Broadband Benefits

Similar analysis carried out with regard to broadband impact conclude that Broad- band increases productivity and contributes to economic growth, that is why it de- serves a central role in development strategies:

Broadband networks, both fixed and mobile, are necessary to deliver modern communication and information services that require high rates of data transmission. Enterprise file transfer, television, and high-speed Internet are examples ofsuch services. High-speed Internet connections provide ready access to a wide range of services, such as voice, video, music, film, radio, games, and publishing. Broadband networks enhance the efficiency and reach of existing services and provide spare capacity for unknown future applications.

Indeed, broadband networks are the key to the ongoing transformation of the ICT sector through the convergence of telecommunications, media, and computing. Broadband has a considerable economic impact at all levels of individuals, firms, and communities. Individuals increasingly use broadband to acquire knowledge and skills to increase their employment opportunities. Where broadband has been intro- duced in rural areas of developing countries, villagers and farmers have gained better access to crop market prices, training, and job opportunities.

Access to broadband supports the growth of firms by lowering costs and raising productivity. A study involving business and technology decision-makers in 1,200 companies in six Latin American countries—Argentina, Brazil, Chile, Colombia, Costa Rica, and Mexico—showed that broadband deployment was associated with considerable improvements in business organization, including speed and timing of business and process re-engineering, process automation, data processing, and diffu- sion of information within organizations.

49 Finally, the benefits of ICT can be sorted into three main categories: 1. Direct benefits: The Economic or Macro-Level Case

o GDP growth o Job creation o Productivity o Tax revenue o Value addition from mobile operators 2. Indirect benefit: The Social or Micro-Level Case

o Entrepreneurship and job search o Reduction in information asymmetry o Elimination of market inefficiencies o Transport substitution 3. Intangible Benefits

o Disaster Relief o Education & Health o Social Capital and Social Cohesion

6.2 Evaluating the Direct and Indirect Benefits It was not possible to carry out a detailed financial analysis of each category of benefits within the framework of the study but only an overall valuation of the opportunity costs of the weaknesses of the telecommunications sector over the past five years based on international ratios.

This valuation concerned the impact on GDP growth and tax revenue.

6.2.1 Impact of ICT Growth on GDP

The first thorough analysis (Waverman, Meshi, Fuss, 2005, The Impact of Telecoms on Economic Growth in Developing Countries), after analyzing the impact of mobile telephony on GDP between 1980 and 2003 in 92 developed and developing countries, concludes that in developing countries a 10% increase in mobile penetration of the population positively impacts GDP growth by 0.6%.

More recent studies, such as those conducted by Deloitte in 2007 (GSMA & Deloitte, 2007, Global Mobile Tax Review 2006‐2007) or by Kathuria, Uppal and Mam about India in 2009 (India: The Impact of Mobile Phones, Moving the Debate Forward, January 2009), estimate that a 10% increase in mobile services penetration leads to GDP growth of 1.2 ‐ 1.4%.

50 Therefore, a cautious bracket of 0.8% to 1.2% can be used to estimate the benefit of a faster increase in the mobile market in Ethiopia, in line with the average African growth rate for the period 2005 to 2010.

The figure below presents the observed evolution of the mobile market in Ethiopia and in the whole of Africa and the gap between the two curves. The average African penetration rate has been corrected to take the multi-SIM impact into account.

Figure 4. Ethiopian mobile penetration rate vs. African mobile penetration rate

40%

35% Corrected 30% African mobile 25% penetration rate

20% 23% 24% Penetration rate 15% 21% gap 10% 16% 13% Ethiopian mobile 5% 9% 10% 6% 7% penetration rate 3% 4% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year

Source: Operators, Consultant calculations

The tables on the facing page present: • The observed evolution of the Ethiopian GDP in current USD from 2000 (source: World Bank); • The calculation of the “additional” GDP that could have been provided by a faster evolution in the mobile market according to the average African market on three assumptions: o 1.2 additional point of GDP per 10% increase of the penetration rate; o 1.0 additional point of GDP per 10% increase of the penetration rate; o 0.8 additional point of GDP per 10% increase of the penetration rate. • The calculated evolution of the theoretical GDP according to these three assumptions; • The cumulative “additional GDP” from 2005 to 2010 in USD 2010.

By delaying the launch of mobile networks, and according to the assumed impact of the mobile penetration rate of the economic growth, Ethiopia could have lost, from 2005 and 2010, a cumulated amount equivalent to 2.2 to 3.3 billion USD 2010 (which represents about 10% of the estimated GDP 2010). 51 2.8% 2.3% 1.8% 6.7 5.0 1.00 23% 864 720 2010 576 864 720 576 338 101 101 1.00 31,269 81.7 25.4 18.7 1,127 2010 1.02 2.9% 2.4% 1.9% 2009 33,920 24% 972 810 648 991 826 661 3.4 5.8 119 397 121 1.02 79.7 22.5 19.1 1,322 2009 2.6% 2.1% 1.7% 1.01 21% 658 549 439 665 2008 554 443 25,585 2.7 6.6 399 120 121 1.01 77.8 19.5 16.7 1,332 2008 1.9% 1.6% 1.3% 1.05 16% 371 309 2007 247 390 325 260 19,165 1.9 7.6 336 101 106 1.05 75.8 14.1 12.3 1,121 2007 1.6% 1.3% 1.1% 1.08 13% 243 203 2006 162 263 219 175 15,166 98 1.0 8.7 326 106 1.08 11.3 77.1 10.4 1,087 2006 97 1.2% 1.0% 0.8% 1.12 10% 146 121 2005 163 136 109 12,305 81 90 7.9 0.4 7.5 896 269 1.12 75.2 10.0 2005 9% 94 75 88 1.16 1.1% 0.9% 0.8% 2004 10,052 113 131 109 86 99 7.1 0.2 6.9 951 285 1.16 11.5 73.2 2004 7% 72 60 48 86 72 57 8,556 0.8% 0.7% 0.6% 1.19 2003 71 85 5.1 0.1 5.0 794 238 1.19 71.1 13.2 2003 6% 53 44 35 64 53 43 7,790 0.7% 0.6% 0.5% 1.21 2002 64 78 3.9 0.0 3.9 714 214 1.21 69.1 15.2 4% 43 36 28 52 44 35 2002 8,169 0.5% 0.4% 0.3% 1.23 2001 55 68 3.0 0.0 2.9 3% 27 22 18 34 28 23 611 183 8,180 1.23 0.3% 0.3% 0.2% 67.2 17.4 1.27 2000 2001 39 49 1.8 0.0 1.8 429 129 1.27 1.2% 1.0% 0.8% 1.2% 1.0% 0.8% 1.2% 1.0% 0.8% 65.4 20.0 2000 Table 26. Estimated impact of the mobile penetration rate on tax revenue Table Table 25. Estimated impact of “additional GDP” linked to the mobile penetration rate Table Year Observed Ethiopian GDP (Current MUSD) (Current GDP Ethiopian Observed Penetration rate gap Additional % of GDP per 10% mobile Additional % of GDP penetration Additional GDP (Million current USD) Additional GDP Deflation rate USD Additional GDP: (million USD2010) Year Population (million) Mobile assumed customer base (m) Observed customer base (m) Additional customer base (m) ARPU ($) Additional revenue (m$) Margin (m$) Margin Corporate Income Tax (m$ @ 30%) Tax Corporate Income Deflation rate ($) Corporate Income Tax (m$ 2010) Tax Corporate Income Cumulative Additional Corporate Income Tax 2005 – 2010 expressed in USD 2010 2005 – 2010 expressed Additional Corporate Income Tax Cumulative 52 On the other hand the negative impact of the weaknesses in terms of broadband connectivity has not yet been evaluated. Except for Tunisia, none of the African countries has reached a broadband connection rate higher than 0.5% to 1%. Ethiopia suffers clearly from a lack of access and a poorer quality of service than a number of countries of West Africa (Senegal, Ivory Coast), Central Africa (Gabon, Cameroon, Nigeria) and East Africa (Kenya, Uganda, Tanzania). However, the low penetration rates of broadband observed throughout the whole of Africa (3.6% for mobile broadband and 0.2% for fixed broadband estimated by ITU for 2010) makes it difficult to apply the same method as for mobiles in order to evaluate the gap between Ethiopia and the whole of Africa.

