Reports through the summer painted a contradictory picture of the reform process in Ethiopia. At the end of June, the Ethiopian Communications Authority (ECA) announced it had received eleven valid expressions of interest in the two new mobile network licences and had consulted extensively on the entrance of independent towercos to support network roll-out. By August the tone of reporting had changed significantly, with Ethio Telecom’s CEO Frehiwot Tamru saying publicly that towercos would not be welcome in the market, there were even rumours that the licence process would no longer be a competitive process. Comments by the Ethiopian Communications Authority’s Director General Balcha Reba have since clarified matters, and may point to a return to normalcy for the process.
What has gone wrong?
As reported in Capacity Media in early August, after more than a year of excitement about the Ethiopian reform process, it was dealt a cruel blow. The Ethiopian government appeared to u-turn on its earlier decision to allow international towercos to own telecom infrastructure in the East African country. As an alternative, new MNOs would be allowed to rent Ethio Telecom’s infrastructure, or build their own, according to comments from the firm’s chief executive, Frehiwot Tamiru, reported by The East African.
She is quoted as saying: “We have built sufficient telecom infrastructures like fibre cables and mobile base masts that we can rent it to the newly entering companies. So the incoming telecom operators will either use our existing infrastructure by renting or build their own.”
This change in regulation would severely disrupt the network rollout plans of international MNOs, many of which had publicly stated they were looking to partner with international towercos. Even Orange, who rarely works with towercos in Africa said they would likely find an infrastructure partner. The decision to force MNOs to either build their own infrastructure or use Ethio Telecom’s presents them with the option to either raise billions of extra dollars of capex, or use infrastructure which is not fit for purpose to meet coverage targets. The move jeopardises the whole reform process.
Similarly, Ethio Telecom also sent a letter to the ECA expressing concerns over the ongoing privatisation process of the incumbent, in which a planned 45% stake is to be sold. “We do not believe that the authority will take any action that could jeopardise Ethio Telecom’s existence,” said Ms Frehiwot on the matter of privatisation, adding: “But there are still some issues that we have not agreed on.”
The stated rationale for the surprise move is to prevent foreign firms from profiting from Ethio Telecom’s infrastructure investments, although this is at odds with the Ethiopian government’s stated aim to boost foreign investment and open up competition in its telecoms market. Some statements by the Ethio Telecom CEO have since been contradicted by the ECA Director General, which points to political disagreements in how the reform process will play out.
What does it mean for MNOs?
In June, the Ethiopian Communications Authority (ECA) received eleven valid Expressions of Interest from nine telcos and two non-telcos: Global Partnership for Ethiopia (a consortium of Vodafone, Vodacom and Safaricom); Orange Group; a MTN Group/Telkom SA joint venture; Axian Group; stc; Etisalat; Liquid Telecom; and Chinese MVNO Snail Mobile. Two non-MNOs Kandu Global Telecommunications and Electromecha International Projects also submitted complete EoIs.
A privatisation process was also well underway for Ethio Telecom which had appointed KPMG to audit its assets and advise it on the sale. The ECA had also issued numerous consultation documents through which MNOs, towercos and fibrecos had expressed the need for a holistic approach to telecom infrastructure investment.
Given the progress to date, August’s earlier announcements surprised many. Ethiopia has a population of 100 million and frequently suffers outages and struggles to secure foreign direct investment. Comments made by the Director General of the ECA at the end of the month to Addis Business Talk, an English language business podcast out of Addis Ababa clarifies the situation, and suggests that while there is pushback from the incumbent, the reform process is still alive and kicking.
Balcha Reba, appointed in August 2019 to the role of Director General of the ECA, began by outlining the four part rationale for sector liberalisation “one, to enhance Ethiopian digital infrastructure development; two, to establish a world class telecom industry; three, to enhance service accessibility and efficiency; and four, to maximise revenue from the sector for the nation.” From this he said the process to establish an independent regulatory body, partially privatise Ethio Telecom and issue two additional licences follows naturally. The RFP process for licences is expected to start in September, with licences issued before the end of the year. So far, so good, for the telecom reform process.
What does it mean for towercos?
Reba outlined four options for network build out for mobile network operators. Firstly, MNOs could share existing infrastructure (the Ethio Telecom preferred solution), secondly towercos/infracos can provide access to infrastructure (representing international best practice), infrastructure sharing between entrants that build out network together (as was practiced in the UK JVs, MBNL and Cornerstone), or building stand-alone infrastructure (as was done with the rollout of duplicated 2G and 3G networks originally).
