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Liberalization of telecommunication in Ethiopia

challenges and prospects: citizens’ view and opinion

 

 

 

Research paper submitted to trade policy training

center in Africa (trapca) for the 2012 annual conference

 

 

By: MinyahelDesta

 

 

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Addis Ababa

October 2012

Abstract

The share of services in the world economy has expanded markedly in recent years, the role of service sector to economic advancement in developing countries is up-lifting its weight, at the expense of agriculture and manufacturing. Most empirical evidence suggests that opening up trade in services would benefit both developed and developing countries.

The service sector makes a key contribution to gross domestic product (GDP) and employment in most developing countries. One of the stylized facts of economic development is that the share of services in GDP and employment rises as per capita income increases. In Ethiopia, GDP share of service sector is over 45 percent depicting the importance of trade in service in sustaining economy growth in the country

The study will made it basis in answering challenges/ problems attached to telecom sector liberalization and why the sector is sensitive in Ethiopia. The study will address problems attached to why telecom sector is not liberalized in Ethiopia; it will also address the economic and social value of telecom sector in Ethiopia.

 The major objective of the study is to analyze the economic and social impact of telecom liberalization in Ethiopia; furthermore the research stated was inspired to assess and analyze the views, opinion and policy direction of the government, private sector, civil societies and the general public regarding the telecom sector monopoly and its impact on the economy at large; furthermore the study would also like to analyze the progress made and challenges posed in the telecom sector since the reform of 1992. The study will present list of argument for not liberalizing telecommunication in Ethiopia. To analyze the effect of liberalization the study will primarily utilize descriptive method of analysis using primary data collected through questioner and interview made with prominent policy makers, experts, private sector and the general public.

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The findings of the study includes among other thing that cost of telecom is very high in Ethiopia and the service delivery is poor and the major service that is problematic is the mobile phone line where network breakdown is prevalent. Besides, the quality of the telecom service is unsatisfactory according to most of the respondents. Substantial number of the respondents recommended liberalization of the sector in the medium term. Regarding the rationale why the government kept the sector under its monopoly most of the respondents give more than one reason where majority of the respondents said revenue and security are the major reason for not opening up the sector for completion. Regarding the cost benefit analysis most of the respondents stated as currently the cost of monopoly is higher than its benefits. Hence, liberalization of the telecom sector has substantial benefit to Ethiopian economy and also copying mechanism need to be in placed to reduce cost of adjustment especially in the fiscal stance.

Chapter one

Introduction

The share of services in the world economy has expanded markedly in recent years, what make the subject matter more interesting is that the role of the sector to economic advancement in developing countries is up-lifting its weight over time. Most empirical evidence suggests as opening-up for trade in services would benefit both developed and developing countries. Indeed, many studies found out that, in general, developing countries greatly benefit from service sector liberalization; however, a perception of policy makers in most of these countries is that they will lose out because their domestic service industries are inefficient and non-competitive. There is still a valid point regarding the precautionary measures/policy direction pursued by government on those countries however, critical evaluation and research backing is what is lacking in most of the restrictive measures that the policy makers are pursuing. The service sector makes a key contribution to Gross Domestic Product (GDP) and employment in most developing countries accounting on average 45-65 % of their GDP. One of the stylized facts of economic development is that the share of services in GDP and employment rises as per capita income increases. In Ethiopia, service sector share of GDP is over 45 percent and the figure is expected not to decline in the medium term, depicting the importance of trade in service in sustaining economy growth in the country.

Service sector by its nature has a multidimensional benefit to the economy where it serves as an intermediary input to several productive sectors besides, it is also source of competitiveness in most of the cases where countries with efficient, effective and competitive service sector are competitive in the international trade in goods and services market. However, the domestic service sector in many developing countries, including that of Ethiopia, are blamed for delivering high-cost and unproductive input services, thereby limiting economic efficiency gains from trade reforms. This, calls for liberalization of the sector so that it improves welfare and enhance

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economic growth. However, the liberalization in the service sector is not free of risks although the level and type of the risks vary from one sector to the other In recent years, due to the revolution in Information and Communication Technology (ICT), there has been growing evidence that explain the spread of ICT and its contribution to economic development. Understanding the role of ICT to economic and social development, the government of Ethiopia identified development of ICT among priority sector that has the sustained potential to catalyze the economic growth and transformation.

It is not surprising, therefore, that studies have shown growth in telecommunications generates a dividend in terms of additional overall GDP growth and this is becoming particularly significant in developing countries. The government of Ethiopia is investing billions of dollars on infrastructure development including a massive push towards telecommunication development including the universal access program. As a result, comparing the current status of the telecom sector with its past trend, telecom coverage has shown promising improvement, quality of service delivery is somehow on an encouraging trend. However, the sector is highly monopolized by the government and among the closed part of the economy. The monopoly character is reflected on the cost and efficiency of telecommunication services, which makes doing business a difficult and daunting task  

Ethiopia’s late Prime Minister Meles Zenawi in an interview with one regional media contends that his government is aware of the pros and cons of employing protectionist measures but still intends to maintain its monopoly in industries such as telecommunications, power, finance and logistics with the aim of protecting its citizens against exploitation.

“This (protection) is not intended to keep away anybody and it is not based on paranoia. It has everything to do with creating a little bit of space for unemployed Ethiopian youth to learn to do business and accumulate a little bit of money,” he emphasized.

The pure monopoly by the government in the telecom sector where only single firm provides telecom service is planned according to the PM’s speech. Regarding the financial sector, the only restriction is that foreign firms are not allowed to operate in Ethiopia i.e. provision of banking services to public is exclusively reserved to domestic banking firms. However, the giant firm (MNC) can have their own bank that deliver/give service to the sister company only. While generation of power is allowed for foreign and domestic industries however, distribution is pure left for government.

Thus, if government claim not to liberalize the telecommunication sector, definition of liberalizing telecom sector and analysing its impact will help policy makers and the general public to understand the cost of monopoly, hence liberalizing the telecommunication is allowing competition into the telecoms sector by opening-up the sector to commercial enterprises to

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establish their firm in the line service if the business comply with local and international rule and regulation under which the telecom is regulated. Here liberalizing the controlled or monopolized telecommunication brining fundamental shift in the way a government, at the national level and through international treaty agreements, regulates the provision and use of public telecoms resources. However, there is confusion among higher official i.e policy makers, government experts and also other organs between liberalization and privatization of the telecommunication sector. This is why most of the time some policy makers give wrong analysis and interpretation of why the telecom sector is not open-up The major objective of the study is to analyze the economic and social impact of telecom liberalization in Ethiopia; furthermore the research stated was inspired to assess and analyze the views, opinion and policy direction of the government, private sector, civil societies and the general public regarding the telecom sector monopoly and its impact on the economy at large; furthermore the study would also like to analyze the progress made and challenges posed in the telecom sector since the reform of 1992. Analyzing the impact of the telecom sector after the change in management is this paper’s the other area of interest. The study will present list of argument for not liberalizing telecommunication in Ethiopia.

