The Ministry of Finance has decided to avail a five percent stake in Ethio telecom to the public with a cap on the number of shares an individual can buy. The minority share of the telecom company will be sold to thousands of Ethiopians living in the country and abroad as well.
With the new decision, 40pc of the company will also be privatised to one of the international telecom operators that will own the firm along side the public and the government, which will retain a majority share.
Two years ago, the ruling party decided on the full and partial privatisation of major state-owned enterprises, and Ethio telecom was included in the list of enterprises to be partially privatised. Since then, the Ministry of Finance has been working on the partial privatisation of Ethio telecom, intending to finalise the process before the end of this year.
However, the initial schedule of the partial privatisation was revised due to delays in the preparation work, including the asset valuation and the hiring process of a transaction advisor that will oversee the partial privatisation process of the more than a century old company and shepherd it from the pre-preparation to the final endorsement phases.
Ethio telecom hired KPMG East Africa to conduct an asset valuation and a second draft report on the work, which was submitted a month ago. Once the Ministry hires a transaction adviser, it will undertake legal due diligence, identify bidder selection criteria, support the bid preparation, and assist in partner selection and negotiation.
"The main aim of involving the public as the owner is to avoid the monopoly of the government and the private owner," said Prime Minister Abiy Ahmed (PhD), while explaining the government's decision to parliament close to two years ago.
Ethio telecom is one of the highest-earning state-owned enterprises. During the first half of this fiscal year, the company generated over 22 billion Br in revenue, of which 73 million dollars was in foreign currency. In the reporting period, it paid 3.9 billion Br and two billion Birr to the government in the form of taxes and dividends, respectively.
By the first half of the current fiscal year, the number of telecom service users in the country reached 45.6 million, showing a 10.9pc increase from the same period the previous year. Out of the total customer base, 44 million of them use mobile devices, 22.7 million use data and one million are fixed-line users. Telecom penetration has reached 45.4pc.
Terefe YerasWork, a telecommunications engineer who has worked for the International Telecommunication Union for over three decades, says that the government did not make the right decision in partially privatising Ethio telecom.
Ethio telecom should get itself up to the international standards and follow the path of Ethiopian Airlines, which is buying stakes in other countries' airline companies, according to Terefe.
"Some of the most efficient telecoms in the world, like those in Singapore, Korea and China, are still state-owned," he said. "The government needs to understand the issue isn't ownership, but rather managing resources efficiently."
In addition to ending the monopoly of the telecom industry, the government is also in the process of issuing licenses for two telecom service providers that will operate along with Ethio telecom. The Ethiopian Communications Authority (ECA), an independent regulatory body, launched a request for Expressions of Interest (EOI) on Thursday to issue two new telecommunications licenses.
The Authority has contracted the International Finance Corporation (IFC) as a transaction advisor for the licensing process. IFC also hired four international consultants to be in charge of the technical aspects, taxes and auditing, legal, and communications issues.
ECA drafted three directives that enable the regulatory body to license companies, handle dispute resolution and govern consumer rights and protections. It is also in the process of issuing nine more directives.
The two new operators and Ethio telecom will obtain unified licenses, aka full-service licenses, that will enable them to provide all mobile, internet and fixed-line services combined. Companies that can only engage with telecommunications infrastructure, such as internet, value-added, virtual internet and hosting services, will be granted a class license.
The three full-service license holders will be privileged with a range of spectrum available across multiple frequency bands. They are required to commit to reasonable tariffs, universal accessibility and teledensity targets. Both new and existing companies will be licensed for 15 years and are expected to enter into infrastructure and facility-sharing arrangements.
Interested international telecom operators are invited to submit their EOIs by June 22, 2020. Based on the EOIs, the Authority will then announce a request for qualification (RFQ) for the companies that are shortlisted by the EOI to measure their technical capability, according to Balcha Reba, director-general of the Authority.
"Then the Authority will launch a request for proposal (RFP) to pick the winning companies," said Balcha. "All these processes will be carried out simultaneously."
Terefe, who says he supports the liberalisation process, insists that liberalisation is not timely with the crisis the world is currently in.
"Allowing two or more operators is a wise decision," he said. "This isn't the time to sell, since the country wouldn't get a good price."
One of the reasons the EOI is issued is to measure the market activity, the level of interest in the marketplace and the impact of the pandemic on the interest of potential bidders, according to Brook Taye (PhD), a senior advisor at the Ministry of Finance.
During the pandemic, telecom firms are doing well since the last bill a person would stop paying quarantined at home is an internet and telephone bill, according to Brook.
"Also, it's expected that most of the operators would finance the transaction through debt," he said. "The international debt market is active and looking for a reasonable return in a COVID-19 environment where most businesses are borrowing or refinancing for survival with a high default possibility."
The market crisis is very different from the financial crisis of 2008, according to Brook, who also believes that most lenders are well-capitalised.