Ethiopia’s Telecom Gamble: Can Safaricom Turn Competition into Profit?
A staggering $325 million loss in its 2024 financial year. That’s the reality for Safaricom Ethiopia, despite fundamentally reshaping the country’s telecom landscape. While the operator has driven down data prices by nearly 70% since 2017 and expanded 4G coverage to almost half the population, the World Bank’s latest assessment paints a stark picture: liberalization without structural reform can be a costly game, even for a regional powerhouse like Safaricom.
The Ethiopian Telecom Revolution – And Its Price Tag
Safaricom’s entry into Ethiopia in October 2022, following a $1 billion license fee, marked the end of Ethio Telecom’s decades-long monopoly. The impact has been undeniable. Mobile broadband users have more than doubled to 87 million, and average monthly data usage now exceeds that of Kenya, a testament to pent-up demand. The influx of competition has spurred innovation, particularly in mobile money with the introduction of M-Pesa, and fostered a more transparent corporate environment.
However, this progress comes at a significant cost. The World Bank report highlights a fundamental mismatch between revenue and expenses. Annual license amortization alone amounts to $66.7 million, and Safaricom is further burdened by $3 million+ yearly payments to Ethio Telecom for fiber leasing – a situation exacerbated by the delayed licensing of independent Tower Companies (TowerCos) and Infrastructure Companies (InfraCos).
Currency Woes and Uneven Playing Field
Adding fuel to the fire, the dramatic depreciation of the Ethiopian birr has severely impacted Safaricom’s bottom line. A fall from 55 to 138 birr per US dollar slashed dollar-equivalent revenues and reduced Average Revenue Per User (ARPU). Monthly data ARPU plummeted from $1.66 to $1.19, while data prices effectively halved. This is particularly damaging as Ethio Telecom, benefiting from cross-subsidization through its profitable voice call business, can sustain significantly lower tariffs – around 16 cents per gigabyte compared to Safaricom’s offerings.
The core issue isn’t a lack of demand; it’s a structurally imbalanced market. Safaricom is forced to compete on retail prices while relying on its primary competitor for essential wholesale network access. This creates a significant disadvantage and limits profitability, hindering its ability to invest further and fully capitalize on the growing market.
The Path to Sustainability: Regulatory Reform is Key
The World Bank’s warning is clear: without urgent regulatory changes, Safaricom’s Ethiopian venture risks becoming a permanent loss-making operation. The absence of licensed TowerCos, InfraCos, and Mobile Virtual Network Operators (MVNOs), coupled with a lack of cost-based interconnection frameworks, perpetuates a tilted playing field. The World Bank emphasizes the need for infrastructure sharing and fair pricing to level the playing field.
Looking ahead, several key developments will determine Safaricom’s fate. The licensing of InfraCos is paramount, allowing for independent infrastructure development and reducing reliance on Ethio Telecom. A cost-based interconnection framework is also crucial, ensuring fair access to network resources. Furthermore, the introduction of MVNOs could inject further competition and innovation into the market.
Beyond Safaricom: Lessons for Telecom Liberalization in Africa
Safaricom’s experience in Ethiopia offers valuable lessons for other African nations considering telecom liberalization. Simply opening the market to competition isn’t enough. Structural reforms, including independent infrastructure development, fair interconnection policies, and a robust regulatory framework, are essential to ensure sustainability and attract long-term investment. The Ethiopian case demonstrates that liberalization without these supporting elements can create a race to the bottom, benefiting consumers in the short term but potentially jeopardizing the viability of new entrants.
The future of Ethiopia’s telecom sector hinges on the government’s willingness to accelerate these reforms. While Safaricom’s early entry has been costly, it remains a critical catalyst for change. The question now is whether Ethiopia will seize the opportunity to create a truly competitive and sustainable telecom market, or allow a pioneering venture to serve as a cautionary tale.
What regulatory changes do you believe are most critical for Safaricom’s success in Ethiopia? Share your thoughts in the comments below!