Chapter Two

Background of the study

2.1 Macroeconomic Overview

Ethiopia is a Least Developed Country (LDC) as reflected by its low level social and economic indicators even by Sub-Saharan countries standard. Its economic growth and development is intrinsically linked to the development of its agriculture sector, as the country is highly dependent on the sector for income, employment and export earnings. Frequent drought, civil war, hunger and starvation have been the characteristics of this country for long. Even to the extent of being definition of huger in English dictionaries. Although it is, the only African country that has not felled under the colony of the West it is a puzzle as to why it has not able to feed its own citizens and millions of its citizen are stretching their arms to aid each year.

Different reason can be attributed to this backwardness the major one being inefficient management and distribution of factors of production

Ethiopia is a country located on the horn of Africa with population of over 85 million. Approximately 83 percent of the population reside in rural while the rest 16 percent lives in

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urban area1. According to the 2009/10 national income account figure the Per capita GDP of the country in real terms has reached USD 238. According to the official data source, the poverty rate of the country was 38.7 percent in 2005 and this figure reached 29.6 according to the 2011 poverty analysis report

In the last 50 years, Ethiopia has passed through three types of governance system from imperial to socialist and now to the liberal/ market oriented system. During the imperial regime properties especially land was owned by the landlords which were the minorities. During that time there was a saying that "farmers have never unable/poor to pay tax to their landlords rather they were unable to feed themselves". This show the extreme severity of inequality in distribution of income, factor of production and ownership of resources during the imperial regime. Although, as a means of intense social unrest and farmers rebel the imperial ruling system has started shifting its economic ideology towards semi-market oriented economy on the edge of it fall, citizen were not lucky enough to benefit from the new reform. In Ethiopia, the attempt to direct and manage the economy in more structured and coordinated manner started during the same imperial era motivated by rehabilitation and reconstruction of the destructed Ethiopia by the war during the Italy occupation which was between 1935 and 1940. The first Ten Year Programme of Industrial Development was designed by the technical assistance from United States Technical Project Mission designed between 1940-45 has laid foundation for subsequent development programmes. The First-Five Year Development Plan (1957-61) made its emphasis on development of education, enhancement of agricultural productivity and developing the infrastructure bases of the country. The Second Five Year Development Plan (1963-67) was developed with the objective of enhancing the economic capacity of the country, while the Third Five year Development Program( 1968-73) gave priority to agricultural production in which commercialisation was give due emphasis, export promotion and industrial development were also among the priority development target at that time. The Provisional Military Administration known as Derge made a Coup d'état and took over power in 1974 then started nationalisation of privately owned properties. The Military Regime had also developed and partially implemented Ten-Year Perspective Plan (1983/84-1993/94) with centrally controlled command economy system. This perspective plan was terminated by prolonged civil war. Then Ethiopian People's Revolutionary Front (EPRDF) led forces overthrows the Derge and took over power in 1991, which started as pro-socialism shifted to a market-oriented system then after

Even after the government of EPRDF took power, the country has not stopped registering different economic turbulence composed of frequent drought and war. However, the economy is registering better growth on average compared to the previous regimes but still over 35 percent of the population live under poverty line.

                                                                                                                         1 According to the 2007 population and housing census of Central Statistics Agency of Ethiopia (CSA) the population of the country was 73.9 million with annual growth rate of 2.6

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In 1992 the government took several reform measures that includes

• devaluation of the birr, • abolishing of government monopolies in most sectors of the economy, because it

hinders the competitiveness and economic growth, liberalizing trade and improving incentives in the export sector to attracting Foreign Direct Investment (FDI) were among the major reform measures

The government has also committed itself to pursue important Fiscal and Monetary Policies to secure sustainable economic development. Among the measures are curtailing inflation to be single digit and maintaining a healthy external balance even though the sector is exposed to international trade pressure. However, the government is facing severe challenge in maintaining macroeconomic stability in the economy specially in managing the inflation which reached its historic peak of 46 percent in 2009

The Government of Ethiopia claimed that the economy of the country has shifted to a higher trajectory economic growth since the year 2003/04. Over the last seven years, the overall real GDP has grown on average by 11 percent per annum.

Table  2.1:  Growth  in  Gross  Domestic  Product  and  main  sector  economic  growth  (%)  and  (USD  million)  

Sectors     2003/04   2004/05   2005/06   2006/07   2007/08   2008/09   2009/10  

Real   GDP  growth    

11.8   12.7   11.8   11.8   11.4   10.1   10.4  

Agriculture     16.9     13.5   10.9   9.4   7.5   6.4   7.6    

Industry     11.6     9.4   10.2   9.5   10.1   9.7   10.6  

Service     6.3     12.8   13.3   15.3   16.0   14.0   13.0  

Export  (USD)   1,496.41 1,858.61 2,097.35 2,486.23 3,064.61 3,381.29 4,047.17

Import  (USD)   3,171.1 4,367.2 5,540.6 6,267.1 8,286.1 9,240.4 9,799.8

Source:  MoFED  

2.2History of telecommunication in Ethiopia:

Telecommunication has history of over 115years in Ethiopia it dates back to 1894 where it was introduced by the then emperor, Menelik II. The first major telephone line construction spanned a total distance of about 477 kilometers and connected Harrar, a major trade center in the eastern region, with Addis Ababa, the capital city (Abii and Girma, 2009).It took two year to construct the line which in the mean while also enables them to connect the major line to small towns.

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Which was followed by other major telephone line construction (Addis Ababa to Asmara) this line was ready for operation on 1904. The "verbal repeater" system was used to facilitate long distance calls, making use of the several intermediate stations opened at the small towns and villages along the route.

Following the footstep of emperor Menelik II the dissemination and construction of telecommunication service jumped to trajectory level by 1930, a total of 7,000 kilometers telecommunication line was completed and over 170 towns were covered by the telephone network. The development of Ethiopia's long distance telephone network, particularly in reaching the country's strategic areas and border towns, was a remarkable feat given the rugged terrain and the absence of modern transport systems (ibid). International communication services, however, took longer to develop. Regarding countries connection with the rest of the world through telephone service it was only Asmara and Djibouti that Ethiopia was able to get connected to up until the end of 1930, during those times both cities were under the administration of the colonial rule. However since there was a remarkable development in the technology and human development in the sector i.e skilled domestic personnel in the sector and also the demand for the service for domestic long distance and international call were booming institutional capacity that has the capacity to address such surge in deemed crucial and efforts were exerted towards those end.

According to Abii andGirma, 2009 by the year 1934, to meet the highly growing demand for the telecom Ethiopia had established direct radio telephone links with Cairo, Djibouti, Aden, and London and soon after establishment of radio telephone links was the inception of a radio communications training center for Ethiopians to replace the expatriates handling the nation's traffic (which included confidential state affairs).

However, this dynamics growth in the sector couldn’t be sustained and interrupted for 5 years due Italy occupation (from 1936-41) which was time of distraction overwhelming part of the telecom infrastructure developed which cost the country several millions of dollar was destroyed by Italy ; adaptation and catch-up struggle with the rest of the world was ruined

Trends in telecom sector since the 1990s:

The year 1991 is historical year in the history of Ethiopia where among other things command economic system is over taken by kind of forward looking free market economic system. Following this in the year 1992 several policy measure were undertaken to easy the doing business environment in the country. Some of the measures are privatization while the others are deregulation and denationalizing private properties. In regards, service sector mainly financial sector that majorly include among others banking and insurance services which were under the state monopoly were opened to domestic private investors. Following this policy measure the

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number of banks that were three before the reform has reached over 18 in 2012 while insurance firm which was only one before the new policy measure has presently reached 15. These remarkable achievements in the banking and insurance industries were realized due to the opening of the sector for competition. Hence, privatization of the financial sector for competition has led to improvement in service delivery of sector, reduction in cost of doing business, increase in access of financial intermediaries etc.

