Ethio-telecom: Which Earn over $500 million over the last six months, Rejects the Hostile bid of Deloitte’s par $2 billion Asset Valuation

Ethio Telecom rejects the Investment Teaser ‘Project Nigat’ Partial Privatization of Ethio Telecom by Deloitte Consulting Limited released on 15 June 2021, which showed the initial asset valuation of Ethio telecom to be about 80 billion birrs. “Ethio Telecom’s asset is not just 80 billion birrs,” said Firehiwot Tamru, CEO of Ethio telecom whilst speaking about the six-month performance of Ethio telecom on January 31, 2022, at Hyatt Regency hotel, as she explained that it is information given by experts and officials that have limited information about the firm.

The document which was prepared by Deloitte Consulting Limited contained selected information regarding a potential investment opportunity in respect to the proposed sale of Ethio Telecom, solely for the informational use of the potential buyer. The company was hired by the Ministry of Finance to consult on the partial privatization of Ethio Telecom after the government decided to sell 40 percent of Ethio Telecom’s stake to interested international buyers on the way to privatization besides opening up the sector for two more players.

The Investment Teaser ‘Project Nigat’ – Partial Privatization of Ethio Telecom of Deloitte Consulting Limited showed that the valuation of the most profitable public enterprise is about 80 billion birrs. The investment teaser released in association with MoF’s announcement for expression of interest (EOI) for the 40 percent share acquisition of Ethio Telecom in June disclosed that the telecom monopoly had total equity and liabilities of over 79.8 billion birrs. It is to be recalled that Ethio Telecom had hired KPMG East Africa, for asset valuation of the enterprise, to conduct its business valuation. “Soon we will release our report to the public,” said the CEO.

“It is a company which makes about 80 billion birr revenue annually, even if our infrastructures are old the company is worth more than 80 billion birrs.

Experts in the telecom sector explained that matching the two consulting firms’ valuations may indicate the common value. In the first half of the budget year, Ethio telecom has generated a total of 28 billion birr revenue which is 86 percent of the target. This entails a 6.7 percent increment from the previous year’s similar period. The telecommunications firm has also generated 74.8 million dollars from international business scoring 89.3 percent of its target.

“Given the current challenging environment in our country, this achievement can be considered remarkable,” said the CEO. The main factor for Ethio Telecom’s underperformance is the continuing civil war in the Tigray region. Apart from anything else, that means the company has 3,473 base stations out of operation, “resulting in a revenue loss of 3.67 billion birr,” the CEO said.

In the budget year, the telecom operator has offered 23 new and 19 revamped local and international products. In addition to expanding the revenue stream, the company has devised a cost optimization strategy and managed to save over 1.2 billion birrs, the CEO said:

“The restoration in those areas where recovery was possible cost us 328.9 million birrs, but there are still many woredas [districts] remaining including Tigray region where we cannot provide our services and nor can the conditions and status of our telecom infrastructures be known.”

The company announced that it has reached 60.8 million users, which is 100% of the expected target and an increase of 20% compared to the same period in 2021. Mobile voice subscribers have reached 58.7 million, Internet subscribers 23.8 million, fixed services have recorded 923,000 subscribers and there are 443,000 fixed broadband subscribers. This represents a telecom density of 58.5%.

Ethio Telecom is currently engaged in various network expansion and telecom infrastructure capacity enhancement projects. The rollout of 4G/LTE has been completed in 136 cities. Telebirr’s integration with the banking system is also complete. Ethiopians can already transfer money from eleven banks to their Telebirr account. The reverse process is possible with eight banks.

Service outages due to the security, infrastructure, and property damage due to security, land acquisition delay, inappropriate compensation request, and account suspension, commercial power acquisition delay, and interruption, fiber and copper cable cut and vandalism, telecom fraud, are said to be challenges through the first half-year.

Ethiopia’s telco battle will take place in the mobile money arena

Safaricom opened an office in Ethiopia last month, as Kenya’s largest mobile operator aims to take on one of Africa’s most sought-after telecoms markets, with a population of around 120 million people. The company has hired local employees and built a multi-story office in downtown Addis Ababa after warding off competition from other telecommunication companies to secure an $850 million operating license in May.

