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Viewing cable 07ADDISABABA3486, ETHIOPIA: TELECOMMUNICATIONS SECTOR UPDATE - PART II of II

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Reference ID Created Released Classification Origin
07ADDISABABA3486 2007-12-10 08:08 2011-08-25 00:00 UNCLASSIFIED Embassy Addis Ababa
VZCZCXRO7494
RR RUEHROV
DE RUEHDS #3486/01 3440808
ZNR UUUUU ZZH
R 100808Z DEC 07
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC 8788
INFO RUCNIAD/IGAD COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
UNCLAS SECTION 01 OF 02 ADDIS ABABA 003486 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EEB 
 
E.O. 12958: N/A 
TAGS: ECPS ECON ETRD EINV ET
 
SUBJECT: ETHIOPIA: TELECOMMUNICATIONS SECTOR UPDATE - PART II of II 
- POLICY 
 
SUMMARY 
------- 
 
1. This is part two of a two part cable on the Ethiopian 
telecommunications sector.  Part one (septel) covers current 
infrastructure and expansion plans while part two covers policy 
measures.  Meetings with Ethiopian telecommunications officials 
reveal a telecommunications and information and communication 
technology (ICT) sector that languishes in a monopoly state.  All 
Government of Ethiopia (GoE) sources stated that until universal 
rural connectivity is achieved, there will be no moves to liberalize 
the sector.  Chinese technology is currently the overwhelming choice 
for telecommunications and ICT purchases due to lower price and 
vendor financing arrangements.  END SUMMARY. 
 
STRUCTURE - ETC, ETA, AND EICTDA 
----------------------------------- 
 
2. The GoE views telecommunications as a "public good" and thus it 
is, in their view, proper for the government to maintain monopoly 
control.  Currently, the monopoly provider of land line telephone 
service, mobile telephone service, and internet service is the 
Ethiopian Telecommunications Corporation (ETC).  ETC is fully owned 
by the GoE, falls under the Ministry of Transport and Communication 
(MOTC), and is overseen by a board of directors.  ETC is regulated 
by the Ethiopian Telecommunications Authority (ETA).  ETA was 
established as an independent regulator (separate from the service 
provider, ETC) and is responsible to MOTC. 
 
3. Recognizing the need to promote information and communications 
technology (ICT), the GoE established the Ethiopian Information and 
Communication Technology Development Agency (EICTDA) in 2002. 
EICTDA is overseen by the Ministry of Capacity Building (MCB). 
EICTDA's Director General, Debretsion Gebramariam, is also the 
Chairman of the Board for ETC, a central committee member of the 
Tigrayan People's Liberation Front (TPLF), and a former Deputy 
Director of the National Intelligence and Security Service. 
 
RURAL CONNECTIVITY IS THE KEY - BUT WHEN? 
----------------------------------------- 
 
4. A pervasive theme in meetings with leaders of the ETC, ETA and 
EICTDA was that of providing universal coverage to rural 
communities.  Ethiopia is overwhelmingly rural, with 85 percent of 
the population engaging in subsistence agriculture.  Ethiopia's 
current policy is for the state to first provide universal coverage 
via either land line or fixed wireless service to each of 15,000 
village (kebele) units.  Universal coverage is defined by the GoE as 
having one phone within a 5 km walking distance.  EICTDA Director 
General Debretsion Gebremariam stated that 7,500 kebeles have been 
connected, and completion of the project is expected within the next 
year.  However, this completion date conflicts with what ETA 
estimates (2015) and what the Minister of Transport and 
Communication stated in press reports (2010).  All parties commented 
that private operators would likely focus only on wealthier urban 
areas at the expense of the rural poor.  Therefore, private 
operators will not be allowed to enter the market until the poor are 
covered because, as Prime Minister Meles told the Financial Times in 
February, "private telephony is a license to print money in Africa" 
but providers would neglect the peasant majority. 
 