Source: Ministry of Finance and Economic Development

As depicted in the graph above the gross valued added generated from the telecommunication sector has been growing over time and reached its historic peak in the year 2009. The gross value added from the telecom sector which was less than 60 million Birr equivalent of USD 9 million in the year 2000 reached over 80 billion birr (USD 6 billion) in the year 2009.

With regard, telecommunication contribution to the overall economy, the telecommunication percentage share of GDP in Ethiopia has stagnated below 2 percent for long. This could be attributed to the monopoly nature of the sector where lack of competition discouraged the monopoly firm to be productive efficient. The other point to be considered he is although the revue generated from the telecom sector is increasing the speed at which the telecom sector is expanding is slower than that of the growth in GDP, which has an implication for economy in meeting the demand.

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Source: Ministry of Finance and Economic Development

State of the telecommunication in Ethiopia

Telecommunication Infrastructures and Capacity Monopoly by its nature will not motivate firms to seek for innovation that is what we notice on telecom service delivery in Ethiopia. Although it has been continuously expanding its services and coverage since the 1970s, the then ETC now Ethio-telecom and its service both fixed-line network and mobile infrastructure is still at its infancy. Besides, Fixed-line infrastructure In Ethiopiafixed-line telephone net-work service is delivered through government monopoly Ethio-telecom. The expansion program which targeted to reach over 800,000 by 2005 was started in 2001 with a penetration rate of 1 percent currently the tele- density rate is still below 1 percent at present which is still very low even by SSA standard. All this remarkable achievements made fixed-line tele coverage isstillamongtheleastdevelopedintheworldwithatele-densityoflittlemore than1%andamarkeddisparitybetweenurbanandruralareas.Presently there are onlyabout805, 000 lines fixed-line telephone lines in service. Due to the boom in the mobile phone technology currently the number of fixed line telephone subscribers has started declining since 2010, which is in opposite to government plan to increase the number of subscribers to over 1.3 million. 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.

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Mobile Infrastructure After inception of mobile phone as a means of communication the world jumped to trajectory development. Cost of communication went way down, productivity at different level increased tremendously. Mobile phone usage has now benefited the developing world than the developed counter part because it is being used for several purposes that include as treatment for several diseases. Mobile baking in east Africa is the other major innovation in the history of the technology where money transfer is being ever easy. Likewise the mobile telephone industry is growing in Ethiopia with alarming growth rate like it is in many developing countries however but still Ethiopia is one of only six countries in the world with a mobile penetration of less than1%until2 006, when it finally broke this barrier. As the sole provider of mobile telephony services in the country, the then ETC now Ethio-telecom operates GSM network under the brand name Ethio-Mobile and the number of mobile phone subscriber reached historic maximum in the year 2011/12 with over 17.3 million subscribers. Following the massive infrastructural investment in the sector the mobile phone coverage rate has reached 80 percent in 2011/12 and the tele-density reached. 20.4 percent. However the penetration rate is among the lowest in the region. Besides, the increase in number of subscription has resulted in deterioration of the service and leading to poor quality of service.

Furthermore, in 2007 the then ETC introduced the GSM service, by installing wideband CDMA (WCDMA) 3G pilot project. After the shift in management from Ethiopian government to the French Telecommunication company France telecom, prepaid service was introduced first in January 2009 in Addis Ababa which was further scaled-up to other major cities and regional states. According to Dominique Baron 2010, in Ethiopia establishment of mobile infrastructure includes upgrading of the mobile CDMA network and enable to offer EVDO services. Baron in his 2010 report found out that the country’s current mobile coverage is based on two different standards and consists of the GSM/UMTS network and a CDMA mobile network.

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Source: WB/WDI

From the graph above it can be depicted that both land line and mobile phone subscribers has increased over time while the increase in the number of mobile phone subscriber was astonishing the number of subscriber which was insignificant before the year 2004 has reached historic peak in 2010 with over 14 million subscribers according to the world bank World development indicators. Likewise the number of fixed or land line subscriber has increased significantly. However, after the inception and infrastructural development of mobile phone the number of subscribers stagnant and over time started decreasing specially after the year 2009

Reforms in the telecommunication sector

Since the 1992 reform measures the telecom sector undergo several reforms and some of the reform includes involving the foreign and domestic investors in the telecom industry. In its effort to expand the coverage and improve the quality of the service in the sector the government of Ethiopia started initiative that o encourages foreign investment over a broad range of industries. The investment proclamation has been amended several times to make the doing business environment more friendly in all sectors in general and that of the telecom sector in particular following this the 1998 proclamation was passed by the parliament where the new law allowed private companies, national or foreign, to invest in the telecom sector in partnership with the government. Universally although the dejuru law allowed the involvement of the private sector to engage in the telecom sector defacto factors couldn’t allowed the private sector to engage

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telecommunication sector that is why there is still single government owned telecom company in the country this make Ethiopia the only African country that allowed national monopoly on all telecom services including fixed, mobile, Internet and data communications. Several scholars and consulting firm state that acceding countries to the WTO will undergo severe liberalization measure to join the club hence, monopoly of Ethiopia’s telecommunications markets would be a greater obstacle to the country’s entry into the World Trade Organization (WTO). In its effort to enhance telecom sector competitiveness and efficiency the government of Ethiopia has contracted out the management of the then ETC now Ethio-telecom to France Telecom for two years subjected to extension with intention of improving performance of Ethio-telecom and cover all the markets which the country is seen as a first step towards liberalization Liberalization of the Telecom Sector As previously stated there were some measure made by government to open-up the telecom sector however in practice still Ethio-telecom has total control over all types of telecommunications services in Ethiopia, the only activities that is opened and currently being undertaken by the private firms is sale of customer premises equipment (CPE), which even for private use is still subject to Ethiopia Telecommunication Agency (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. Thus, Voice over Internet Protocol (VoIP) and call back are illegal in Ethiopia and Ethio-telecom claim that it is losing large amount of money through this channel and currently a proclamation that prohibit VoIP and categories the activities as one of terrorism activities with severe criminal charge was passed. The other activities opened to the public in terms of reselling services are Tele centres, SIM card shops, several internet cafes, shops on street that provide tele service although allowed by the Authority to provide such services Ethio-telecom does not well-come and very suspicious about the possible use of VoIP and the consequent decrease of international traffic revenues. In the last couple of year the some of the partial liberalization reform that the telecom undergone in service provision include provision of special authorization to over 20entitiesto have independent VSAT links supplied by Ethio-telecom these institution includes Ethiopian Airlines for its aviation service, the Civil Service College for its 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. These all together have given Ethio-telecom a relief to provide service to the rest of public and private entitles highly in need of the service Privatization of the telecom sector  

