Telecom

Ethio Telecom Opens Up Capital: Key Strategic Challenges Ahead

Ethio Telecom Opens Up Capital: Key Strategic Challenges Ahead
Monday, 21 October 2024 16:44

This initiative is one of the outcomes of the national economic reform program launched by Prime Minister Abiy Ahmed in 2018, with support from the International Monetary Fund (IMF).

Ethio Telecom, Ethiopia’s incumbent telecom operator, is opening 10% of its shares on the local stock exchange. The move involves 100 million ordinary shares priced at 300 birr each (about $2.51), with the company aiming to raise 30 billion birr in total. The whole partial privatization plan will see 45% of the company’s capital sold, with some shares going to foreign investors.

By opening its shares to the public, Ethio Telecom hopes to raise substantial funds to modernize its infrastructure. This includes upgrades for 4G and 5G technologies, fiber optics, and extending services to rural areas. In H2 2024 and H1 2025, the company plans to expand 4G service to 500 more cities and launch 5G in an additional 15 cities. It also aims to implement 331 rural connectivity solutions, establish 165 mobile network sites, and create 496 sites to cover 1,000 rural neighborhoods. Furthermore, Ethio Telecom will construct 320,000 new optical distribution networks (ODN) to increase fixed network capacity for more customers. The metropolitan network will be extended by 1,553 kilometers, and the fiber optic network will grow from 21,800 kilometers to 22,200 kilometers, with a 25% increase in international gateway capacity.

With these improvements, Ethio Telecom could play a key role in the country's digital transformation. The company plans to introduce 260 new and improved products and services aimed at both individual customers and businesses. It also intends to provide over 1.1 million telecom devices to various users and invest more in digital services, including cloud computing, edge computing, the Internet of Things, data storage, and financial services over the next eight months.

The arrival of foreign investors, interested in Ethiopia's growing telecom market, could bring new skills, technologies, and international expertise, which would enhance service quality. This is a crucial response to the aggressive competition posed by Safaricom.

Transitioning from a public enterprise to a publicly traded company strengthens Ethio Telecom's credibility with international investors and financing institutions. The government's strong involvement in recent years has indeed raised doubts about the company's competitiveness and governance. Opening up to shareholders will also demand higher standards of corporate governance, financial transparency, and compliance with international norms.

The planned sale of 45% of Ethio Telecom's shares, with the first phase already initiated, is an opportunity to attract foreign currency, which is vital for funding equipment purchases and paying for expert services. Ethio Telecom has set a target of $282.85 million to be raised by July, when the current financial year ends.

Beyond its implications for Ethio Telecom, the partial privatization is also beneficial for the government. It allows for reduced financial support for the company, enabling it to operate more independently. One of the key points raised by the IMF during discussions about the Extended Credit Facility agreement sought by Ethiopia in 2018 was the need for structural reforms to enhance governance and efficiency in state-owned enterprises.

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