6.2.2 Tax Revenue

In addition, it is relatively easy to estimate the lost tax revenue for the government over the same period that could have been provided by the additional mobile revenues if Ethiopia had followed the average African trend in terms of mobile penetration.

Based on very cautious assumptions of ARPU evolution and profit margins, the cumulative corporate income tax revenue should have reached the equivalent of USD 650 million between 2005 and 2010. Including other taxes (TOT, tax on employment, etc.), the amount could have reached USD 1 billion at current prices.

7 Proposed Short- and Medium-term Targets for Telecommunications Services The scope of this study did not include a demand survey of the telecom services that should initially require a segmentation of the market and a thorough analysis of the main demand factors per segment.

However, from the results of the International Benchmark and the surveys among companies, it is possible to propose realistic targets to be achieved in the next 5 years (by 2015) in order to: • Bring Ethiopia up to the African median for mobile phone and Internet penetration, and • Provide answers to the needs expressed by the companies

7.1 Bringing Ethiopia to the African Median The Ethiopian fixed line penetration is more or less in line with the African average. The gap that needs filling concerns mainly the mobile market, and the broadband market.

7.1.1 Mobile Market Overall Target for 2015

Taking into account the multi-SIM factor, the average penetration rate in Africa is about 30% to 35% in late 2010. The annual growth rate has slowed down over the last three years and is now about 10% per year. Therefore it is probable that the average African penetration rate will reach 50% in 2015.

The huge increase in the number of mobile customers from 2005 (+ 75% per year) has resulted from the accumulated delay and the level of expectation of the market, but has led to a poor coverage and quality of service. It should be realistic to consider that ETC must first strengthen its technical and commercial GSM network and reduce the annual growth rate of its customer base.

The average African GDP per capita was around USD 1,200 by the end of 2009 whereas it was only USD 420 in Ethiopia. Reaching the African median in just a few years is perhaps unrealistic in a country where at least one third of the population suffers from severe poverty. Despite relatively affordable tariffs, the residential demand will remain, in the short term, restrained by the price factor.

The proposed target for the increase of the mobile penetration is 10% lower than the African median and assumes a 44% penetration rate corresponding to a total number of 40 million subscribers in 2015 (i.e. 6 to 7 million new customers per year over this period).

55 Table 27. Expected mobile market evolution Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 African Expected Real 10% 15% 19% 25% 28% 31% 34% 38% 41% 45% 50% Penetration Rate Ethiopian Target 0.6% 1.3% 2.5% 3.6% 4.3% 8% 11% 16% 23% 32% 44% Population forecast 81 83 85 87 89 92 (million) Number of subscribers 6.6 9.5 13.7 19.6 28.2 40.4 (million) AAGR 44% 44% 44% 44% 43%

7.1.2 Fixed and Broadband Market Fixed Lines

The fixed penetration of 1.2% is within the African average. Residential voice services can mainly be satisfied by mobile or WLL services. Therefore the fixed infrastructure evolution will have to respond to: • The corporate demand (including government departments and institutions) for secured and switched (PABX) voice lines; and • The need for fixed (high speed) broadband connections for corporate and high-income level households.

In view of the low quality of service, the next few years should be used mainly for line rehabilitation. However, an annual increase of around 5% in the total number of lines is necessary to meet the local needs of the business sector, in Addis Ababa as well as in the regions.

Broadband Market

Since the launch of the mobile catch-up programme, the main challenge for the telecommunication sector over the next few years will be responding to business needs and promoting the private use of broadband Internet.

With less than 1% of users and with less than 10% of the population having some knowledge of the Internet (Research ICT Africa), Ethiopia is not yet part of the In- ternet world and broadband penetration is still negligible. In this respect Ethiopia is lagging behind the rest of Africa.

Table 28. Ethiopian Internet penetration vs. average African Internet penetration Africa 2010 (source: Parameter Ethiopia 2010 ITU) Estimated Internet Users in % of population 9.6% 0.7% Fixed broadband subscriptions in % of population 0.2% 0.005% Mobile broadband subscriptions in % of population 3.6% 0.010% Total broadband penetration in % of population 3.8% 0.015%

56 Even with just the 2010 African median as a target, ETC would have to multiply its ADSL customer base by a factor of 40, from less than 4,000 to 160,000 and to multiply its mobile broadband customer base by 280, from 10,000 to 2.8 million. A more detailed target can be estimated from the needs expressed by the business sector (see chapter 8).

7.2 Responding to the Needs Expressed by the Business Sector 90% of the surveyed companies indicated their dissatisfaction with the current telecommunications services. Their complaints concerned both: • The lack of equipment: more than 50% stated the lack of sufficient fixed lines and Internet accesses (broadband), particularly in Addis Ababa; and • The poor quality of service, specifically:

o National and International fixed voice calls; o Mobile voice coverage and calls; o Internet access speed and reliability. As previously reported, the survey was carried out among companies of more than 10 employees, with an average size of 565 employees in Addis Ababa and 96 employees in the regions. Therefore it is not possible to apply the quantitative needs expressed by these interviewed companies to the other possible 750,000 companies in Ethiopia whose average size is only 3 employees.

However, from ETC commercial data, out of the 1,000,000 fixed lines, there are only 150,000 business lines (not including the Government). At least 50,000 should be used by the 12,000 medium and large sized companies and only 100,000 by the 700,000 small companies.

One of the challenges in the next few years will be to define a clear strategy: • To respond to the basic telephone needs of the whole business sector; • To be able to meet the business requirements of the large and medium sized companies, already poorly equipped, in terms of Internet and broadband data services; and • To promote the use of the Internet and data services among the rest of the business sector.

7.2.1 Responding to the Basic Telephone Needs of the Business Sector

While ETC claims that the waiting list for fixed lines is less than 15,000, 50% of the surveyed companies reported a lack of a sufficient number of fixed lines, especially in Addis Ababa. An evaluation of the real business demand will require a more thorough analysis of the market , but a rough estimate can be made as follows:

57 • Additional demand from the 12,000 medium and large sized companies: 50% x 12,000 x 2 extra lines = 12,000 fixed copper lines; • Demand from the 650,000 to 750,000 small registered companies: barely 15% are currently equipped, especially in the regions, and to double this penetration rate to 30% (mainly for broadband access) in 2015 will represent an additional demand of around 150,000 copper lines.

Bearing in mind the cost of installation of new copper lines, a strategy of migration for some residential subscribers (those not requiring ADSL access) from their copper lines to a WLL CDMA line could free copper lines to be dedicated to corporate broadband needs.

7.2.2 Meeting the Business Requirements of Broadband Access for Medium and Large Companies

No additional survey is needed to understand the urgent need for broadband wire line (ADSL or FTTx) access for 5,000 to 10,000 small and medium sized companies. Except for the specific data transfer needs for large companies, the aim is to offer a reliable access of 1 to 2 Mbit/sec at an affordable price (100 to 200 USD per month – and preferably less).

7.2.3 Promoting the Use of the Internet among the Rest of the Busi- ness Sector

Ethiopia is not yet fully part of the Internet or digital world. The reasons will be analyzed in the last two chapters of this document.

It is clear that in developed countries, the use of the Internet (and, before that, the use of personal computers) started in the business sector (and also, to a lesser extent, the educational sector) before coming into the residential sector. It took about 20 years for the use of personal computers to spread from companies (1980 – 1985) to households and the popularization of Internet use (2000 – 2005). This popularization resulted from the convergence of increasing quality of service (speed) and decreas- ing prices.

The current Ethiopian situation shows no resemblance to this example, but the main financial factor is the cost of international bandwidth. Thanks to the increasing capacity through submarine cables, the average international bandwidth price has rapidly decreased and is about USD 350 to 400 per Mbit/sec, i.e. about 12 to 40 USD per residential/business broadband customer. This cost should make it possible to adjust the final monthly price to the market ability to pay.