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Understanding the inefficiency of government in running business efficiently and effectively and being competitive in the international market the government has been planning the partial privatization of the then 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, amendment of the 1998 Investment Proclamation was one of the major reform measure undertaken, where the new proclamation allowed private companies, national or foreign, to invest in the telecom sector in partnership with the government. If not for the defacto measure curtailing the involvement of the private sector this was a greater initiative to improve the inefficiency witnessed in the sector Further more in August 2002, the Ethiopian Privatization Agency (EPA) the organ responsible for supervision and auctioning of public development enterprises invited international investors to acquire a 30% stake plus management control of the then ETC. Several companies have show their interest to work with the telecom firm however no further progress was made until the government announced a new plan to sell off 49% of ETC in mid-2005. Following the shift in management the new CEO took the agenda of selling the stake of the table. However, the complain in the administration of the telecom as well as the quality of the service delivered was very poor then government decided to bring a dynamic change to bring efficiency both in service delivery and universal access wings like the Airlines industry is doing in the country. Following this as a first step towards privatization, government awarded ETC 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; where the name ETC was changed to Ethio-telecom following the passing through of the management to the new company. According to the agreements France telecom FT will be paid an annual management fee for two years. Hence, currently the government has extended the contract for additional 1 year to the same company but with new CEO

Regulatory Authority

Although late it was not too late for Ethiopian government to separate the administration of the telecom from the service provider. It was in the year 1996 that The Ethiopian Telecommunications Agency (ETA) was established as an independent regulatory authority responsible for licensing and monitoring service quality. It report to the Ministry of Communications and Information Technology organ of government responsible for the definition of national telecom policy, excluding radio and television broadcasting. Hence, according to the 1996 proclamation authorizing establishment of ETA, ETA is given inter alia the mandate of:

• Licensing and supervising telecom operators; • Specifying technical standards and procedures;

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• Authorizing and supervising allotted frequency use; • Ensuring service quality; • Regulating tariffs; • Regulating types of equipment; • Ensuring the implementation of treaties.

As previously stated due to the establishment of ETA the provision of terminal equipment is fully liberalized, subject to ETA type approval. Telecommunication and development in Ethiopia Telecommunication like many other service industries has multiple benefits. It is used as an input to production of good and service and it is also a final product by its self. Hence, the role of telecommunication for development of a country is vital. That is why several countries invest billions of dollars in building the telecommunication infrastructure because it is a source of competitiveness and profitability. An efficiency and effective telecom sector will make economy of a country strong and vibrant because several industries use telecom as an input where cost of telecom account for over 20 percent of total cost of a product or service. Hence, a low cost and high quality telecom service will reduce cost of production for the industries and make them competitive in the international market. With the same policy objective and development goal government of Ethiopia spend several millions of dollar in infrastructural development of the telecom sector. Following the massive investment in the sector improvements are picking up both in the fixed wireless and mobile network infrastructure, including 3G mobile technologies, as well as a national fibre optic backbone. The amount of money spends on development of information communication technology in Ethiopia unusually large amount currently the government is spending around 10% of its GDP on the development of ICT sector. According to the report from the Ministry of Communication and Information Technology the government has invested over USD 15 billion during the past ten years. Similarly telecommunications revenue has grown over time the revenue collected from the sector has been growing on average by 16% per annum over the last ten years, reaching an estimated USD 590 million in 2009. It remains below 2% of GDP although it is growing tremendously the government have not reaped the revue from the sector to the extended deemed that is why figure below the neighbouring countries and the African average which is of over 3%. This could be due to the level of development of the telecom sector and the monopoly nature of the sector as well. Although low compared to the potential the revue collected from the telecommunication is still higher than the revue collected from the mining sector

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Chapter Three

Literature on Review

3.1 Introduction

Now days it is becoming a universal truth that service sector contribution to the over economy is enormous both in developing and developed economies; liberalization of service sector similarly gain consensus in contributing to economic growth, more job creation, attraction of investment and poverty reduction. Along with road systems, airports and electricity, a modern telecoms system is an essential pre-requisite for economic growth (OECD, 2007) However, most policy makers in developing countries are very skeptical about the liberalization and its contribution to economic growth. Of the several reason presented by these policy maker the major ones include universal access, exploitation of the public, ill staffed regulatory instructions, capital flight, revenue losses etc. the benefit attached to liberalization of telecommunication is not deferent from the other sectors in the service industry. Hence, looking at experience of other countries will direct policy makers in Ethiopia and also contribute to the ongoing debate regarding telecom liberalization in the country .

3.2 Developing countries experience

It is a general truth that efficient and effective telecommunication infrastructure has a greater contribution to economic growth and input to several sectors it is with this concept in mind that telecom sector is claimed to be the major pillar of the economy. With this view in mind several developing countries decided to liberalize their service sector in general and that of telecommunication in particular over time. To reap the multi-dimensional benefit of opening-up the sector to competition and international knowledge and technological advancement. Deardorff in his 2001 research work state that telecommunications is one of the crucial infrastructural backbones of any modern-day economy. According to his work the sector is a vital intermediate input for most final goods, an improvement in telecom services can have a significant impact on efficiency and growth across a wide range of user industries. It also impacts trade by affecting the capacity of firms to compete in foreign and domestic markets. Good quality and low cost of leased lines and backbone networks finally facilitates internet penetration and the spread of IT applications in businesses that spur productive efficiency. Several empirical studies have measured the importance of telecommunications sector performance on economic growth

One of the major potential benefits of providing a license to a foreign telecom provider is that it can erode domestic market power. Potentially offsetting effect according to Denise Eby Konan and Ari Van Assche 2004 where they conducted the impact of telecom liberalization in Tunisia

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is that, limited entry by foreign firms into the domestic telecom market may shift profits abroad and may induce an international cartel formation if the regulation of the domestic telecom sector is weak. The liberalization of the telecommunications market has concentrated the opening of monopolistic markets to competitive provisions of facilities and services.

Telecommunication   services   are   important   not   just   because   annual   telecommunications  revenues   run   into   hundreds   of   billions   of   dollars   a   year   and   a   significant   proportion   of  global  GDP  but  also  because  they  enable  the  supply  of  other  types  of  services  as  well  as  the  production   of   goods.   As   such,   telecommunications   services   are   vital   to   economic  development  of  developing  countries.   Likewise, Yoong Hon et al on their analysis of Malaysia telecommunication sector efficiency and productivity both before and after liberalization of the sector found out that inefficiency and high cost were the characteristics of the Malaysian telecom sector before the liberalization measure. And monopoly of the single government owned Malaysian telecom was persistent both in the fixed line and mobile before the liberalization measure. Following government decision to liberalize the sector to foreign entities the competition among firm reduced cost and improved the quality of the service. The turnover per main lines is two and half times higher in some African countries that in certain developed countries (Koradji Bedoumra). Thus Bedoumra in the book entitled Telecommunication and Development in Africa explain that since the rate and traffic pre line are relatively higher in relation to other regions of the world telecommunication in Africa is particularly attractive financially and profitable to higher level.