AFTER RURAL CONNECTIVITY - WHAT NEXT? 
------------------------------------- 
 
5. All officials contacted reiterated that until universal rural is 
achieved, there will be no opening of the market to the private 
sector.  When asked for predictions of what might happen after rural 
connectivity is complete, the most complete answer came from 
Debretsion.  He stated that private sector involvement will consist 
of providing quality service.  He insisted that the GoE policy would 
be for ETC to retain the sole backbone in the country and private 
operators may be able to purchase and re-sell bandwidth.  He 
specifically ruled out the possibility of an independent operator 
installing their own infrastructure without even suggesting that 
there may be a time in the future when the installation of private 
infrastructure might be permitted. 
 
 
SOURCING, A STRONG PREFERENCE FOR CHINA 
--------------------------------------- 
 
6. Chinese companies, and Zhong Xing Telecommunication Equipment 
Company Limited (ZTE) in particular, have received the vast majority 
of orders from ETC for upgrading and expanding Ethiopia's 
telecommunications infrastructure in recent years, most recently a 
478 million USD contract signed in September to provide additional 
GSM service and an approximately 200 million USD contract in April 
to upgrade Ethiopia's fiber optic backbone, expand mobile coverage 
 
ADDIS ABAB 00003486  002 OF 002 
 
 
with CDMA service and expand fixed wireless coverage.  Perhaps most 
significantly, ZTE along with fellow Chinese companies Huawei and 
China International Telecommunications Construction Corporation beat 
out eight other international companies including Ericcson, Nokia 
and Siemens in September 2006 for a 1.5 billion USD upgrade and 
expansion of mobile and fixed line services over four years.   The 
Chinese consortium offered vendor financing in the form of a 500 
million USD loan and 1.5 billion USD in short term trade credits. 
 
7. While it is true that Chinese products carry a lower price than 
European or U.S. competitors, both ETC Managing Director Amare 
Amsalu and ETC Board Chairman Debretsion Gebremariam offered 
additional reasons for the popularity of Chinese goods and services. 
 Debretsion stated that there are two criteria examined for purchase 
decisions: quality (desire for state of the art technology or at 
least competitive products) and price.  He said that if Chinese 
companies do not provide quality products, they do not accept the 
bid regardless of price.  Further, he stated that ZTE and other 
Chinese players are actually supplying European or U.S. products as 
a part of their package.  He cited the use of U.S. routers in the 
recent mobile phone expansion as an example. 
 
8. Amare had a much more detailed explanation for ETC's Chinese 
preference.  Not only are Chinese products "almost as good," he 
argued, but he expressed a clear preference for the Chinese way of 
doing business over European or U.S. methods.  He stated that 
European companies still come to Africa with a colonial mindset, and 
U.S. companies, while less rigid than Europeans, are only looking to 
make a profit.  In contrast, he said that the Chinese companies are 
not only accountable to profitability, but to the image of their 
country.  ZTE and other Chinese companies are a first choice because 
they are in Africa to promote the image of their country, are 
accountable to the government of China, and are transferring 
technology and know-how to Ethiopians. 
 
COMMENT 
------- 
 
9. The GoE and its state-owned telecom enterprises have extensive 
plans to expand telecommunications service, especially in the rural 
areas.  Based on conversations with telecom leaders, the sector will 
continue to be a monopoly or near-monopoly for the foreseeable 
future.  The GoE's reluctance to liberalize the sector, however, may 
be hampering economic growth.  While the position of the government 
that private actors may concentrate only on more profitable, urban 
customers may have merit, the strides made even in rural areas 
following market openings in neighboring countries such as Kenya 
cannot be ignored.  As Ethiopia progresses in WTO accession 
negotiations, telecom liberalization is likely to be put on the 
table by member states.  How GoE balances its mandate to provide 
universal rural connectivity with the need for more openness remains 
to be seen.  Based on a combination of favorable financing, lower 
cost and cultural preference, it appears that Chinese companies are 
at a distinct advantage in Ethiopia's telecommunications sector. 
U.S. companies already find the arena difficult to enter, a 
condition that is unlikely to change in the future.  Furthermore, 
the lack of reliable, high quality, and fast telecommunications and 
ICT service in Ethiopia risks diverting U.S. and foreign investment 
in other sectors to other countries with a more conducive business 
environment. Post will continue advocacy efforts to encourage the 
GoE to consider U.S. goods and services as it expands its 
telecommunications sector, but, unchanged, the prevailing statist 
ideology will continue to minimize opportunities for American 
companies. END COMMENT.