Vodafone et al win Ethiopia licence, but it's not over yet

A consortium including major players Vodafone, Vodacom and Safaricom has won a licence to offer telecoms services in Ethiopia, but the opening up of the country is unlikely to end here.

The Ethiopian Communications Authority (ECA) and the country’s Ministry of Finance jointly announced that a grouping made up the three aforementioned telcos, the UK’s CDC Group, Sumitomo Corporation of Japan, and the US government-backed Development Finance Corporation (DFC) has been granted a licence that will end more than a century of state monopoly in Ethiopian telecoms.

The country had planned to award two licences – and indeed received bids from two consortia – but reserved the right to issue one licence only after interest in the process was weaker than it had expected. There was no mention of the second bidder, led by telco heavyweight MTN and including China’s Silk Road Fund and other unnamed entities from the private equity space, in the regulator’s announcement, but presumably its offer did not come up to snuff.

Alternatively, as indicated by the WSJ, this was a straight commercial proxy war between the US and China, with the DFC funding coming with the condition that none of the cash is spent on Chinese gear.

The long-awaited liberalisation of Ethiopia’s telecom market was the cause of much excitement in the global telecoms space, since it represents one of the last major untapped opportunities in the world. But when push came to shove, a number of companies that had expressed interest in taking part failed to submit bids, one of which was France’s Orange.

It appears that some were put off by a condition attached to the licences that prevents the winners offering mobile money services. Given Orange’s strength in financial services in Africa, it is highly possible that this is why the French telco declined to bid.

The condition regarding mobile money is a way to give an edge to incumbent operator Ethio Telecom, which is due for part privatisation as part of the liberalisation process. Ethio Telecom launched its telebirr mobile money service earlier this month, offering users the ability to deposit cash, pay bills, send and receive money, and so on, with plans to add new offerings over time.

The service launched via 1,600 agents and the company aims to have brought 15,000 on board by the end of the year. “Working with all stakeholders and wider ecosystem, we are planning to make 40% to 50% of Ethiopian economic transactions through telebirr service in the next five years,” the company announced.

Clearly the state is keen to get behind a single mobile money platform, be that for reasons of pushing financial inclusion or giving a leg up to the incumbent. But the decision has apparently cost it.

Citing Prime Minister Abiy Ahmed, Bloomberg reported a couple of weeks ago that the decision to exclude mobile money cost the government around US$500 million from the amount bid, which is a pretty high price to pay. It’s not clear for how long Ethio Telecom will have the monopoly on mobile money, but the PM suggested it could be “about a year”.

Whether or not that provides enough clarity for other would-be market entrants remains to be seen.

According to local press reports, the government has not abandoned the idea of selling two licences; Techpoint Africa, for example, notes that it is committed to pushing ahead with the sale of a second licence.

That being the case, the Safaricom/Vodafone/Vodacom grouping is doubtless hoping it will have the edge over any future newcomer, being the first to break into the market alongside the incumbent.

The opportunity hasn’t come cheap though. According to the ECA, the winning consortium has pledged to invest US$8 billion in Ethiopia over a 10-year period. It did not share the value of its winning bid, but according to Techpoint Africa it came in at $850 million. There’s a big opportunity in Ethiopia, but you (or your backers) need deep pockets to capture it.

Image courtesy of the ECA’s twitter page.