UNCTAD on its part made assessment of the impact of service sector liberalization on economic growth, development and poverty reduction in developing countries. According to this study the overall finding was that liberalization of service sector in general and that of telecommunication in particular with appropriate regulation and policy frame work, will contribute to enhancing global welfare through increased efficiency, lower prices and greater choice of services, as well as increased competition at a country level. Liberalization is expected to be instrumental to expand access to basic services and contribute, therefore, to reducing poverty and achieving the MDGs According to GloriaOtieno and Eric M. Aligula, 2006 on their research paper that analyse the impact of telecom liberalization they states that it was in 1997 that liberalization of telecommunication sector was started by the government of Kenya where the government embarked progressive liberalization and privatization reforms with the aim of making the telecom sector vibrant in the regions. The findings of the study by the two researchers were due to liberalization of telecom sector in Kenya, there has been tremendous growth especially in the mobile telecommunications industry. Furthermore according to the study access to services has improved both in the urban and rural areas, here the issue of universal access which most

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government forward for keeping the monopoly in the sector loses its stand. The introduction of mobile technology and Internet services has also created an impact in terms of access to information; employment creation–both directly and indirectly through participation of micro and small enterprises benefiting from community phones, sale of mobile phones and accessories which has an impact on incomes and poverty; the real impact still needs to be determined empirically. Hence, this study has shown that if properly administered and with enabling policy frame work liberalization of telecom will leads to more jobs and reduction in poverty. Nigeria is the other African countries where liberalization of telecommunication sector leads to efficient service deliver and reduction in cost of telecom which ultimately reduce the cost of production and enhance competitiveness of firms in the country and improve the welfare of the general public. Essienubong H.Ikpe and NsikakS.I doing, in their 2011 study entitled liberalization of telecommunication in Nigeria argument for a democratic model found out that the Nigerian telecom sector jumped to trajectory growth and dynamism after the liberalization measures. However, the study states as there is still a concern of fairness and equity on the divided of growth and development 3.2.1 Challenges of telecommunication Liberalization Although the several scholars and policy maker list the advantage of liberalizing the service sector in general and that of the telecommunication sector in particular different sceptics are forwarded on the challenge of liberalizing the telecom sector specially in low income countries like that of Ethiopia. One of the very fundamental concerns for governments is the issue of universal access. Similarly the government of Ethiopia present this argument to defend the monopoly it has in the telecommunication sector. In response to the argument forwarded by most of developing countries policy makers OECD report dated 2007 and also other several studies found out from empirical evidence that very few countries have achieved universal access solely through monopoly operators. According to the study the fact is that government measure of liberalizing the telecom sector is majorly emanate from its desire/ objective of attaining/creating universal access;25 Telecoms liberalization has led to an explosion of choice for business and personal users alike. Typically, when governments open their telecoms market to competition, they put into place rules to ensure that market participants contribute to achieving universal access objectives. If properly planned within government and agreed with market entrants, most countries can attract private investment in infrastructure that benefits the economy and society as a whole, including rural and low income areas. Market competitors have the biggest incentives to respond with speed and innovation to the needs of telecoms users, no matter how big or small their accounts. Although under proper policy framework and regulatory infrastructure the liberalization of telecommunication bear a fruit for developing countries still developing countries, face a number of structural weaknesses that jeopardy the achievement of the above-mentioned results, namely poor or inexistent regulatory frameworks, difficulty in putting in place the right sequencing of policy reforms and liberalization initiatives, inability to compete with TNCs, numerous and

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fragile SMEs, poor access to capital and technology, pressure from investors and trade partners, huge fiscal deficits (UNCTAD, 2007) Higher prices of local calls, as tariff re-balancing occurs (short term) Potential initial loss of jobs at incumbent as it becomes more streamlined and competitive. Incumbent can no longer act as a ‘cash cow’ for the national budget. Tariff re-balancing following liberalization can result in price adjustments. Immediately after telecoms liberalization, when cross-subsidies are reduced and prices reflect the actual cost of service provision, the price of local calls and the monthly subscription may increase and the price of long distance and international calls may decline. However, in the medium term, prices for local calls tend to go down, and consumers enjoy a greater variety of services and pricing choices. Under monopoly, public telephone companies usually become large and powerful employers, providing substantial direct and indirect revenues to government. Introducing competition creates a threat to the incumbent both as an employer and as a social contributor. However, most countries find that competition ultimately creates employment opportunities that outweigh the initial job losses within the incumbent. Progressive liberalizations also an opportunity for the incumbent to become competitive, develop new services, and reach out to new markets at home and abroad. This provides more opportunities and better security for employees in the medium to long term. The loss of direct revenues to the state may also be offset by higher tax revenues generated by market entrants and as a result of growth throughout the economy facilitated by telecoms liberalization. On balance, liberalization brings significant net benefits to a country’s economy and citizens. However, the transition period can create challenges that governments need to be prepared for. The liberalization process can be disruptive, particularly for the incumbent and its employees. Being cohesive group, the opponents of liberalization may more easily organize resistance to change. The beneficiaries of liberalization are spread throughout the economy and typically will not be able to advocate as effectively as the opponents to change. It is therefore of crucial importance that the government take a long-term and strategic view of the overall benefits of liberalization to the economy and to society as a whole. The time, resources and political will required to ensure successful reforms are a considerable investment, and demand the vision and courage of decision-makers and implementers of liberalization. Ethiopia the second most populous country in Africa next to Nigeria is a country with, poor infrastructure in the service sector in general and that of telecom in particular government monopoly on telecommunications have significantly hindered the expansion of digital media. As a result, Ethiopia has one of the lowest rates of internet and mobile-telephone penetration on the continent (Freedom house, 2011).

Although among the pioneers in introducing the land line/fixed line telephone service it however, was let in introducing internet and mobile phone service. Internet and cellular phone were introduced in Ethiopia in the year 1997 and 1999 respectively

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3.3 Developed economies

According to Robert W. Crandall on his 2000 published paper it is in 1996, the U.S. Congress passed and the president signed the 1996 Telecommunications Act, which included, among other provisions, a requirement that state regulators permit entry into the delivery of local telecommunications services and-eventually-intrastate long-distance calls. Hence, up until 1996 most of the telecom sector is not opened to the foreign private developer/ investors Currently all 30 OECD countries had unrestricted market access to the telecommunications sector including for the provision of voice telephony services, and infrastructure investment in public switched telecommunications networks (OECD, 2004). In this similar paper it state that France host to giant MNC in telecom such as France telecom, a country with per capita income of more than 35,000 USD liberalized its telecom sector in the year 1998. The decision to open-open its telecom sector is not initiated with the motive to increase competition and reduce cost of production however, it is due to European Union Directives requirement set out which is to join the EU France was required to open its telecom sector among other things. So did liberalization of the telecom sector bring remarkable change to the telecom sector in France was question raised by several researcher and policy makers. According to the study conducted by the OECD in 2004 France before 1960s and 70s use to be known for its inefficient telecom sector with one of the 4 lowest OECD penetration and subscription rate the figure started to rise in 1980 following regulatory reform and other several policy measures. By 1985 France had the 8thhighest penetration rate in the OECD. At the time when the European Commission was putting forward proposals for the liberalisation of the telecommunications market in EU countries, starting in 1987 with the publication of the Green Paper on the Development of the Common Market for Telecommunications Services and Equipment, the French Administration was not always in favour of introducing competition in the sector( OECD,2004).After the liberalization measure French telecommunication market et has expanded from 22.7 billion euros in 1998 to 32 billion euros in 2002 this figure has further increased then after. The range of services on offer has also increased. Following the liberalization measure France is the fifth largest telecommunication service market in the OECD (and third largest among EU Member countries). Although it seems that telecom service delivery is more liberalized in advanced countries than in developing countries but still even in developed economies government has a mercantilist view. For exam in USA regulation of telecom service has bias among service provider in different state. Likewise in Europe central administration of the sector is being challenged because of the nationalistic view of member state when it comes to administration of the sector. The other dimension in the liberalization telecom sector in advanced economies is that of Switzerland. According to study by Swiss Office of Communication Switzerland entered the liberalization era in 1998 with an excellent telecommunication infrastructure already in place. This favourable starting position explains why the sharing strategies intended to promote

