S1~

Telecommunications
in Ethiopia

by Abii Tsige

Do not quote without the permission of the author.

Columbia Institute for Tele-Information

Abii Tsigie and Girma Feyissa

The history of telecommunications in Ethiopia--from its introduction to the present

day--spans one hundred years. Since very little of this history has been documented,

this chapter will provide some basic facts and figures as well as a brief analytical

account of the development of the country's telecommunications sector. The chapter is

divided into three main parts:

(1) an introduction to Ethiopia giving brief accounts of its geography, economy,

resources, and population size and distribution; (2) a history of the development of the

telecommunications system, including the introduction of telecommunications services

into the country and the milestones of the early years (1894-1941), the sector's postwar

rehabilitation and expansion work, the evolution of the system's organizational

structure, and

the accomplishments and problems of subsequent package development programs; and,

finally, (3) a discussion of the future of telecommunications services in Ethiopia in

light of the objectives of the economic policy of Ethiopia's new transitional

government. We will conclude the chapter with some general observations and

recommendations for the future development of the sector.

1
1.0 INTRODUCTION

1. 1 The Country

Ethiopia is located in what is generally known as the Horn of Africa at the intersection

of the busy sea routes and crossroads that connect the African continent to the Middle

East and India. With an area of 1,112,032 square kilometers, Ethiopia is one of the

seven largest political entities in Africa and is bounded by Sudan to the west and

northwest, Eritrea to the northeast, Djibouti and Somalia on the eastern coast, and

Kenya to the south. The country's topography ranges between hilly uplands and

low-lying valleys, and the climate is divided into a dry season (November through

February) and two rainy seasons (a moderate rainy season between March and May

and a heavy rainy season between June and October).

1.2 The Economy

Agriculture is the mainstay of the economy, accounting for about 48 percent of the

country's GDP in 1994. The industrial sector, which includes mining & quarrying,

manufacturing, small scale industries and handicrafts, electricity and water as well as

construction, maintained a share of only 11 percent of GDP in 1994 showing a drop of

3 percent from the level it had reached a decade earlier. Services, consisting of trade,

hotels, transport and communications, banking, insurance, real estate, public

administration & defence, education, health and other related services, have increased

their share of GDP from 34 percent in 1984 to 41 percent in 1994.

2
 Throughout the 1980s, Ethiopia's socioeconomic development was seriously

affected by repeated droughts and civil strife. The droughts of 1984-85, in particular,

resulted in large-scale famine affecting millions of people. The internal conflict which

reached its peak in 1990/91, was also a major cause for the country's poor economic

performance of that period. By 1991, industries were on the average operating at 25

percent of capacity.

1.3 Resources

The most promising element in Ethiopia's physical resource base is its potential for

agricultural production. Only 14.5 percent of the country's 80 million hectares of

arable land is under identifiable crop production.

Ethiopia has some 75 million cattle, camels, sheep, and goats--the largest livestock

population on the African continent. In fact, livestock contributes about 40 percent of

the total value of Ethiopia's agricultural output, which is the equivalent of the combined

value of its wheat cereals, oilseeds, and other field crops. In the mid-1990s, there was

a substantial unrealized potential for increasing the value of the country's livestock

output.

In the mid-1990s, Ethiopia's energy sources were just beginning to be explored

for development. Hydroelectric energy from newly commissioned projects contributed

about 85 percent of the country's electric power in the mid-1990s, and a natural gas

resource had been discovered in the Ogaden region. Previously underexploited

3
minerals, especially primary gold, were also known to exist along with potential

resources of soda ash, tantalum, marble, potash, and base metals.

1.4 Population

The first census conducted in Ethiopia in 1984 showed the population to be 42.2

million, including Eritrea which became a separate state in May 1991. Assuming a 3.1

percent growth rate and other factors remaining constant, the population was estimated

to have reached 52.5 million at the end of 1991. Forty-six percent of the country's

population are under fifteen years of age, and in 1984 the country's total fertility rate

was about 7.5 per woman with a death rate estimated at around 15.2 per thousand

population. According to a

1984 Central Statistics Office report, life expectancy at birth in Ethiopia was about 51. 9

years.

