Cablegate: Ethiopia: Telecommunications Sector Update - Part Ii of Ii

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
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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

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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
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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.

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