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universal, affordable access are somewhat different from those which have been adopted, or are being studied, in less fortunate countries (Swiss office of communication). During the submission of memorandum of foreign understanding in it process to accede to the WTO several countries raised a concern on the rules and policies on the service sector mainly the financial and telecom sector. This according to several studies and trade policy analysts has impact of the long term closeness of the economy.

CHAPTER FOUR

Methodology of the Study

The role of Telecommunication for development of an economy is multidirectional. The subject matter uplifts its weight in developing countries where constraint of development is high and level of infrastructure development is low. In Ethiopia several studies showed as telecom sector is a backbone of the economy and the improvements in the telecom infrastructure have helped the government and private sector in different aspects. However, with all the infrastructural and technological development in the sector the monopoly in the sector is believed to hinder the sector development and also the benefit rest of the economy are supposed to enjoy. There are different views from different parts of the society regarding the maintenance of monopoly in the sector and impact of telecom liberalization in the economy. It is with this view that the paper made its motive to analyse people’s opinion and government view of not liberalizing the telecom sector. Hence, to analyse the perception and rational of telecom monopoly and the impact of the liberalization measure on the telecom the paper used descriptive method of analysis through preparation and distribution of questioner to selected figure both in the government domain and private sector in doing so the study major utilized primary source of data collected from different part of the society that includes, prominent middle and semi higher level government policy maker, private sector representative where owner, senior expert and CEO where questioned , besides the study also distributed its questioner to selected civil societies and individuals telecom service consumers randomly selected in due course. The study has also utilized personal observation to analyze the consumption/usage of the service and its impact on the society. In addition to the questioner distributed the study utilized both formal and informal interview to briefly review peoples opinion on the status of the telecom sector in Ethiopia and option for different policy measure that include liberalization and privatization to different individual in different parts of the country in doing so the study will primarily utilize tabular expression and graphic presentation, percentage, ratio. Regarding data sources the study made its primary sources data that is collected through questioner and interview made with prominent policy makers, experts, private sector

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representative and the general public its major source of data for analysis. The study also utilized secondary datasets that includes official figures from Ministry of Information and Communication, Ministry of Finance and Economic Development in Ethiopia and also World Banks World Development Indicators to analyze the progress made over time furthermore the study took selected African countries that liberalized the sector and compare the cost and quality of the service in those countries. Regarding the selection of sample size that represent the population the selected used multistage stratified random sampling technique on 4 major regional states of Ethiopia to come up with representative figure. In doing so the study minimized propensity to bias and increase propensity to represent citizen opinion. The study gathered information on selected 345 samples size that take regional disparity in to account. To supplement the finding of the questioner the study also used cluster random sampling to collect information in the form of interview and observation the number of individuals covered by the interview is over 123 while observation is conducted in major urban area majorly the capital Addis

Chapter Four

Analysis of the study

4.1 Introduction

Ethiopia has under gone several reform policy measures to improve the socio-economic status of the country and eradicate poverty. The measures under take since the 1992 reform are divers in their nature the major ones includes change in economic structure i.e. shift from command and centrally administered economic system to more of market oriented system, deregulation in several economic sectors, privatization of public enterprises, denationalization of private properties and liberalizing several sectors of the economy to completion. All these measures were taken to improve the investment climate of the country which ultimately improves the wellbeing of the citizens. Among the deregulation/partly liberalization measure is the reform in the telecom sector where after the 1997 reform in the telecom sector foreign and domestic investors were welcomed to invest in the sector in partnership with government. Prior to that it is only the government that has sol right to invest in the sector and reap the benefit from the sector too. So has the deregulation policy measure made the telecom sector more vibrant in Ethiopia? What is people’s perception and opinions regarding the current status of telecom sector service in Ethiopia were among the subject matters that the study will address in this section. To address the questions raised before both primary and secondary sources of data were utilized among the primary sources of data is the questioner made and distributed to different sectors. The

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questioner was structured in such a way that it addresses the current status of the telecom industry, its service delivery and the policy questions that address the policy measure that are appropriate to enhance the efficiency and effectiveness of the sector.

4.2 Current status

The purpose of the question on this section is to understand the impact of the telecom on different part of the society. Some of the questions raised in this section includes the impact of telecom which on the income of the respondents. The telecom sector affects the income of individuals, households and the business community in different ways here the impact could be positive or negative it depends on the service rendered and the usage; some of the mechanism that the sector affects income includes through transaction cost ( where improved and quality telecom reduce cost of transportation, telecom also affect the information gathering and dissemination system of individuals and business community, the higher the cost of the telecom the lower the information exchange will be, it also affects the business community through the improve market access and reduction in distribution cost. Furthermore, telecom promotes economic development as it provides easy and effective communication needed to stimulate and promote trade with rest of the world. By reducing the time to travel efficient and effective telecom service indirectly improve life of the lower quintile of the society. Following this the study analyzed the impact of telecom on individuals and business income.

Accordingly majority of the respondents confirmed as telecom service is affecting their income negatively both directly and indirectly. The telecom services that directly affect the income of the respondents are fixed line, mobile phone and internet Regarding the channel and mechanism through which the telecom is affecting the income of the respondents negatively majority of the respondents stated as the payment to mobile phone call and internet usage is consuming significant portion of their income some of the respondents said as they will spent over 15 dollar of their income of filling the card for some this is 5 percent of their monthly net salary the cost increases for business specially Micro and Small enterprises that has low capital where they spend significant among of their cost ( on average 18 percent) of their production and distribution cost while the figure decreases for medium and large scale firms. Of the total respondents those between the age of 21-35 stated as they are being severely affected by the cost of the telecom service they are getting. Besides, this group of the society is the frequent consumer of the technology, they uses the service to call their friends, communicate with their families, gather information and also to do some sort of business. While respondents above they age of 35 said they frequently use fixed line telephone service more frequently hence they sate as the cost of the fixed line affects their income but they didn’t responded as significant cost furthermore, mobile phone service also partly affects their income. The senior respondents didn’t state the cost of telecom as a major consumption because the fixed line telephone service charge lesser than the mobile phone hence, it consume lesser part of their income. The other reason

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could be that the income of the respondents above the age of 35 is higher than that of the youth thus the consumption of telecom service although similar to that of the youth is insignificant compared to their income The youths are the severely affected part of the society in the usage of the telecom services. Besides, the private sector is more complainer than the public servant and civic society representative. This is mainly because the private sector uses the telecom service more frequently than the government and civil society’s organs.

