8 October 2017

Ethiopia: Ethio Telecom Manoeuver Upsets Mobile Market

Photo: MIchael Kakumirizi/Daily Monitor
A subscriber carries out transactions on a mobile money platform.
opinion

Unlike the old days, Danawit Alemseged was idle for a long time on Wednesday morning, in her four square metres mobile apparatus retail shop, located behind Betelhem Plaza, Megenagna along Equatorial Guinea street.

The day is not a profitable one as she has not sold any products since two days. For Danawit, who used to sell at least six mobile phones a day, this is a significant setback.

The trend is not exclusive to Danawit.

Danawit and her neighbours, who sell similar products, seem depressed and concerned about the condition of their business over the past two weeks. The primary reason for the decline in sales was an increase in the price of mobile phones, observed in the past month across the country.

"Buyers have lost interest after the drastic rise in prices of mobile apparatuses," she said.

Demeke Alemayehu, a contractor by profession and a father of six, was amongst those consumers who were discouraged from buying a phone after hearing the price. He came to buy a phone for his daughter after receiving his salary last week.

"Three weeks ago, the price of the phone I was looking for, ITEL, was 2,800 Br. Now, it costs 3,500 Br," he said. "Nothing justifies such a drastic increase in a matter of weeks."

The price increase was seen after the launching of a new phone registration system by the state monopoly- Ethio telecom and the Ministry of Communication & Information Technology (MCIT). The new system, which will render 2.7 million phones out of operation within a year, was introduced with the aim of ensuring better service, cease mobile phone theft and discharge mobile phones that affect the health.

Although the system, Equipment Identity Registration System (EIRS), plans to take the country's telecom service one step ahead while benefiting users, it has not been without controversies.

One of the aims of the system was to help local assemblers widen their scope in the country.

"As far as we know, the system is expected to deter phone theft and contraband, while developing the manufacturing ecosystem," Levi Girma, partner of Transsion Holdings said. "It is expected to support the entry of many mobile manufacturers whose businesses were affected by contraband in the past."

Unexpectedly, it resulted in a decline in the supply of mobile phones as the cloned ones went out of service, affecting the price pattern of mobiles.

Since the advent of the registration, various agents and mobile phone assemblers across the country have raised the price of their products including smartphones, basic phones and tablets, according to retailers. The increment has reached as high as 50pc. In some retails it has almost doubled.

"It would be the customer who finally feels the brunt of the upsurge," said Danawit, whose products have shown at least a 50pc increase in the past three weeks.

Danawit sells imported phones as well as locally assembled ones including Tecno, Smadl and Huawei with prices ranging between 2,100 Br and 3,700 Br. The highest accretion was seen on ITEL mobiles, showing a 1,000 Br rise whereas Smadl makes the lowest adjustment with a 500 Br price increase.

Before the hike, this had not been the case at all.

"The selling price was not above 3,000 Br at my shop," said Danawit, who is surprised by the unprecedented move of the suppliers to increase the price of the phones. "We used to get products from many suppliers, unlike now, where we get mobiles only from limited suppliers."

The provision of the mobile service began in 1999 with a capacity of 36,000 lines in Addis Ababa, now reaching over 50 million subscribers, of which 14.7 million are users of data and Internet.

The growth has its own drawbacks.

In line with the growth of mobile phone users, the share of the contraband market has grown at a higher rate than the legal ones. Besides phones, contraband goods smuggled into the country include manufactured goods such as electronics, electrical goods and garments. Sudan, Eritrea, Kenya, and Djibouti are identified to be the main sources of these goods.

Last year, the country smuggled in products worth 769.2 million Br from Sudan, Eritrea, Kenya, and Djibouti, of which electronic devices and mobile phones had a 20pc share.

Mobiles imported through contraband trade account for over 60pc of the total mobile market, according to a study conducted by Local Assemblers' Association.

Even worse, the share of contraband is higher in the case of smartphones- which account for five percent of the mobile market in the country. Nine out of 10 mobile phones are imported illegally, according to an estimation by the Association. Only five percent of smartphones are imported using the proper channel.

"Contraband products adversely affect the quality of the telecom service and users' well-being," said Abdurahim, while briefing the issue to the press almost a month ago.

This, however, is not the reality for Danawit.

"These products are vital to stabilise the market. Such products have already flooded the market; the government should have first ensured supply, before taking them out of the game," said Danawit, whose seven phones went out of use after the system came into effect.

The scenario applies to many mobile retailers in the capital.

Abduljelil Abdulkadir, a mobile phone retailer inside Yeha City Center located in front of Stadium, had also faced a shortage of supply since the introduction of the new system by the telecom provider.

"Prices of some products, especially feature mobile apparatuses have doubled," he said. "The assemblers alone cannot fulfil our demand."

At present, the trend of the mobile market indicates that people are more willing to spend money on locally assembled phones than ever. Ever since the opening of the mobile assembler TECNO, now Transsion, in 2011, the number of mobile assemblers has reached 11. Their market share has also grown to 30pc from being almost nil half a decade ago, with an aggregate production of close to two million phones monthly.

Levi, who is also a member of the Association, believes the recent price hike has nothing to do with the production capacity of assemblers. He relates it with the shortage of forex, which has put many businesses in a tight situation.

"We have the capacity of producing over a million devices per month. Thus, the issue is not about production capacity, rather it is about access to foreign currency to import raw material," he said. "But, we have not made any increase since the new system came into effect."

Ayalneh Lemma, director of legal affairs at MoCT, is also amongst those who have observed the recent price spike in the country.

"It is hard to achieve or create anything without a cost," he said. "But, the problem will be solved as Ethio telecom is also trying to stabilise the market by availing more phones to the market."

Ethio telecom currently has 176 phone retail shops throughout the country.

For Alazar Ahmed, a private marketing expert and consultant, the only option to stabilise the market is raising the productivity of assemblers in the country.

"The government cannot control the mobile market as it is not like other basic commodities. So, the solution is clear: availing more forex to assemblers and bolstering aggregate production," he said. "Otherwise, it cannot be solved in the short term."

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