Eighty-six percent of Ethiopia's population was engaged in rural-based

economic activity in the mid-1990s, mainly in agriculture in the highland areas. About

3 percent of the rural population lived in the lowlands and was engaged primarily in

raising cattle. The urban population, which is concentrated in a few towns, was

growing at an annual average of 5.5 percent in the mid-1990s, and at the end of 1994,

the total urban population was about 8.4 million. (Central Statistical Authority,

Statistical Abstract 1990). Roughly 26.1 percent of Ethiopia's urban population lives

in Addis Ababa.

4
2.0 ETHIOPIA'S TELECOMMUNICATIONS: THE PAST

2.1 Early Years (1894-1941)

Because Ethiopia had no colonial history--except for a brief five-year occupation period

between 1935 and 1941,--the history of the country's telecommunications sector can be

roughly divided into the "early years" and a "postwar period." Telecommunications

service was introduced in Ethiopia in 1894 during the rule of Emperor Menelik II. The

first major telephone line construction spanned a total distance of about 4 77 kilometers

and connected Harrar, a major trade center in the eastern region, with Addis Ababa,

the capital city. The line, which took only two years to construct, also interconnected

small towns situated along the route. Immediately after the telephone line, a telegraph

line was installed following the construction of the first and only railway line in the

country--the Ethio-Djibouti railway. Within two years, an 880-kilometer north-south

telephone line connecting Asmara the capital of Eritrea, to Addis Ababa was

constructed and made operational in 1904. The "verbal repeater" system was used to

facilitate long distance calls, making use of the several intermediate stations opened at

the small towns and villages along the route.

Several routes branching out from Addis Ababa to connect provincial

administrative centers and major towns were being extended in advance of the

construction of the road network. Pack animals were used to transport material and

5
equipment. By 1930, a route distance of 7,000 kilometers was completed and over 170

towns were being served by the telephone network. The development of Ethiopia's

long distance telephone network, particularly in reaching the country's strategic areas

and border towns, was a remarkable feat given the rugged terrain and the absence of

modern transport systems. International communication services, however, took longer

to develop. Until the end of 1930, Asmara and Djibouti, both under colonial rule at the

time, were the only two locations with international connections.

Administratively, Ethiopia's communications system was run by an office in the

Imperial Palace--where it was accorded the direct attention and supervision of the

emperor aided by the assistance of foreign experts (who in 1907 were replaced by

Ethiopians). In the early years of the 19th century, a group of French experts

undertook a project to study and restructure Ethiopia's telecommunications and postal

administrations. This took more than two years (1909-11) and became the cornerstone

for the establishment of the country's Ministry of Posts, Telegraph, Telephone. As the

century progressed, demand for telephone service grew at a rapid pace, and new

stations extending in different directions were added in various parts of the country.

Meanwhile, hostilities among the competing colonial powers--Britain, France,

and Italy--were growing in the Horn of Africa, putting Ethiopia's sovereignty and

independence in a precarious position. The Emperor was forced to move fast and took

action to safeguard the country's sovereignty. A member both of the League of

Nations and since 1932 the International Telecommunications Union (ITU), Ethiopia

6
consequently took steps to free itself from a dependence on the foreign administration

of its international traffic. By 1934, Ethiopia had established direct radio telephone

links with Cairo, Djibouti, Aden, and London and soon after established a radio

communications training center for Ethiopians in order to replace the expatriates

handling the nation's traffic (which included confidential state affairs).

When war inevitably broke out and the fascist powers invaded Ethiopia,

telecommunications facilities were targeted for destruction to deprive the resistance

forces of access to information. Most of Ethiopia's telecommunications installations

and facilities were destroyed and both local and international communications

disrupted. Realizing, however, that telecommunications links were vital to their

operations, the Italian forces soon made efforts to restore what they had destroyed. In

their turn, Ethiopian resistance forces put these rehabilitated lines out of service and

disrupted restoration efforts. Despite their earlier efforts, toward the end of the period

of occupation the Italians had begun to restore Ethiopia's telecommunications system,

installing automated telephone exchanges in Addis Ababa and Asmara (with a capacity

of 1,500 and 1,200 lines, respectively). By 1941, as the Italian forces finally fled the

country, they destroyed the telephone service in approximately one hundred Ethiopian

towns, which they themselves had restored. As a result, by the end of the war only a

handful of Ethiopia's stations were functioning, and then very poorly.