Source: Own calculation

Regarding the challenges/problems they majorly faced in the course of the service usage most respondents state as mobile phone is the most problematic telecom service. Network breakdown is the major bottleneck of communication in the industry where a frequent network breakdown is observed in different parts of the country. The severity of the issue uplift its weight in regional state where connection is very daunting it is with this fact that respondents from regional office are more complainers on the service delivery of the sector compared to respondents from the capital. Thus, although there is improvement in the telecom sector both in coverage and service the network break down according to the respondents and general observation is affecting business environment negatively

With respect to service delivery of telecom sector in Ethiopia over 85 percent of the respondents (with different background and social sector) stated as the service delivery of the Ethiopian telecom is not satisfactory. Sector wise, respondents from the private sector give the worst rating on the service delivery, foreigners were the major complainers on the service delivery while

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majority of respondent from the public entities rate the service delivery average.

Source: Own compuation

Looking at gender disagrigated dat on the service delivery of the ethiotelecom it can be noticed that females are less satisfactory than their mail counter part. This could be majorly due to consumption of the services, in Ethiopia and also several other countries female elite consume more telecom service than males. Besides, from the observation made during the study and formal and informal interview with telephone users female repondents stay onile more hours than their male counter parts due to this they more tendency to sufer from the service they are getting and the cost attached to it.

The paper was also interested in analyzing the difference and impact of monopoly and privatization, because theoretical competition at least at domestic level is better than pure monopoly hence the study requested the respondents to compare and rank the financial sector service delivery mainly the banking and insurance industry (that is opened for domestic investors while it is protected for foreign firm) with that of monopoly in the telecom sector; overwhelming number of the respondents rank financial sector service delivery as far better than the telecom service delivery. Thus, it could be concluded that at least in Ethiopian context competition will improve the service delivery in an economy. Besides, the number of banks and insurance companies operating in the country has been increasing during the last 20 year. However; there is still room for further improvement in service delivery that is why significant portion of the respondents ranked to the financial sector service deliver either average or below average but higher than the telecom service delivery. Overwhelming number of respondents however, were concerned on the impact of the liberalization on the financial sector on the economy where

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according to the respondents liberalization without efficient and effective regulatory body specially in the financial sector will affect the functioning of the economy negatively.

Source: own calculation

Cost of telecom: Regarding the cost of telecom service in Ethiopia slight divergence was noticed among respondents on the two extremes that is between where the youth and private sector respondents rate the cost of telecom as the worst while governed official and mid-level management state as the cost of telecom is average and partly costly.

Unlike the cost the quality of telecom was rated poor by all the respondents, to take into account their rationale for such decision respondents were requested to provide explanation for such rating of the telecom quality. The major reasons for such quality are government telecom sector monopoly followed by poor infrastructural development and level of economic development of the country.

Table 4.1 status of telecom and financial sector service in Ethiopia

Poor Average Above average Very good

Telecom service delivery 62% 23% 13% 2%

Finical sector service delivery 38% 42% 16% 4%

Cost of telecom ( cheap to expensive)

1% 37% 40% 22%

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Quality of telecom 53% 31% 11% 5%

Source: own calculation

4.3 Policy measure:

After reviewing the current status of the telecom sector and the rationales for such level of development the study proceeded to analyzing policy measures that are deemed necessary to change the current structure and status of telecom sector in Ethiopia. The policy questions raised were directed in answering question related to liberalization and its impact on the cost, quality and level of advancement in the sector. Furthermore to analyze the affordability of the liberalization measure, question that addresses respondents’ interest regarding the possible time frame to open the telecom sector for competition was raised this has the intent of analyzing the competitiveness of telecom sector at present and the readiness of the government and the general public. The other policy direction the study was interested to raise is with regards to cost and benefit of liberalization measure.

The first policy issue that was forwarded to respondents through the questioner and also during the formal and informal interview with different stakeholders is whether liberalization of the telecom sector in Ethiopia put downward pressure on the present high cost of telecom service. Different part of the society responded differently on the subject matter where majority of the respondents confirm that competition will lead to lower price which in turn reduce cost of production, which is inconformity with typical economics theory. According to these respondents their point of argument beside the typical economic concept is the empirical evidence they noticed in the neighboring and also several developing countries that were at similar stage of development before the policy measure. While the others said the cost of telecom might not be reduced due to several reasons. The argument forwarded by this section of the society includes among other thing competition might not lead to reduction in cost at least in the short and medium term because the telecom companies invest huge amount of their startup capital on infrastructural development which forces the companies not to reduce the cost however, over time since the telecom sector by its nature demand investment during the infrastructural development phase cost of telecom service by these service providers is expected to decline in the long run. Classifying the responses collected sector wise and also by age category, to analyze the current impact of the telecom sector on the performance of the sector and the likely policy measures they deemed necessary to boost the quality and reduce cost of the service the study found out that private sector respondents and most of government experts between the age of 21 and 40 said liberalizing the telecom sector will lead to reduction in cost of telecom service. While senior experts and mid-level management responded as liberalization will not have an impact on the cost of the service. The study couldn’t find correlation on level of education and perception towards liberalization and its impact on cost of telecom service.

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Regarding regional dimension respondents from capital Addis are more in favor of liberalization to reduce the current high telecom service in Ethiopia followed by Oromia and Amhar regional states while majority of the respondent from Tigray regional sates responded as telecom liberalization have nothing to do with reduction in cost of the service. Gender wise, female respondent were pro telecom liberalization thinking that it will leads to reduction in cost of telecom compared to their male counterparts

Regarding the impact of liberalization on quality of telecom service in Ethiopia over 97 percent of the respondent’s state as liberalization will lead to improvement in quality and their reasons also fell under the same category which is if the sector is opened for competition different service providers will be available which make the consumer to choose quality service provider thus, service providers will compete to provide quality telecom service. The other rational behind liberalization leading to improved telecom service quality is competition will lead service provider to acquired advanced technology which are cost effective and efficient besides search for and provision of productive labor force will also improve the telecom service quality. Provision of service that meet the ever changing demand of the consumers to stay in the market and sustain their market share is the other reason that competition will lead firms to provide quality telecom service.

Source: own calculation

Hence if the liberalization of the telecom sector leads to reduction in cost of telecom and quality of the service then the study proceeded to analyzing when the respondents wants the telecom sector open for competition, most of the respondents (over 53.84 percent) deem for liberalization of telecom undertaken immediately while 46 percent of the respondents voted for no

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liberalization. Regarding time frame as to when to open the telecom sector for competition majority of the respondents put medium term time frame between 3-5 years while significant amount of response also put long term up to 10 years while few respondents said after 10 years. This partly depicts the progress made so far on infrastructural development in the sector and institutional competence of the Ethio telecom after change in management.