Reba said that of the four options, the current regulatory framework guarantees the new entrants the right to build their own infrastructure, share with the incumbent, and share with each other. It is with foreign direct investment by fibrecos, towercos and infracos where there is a question mark.
In this politically sensitive matter, Reba does not come down explicitly on the side of independent infrastructure investment, but does layout a series of concerns and an investigative process which would logically only support the introduction of independent infrastructure ownership:
- Ethio Telecom lacks the expertise to provide best in class infrastructure sharing and has no experience of managing a dispute between the asset owner and the tenant, or the use of SLAs to manage the relationship.
- Passive infrastructure sharing requires much technical and operational expertise which is lacking in Ethiopia, including managing the loading of macro sites or the management of fragile Ethiopian rooftop sites.
- Many existing towers are not fit for sharing and need to be upgraded at a predicted cost of US$100mn which the Ethiopian government would struggle to raise and service.
- A realistic tenancy ratio across Africa of 1.4x (1 additional tenant on 20% of towers and 2 additional on 10% of towers), would only support around 3,000 additional tenancies which is far short of what is required to meet licence commitments.
Reba says that despite these difficulties, the decision to introduce an infrastructure licence must rest on an investigation of the facts on the grounds and be “decided by wisdom and truth.” The Government will make the final decision but the ECA can advise.
Before a decision can be made on whether existing sites can support a dual rollout of new networks, Ethiopia needs an inventory of sites and to know how many are ready for sharing. Reba suggests this audit will be complete by the end of the month so it can be included in the RFP document to aid bidders in their network planning.
Reba suggests that the initial rollout could perhaps be supported by Ethio Telecom with a towerco licence issued later, to support the rollout at a later date. TowerXchange would suggest this is a good way to minimise the revenue raised by the licence process, and damage the other three stated goals of the process for little discernible benefit.
Facts on the ground in Ethiopia
In Ethiopia’s 1.1mn sq km of land there are only 7,300 towers, with a correspondingly high number of subscribers per tower. To match Kenya or Nigeria’s tower counts, Ethiopia needs 7,000 new towers in the short run at an estimated cost of US$1bn. 80% of towers have microwave backhaul, and many rely on satellite. The fibre investment required in Ethiopia is also estimated at around US$1bn.
In late August, Ethio Telecom announced it would build another 800-850 towers all over the country, following a fallow period for building. This is far short of what is required.
The ECA is suggesting to the government that the government must consider whether building that network on its own is the right decision or if this amount of money could be better used by government in other sectors like education, health or culture. The foreign capital is available for this US$2bn; should it be allowed to be spent or should the Ethiopian government seek to foot the bill?
The Ethiopian Government has had trouble honouring existing bills to telecom players in the country, with some payments to both Huawei and SEACOM in arrears. Raising and spending US$2bn on towers and fibre over the next five years would require a radical improvement in Ethiopia’s fiscal position which is made all the more unlikely by the COVID-19 triggered global recession.
Ethiopia mobile market timeline
How will things play out?
Reba’s comments suggest that the ECA is supportive of infrastructure sharing and the entrance of towercos, but that the decision instead rests on central government. The Ethiopian “land grab” predicted by TowerXchange at the end of last year is yet to materialise, but the reform process is still moving on. While Ethiopia still requires many more towers, up to 30,000 by 2029, TowerXchange still stands by its prediction of last year that Ethiopia will build 5,800 new sites by the end of 2023, based on each of the three licence holders adding 500-1,000 towers per year, inclusive of Ethio Telecom undertaking a substantial programme of rebuilding and strengthening.
In addition to the situation for towers, power remains a major concern in Ethiopia. Ethio Telecom was looking for an ESCO partner but now seems to have soured on working with independent infrastructure managers. Power availability is very low in Ethiopia, with Ethio Telecom’s RFP for an ESCO partner proposing a Service Level Agreement (SLA) availability of just 96%, which would be a significant improvement on current standards. Some sources suggested uptime was as low as 82% on many Ethiopian sites. Whether ESCOs will be able to enter Ethiopia is still up for debate.
Ethiopia still represents the most compelling greenfield opportunity for the tower industry (rivalled only by the Philippines). Every African country has unique politics and culture and nobody entering this process believed it would be a smooth ride. The latest news is of concern, but a closer look reveals that a positive outcome for towercos, MNOs and the Ethiopian people may well be likely. TowerXchange now conservatively estimate the opportunity for passive telecom infrastructure investment in Ethiopia in 2021 at a quarter of a billion dollars. With ongoing investment at a similar level for a number of years.