It will be the responsibility of the telecommunications operators to analyze the business market in depth and to prepare customized technical and commercial offers to each of the segments.

A reasonable medium-term target (2015) might be to provide broadband connection to 20% to 25% of the companies (150,000 to 200,000), through a range of offers from 256 Kbit/sec to 1Mbit/sec and in a price range from under 50 USD to 150 USD per month.

Reaching this target is a major issue for business development and reduction of the digital divide in Ethiopia. It will mean increasing IT use and especially computer use within companies, a level that is still low in medium and large companies, with 35-80% of managers but only 5-20% of other employees having access to a personal computer.

It has to be remembered that the development of Internet use within the business sector will lead to the growth of Internet use within the household, but also that, in terms of marketing, this growth will be a necessary condition for the development of e-business activities. Therefore, promoting Internet use within the business sector and within households have to be considered as two complementary elements of the same strategy.

7.3 Summarized Targets for the Telecommunications Sector According to both international benchmark results and company expectations, the main targets assigned to the telecommunications sector between 2010 and 2015 could be:

In the Short Term (2011) • To urgently solve the problem of international congestion of fixed, mobile and broadband traffic that penalizes the customers (mainly the business sector) as well as the operator (lost revenues). • To increase the coverage and the quality of service of mobile telephony (increase and re-deployment of the BTS), and to continue to expand the customer base but without degradation of the quality of service. • To increase the quality of service of the 4,000 existing fixed broadband connections (ADSL) and make available some 5,000 new accesses. • To define a strategy to manage the corporate demand for fixed (copper) lines and ADSL access and to promote the use of broadband Internet.

In the Medium Term (2015) • To re-dimension the mobile network to manage 40 million subscribers by 2015. • To increase the fixed line PSTN network by 25% to 30% (+300,000 lines) in order to meet the business and residential demand for ADSL access. • To develop a range of medium-speed (128 kbps to 256 kbps) and high-speed (512 kbps to 2 Mbps) broadband offers through both fixed and mobile access in order to reach a 20% to 25% business penetration, i.e. 150,000 to 200,000 customers.

59 • Since the increase of Internet business use will boost Internet interest in households, the target of 2.5% to 5% of urban households connected to broadband would mean about 75,000 to 150,000 additional customers. • The broadband development will be directly linked to the price strategy of the operator(s).

Finally, a reasonable 2015 target per service could be: • 40 million mobile subscribers; • 1,200,000 to 1,300,000 fixed lines including at least 400,000 business lines in Addis Ababa and in the regions; • 15,000 high speed fixed (ADSL/FTTx) broadband customers (80% business); • 225,000 to 350,000 medium speed customers, including two-thirds business customers.

60 8 Required Investment An estimation of the investment cost of a 2010-2015 programme such as the one presented above would require carrying out a detailed technical and financial study which is beyond the remit of this survey. Some indicative estimates can be made, however, based on international experience.

The approximate ratio of 140 USD per mobile subscriber observed in various West African countries indicates the cost of 40 million mobile subscribers at 5.6 billion USD, but ETC has already invested 15 billion USD over the last ten years in its various networks and has an ongoing investment programme with ZTE of 1.5 billion USD that probably includes a large part of the proposed targets.

The first target of increasing the mobile coverage and quality of service should at least necessitate the doubling of the number of sites (coverage) and increasing the number of TRXs in proportion to the customer base. With an average cost of USD 130,000 per site, the radio network programme alone would require investment of USD 500-750 million.

The second major investment will be to rehabilitate existing copper lines and build new ones suitable for ADSL requirements. It is very difficult to estimate the cost of building 250,000 new lines but it is likely to be at least 100 million USD, not including the rehabilitation of existing lines. Finally, it has been mentioned previously that part of the national backbone (500 km) has to be replaced.

Therefore, in addition to the current ongoing project, an investment programme from 2011 to 2015 focusing on reaching the above targets would be around USD one billion.

9 Business and Social Benefits from Improvement of Telecommunications Services The economic and social benefits of mobile development have been analyzed in chapter 7.

A number of studies were published in 2009 with regard to the impact of broadband on economic growth and social development. Most highlighted the impact of broadband on labour efficiency and cost-saving in many sectors such as health, education, energy, transport and distribution.

Nearly all studies suggest that positive returns can be expected from investment in broadband infrastructure. For example: • An analysis for the European Commission estimates that broadband can create more than two million jobs in Europe by 2015, and an increase in GDP of at least € 636 billion. • A study in Brazil reported that broadband added up to 1.4% to the employment growth rate. • In China1, every 10% increase in broadband penetration is seen as contribut- ing an additional 2.5% to GDP growth. • In Thailand2, where in 2010 only some 3% of all households have broadband and 12% of all individuals, it has been forecast that broadband could add nearly one per cent to the country’s GDP growth rate. • A study3 in 24 Latin American and Caribbean countries concluded that a 1% rise in broadband penetration yields a 0.017 point rise in GDP growth. Broadband growth between 2007 and 2008 (prorated average of 37%) con- tributed between USD 6.7 billion and USD 14.3 billion, including direct and indirect effects.

Moreover, the preliminary results of a quantitative analysis being conducted by the Organization for Economic Co-operation and Development (OECD)4 suggest that the expansion of broadband significantly affects labour productivity. According to this analysis, broadband prices seem to be an important driving factor in lower-income OECD countries, where cheaper broadband tends to be correlated with higher growth rates in labour productivity. For OECD countries, raising broadband penetration rates by 1 percentage point in 2009 (e.g. 24.3% instead of 23.3%) results in a labour productivity growth rate that is higher by 0.02 percentage points. Broadband penetration rates higher by 5 percentage points translate into a rise in the labour productivity growth rate of 0.07 percentage points.

1 Broadband in China: Accelerate Development to Serve the Public (2009), Value Partners 2 Broadband Thailand 2015 (2010), Center for Ethics of Science and Technology, Digital Divide Insti- tute, Thailand 3 The Impact of Taxation on the Development of the Mobile Broadband Sector (2009), Telecom Advi- sory Services LLC 4 Broadband penetration and labour productivity growth — some preliminary findings (2010), OECD 63 A 2009 study by management consultants, Booz & Company5 found that “10% higher broadband penetration in a specific year is correlated with 1.5% greater labour productivity growth over the following five years.” The Booz & Company report also suggests that “countries in the top third of broadband penetration have exhibited 2% higher GDP growth than countries in the bottom third.” Another management consultancy, McKinsey & Company6, estimates that “a 10% increase in broadband household penetration delivers a boost to a country’s GDP that ranges from 0.1 per cent to 1.4 per cent.”

For developing countries in the low- and middle-income bracket, broadband is a key driver of economic growth and, according to a study by the World Bank7, provides a boost of 1.38 additional percentage points to GDP growth for every 10% increase in broadband penetration — higher than any other telecommunication service.

In developed countries, cost-savings of 0.5 per cent to 1.5 per cent in each of the four key sectors (health, education, energy and transport) could justify the cost of building a national point-to-point “fibre to the home” (FTTH) network in most of the OECD countries.

This model is not automatically applicable to developing countries. However, as a general purpose platform for innovation and investment, broadband networks can help to: • Control and use energy more efficiently; • Manage healthcare in poor, ageing or isolated populations; • Deliver the best possible education to future generations; • Take better care of environment; and • Streamline transport networks.

Broadband networks must therefore be regarded as vital elements of national infrastructure – similar to transport, energy and water networks, but with an even more powerful and far-reaching impact.

Since Africa and, particularly, Ethiopia are not ready for large-scale broadband development, it is quite difficult to measure the short- and medium-term financial impact of the increase in the number of business subscribers. On the other hand, half of the interviewed companies think that better broadband services would increase their profitability and improve their commercial activities, although they are not able to measure this impact.