Safaricom Ethiopia which was formed by the amalgamation of Safaricom, Sumitomo Corporation, CDC Group, and Vodacom secured an operational license from the government to officially do business in Ethiopia as a second telecom company after the state-owned Ethio Telecom. To get the license it had to pay USD 850 million to the government and promised to invest up to USD 8.5 billion in the coming decade. He added the company is investing around USD 300 million into the country in 2022.

The private telecommunications entrant is working with the global telecom giant Nokia and with the Chinese global telecom giant Huawei for its infrastructure development for its operation in Ethiopia. Matthew Harrison-Harvey Chief Regulatory and External Affairs Officer of Safaricom Ethiopia said:

“We have two network venders Nokia that focus on the core Network infrastructure in Addis and the surrounding areas and Huawei which will be covering the rest of the country,”

As per its agreements with the Ethiopian government, Safaricom- Ethiopia gears towards its commercial launch which will come to fruition, in early April. The Chief Regulatory and External Affairs Officer said:

“Our license states that the operation may start nine months from the date of the license award which is around about April this year. So starting early April we are working towards our commercial launch. we’re working towards our commercial launch from the 9th of April.”

Ethiopia’s telecoms market was closed to foreign investors for decades, but the government has recently embarked on a series of liberalizing reforms in the banking and telecoms sectors. Safaricom, the Nairobi-based telecom giant, earned global recognition as one of the earliest pioneers of mobile money, introducing its flagship M-Pesa product to Kenya in 2007. This is the success that it hopes to replicate in Africa’s second-most populous country.

But while Safaricom will only have to contend with one competitor—government-owned Ethio Telecom with over 60 million subscribers and its mobile money service provider, Telebirr, with over 13 million subscribers—there will be significant hurdles along the way. This is the last big unopened telecom market in Africa and probably one of the very few in the world.

The firm is also open to rolling out M-Pesa when the government gives it the green light to operate in financial services. Matthew showing their desire to introduce the renowned fintech platform, which has widely been used in Kenya, enabling financial inclusion even in the remotest of areas, e said:

“So currently we’re waiting on the government since the mobile financial services were not part of the telecoms license tender. The Prime Minister, I think it was in May 2021, essentially said that they would look to open up the mobile financial services sector to foreign operators within 12 months. So we’re waiting for the government to confirm that and then once they have done so, we will apply for that license.”

Safaricom Telecommunications Ethiopia, which won an operating license in Ethiopia in May 2021, has commenced works for telecom expansions in the country. Last month the company’s first data center commenced operation and the company is working on its network rollout. And as part of its network expansion, Safaricom-Ethiopia is also working to build towers and fiber extensions.

“Besides the data center, we’re in the process of rolling out our network and mobile towers. We’ve had a lot of surveys on various land and we are in talks with landowners, the federal and regional governments in regards to building our networks.”

The main challenge in the immediate term is that the earliest Safaricom can hope to launch M-Pesa will be in May while Telebirr will have had a head start of one year. Telebirr is also using its first-mover advantage well, having recently signed an agreement with a Ghanaian fintech company, Zeepay, to facilitate cross-border payments. This is a bold move to tap into Ethiopia’s large, influential diaspora market. says Ethiopian-American Zemedeneh Negatu, the global chairman of the Fairfax African Fund, a US-based investment firm:

“This is the last big unopened telco market in Africa and probably one of the very few in the world. It was closed off until last year, so I think for investors this is an excellent opportunity”.

Ethiopia is a promising but difficult market for Safaricom

Analysts expect Safaricom to target aggressive expansion in the local market based on a suite of products that includes data, voice, SMS, and mobile money. Safaricom leads a consortium that includes Vodacom Group (South Africa), Vodafone Group (UK), Sumitomo Corporation (Japan), and the UK’s development finance agency, CDC Group. The group, operating under the name the Global Partnership for Ethiopia, beat off a rival bid from South African telecoms giant MTN Group which made an offer of $600 million.