2.2 Rehabilitation and Expansion of the Network (1941-73)

7
2.2.1 The Early Postwar Period

The history of the initial period of postwar teleconnnunications in Ethiopia is essentially

a history of network rehabilitation and restoration. The Ministry of Posts, Telegraph,

and Telephone was reestablished, and the enormous task of reconstruction began

shortly thereafter. Some of the country's distant stations were provided with temporary

service by radio telephone, and the radio transmitting station at the southwest end of

Addis Ababa was rehabilitated and placed back in service. But the task of

rehabilitating the damaged infrastructure in all sectors of Ethiopia's economy was huge

and almost insurmountable. Since funds and skilled manpower were unavailable in

sufficient numbers, international aid agencies had to be approached. In April

and May 1950, first International Bank of Reconstructions and Development (IBRD)

mission (which consisted of the organization's founder, Eric Beecroft, and other bank

officials) came to Ethiopia to conduct an investigation of the possibility of reforming

the ministry and creating an organization entrusted with the sole responsibility of

restoring and extending Ethiopia's telecommunications services. (The technical part of

their study was actually made by a group of experts of the International Telephone and

Telegraph Corporation [ITTC].) The study proposed a short-term (three-year) US$2.2

million investment program to be carried out as an initial rehabilitation project. It also

proposed the establishment of a semiautonomous teleconnnunications body charged

with the maintenance and development of the country's teleconnnunications network.

8
2.2.1.1 Establishment and Evolution of IBTE

In 1952, the proposals made by the ITTC's technical experts were accepted, and the

establishment of the quasigovernmental Telecommunications Board was approved by

the Ethiopian government. Subsequently, the Imperial Board of Telecommunications

of Ethiopia (IBTE) was established as a chartered organization by Proclamation No.

131 in October 1952. The organization was to be independent of the Ministry of Posts,

Telegraph, and Telephone and had the following main objectives:

to rehabilitate, extend, and maintain Ethiopia's telecommunications

facilities and to engage on a for-profit basis in the civilian telecommunications

business;

to act as an agent for the Ethiopian government in all matters

relating to telecommunications services in and outside the country;

and

to establi y appropriate training procedures and a training institute for

present and future board personnel.

In addition to these specific objectives, the IBTE's overall purpose was to

provide and efficiently maintain satisfactory telecommunications services for the

general public. In order to achieve these objectives and meet the ever growing demand

for services, the IBTE has periodically undertaken structural reforms and

modifications to its organization.

9
2.2.1.2 Reorganization Efforts

The Imperial Board of Telecommunications of Ethiopia (IBTE) began operations as an

autonomous body on 1 January 1953 with an organizational structure appropriate to its

functions at the time. This first organizational arrangement, which took effect in

March 1953, remained in place for about a decade. Under this structure, decision

making was highly centralized--partly because of the shortage of highly skilled

manpower and partly due to the need for both closer follow-up and stronger control of

activities.

The most recent change to the IBTE--which is still in force--took place in 1971.

A new hierarchical structure extending from the General Manager to departments,

divisions, regions, branches, areas, subareas, sections, and units or offices was

established under the name Ethiopian Telecommunication Authority (ETA), which was

comprised of the following three departments and respective divisions:

I. Finance and Supply Department

Finance Division

Supply Division

II. Operations Department

Traffic Division

Maintenance Coordination Division

10
 Seven Regions (Central, Northern, Eastern, Western,

Northwestern, Northeastern, and Southern)

III, Engineering Department

Radio Division

Telephone Division

Civil Engineering Division

In addition to the departments, other divisions (the Administrations Division

and the Planning and Programming Division) and offices (internal audit, public

relations, legal service, and so on) directly responsible to the office of the General

Manager were established:

The organizational strncture created in 1971 is now over twenty-three years

old, and since then a considerable number of changes have taken place in the field of

telecommunications. The number of subscribers, for example, has almost doubled and

in the 1990s demand continued to grow quickly. The types of services offered and the

area of coverage provided has also expanded, and rapid advances in

telecommunications technology have presented new challenges and responsibilities.