However, given the size of the country and the cost of national and international transportation, the educational and health challenges faced, and government targets for economic growth and industrial development, it is clear that the development of a strong broadband network and a rapid increase in the use of Internet and data services within Ethiopian companies should be a national priority. 5 Booz & Company: Digital Highways: The Role of Governments in 21st Century Infrastructure 6 McKinsey & Company “Mobile Broadband for the Masses” 7 What Role Should Governments Play in Broadband Development? (2009), The World Bank/InfoDev 64 10 Main Constraints to the Improvement of Telecommunications Services Two different categories of constraints can slow the growth of the telecommunications services in Ethiopia: • The Internal constraints of the sector/operator; • The “external” constraints, i.e. the constraints of the market.

10.1 Internal Constraints of the Sector/Operator As stated previously, ETC has made available a strong infrastructure. However, the supply of services has suffered from: • an insufficiently defined strategy, led more by the negotiations with vendors than by the market requirements; • an unclear positioning of the services per technology; and • most probably a poor knowledge of market needs by segment and geographical location.

The government has recently decided on a complete reorganization of the national operator through a management contract signed with France Telecom. This reorganization would be carried out to respond on the one hand to the requirements of government strategy, particularly in terms of increasing the penetration and the coverage of services, especially in urban areas, and on the other hand to respond to market requirements and constraints.

Therefore, the main internal constraints for the new operator will be: • To acquire as soon as possible a good, detailed knowledge of the market in order to be able to define a clear strategy based on market segmentation and on an analysis of the customers’ willingness and ability to pay; • To combine the government target and guidelines taking into account market requests and profitability constraints.

The last “internal” constraint of the Ethiopian telecommunications sector is obviously the current monopoly situation of ETC as sole operator of fixed, mobile and Internet services. According to the observed evolution from 1995 in both developed and developing countries, the opening of the market has in all cases led to a faster increase in the supply of services and market penetration due to a decrease in end-user tariffs. On the other hand, the experience shows that a sound government strategy and strong, independent regulation are absolutely necessary to protect the interests of the state and the national resources (frequencies), to guarantee the interests of the investors through fair competition and to ensure consumer benefits. These points are developed in the recommendations presented in chapter 11.

65 10.2 Market Constraints The market constraints are linked to the African, and Ethiopian, specificities in terms of density and rate of urbanization, household income and illiteracy rate and, with regard to the business sector, the work organization.

10.2.1 Low Rate of Urbanization

Although it is growing, at 17%, the urbanization rate in Ethiopia is one of the lowest in Africa. The cost (per subscriber) of rural telecommunications can be up to ten times higher than for an urban system. The overall penetration target of every service has to take into account this very important factor.

10.2.2 Low Household Income

The huge development of mobile telephony throughout the world and especially in the developing countries has sometimes led us to forget the constraints of income and its impact on consumer behaviour.

In most developing countries, where the mobile market has been liberalized for years, this constraint has generated the multi-SIM phenomenon that reduces the real penetration rate. It has also led to a rapid decrease in the Average Revenue Per User (ARPU) from 20-25 USD in early 2000 to 4-8 USD in 2010. The ARPU reduction has naturally had a huge impact on the operators’ profitability and led them to adjust their strategies. It also has an impact on the households that spend much more of their income (10% to 15%) on mobile telephony than in developed countries.

Whatever the tariff evolution, it is probable that the rate of increase of mobile penetration in developing countries will progressively slow down when reaching the limits of extreme poverty. This constraint has to be heeded to avoid unrealistic expectations. In Ethiopia, it concerns probably 30% to 35% of the population. It should also be born in mind that the household income constraint has an even greater impact on Internet demand since prices are much higher and the need less “basic”.

10.2.3 Illiteracy

Experience shows that illiteracy has had no impact on mobile demand, since “the need to talk” is a basic need and operators have adjusted their procedures (e.g. re- charging) to account for this.

It could much more seriously affect the demand for Internet access, since illiteracy not only makes internet use more difficult, but also reduces interest. This constraint is important in Ethiopia, which suffers from a very low literacy rate linked to the low urbanization rate and the importance of the agricultural sector. It will affect the development of Internet use in Ethiopia as the school enrolment rate is quite low and increased literacy levels will take time (although the government’s plans in this regard are noted).

66 10.2.4 Work Organization

The company survey has shown that the use of IT and the basic use of computers is quite low, even among a sample of medium and large sized companies.

As stated previously, the Internet entered general use in developed countries approximately 20 years after the first personal computer. In addition, the fall in agricultural and industrial employment and increasing automation led to widespread computer use in most sectors. Therefore, around 50% to 75% of the active population under 50 years of age had some acquaintance with computer use when the Internet appeared, first in the work place and then at home thanks to the decrease in the price of computers and Internet access.

In contrast to this situation, among the sample of companies interviewed, computers were only used by 50% of the managers and 10% of the employees. Since the managers represent about 5-10% of the total staff, the total percentage of Internet users does not exceed (7.5% x 50%) + (92.5% x 10%) = 13% of the total staff. Based on the total number of company employees (350,000) in structures of more than 10, this implies that the total number of computer users could be nearly 50,000 in this category of companies.

Assuming that the rate of computer users does not exceed 5% to 10% in companies of fewer than 10 employees, the total number of users could range from 75,000 to 150,000 in this sector.

Combining these figures gives a (very approximate) estimate for the total number of people using a computer for business purposes in the range 150,000 to 200,000. This estimate has to be treated with some caution as it is based on some fairly broad assumptions but it nevertheless can be considered to give an indication of the order of magnitude of business computer use.

The development of Internet and data communications services will thus require an increase in the IT sector and in computer penetration amongst small companies.

11 Conclusions and Recommendations

11.1 Conclusions Despite continual expansion in the fixed network since the 1970s, Ethiopia missed the first step in the start of mobile telephony at the end of the 1990s. Launched in 1999, the first GSM 900 network grew slowly until the prepaid service was intro- duced in 2002. Ethiopia was one of the last African countries where the number of mobile phones exceeded the number of fixed lines, in 2006. Ethiopia is also the only remaining country in Africa to allow its national operator to hold a monopoly on all telecom services including fixed, mobile, Internet and data communications. • Thanks to a large and continuous investment programme from 2001, at the end of 2010 the national operator enjoys a strong network infrastructure operating a number of up-to-date technologies, having made available large switching capacities and a portfolio of potential services: • Ethiopian fixed voice penetration (1.2%) is quite poor but in line with the African average; • Mobile penetration is still very low (8.5%) but has been developing rapidly since 2006; • Ethiopian networks have the benefit of a 10,000 km national backbone (mainly FO) and strong international connectivity (2.5 Gbps). • Despite the available resources, a number of technical and organizational weaknesses can be identified: • The PSTN secondary network legacy is not suitable for international standards of Quality of Service(QoS), whereas the Fixed (PSTN/CDMA) network design is not really optimized and suffers from overlapping. • The mobile network (GSM/CDMA) design is complex and not optimized and the official coverage of 60% of the territory results in a poor average quality of service. • The broadband ADSL access capacity (and the dial-up QoS) is restricted by the low quality of the secondary PSTN network, the CDMA 1X service is not suitable for professional use and both EVDO and UMTS/HSPA capacities seem to be quite restricted. • Despite the use of a range of technologies and commercial offers for Internet and data access, both the availability and quality of the service fall short of market requirements in Addis Ababa and especially in the regions, and the tariffs remain extremely high. • International traffic suffers from a serious bottleneck on the two transit switches as both fixed and mobile voice international services are poor and the broadband Internet speed is very low compared to the theoretical international capacity.

69 • The business sector includes an estimated number of 650,000 to 750,000 companies, of which about 150,000 to 180,000 are in Addis Ababa and only 12,000 to 15,000 have more than 10 employees. • The survey among 98 medium and large Ethiopian companies has confirmed the weaknesses in the supply of telecommunication services that clearly do not meet the needs of the business sector. • Only half of the companies in Addis Ababa and 8% in the regions are equipped with broadband, and IT and Internet use is still uncommon. 90% of the companies consider that the telecommunications services are not adapted to their activity. The main complaints concern:

o The lack of fixed lines and the poor quality of the fixed voice services;

o The insufficient coverage and quality of mobile services; o The lack and poor quality of Internet and data services, especially in relation to the very high prices.

o The business sector suffers from the weaknesses of telecommunications services in terms of internal and external communications, access to technical and commercial information, marketing promotion and international visibility. • The direct negative impact on the business sector is impossible to calculate on a reliable basis but the global impact on GDP growth can be estimated, based on international studies, at a cumulative loss of USD 2.2 to 3.3 billion for the period 2005-2010 and an induced tax loss for the Government of USD 1 billion. • Despite the shortcomings in coverage and quality of service, the Ethiopian telecommunications sector is making up lost time with regard to mobile voice services. • All international studies highlight the positive impact of broadband connectivity on economic growth and business development in developing countries.

