MTN walks away from Ethiopia despite mobile money permit clause

Ethiopia has formally announced that it will launch the process to award a second new mobile licence later this month, including a permit to offer financial services. But despite the removal of what has been widely seen as a key stumbling block in the liberalisation of the country’s telecoms market, African telco giant MTN is reportedly no longer interested.

MTN is unlikely to bid for the licence, an outcome that could only been seen as a setback for the liberalisation process, Bloomberg reported on Thursday, citing unnamed sources familiar with the situation.

The telco group bid for one of the two licences the government put up for sale in May, but lost out when the state awarded just one operating permit to a higher bidder: a consortium led by Safaricom. The winning bidder offered to pay $850 million for its licence, some way ahead of MTN’s $600 million bid. But with rumours swirling that the outcome of the contest was about more than just money, it is perhaps not surprising that MTN is reluctant to step back into the fray.

According to Bloomberg’s sources, MTN now believes the investment risk is beginning to outweigh the benefits; they cited the civil war in the north of Ethiopia and tensions around a new giant dam on the Nile as factors, noting that building new mobile towers – of which Ethiopia requires 7,000-8,000 to increase coverage – carries additional risk in times of unrest.

There was also talk last time round that the MTN bid was rejected not because it was too low, but because it was backed by a Chinese investor. The winning bid from the Safaricom consortium had financial backing from the US Development Finance Corporation (DFC) and there was a suggestion that it only agreed to stump up the cash if the Chinese were kept out. There was no official comment on that score, of course, but there is clearly plenty going on behind the scenes in Ethiopia.

MTN has not yet made a final decision on whether to bid again, the sources said. Either way, the Ethiopian government is surely hoping that its second licensing contest will attract more interest than the first. And it is taking steps to make sure that that is indeed the case.

In a statement, issued after reports emerged about the second licence earlier this week, the Ethiopian Communications Authority (ECA) said that it and the Ministry of Finance are encouraged by the progress they have made so far – the Safaricom consortium has set up its local HQ in Addis Ababa and is working towards the launch of services – and therefore will launch the process for awarding the second licence this month.

“Preparation on the Request for Proposal (RFP) to re-bid the second licence is being finalised,” the ECA said. “The RFP will include integration of Mobile Financial Services in the scope of the licence.”

Excluding mobile financial services from the licences the first time around was widely viewed as a key reason why international telcos failed to come forward, despite the clear growth potential in the Ethiopian mobile market. The state chose to allow incumbent Ethio Telecom to hold a monopoly on mobile money for an unspecified period; it launched its Telebirr service in May and is reportedly signing up customers in their millions.

This U-turn on mobile money may well help to draw in big telco groups, although as yet we don’t have the full T&Cs. But the situation is further complicated by the fact that the state is running the licensing process in parallel with the sale of a 40% stake in Ethio Telecom.

Interested parties had until mid-July to come forward and it emerged a fortnight ago that Orange, one of the big names tipped to bid in the first licensing contest, has submitted a bid for the stake. As yet we don’t know which – of any – other telcos have expressed interest.

With Orange presumably out of the running, unless it decides to hedge its bets, the list of potential buyers for the second licence is shrinking. Etisalat has yet to make a public move – it was frequently named as a likely new market entrant – but it could still be interested. However, another possible candidate, India’s Bharti Airtel, ruled itself out earlier in the year.

The Ethiopian government may find it does not have a long list of candidates to choose from for either the privatisation or the licence sale. Nonetheless, it remains hopeful.

“The ECA therefore wishes to inform all interested telecommunications operators to consider this attractive multinational investment opportunity and to remain tuned for additional information by the Authority on the launch date of the bid process,” it said this week.