Though Safaricom’s original agreement with the government did not include mobile money, Ethiopia said the contract will be upgraded when a second telecoms license is issued but has now offered hope that this might come sooner for Safaricom – as early as May. Though the government has declined to give a reason for the delay in the issuance of licenses, experts believe that foreign telcos were concerned about the war in Ethiopia’s Tigray region. Patrick Heinisch, an emerging markets economist at Helaba commercial bank says:

“I fully suppose the reason behind the postponement is because of the conflict, because, at the time, there were announcements by western embassies to withdraw staff.”

The 15-month conflict gutted Ethiopia’s economy and left thousands dead, though there are recent signs of tentative peace. However, reports of indiscriminate government drone strikes and heated tensions between the Amhara, Afar, and Tigray regional governments over land in Western Tigray suggest that the crisis isn’t over just yet.

Challenges that Safaricom might face in Ethiopia

Despite the advantage Safaricom has over other operators due to its strong track record in the region, the household Kenyan company faces several additional challenges. One key difference between the two countries is that Ethiopia’s population is not as digitally-savvy nor as wealthy as Kenya’s. However, most analysts believe there will be strong demand for Safaricom’s services as Ethiopia’s population has been underserved for decades.

“Product adoption should be relatively easy, I don’t see resistance for consumers using their phones for banking like in mobile money,” says Negatu.

Safaricom’s main competitor is Ethio Telecom, a state-owned enterprise. Although the Kenya-based firm enters the market as the more dynamic player, Ethio Telecom is set to offer serious competition after the government proposed selling a 40% stake to a foreign entity – most likely French operator Orange.

An early sign of discord comes as Safaricom and Ethio Telecom have failed to agree on an infrastructure sharing agreement for telecoms towers. Ethio Telecom currently has around 7,500 telecoms towers but Ethiopia needs double that figure to cover 95% of the vast and mountainous country, Negatu says.

Regarding the infrastructure sharing with the state monopoly, Ethio telecom, Matthew explained that currently, they’re in the agreement negotiation stage which will result in win-win partnerships.

“We don’t have the agreement yet, we are still in the negotiation phase. Besides infrastructure, there is also a negotiation to enable Safari com Customers and Ethio telecom customers to call each other. So we’re in the process of negotiating the agreement to make it happen.”

Safaricom will look at sharing masts with Ethio Telecom and building new ones to extend services to hard-to-reach customers, he says, though this will be more problematic than in Kenya which is far less mountainous. Another immediate priority for Safaricom is extending the 4G network outside Addis Ababa where it is currently limited. Safaricom announced in January that it will build a prefabricated data center in Ethiopia’s capital city for $100 million.

The much-needed foreign investment has reignited hopes that Ethiopia will soon turn a page on its period of instability and conflict. Ethiopia’s Communication Authority (ECA) director-general believes the Safaricom-led consortium will invest $8 billion on critical infrastructure and services in Ethiopia over the next decade. Safaricom will officially launch commercial services in Ethiopia in April.

Ethio Telecom has bagged over 28 billion birrs ($520 million) revenue in six months that make up the first half of the budget year. The company has briefed the media on its business performance for the period of 1^st July 2021-December 2021. On the occasion, the CEO of Ethio Telecom Firehiwot Tamru stated that the company has been undertaking a wide range of projects and operations to expand telecom infrastructures and systems, improve the quality of service and increase the outreach of benefits to the community.

In addition to expanding its revenue streams, Ethio Telecom has devised a cost optimization strategy and managed to save over 12 billion birrs within the six months, the CEO said:

“This achievement is realized through network optimization works to enhance customer experience and satisfaction; offering 23 new and 19 revamped local and international products and services, generating 74.8 Million USD from international business and scoring 89.3% of the target.”

In this first half of the budget year, Ethio Telecom has garnered a total of 28 Billion birr revenue, which is greater than one-third of what Deloitte Consulting Limited offers for the whole company that is Ethio telecom. Ethio telecom is spent over a billion dollars over the last few years to upgrade its system.

source Capital Ethiopia, Fanabc, and Quartz