The Ethiopian telecommunications sector cannot repeat past errors and has to suc- cessfully face its new challenge: to provide government, business and the social sector with the required national and international connectivity which will enable the country to meet its commitments in terms of economic and social development. • The period 2011-2015 will be crucial and should enable the national operator to: • Improve the quality of existing services to reach international standards; • Expand the fixed network capacity by 25-30% (up to 1.2 to 1.3 million lines) particularly in response to business demands;

70 • Expand the mobile network capacity to about 40 million subscribers (45% penetration); • Develop a range of broadband, fixed and mobile services at suitable prices, adjusted to the needs and capacities of each of the business and residential segments with a target of 15,000 high-speed fixed accesses and 225,000 to 350,000 medium-speed fixed and mobile broadband customers including 150,000 to 200,000 business customers.

11.2 Recommendations After a ten-year expansion phase of the various networks making available the required infrastructure throughout the country, the next five years should definitely be “market oriented”. Based on the optimization of the existing capacities and equipments, a strategy should be defined which will gradually meet the needs of the different market segments in order of priority.

According to the characteristics and constraints of the Ethiopian market (size of the rural sector, level of income, structure of the business sector, working organization) this strategy will have to include a mix of technical requirements and pricing policy. • The operator needs an in-depth knowledge of the quantitative and qualita- tive characteristics of the market in order to adjust as accurately as possible the telecommunication services to the expectations of the market. • Businesses must be able to define their needs as precisely as possible to the telecom operator in order to obtain the maximum benefit from the telecommunications services and to be able to adapt their working process to better use of information technologies. • The Government needs to remove all obstacles that could limit the penetration of Information Technologies among the Ethiopian population and needs to implement solutions to boost the IT and broadband market.

The main recommendations are as follows:

11.2.1 Operator(s) Must Adjust the Telecommunication Services to Market Expectations  The telecommunication operator(s) will have to carry out an exhaustive demand survey at a local level in order to: • define a detailed segmentation of the market according to multiple criteria:

o Geographical location at the lowest level in urban (district) and rural (villages) areas

o Status (business, residential, government bodies, social institutions) o Telecom needs (type of service, quality level) o Ability to pay 71 • Estimate and forecast the potential demand from each segment; • Plan the deployment of new capacities/services according to the government strategy and its own commercial and financial expectations and constraints.  At the same time, the telecommunication operator(s) will have to: • Implement the required commercial infrastructure (sales force, customer care) to address each of the customer segments; • Define the SLA (Service Level Agreements) for each service/segment; • Implement the corresponding control tools; • Prepare the information/communication plan and tools for each segment.

11.2.2 Businesses Must Express Their Needs and Adjust Their Working Process  The business operators will have to be able to assist the telecom operator in defining quantitatively and qualitatively the needs of each category of companies (sector, size, location).

The survey has highlighted the lack of complete, accurate and up-to-date data regarding the number and geographical location of companies in Addis Ababa and the regions.

It could be the role of the Chambers of Commerce, in partnership with government institutions (ministries, CSA, etc.) to bring together the existing data in order to help the telecom operator to carry out the business demand survey.  The survey has shown the low use of IT and computers within Ethiopian companies.

In order to promote the development of IT and Internet and data use within the business sector, the Chambers of Commerce could organize information cam- paigns and training sessions adapted to certain prioritized sectors of activity.

11.2.3 Government must remove obstacles and implement solutions to boost the IT and broadband market Short Term

The main means that can be used by the Government to facilitate the penetration of telecommunication services, and especially broadband services, among the Ethio- pian population and the business sector are, in the short term, the tax regime, the education system and the development of e-Government applications and, in the medium-term, the regulation of the telecommunications market.  The easiest immediate means is fiscal adjustment in order to decrease the cost of personal devices in telecommunications (handsets and CPE) and personal computers.

72 • The taxes on cellular telephones include the import duties (10%) and VAT (15%). Numerous surveys show that the cost of cellular handsets represents the first barrier to mobile penetration among the low income population. To reach the ambitious target of penetration of over 20% the removal of this barrier is essential; import duty could be removed and even possibly, as decided in Kenya last June, mobile handsets could be exempted from VAT. A similar approach could also be taken for the various types of broadband CPE (modems, USB). • There is currently no import duty on computers. The only means of decreas- ing the price would be to apply a lower VAT rate or to exempt personal computers from VAT. Whilst changes to the VAT regime may be problematic, the removal of import duty would have a minimal impact on government revenue as many of the handsets are imported illegally at present and hence generate no revenue at all for the government.  Through the education system, in partnership with universities and schools, the Government could promote specialized training sessions in Information Tech- nologies, especially intermediate level training based on the real needs of companies in IT system administration.  Through the implementation of e-Government applications to address first the business sector (information, regulation, registration and tax processes on-line) and secondly households (registration, taxes, etc.), the Government could promote greater use of IT.

11.2.4 Medium Term

In the medium-term, with a pragmatic approach, the Government should create conditions to encourage a reduction in the price of services, especially in the broadband sector, either by liberalizing the activity within the public sector (as in Viet- nam) or through Public-Private Partnerships.

In developed countries as well as in developing countries, the liberalization of the telecommunications sector has in all cases led to a rapid growth of penetration rates thanks to an increase in the supply of services and a fall in prices.

In developing countries, the number of mobile phone subscriptions has overtaken the number of fixed lines only a few years after the launching of mobile telephony for two reasons: • First, wireless technology can be deployed more quickly than a fixed telephone system because it requires less upfront investment in infrastructure. This translates to lower prices and hence stronger customer demand. • Second, liberalization of fixed-line markets, which were often dominated by state-owned monopolies, started later, while mobile phone markets were generally opened to one or more new entrants from the start. In 2007 only 10% of developing countries had maintained a monopoly in the mobile sector whereas the proportion was still 40% in fixed and international long dis-

73 tance telephony. In developed countries, the percentage of countries with monopolies was 10% in the mobile sector and 12% in the fixed and international long distance sector8.

The introduction of competition in the mobile telephony market has often led to an immediate growth in voice services. Countries that have taken decisive steps to establish independent regulators and foster competition have seen notable improvements in sector performance.

In some cases, the announcement of a plan to issue a new licence has been effective in triggering growth, encouraging the existing mobile phone operator to improve service, reduce prices and increase market penetration even before the new entrant has started operations. The following figure shows the evolution of mobile penetration in six developing countries before and after the introduction of competition (year 0).

Figure 5. Mobile telephony penetration before and after the introduction of competition

70%

60%

50% Afghanistan Belarus 40% Honduras 30% Kenya 20% Tonga 10% Tunisia 0% y-3y -2 y-1y 0y 1y 2y 3

Source: ITU, World Telecommunication/ICT Indicators Database

Various models of liberalization have been used in the last 15 years in developing countries in Africa and Asia: • Total liberalization through the partial or total privatization of the incumbent operator and the award of new fixed/mobile/Internet/neutral licences (Ke- nya, Ivory Coast, Senegal, Morocco, Egypt). • Partial liberalization with emphasis on the private sector: the Government keeps control of the incumbent operator with/without a monopoly on fixed telephony and awards mobile and Internet licences (Algeria, Cameroon, Be- nin). • Liberalization with limited participation of the private sector through Pri- vate-Public Partnership (Vietnam, China). 8 World Bank – 2009 Information and Communications for Development 74 At the end of 2010, most developing countries have liberalized the mobile sector and the main issues concern: • Fair access to international connectivity. • The granting in 2011 in many countries of Africa of 3G licences or neutral licences. • Fair access for ISPs to national and international bandwidth in order to promote affordable access to broadband for both companies and households.