The other objective of the study is to analyze the impact of liberalization on the economic sector following this the study questioned which sector the respondents think will benefit most from the liberalization measure over 73 percent of the respondents choose more than one economic sector as a major beneficiary of the liberalization measure. Majority of the respondents agreed on the industry sector where the rationale they presented are the intermediary input nature of the sector and direct consumption per capita compared to other economic sectors

Regarding the impact of liberalization on the productivity of the economy and also if it can lead to economic growth overwhelming number of respondents confirmed as liberalization of the telecom and financial sector have a direct impact on the productivity and competitiveness of the economy which help to boost export. Furthermore, the study also analyzed if the telecom sector has an impact on employment generation in the country, majority of the respondent taught as there is direct relationship between liberalization and employment creation.

Comparing the telecom service delivery of Ethiopia with other countries those respondent who have experience abroad were requested to express their view, experience and rate telecom service delivery (cost and quality) in Ethiopia in comparison to other countries specially SSA countries they rated the telecom service in Ethiopia as poor. This is according to the respondents purely the impact of monopoly and efficiency problem that followed it and low level of infrastructural development in the sector

One of the major arguments presented by government for not liberalizing the telecom sector in Ethiopia is universal access which is allocating the revenue collected from urban telecom consumers to infrastructural development of the rural Ethiopia. Following this the study requested respondents what would be the major reason for such monopoly measure. Several respondents mentioned more than one reason where most of the respondents stated as security and revenue is the rationale behind the monopoly in opposite of government argument of universal access. However, significant number of the respondents especially those from the public entities also answered as universal access and revenue generation are the main reasons for keeping the monopoly

To view respondent’s perception about the cost and benefit of telecom sector both before the liberalization and after the liberalization the study included a question that ask what their view is regarding the subject matter in question. Most (almost all) of the respondents stated as the cost of

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monopoly out weight the benefit; while majority of the respondents agreed as the benefit of the telecom liberalization could overweight the cost if the sector is opened for competition.

4.4 Accession to the WTO and its impact on service sector:

Ethiopia is on edge of acceding to the WTO currently the country has submitted its trades in goods offer for the working party. From the memorandum of foreign understanding Ethiopia submitted to the working party, the questions that were raised following the submission of the memorandum and several other studies conducted members of the WTO are more interested in the service sector of Ethiopia than trade in goods, because the service sector is among the very controlled in the region and global standards and member countries want to secure market in such booming economy. Hence, the accession process is thought to have a greater impact on the current policy measure the country is perusing. With this implication in mind the study investigate prominent experts and policy maker’s view on the impact of the accession process on the financial and telecom service in Ethiopia. Expert from Ministry of Trade, private sector representative and some civil society representative stated as the accession process could force the country to open some of its financial sector and also on the telecom sector as well. While respondents in other ministry partly said as the accession process will impact the policy towards the retail and whole sale service. According to these respondents and also government sign recently the negotiating party will influence and make the retail and whole sale trade be liberalized while they don’t think as the financial and telecom sector stay still in the medium term.

CHAPTER FIVE

Summary, Conclusion and recommendation

5.1 Summary

Service sector by its nature has a multidimensional benefit to the economy where it serves as an input to several productive sectors besides, it is also source of competitiveness in most of the cases where countries with efficient, effective and competitive service sector are competitive in the international trade in goods and services market

Several studies have shown that growth in telecommunications generates a dividend in terms of additional overall GDP growth and this is becoming particularly significant in developing countries. With this in view the government of Ethiopia is investing billions of dollars on

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infrastructure development that includes a massive push towards telecommunication development. As a result, comparing the current status of the telecom sector with its past trend, telecom coverage has shown promising improvement, quality of service delivery is somehow on an encouraging trend. However, the sector is highly monopolized by the government and among the closed part of the economy. The monopoly character has reflected on the cost and efficiency of telecommunication services, which makes doing business difficult.

So to view public, government and private firm opinion the study conducted a study on the status of the telecom sector and the impact of telecom deregulation on the over sector performance and also the impact it could have on the economy.

Hence to summarize the finding of the study mobile phone service is the most problematic of all the telecom services. With respect to the quality of telecom service in Ethiopia over 83 percent of the respondents stated as the service delivery of the Ethiopian telecom is not satisfactory. Compared to the financial sector still the monopoly nature of the telecom made the service delivery to be poor in the telecom hence, competition will have a direct impact in quality of service delivered is a greater lesson the study come across however, there is a huge room for improvement even in the financial sector is rated relatively to be better.

Youth and private sector respondents rate the cost of telecom as the worst while governed official and mid-level management state as the cost of telecom is average and partly costly. The quality of telecom was rated poor by all the respondents, the major reasons for such quality are government telecom sector monopoly followed by poor infrastructural development and level of economic development of the country.

5.2 Conclusion

Thus liberalization of the telecom sector in Ethiopia has downward pressure on the present high cost of telecom service in the country because competition leads to reduction in cost of telecom because price is one point of completion among firm in a competitive market structure hence, if the telecom sector is opened for competition most of the respondent state as cost of telecom will go down which intern benefit the economy because as intermediary input reduced cost of telecom reduce cost of production a lower cost of production will be reflected on the price of the product with lower price the products originating form Ethiopia will be competent in the international market which ultimately improve the wellbeing of the citizens

Regarding the impact of liberalization on quality of telecom service in Ethiopia over 97 percent of the respondent’s state as liberalization will lead to improvement in quality which calls a policy measure to improve the current telecom service status. Hence, opening the sector for competitions will help in achieving this goal because service provider to attract the customers and stay in the market will deliver quality service to the customers that ultimately help the

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economy grow and be competitive in the international market. Significant number of respondents deem for liberalization of telecom undertaken immediately while majority of the respondents voted for no liberalization at present. Regarding time frame as to when to open the telecom sector for competition majority of the respondents put medium term time frame between 3-5 years.

Majority of the respondents agreed on the industry sector where the rationale they presented are the intermediary input nature of the sector and direct consumption per capita compared to other economic sectors.

One of the major arguments presented by government for not liberalizing the telecom sector in Ethiopia is universal access which is allocating the revenue collected from urban telecom consumers to infrastructural development of the rural Ethiopia. Significant number of the respondents especially those from the public entities also answered as universal access and revenue generation are the main reasons for keeping the monopoly.

Most of the respondents stated as the cost of monopoly out weight the benefit; while majority of the respondents agreed as the benefit of the telecom liberalization could overweight the cost if the sector is opened for competition

5.3 Policy Recommendation

Telecommunication is a backbone of an economy it is with this fact that government of both developing and developed countries are investing billions of dollars in development of the telecom infrastructure. Similarly the government of Ethiopia is also investing huge amount of money on the infrastructural development. This is promising however, when the telecom service is compared with countries at similar level of socio-economic development with Ethiopia the telecom infrastructure in Ethiopia is way behind.

Some of the policy measure that the study comes across includes increasing the ongoing effort in investing on the infrastructural development, improving the efficiency of Ethio-telecom in service provision. Gradual liberalization of the sector is the major policy recommendation that the study forwards to policy makers. Separation of the administration of the telecom sector from operation of telecommunication is one of the areas that need to be strengthened.

Copying mechanism need to be putted in place to reduce the cost of adjustment among the copying mechanism is to broaden the tax base to offset the revue that government might loose

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