The World Bank Group was invited by the Government of Ethiopia to support the process of market reform. The International Finance Corporation (IFC), the private sector arm of the Bank, is assisting the ECA with the license awards. The World Bank itself is supporting the partial privatization of Ethio Telecom and the strengthening of ECA as an independent sector regulator, following its establishment in September 2019. The call for expressions of interest from potential investors, launched in May 2020, attracted 12 bidders, including many well-known telecom operators from around the world. Now the request for proposals phase is underway, with every effort being made to consult with the private sector and to respond to their many concerns and questions.
But the process of opening the telecom market has rarely proven to be a smooth process, as there are vested interests that may prefer to preserve the status quo. Ethio Telecom has the most to gain from the expansion of the digital economy, but it is also at risk from losing market share if it fails to compete effectively. So, what approach should the government take? Should the government attempt to shelter Ethio Telecom from competition? This seems to be the motivation behind policy announcements that seek to restrict the operation of digital financial services to Ethiopian firms and nationals. But this may slow down innovation and investment in the market and may actually hinder Ethio Telecom’s own ambitions to attract a strategic investment partner from abroad. A better strategy would be to encourage Ethio Telecom to compete on equal terms with the new market entrants in providing mobile money services, without ownership restrictions.
Similarly, the direction taken by the government in limiting investment by independent cell tower companies, obliging the new entrants to use the infrastructure provided by Ethio Telecom, may slow down network roll out, particularly in rural areas. Ethio Telecom will need to collaborate as well as compete with the new entrants. But this is best done by allowing for open commercial negotiations in which the new entrants can make rational decisions whether to build their own infrastructure or buy capacity from Ethio Telecom. Ultimately, policies that seek to protect Ethio Telecom’s infrastructure by allowing it to charge high prices for interconnection will end up harming the company. The new operators will be Ethio Telecom’s biggest customers if prices are set fairly, through market competition. Ethio Telecom has the potential to become a regional powerhouse, but only if it is well-prepared for the competitive environment.
Source: World Bank