In November 2010, the Minister of Communications of Ghana called on the National Communications Authority (NCA) to stop what he called Vodafone Ghana’s practice of ‘killing off’ rival internet service providers (ISPs). The minister accused Vodafone of acting both as wholesaler and retailer by selling bandwidth to ISPs while it runs its own chain of retail internet cafes, which are more efficient than those of the ISPs and thus effectively harms their businesses. The Minister said that a number of ISPs had filed official complaints with him and, having agreed that their concerns were valid, he asked the NCA to investigate the matter and if necessary, bring Vodafone to book.

Therefore, whatever the model, the key factor is not so much operator ownership but more the development of a competitive environment and the efficiency and indepen- dence of the regulation policy in order to: • Promote the delivery of services to the whole country, especially remote areas, through reasonable but ambitious specifications. • Guarantee fair competition between the incumbent and the new entrants (e.g. full access to international capacities) and between large and small operators (e.g. asymmetric interconnection fees). • Facilitate a decrease in end-user tariffs (e.g. moderate licence fees, encour- agement of infrastructure sharing, interconnection rate control). • Guarantee the profitability of operators and encourage private investment (e.g. tax moderation and fiscal environment stability).

The Ethiopian Government has already launched a reorganization of the national operator through a management contract signed with an international operator that should increase the capacity of the operator to respond to the most urgent needs of the market.

However, in view of the quantitative targets to be reached in 2015 and later, the size of the Ethiopian market and the total investment to be carried out in the medium- term in both voice and data networks development, it would be better if the Gov- ernment opened the sector to other investors and operators through Public-Private Partnerships according to a well-defined long term strategy.

75 This strategy could include some or all of the following elements: • Opening up the national operator to equity participation from private national investors and/or an international operator. • Granting at least one GSM/3G or neutral licence through a transparent bid- ding process. • Defining fair rules, under the control of the regulator, for access to national and above all international bandwidth in order to facilitate the development of the ISP market and affordable broadband offers to address the various segments of the market.

The improvement of the telecommunications sector and services will be a critical step in Ethiopian economic and social development and will only be successful if it can simultaneously benefit the State, investors and end-users (companies and the population at large).

76 12 Glossary of Terms ADSL: Asymmetric Digital Subscriber Line

ADSL is one form of the Digital Subscriber Line technology, a data communications technology that enables faster data transmission over copper telephone lines than a conventional voice band modem can provide. It does this by utilizing frequencies that are not used by a voice telephone call.

Broadband

Broadband in telecommunications refers to a signalling method that includes or handles a relatively wide range (or band) of frequencies, which may be divided into channels or frequency bins. Broadband is always a relative term, understood according to its context. The wider (or broader) the bandwidth of a channel, the greater the information-carrying capacity. A still broader band is required to carry music without losing the high audio frequencies required for realistic sound reproduction. In data communications a digital modem will transmit a data rate of 56 kilobits per seconds (kbit/s) over a 4 kilohertz wide telephone line (narrowband or voice band). However when that same line is converted to a non-loaded twisted-pair wire (no telephone filters), it becomes hundreds of kilohertz wide (broadband) and can carry several megabits per second (ADSL).

CDMA: Code Division Multiple Access

CDMA is a scheme, used as a modulation technique, in which multiple channels are independently coded for transmission over a single wideband channel. CDMA is a channel access method used by various radio communication technologies. It should not be confused with the mobile phone standards called cdmaOne and CDMA2000 (which are often referred to as simply CDMA), which use CDMA as an underlying channel access method.

FTTx: Fibre To The…(ex: FTTH: Fibre To The Home, FTTO: Fibre To The Office).

FTTx is a generic term for any broadband network architecture that uses optical fibre to replace all or part of the usual metal local loop used for last mile telecommunications. The generic term originated as a generalization of several configurations of fibre deployment (FTTN, FTTC, FTTB, FTTH...), all starting by FTT but differenti- ated by the last letter, which is substituted by an x in the generalization.

GDP: Gross Domestic Product

The gross domestic product is the amount of goods and services produced in a year, in a country. It is the market value of all final goods and services made within the borders of a country in a year. It is often positively correlated with the standard of living.

77 GNI: Gross National Income

Gross national income (GNI) comprises the total value produced within a country (i.e. its gross domestic product), together with its income received from other countries (notably interest and dividends), less similar payments made to other countries. The GNI consists of: the personal consumption expenditures, the gross private investment, the government consumption expenditures, the net income from assets abroad (net income receipts), and the gross exports of goods and services, after de- ducting two components: the gross imports of goods and services, and the indirect business taxes.

GSM: Global System for Mobiles

GSM is the most popular standard for mobile telephony systems in the world. The GSM Association estimates that 80% of the global mobile market uses the standard. GSM is used by over 1.5 billion people across more than 212 countries and territo- ries. This ubiquity means that subscribers can use their phones throughout the world, enabled by international roaming arrangements between mobile network operators. GSM differs from its predecessor technologies in that both signalling and speech channels are digital, and thus GSM is considered a second generation (2G) mobile phone system. The GSM standard has been an advantage to both consumers, who may benefit from the ability to roam and switch carriers without replacing phones, and to network operators, who can choose equipment from many GSM equipment vendors.

PSTN: Public Switched Telephone Network

PSTN is the network of the world’s public circuit-switched telephone networks. It consists of telephone lines, fibre optic cables, microwave transmission links, cellular networks, communications satellites, and undersea telephone cables all inter-connected by switching centres which allows any telephone in the world to communicate with any other. Originally a network of fixed-line analogue telephone systems, the PSTN is now almost entirely digital in its core and includes mobile as well as fixed telephones.

UMTS: Universal Mobile Phone Service

UMTS is one of the third-generation (3G) mobile telecommunications technologies, which is also being developed into a 4G technology. UMTS is used to provide mobile broadband services.

VAS: Value Added Services

A Value Added Service is a popular telecommunications industry term for non-core services or, in short, all services beyond standard voice calls and fax transmissions. Value-added services add value to the standard service offering, spurring the subscriber to use their phone more and allowing the operator to drive up their ARPU. For mobile phones, while technologies like SMS, MMS and GPRS are usually considered value-added services, a distinction may also be made between standard (peer-to-peer) content and premium-charged content.

VSAT: Very Small Aperture Terminal

A Very Small Aperture Terminal (VSAT), is a two-way satellite ground station or a stabilized maritime VSAT antenna with a dish antenna that is smaller than 3 metres. The majority of VSAT antennas range from 75 cm to 1.2 m. Data rates typically range from 56 kbps to 4 Mbps. VSATs are most commonly used to transmit narrowband data (point of sale transactions such as credit card, polling or RFID data, or SCADA), or broadband data (for the provision of Satellite Internet access to remote locations, VoIP or video). VSATs are also used for transportable, on-the-move (utilizing phased array antennas) or mobile maritime communications.

WLL: Wireless Local Loop

Wireless local loop (WLL), is a term for the use of a wireless communications link as the “last mile/first mile” connection for delivering standard telephone services and/ or broadband Internet to telecommunications customers.

13 References

(1) 2009 Information and Communications for Development (World Bank Group) (2) A Platform for Progress (Paul Budde, 2010) (3) African Statistical Yearbook 2010 (Africa Development Bank Group) (4) Aker, J., 2008. Does Digital Divide or Provide? ·e Impact of Mobile Phones on Grain Markets in Niger, BREAD. (5) Booz & Company “Digital Highways: The Role of Governments in 21st Century Infrastructure (2009) (6) Ernst & Young, 2009. Enquête sur le Développement des Télécommunica- tions, Ernst & Young – Global Telecommunications Center, juin 2009. (7) Frost & Sullivan, 2006. Social Impact of Mobile Telephony in Latin America (8) McKinsey & Company “Mobile Broadband for the Masses” (2009) (9) Measuring the Information Society, 2010 (ITU) (10) OCDE, 2009. Perspectives Économiques en Afrique, rapport OCDE 2009. (11) The role of mobile phones in sustainable rural poverty reduction, 2008 (WB Group, ICT Policy Division) (12) Towards Evidence-based Policy in Africa: ICT Access and Usage in 17 Afri- can Countries (Research ICT Africa@The Edge Institute, 2009) (13) Waverman, L., Meschi, M., Fuss, M., 2005. e Impact of Telecoms on Eco- nomic Growth in Developing Countries, in Vodafone Policy Paper Series, Africa: .e Impact of Mobile Phones, Vodafone Group.

