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Ethiopia: Telecom Pioneer Plundered by Monopolisation

March 25, 2010

About 1.1 people per 100 inhabitants have access to a telephone line in Ethiopia, according to the Information Communications Technology (ICT) Development Index for 2009. When it comes to the Internet, 99.9pc of Ethiopian households have no access.  Mobile phone statistics are probably two years old and the numbers may have increased significantly. Nevertheless, compared to Sudan’s mobile subscribers two years ago at 21pc, Kenya’s at 30.2pc, and Uganda’s at 13.6pc, Ethiopia had a long way to go to narrow the gap at only 1.5pc.

In Internet use penetration, Ethiopia is even well below Somalia, which has had no national telecommunications organisation and no functional government for more than 18 years. Ethiopia has a 0.4pc rate of penetration per population compared to Somalia’s one per cent. Ethiopia  is 19 times lower than Uganda, 21 times lower than Kenya, and 25 times lower than Sudan. This begs for a proper debate.

Paradoxically, Ethiopia is one of the first countries that enthusiastically embraced telecom in the early days. Emperor Menelik introduced telecommunications services to Ethiopia in 1894. Considering the invention of the telephone in 1876 by Alexander Graham Bell, it was a pioneering move by all accounts.

What happened in the last 116 years? Has it just become hostage to a state monopoly or is there any other reason that can explain the sorry state of telecommunications services in Ethiopia?

ICT is a transformational technology and everything is heading in to the digital world. This revolution has just begun. We do not know where it is heading. Already there is sufficient evidence to believe that the impact of the digital divide has as much of a devastating impact as the divide created by the discovery of gunpowder.

The digital divide became an issue around 1995 with the publication of “Falling through the Net.” Since then the opportunities as well as the economic inequalities creates has been a high priority issue among policymakers. It is probably why, even in market-driven economies such as the United States and the European Union (EU), the advent of this digital technology was not left to the market.

For instance, President Bill Clinton told MIT graduates in 1998, “[H]istory teaches us that even as new technologies create growth and new opportunity, they can heighten economic inequalities and sharpen social divisions. That is, after all, exactly what happened with the mechanisation of agriculture and in the industrial revolution.”

Why do we not hear similar concerns from our policymakers? Is it because they have not yet realised the impact of the digital divide on the economy? Is it simply due to a lack of resources?

I would argue that the reason could not be a lack of resources, for it would not be a good enough excuse since the private sector could have been allowed to invest and plug the gap. Neither could it be a lack of enthusiasm.

I believe it is the result of long held structural problems. Ethiopia has more than 116 years of telecom services, but the growth has been at a snail’s pace. Current lack of enthusiasm towards ICT is a continuation of government fear of losing control and a monopolistic position in the industry.

Regrettably, telecommunications is primarily perceived more as part of a control mechanism than as a tool for commercial activities.  Consecutive governments as well as telecom managers could not let it grow beyond their ability to control it. The lesson we have learnt from the slow importation of 20th Century technologies makes us even more pessimistic about the prospect of ICT growth in Ethiopia. This is for a good reason.

For instance, radio holds a parallel position with Internet technology in educating and transforming societies. Its broadcasting in Ethiopia was first launched in 1931, by Emperor Haile Selassie I, 10 years after commercial broadcasting of radio was launched in the US in 1922. That too was pioneering.

The first radio station in Ethiopia was destroyed during the Italian invasion, only to be re-established after the Italians were chased out. However, this pioneering move did not translate into commercial or civil educational values.

During a large part of the last few decades, there was one government radio station that monopolised the airwaves three times a day, contributing very little to public health or educating women or farmers about hygiene, childcare, crop rotation, or soil conservation. Despite a pioneering investment, radio broadcasting was micromanaged for political reasons, arresting itspotential contribution to the economy.

Just to put this argument into perspective, it was in 1922 that the US Department of Commence licensed 26 commercial radio stations. By 1923, there were 556 stations, creating thousands of jobs, stimulating the economy and setting the conditions for the emergence of the electronic industry.

Following this expansion, the sales of radio receivers jumped from about 50 million dollars in 1923 to 355 million dollars in 1929. Commercialisation of radio created a self-sustaining cycle of innovation, commercialisation, and wealth to feed back into innovation.

Exactly the same thing has now been happening with the Internet.

It was in 1992 that the US Congress allowed commercial activity on the Internet under the “Scientific and Advanced Technology Act.” Since then, the amount of prosperity that the private sector gained in exploiting the new technology is phenomenal.

Take Google’s annual revenue, for instance; it is about 23 billions dollars. It would take Ethiopia about 15 years to earn that amount of money from the current exports of coffee and leather. A simple website, eBay, which helps individuals sell their old and new goods, generates about 8.7 billion dollars in revenue annually.

There is no reason why ICT companies in Ethiopia could not generate modest revenues to contribute to the economy if  infrastructure is built and the market is liberalised. I would argue that far from a lack of resources, it must be a lack of will that has kept the country from capturing value from radio as much as from digital technology.

Economically, it would be suicidal to limit the growth of ICT by micromanaging this huge transformation on a national scale. The economic justifications for freeing this sector are manifold.

Ethiopia has the second largest population in Africa, with 16 million students currently in schools. Having Internet connections could provide access to the global knowledge database; standardise curriculum to reduce the gap between urban and rural schools; and save spending on printed materials, books and libraries, by accessing content from leading institutions online.

A Google search, for example, with the word “Ethiopia” brings 69 million documents. If one narrows down the search to “Ethiopia” and “Agriculture” more than 17 million entries. Simply, internet is the largest global knowledge database, serving as “transactive” memory for the emergence of a global brain.

E-learning, e-commerce, e-government are all cost effective ways of brining in global knowledge, business, and service provisions from all over the world. A good example is that paper based correspondence education has been going down as e-learning expands. In few years’ time the traditional paper copy correspondence may not even be available at an affordable price. Millions of jobs were created in India from ICT related outsourcing and are expected to generate up to 30 billion dollars in 2010 for  the economy.

The plight of developing countries has been partly ascribed to brain drain. Some estimate about 150,000 professionals are leaving Africa every year, costing the continent about four billion dollars per year. Ethiopia is one of the big contributors (or losers, as it were).

Many Ethiopian communities in the Diaspora are estimated to be between half and one million strong, with a good number of members having a first degree or higher. Opening up the Internet highway could make it possible for these communities to provide lectures, supervise research, and consult or collaborate through virtual teams. A high-speed connection could also encourage the Diaspora to consume Ethiopian products, such as books, entertainment, music, cloths, gift items, and services to improve the struggling export economy.

Besides a structured educational system, people also learn through seeing how things are done. Having a broadband connection can help people learn from audiovisual images, anything from learning how to make compost to attending Harvard lectures. It also increases access to digital literacy and adaptation of new technologies in all walks of life.

ICT has driven economic growth, shortened product lifecycles, diminished the importance of distance, and helped the development of e-business and the transformation of organisations in the developed world. This, too, can happen in Ethiopia.

The real problem, however, is fear as well as the urge and instinct to monopolise service provisions. To let go of the fear in breaking the state telecom monopoly, the growth in the private banking sector should reassure policymakers. The government should accept that no country, no politician (even those who are technology savvy), can micromanage this technology. It is chaotic, fast changing, and collaborative between people from different countries, places, and occupations.

We can only be part of the flow, tapping into the stream of knowledge, innovation, and change to make the best of it. Currently, there seems to be a misperception among policymakers in Ethiopia as well as managers at the ETC that Ethiopia can borrow a billion dollars now and then to import gadgets from China.

By the time we get to import the gadget, we know that we have wasted our money on an outdated system. A central planning and command system may be alright for building power stations and roads, but it is incompatible with such a fast changing industry. That is why, after 116 years, it is time for the ETC to be free from state monopoly. When I say this, I am not advocating privatisation of the ETC.

Monopoly is always bad. It kills innovation whether it is controlled by the government or the private sector.

What the government needs to do is to first split the ETC into two or three independent competing companies. Competition between more than one service provider could help innovation, provide better services and reduce costs.

When there is a choice, the government, too, can be a customer. When the government wants infrastructure development in a certain part of the country, it can ask competing domestic bidders to build the infrastructure or manage the system in a cost-effective way.

The government borrowed about 1.5 billion dollars from China simply to hand the money to the ETC monopoly. This is probably the easiest way of wasting such vital resources without getting the best value. There is also a scope for other state monopolies such as the Ethiopian Electric Power Corporation (EEPCo) and other utility companies to get into the telephone business.

For example, a British national grid company has been playing a part in building the broadband network along its power lines. There are also technologies available for the delivery of broadband through power lines. Broadband over power line (BPL) could reach up to 1.4 million households in Ethiopia without further infrastructure investment in telephone landlines.

The BPL technology works in the same way as the copper telephone line. Electricity flows over power lines at a nearly steady 50Hz to 60Hz, depending on the country’s standard. If a data signal is injected over this network at a much higher frequency, it would present little interference with the electricity delivery, somewhat analogous to DSL technology using different frequency bands for voice and for data over the same copper infrastructure. The chipsets for BPL can transmit around 200Mbps at the customer end.

There were up to 0.8 million customers in the United States in 2008 using BPL. This number is projected to grow to 2.5 million by 2011. BPL could converge three services in one, combining electric power, broadband data delivery and telephone services through voice over Internet protocol (VoIP), providing a significant savings over infrastructure costs.

If Ethiopia is to catch up, even with the neighbouring counties such as Sudan and Kenya, it deserves more than one centralised service provider. It also needs private and public investment. This can only be achieved through liberalisation.

If not, the Internet may end up being another radio, with no educational or economic value.

The ETC is a monopoly. It is not only inefficient, but also the most expensive service provider. Subscribers have to pay 10,400 Br (about 763 dollars) for a connection and another 12,100 Br (about 888 dollars) in rental charges for a two megabyte broadband and voice connection.

These amounts are unheard of anywhere else. I would argue that it is simply a rip-off enabled by its monopolistic position. I get my eight megabyte connection with voice services for less than 30 dollars.

The fear factor should also be addressed. The better people are informed, the better the discussion they make will be. This is a transformational technology and too big to be left in the hands of the government or one service provider. Establishing a company that will build a techno park, with a five billion Birr capital, without opening the gateway to the outside word, is a gross misconception of the technology itself.

Silicone Valley was not built with bricks and mortar but with the ingenuity of entrepreneurs.

The reason why there are not any major ICT companies in Ethiopia is not because we do not have a techno park. We have not yet liberalised the sector or abolished the monopoly. Until we get rid of the monopoly, it will be a waste of time to spend money on bricks and mortar.

Yared Haile-Meskel, a resident in the United Kingdom (UK), pays close to 30 dollars for a three megabyte connection

Source Addis Fortune

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