5 4 Real 8.5% 11% Estate Other services

0 0% 7 Real Estate 11.9% & Health Education

3 1 8% 3% Other Industry & Health Education 0 11

0.0% Other 18.6% Industry Insurance Financial & 3 2 8% 5% Insurance Financial & Construction 3 1

5.1% 1.7% Transport & Transport Construction Communications 4 0 0% 11% Water

Transport & Transport Electricity & Communications 0 12 0.0% Water 20.3% Hotels & Restaurants Electricity & 2 11 5% 29% Other Hotels & Restaurants Manufacturing 6 6

Other 10.2% 10.2% 3 0 Retail trade 8% 0% trade Retail Manufacturing Textile 1 4 3.0 3 1 1 Crop 5.1% 1.7% 6.8% 8% 3% 3% Textile Crop Mining Wholesale Table 30. Sectoral distribution of companies in regions Table Wholesale Table 29. Sectoral distribution of companies in Addis Abab Addis 29. Sectoral distribution of companies in Table 3 21 35 5% 1 36% 59% 23 14 Total Total Total 3% 58% 39% Total Total Total % of the sample No. of companies Sub-sector No. of companies % of the sample No. of companies Sub-sector Sub-sector % of the sample No. of companies Sub-sector Sub-sector % of the sample No. of companies % of the sample Sub-sector No. of companies % of the sample Agriculture and Trade Services Sector Industry Sector Agriculture Industry Trade and Trade Services Appendix. Company Survey Results Survey Sample 83 7 85 22 149 216 57.1% 81.4% 100 and more 4. Domestic only 4. Domestic only 38 31 483 443 720 5.7% 8.6% 65.7% 3. Both 3. Private 4 33 14 48 15 100 and more 3.4% 8.5% 93.2% 3. Both 21 to 99 3. Private 3. Part of International Group 3. Part of International Group 7 8 63 15 75 8.6% 14.3% 31.4% 1 to 99 6 3 9 22 1.4 2. Public/Private 3.4% 3.4% 2. Mainly Import 17.2% Less than 21 2. Part of National group 2. Public/Private 2. Mainly Import 2. Part of National group 32 39 392 386 565 2.9% 25.7% 80.0% 1. Public 4 66 39 96 59 Average staff Average 3.4% 6.8% 1. Independent 79.3% 1. Mainly Export 1. Public Average staff Average Table 32. Company activity, status, structure and size – regions status, structure 32. Company activity, Table 1. Independent 1. Mainly Export Table 31. Company activity, status, structure and size – Addis Ababa Addis and size – status, structure 31. Company activity, Table Structure Company size (staff) Management staff Legal Status Activity Employees Labourers Total staff Total Number of companies Management staff Employees Labourers staff Total Number of companies Activity Structure Company size (staff) Legal Status

84 6 18 Dire Dawa More than 2 sites 6 5 Hawassa Bahir Dar More than 1 site 1 3 18 (average: 2.8 sites) 11% 14% Both 3 8 13 55.9% 18% 44% Both 2 sites 50.0% % International % International % International % International 4 6 Dessie Wolaita 6 1 41 30% 44% 1 site 18.6% 0 0 7 34% 18% 1 site % National % National 29.2% % National % National 5 6 Mainly companies Jimma Mainly companies Shashemene 3 11 12 14 1.6 55% 45% 25.4% % Local % Local 6 3 1 4 6 18 10 48% 38% Adama Adigrat 20.8% % Local % Local Mainly consumers Mainly consumers 5 7 Gondar Mekelle Table 33. Regional distribution of company sample Table No. with 100% No. with 100% No. with 100% No. with 100% Table 35. Organization and commercial relationships – regions relationships 35. Organization and commercial Table Table 34. Organization and commercial relationships – Addis Ababa Addis – relationships 34. Organization and commercial Table No. of main partners/suppliers No. of main partners/suppliers abroad Customers location Customers Suppliers/Partners Number of companies with: Average number of sites Average Number of companies with: Customers Customers location Suppliers/Partners No. of main partners/suppliers No. of main partners/suppliers abroad Average number of sites Average Location (city)

15 47 1.8 1.5 4.6 14% 33% 48% 33% 81% 81% 62% 18.3 100% Staff > 99

10 19 7.2 1.1 1.3 2.8 7% 7% 27% 40% 67% 47% 47% 93% Staff 21 - 99

Regions

4 6 3.3 1.0 1.0 1.7 5% 0% 14% 24% 71% 24% 29% 95% Staff < 21

2 1 3 51 13 31 10 7% 8% 0% 0% 150 128 24% 37% 14% 71% 51% 46% 97% Total

2 2 51 72 20 10 66% 69% 66% 55% 69% 90% 72% 100% Staff > 99

1 1 4 13% 63% 25% 63% 63% 63% 11 10 19 100% 100% Addis Ababa Addis Staff 1 - 99

54 3% 2 8 453 886 45 67 18 1.8 32% 53% 68% 74% 16% 50% 68% 84% 71% Total 100% Table 36. Telecommunications equipment Telecommunications 36. Table

CDMA ADSL % of companies equipped with an Intranet Dial - Up Available bandwidth Available % of companies equipped with ADSL % of companies equipped with % of companies equipped with CDMA % of companies equipped with VSAT % of companies equipped with Access Internet / Data % of companies equipped with Dial - Up % of companies equipped with Lease Lines % of companies equipped with PABX Employees/mobile Employees/Fixed line Average number of Mobile lines Average Average number of Fax lines Average Average number of International fixed lines Average Average number of Fixed lines Average % of companies equipped with Mobile lines (paid by company) % of companies equipped with Fax lines % of companies equipped with International fixed lines Voice % of companies equipped with Fixed lines Telecommunications equipment Telecommunications

86 4% 21% 14% 88% 69% 34% 42% 41% 42% 0.7% Other Staff > 99 Other 7% 3% 7% 20% 1.6% 9% 3% 23% 79% 35% Staff 21 - 99 Courier 3% 3% 10% 31% Regions Courier 11% 2% 0% 0% 7% 20% 34% 83% 47% 0.6% Staff < 21 7% 12% 17% 27% e-mail 4% 23% 14% 86% 59% 1.0% Total e-mail Fax 0% 5% 7% 0% 4% 31% 70% 17% 57% 4.1% 5% 7% 5% 10% Staff > 99 3% 3% 2% 2% Fax 51% 15% 78% 21% 83% 1.9% 46% 27% 15% 15% Staff 1 - 99 Addis Ababa Addis Telephone 4% 88% 88% 85% 71% 32% 71% 18% 63% 4.0% Total Telephone - Table 39. Preferred means of communication – regions 39. Preferred Table Table 38. Preferred means of communication – Addis Ababa Addis means of communication – 38. Preferred Table Table 37. Personal access to IT and telecommunications facilities 37. Personal access to IT Table % employees with access to Internet % management with access to Internet % employees with access to Fixed voice service % management with access to Fixed voice service % employees equipped with a personal computer Personal access to IT & Telecommunications facili Telecommunications & Personal access to IT ties % management equipped with a personal computer Preferred communication mean within the company Preferred means of communication Preferred Preferred communication mean with customers Preferred communication mean with partners Administration Preferred communication mean with Govt Preferred communication mean within the company Preferred means of communication Preferred Preferred communication mean with customers Preferred communication mean with partners Preferred communication mean with Govt Administration Preferred communication mean with Govt Telecommunications usage Telecommunications 87

7% 8% 29% 20% 38% 19% 24% 19% 40% 67% 42% Never Never No need No need Campaign Marketing Campaign Marketing

5% 0% 8% 12% 27% 19% 17% 13% 10% Rarely Rarely Searching Searching Technical info Technical Technical info Technical 40% 20%

7% 9% 10% 33% 19% 20% 24% 13% 14% Partners not connected Partners not connected Searching Searching Sometimes Sometimes Commercial Info Commercial Info 68% 32% 43% 27% 14% 29% 49% 60% 52% 38% 32% e - mailing e - mailing Frequently Frequently Poor Quality Poor Quality Table 41. Internet use – regions Table Staff > 99 Staff Staff 1 - 99 Staff Total Table 40. Internet use – Addis Ababa Addis 40. Internet use – Table Staff > 99 Staff Staff 21 - 99 Staff Staff < 21 Staff Total Main purpose of Internet use Why do you never use Internet & Data solutions? Frequency of Internet use Frequency Frequency of use Internet and data transfer Main purpose of Internet use Why do you never use Internet & Data solutions? Frequency of use Internet and data transfer Frequency of Internet use Frequency

88 Table 42. Focus on e-mailing – Addis Ababa e - mailing use Daily Frequently Sometimes Never Within the company 22% 16% 24% 38% With clients within Ethiopia 18% 11% 37% 34% With clients abroad 24% 8% 40% 28% With partners/suppliers within Ethiopia 11% 17% 34% 37% With partners/suppliers abroad 26% 34% 31% 9%

Table 43. Focus on e-mailing – regions e - mailing use Daily Frequently Sometimes Never Within the company 16% 9% 9% 66% With clients within Ethiopia 7% 14% 21% 59% With clients abroad 22% 4% 30% 43% With partners/suppliers within Ethiopia 3% 10% 38% 48% With partners/suppliers abroad 30% 10% 10% 50%

Table 44. Web site – Addis Ababa Is your company equipped Yes No with a website? Total 57% 43% Staff 1 - 99 38% 63% Staff > 99 61% 39% Not useful Difficult to implement Never thought Why not? 14% 19% 67% Do you intend to Yes Yes perhaps No implement a website 76% 18% 6%

Table 45. Web site – regions Is your company equipped Yes No with a website? Total 35% 65% Staff < 21 29% 71% Staff 21 - 99 25% 75% Staff > 99 40% 60% Not useful Difficult to implement Never thought Why not? 9% 9% 83% Do you intend to Yes Yes perhaps No implement a website 52% 35% 13%

89 Satisfaction with current telecommunication services

Table 46. Availability of the services – Addis Ababa Fixed lines Yes No Addis Ababa 53% 47% Have you enough fixed lines? Other cities 33% 67% Not available/ Too Other Why haven’t you more? on waiting list expensive 64% 18% 18% Mobile lines Yes No Addis Ababa 79% 21% Have you enough mobile lines Other cities 44% 56% Not available/ Too Why haven’t you more? Other on waiting list expensive 0% 71% 29% Internet access Yes No

Have you enough Addis Ababa 35% 65% Internet access facilities? Other cities 20% 80% Not available/ Too Other Why haven’t you more? on waiting list expensive 25% 46% 29%

Table 47. Availability of the services – regions Fixed lines Yes No Main city 76% 24% Have you enough fixed lines? Other cities 58% 42% Not available/ Too Why haven’t you more? Other on waiting list expensive 52% 13% 35% Mobile lines Yes No Main city 91% 7% Have you enough mobile lines Other cities 81% 19% Not available/ Too Why haven’t you more? Other on waiting list expensive 0% 42% 58% Internet access Yes No

Have you enough Main city 58% 42% Internet access facilities? Other cities 50% 50% Not available/ Too Why haven’t you more? Other on waiting list expensive 40% 53% 7%

90 Table 48. Quality of service Addis Ababa Regions Do you suffer from: Frequently Sometimes Never Frequently Sometimes Never Fixed telephone faulty 46% 43% 11% 28% 56% 16% lines? Fixed telephone call 43% 32% 24% 20% 56% 24% drops? Is the mobile coverage Yes No Yes No sufficient? Mobile coverage local 71% 29% 59% 41% Mobile coverage national 61% 39% 48% 52% Do you suffer from: Frequently Sometimes Never Frequently Sometimes Never Mobile call drops? 38% 53% 9% 44% 52% 4% Are the Internet/Data Yes No Yes No facilities convenient for your company? 30% 70% 38% 62% Service Service Availability Speed Availability Speed What are the main prob- interruption interruption lems? 12% 31% 48% 21% 26% 52%

Table 49. Tariffs Addis Ababa Regions How do you consider Very Very these tariffs? Affordable Expensive Affordable Expensive expensive expensive Fixed line: Subscription fee 78% 16% 5% 69% 27% 4% Monthly fee 68% 30% 3% 64% 35% 2% Local minute 61% 39% 0% 53% 39% 8% National minute 45% 47% 8% 42% 44% 14% International minute 0% 21% 79% 22% 28% 50% Mobile: SIM card 50% 42% 8% 44% 45% 11% Post-paid monthly fee 26% 61% 13% 33% 55% 13% Local minute 47% 37% 16% 48% 44% 8% National minute 26% 53% 21% 14% 61% 25% International minute 8% 14% 78% 13% 35% 52% Internet: Dial-up monthly fee 71% 23% 6% 57% 39% 4% Dial-up minute 57% 29% 14% 68% 28% 4% ADSL Installation fee 13% 42% 46% 18% 36% 45% ADSL monthly fee 4% 46% 50% 17% 28% 56% CDMA Internet access 39% 48% 13% 47% 41% 12%

91 Table 50. Global opinion about the telecommunications services – Addis Ababa Very Sufficient Insufficient Are the current telecommunications services insufficient globally? 11% 76% 13% What are the main weaknesses? First and second choice Fixed voice service availability (lack of available 52% lines) Fixed voice national service quality (faulty lines/call 32% drops) Fixed voice international service quality (call drops) 29% Insufficient Mobile coverage 45% Internet access availability within Addis Ababa 61% Internet access availability in other cities than Addis 39% Ababa Internet access quality within Addis Ababa (inter- 74% ruptions, speed..) Internet access quality in other cities (interruptions, 27% speed..)

Table 51. Global opinion about the telecommunications services – regions Very Sufficient Insufficient Are the current telecommunications services insufficient globally? 15% 51% 32% What are the main weaknesses? First and second choice Fixed voice service availability (lack of available 44% lines) Fixed voice national service quality (faulty lines/ 58% call drops) Fixed voice international service quality (call 19% drops) Insufficient Mobile coverage 70% Internet access availability in your city 13% Internet access availability in other cities 47% Internet access quality in your city (interruptions, 13% speed..) Internet access quality in other cities (interruptions, 67% speed..)

92 Table 52. Impact on doing business With which of the following sentences do you agree? Addis Ababa Regions The current telecommunications services are convenient for 9% 8% our activity The current telecommunications services are insufficient for 40% 59% our activity but don’t really penalize it The current telecommunications services are insufficient for 40% 31% our activity and penalizes it Shortness of telecommunications services is one of the main 11% 2% problem for our business development Has the telecom service’s weakness a negative impact on Yes No Yes No your business? 82% 18% 53% 47% What could be the positive impact of better telecommunications services? Increase the profitability of your current products and 13% 24% services Increase your market (find new customers) 43% 58% Improve your supplying/production processes 15% 9% Develop new products/services 14% 9% What are your main wishes in terms of telecommunica- First and sec- First and sec- tions services improvement? ond choice ond choice To increase the geographic coverage of fixed lines 13% 22% To increase the quality of service of fixed lines 13% 30% To increase the geographic coverage of mobile network 39% 55% To increase the quality of service of mobile 39% 66% To increase the availability of broadband access 47% 20% To increase the quality of broadband access 47% 16%

Table 53. Frequency of key words in comments on expected developments Key word Addis Ababa Regions Coverage 9% 17% Quality 28% 47% Tariffs 6% 28% Mobile 13% 6% Internet 28% 11% Maintenance 6% 11% Training 2% 21% Technology 2% 15% Privatization 6% 17%

93 94