The ETA will have to reorganize itself to face these challenges and live up to the

expectations of the coming years. To this end, a thorough study was carried out by the

Authority in the early 1990s and submitted to the Board of Directors for consideration.

11
After a long delay, the proposed structure was rejected and a new Group was formed in

1994 to carry out a new study and come up with an alternative proposal.

2.3 Recent Telecommunications Development

It has been nearly one hundred years since the telephone was introduced in Ethiopia

and about four decades since a systematic approach to the development of the country's

telecommunications was adopted. In that time, many observers, including the World

Bank (see, for example, its World Development Report, 1983) have rated Ethiopia's

achievements in the telecommunications sector in relation to other developing countries

as good. Indeed, in terms of telephone density, quality of service, labor productivity,

and affordability, the Ethiopian telecommunications service compares favorably with

many African countries.

In the mid-1990s, however, Ethiopia's economic development, as measured by

indicators such as GDP, was still one of the lowest in Africa. The structure of the

country's economic production in the mid- 1990s has changed very little since the

early 1980s, with agriculture's share of GDP at 48 percent, industry's (consisting of

manufacturing, electricity, water, construction, and mining) at only 11 percent,

services at a respectable 41 percent, . By comparison, according to the World

Development Report of 1989, the GDP share of agriculture and industry in subsaharan

Africa was 31 percent and 26 percent, respectively, in 1987.

As the figures in Table 2.1 clearly indicate, Ethiopia's industrialization is still

12
in its infancy. The agricultural sector is dominated by subsistence production, for

example, and the value-added of the services sector comes mainly from wholesale and

retail trade as well as from public administration and defence.

In 1991, telecommunications contributed about 1 percent of Ethiopia' s

GDP--not an unexpected figure for an economy characterized by subsistence

agriculture. On the other hand, the vital role telecommunications services play in

economic development can only be determined by accounting for both its direct and

indirect contributions, such as the rise in productivity and efficiency of other economic

sectors as a result of the increased availability of reliable telecommunications services.

Ethiopia's pattern of investment in telecommunications closely follows the

movement of the country's gross domestic investment. Because Ethiopia has been the

scene of a series of protracted internal conflicts and recurrent droughts over the last

two decades, it is not surprising that its rate of gross fixed capital formation as a

percentage of GDP has been four percentage points lower than the rate for subsaharan

Africa (roughly 11 percent versus 15 percent, respectively). During the same period,

Ethiopia's rate of investment in telecommunications has fluctuated at around O.4

percent of GDP.

13
Table 2.1 GDP, GFCF. and Telecommunications Investment

(in millions of Birr*)

Year 1983 1985 1987 1988 1989 1990 1991 1992* 1993*

GDP at market prictl 97W 9924 l 1399 I 1851 12414 12586 12772 12363* !3884

GFCF at marktt price

Teknm Investment
1240

IO
1540

16
1797

70
1873

50
""'
60
1534

23
l420

38
!088

17
2221

68

Teknm Investment as percentage of GDP 0.18 0.16 0.61 0.42 0.48 0.18 0.30 0.14 0.49

Teknm Investment as percencageof GFCF 0.8 1.0 3.9 2.7 3.6 1.5 2.7 1.6 3.1

Telcom contribution: percentage of GDP 0,61 0.76 0.88 0.92 0.73 0.85 0.91 9.92 0.911

Source; ETA's Statistkal Bulletins (1987-93); ONCCP Plan documents (1985-93): Revise'<!serie., of National accnunl~ statistics of Ethiopia Advance Summary Re]lllrt (A

Drafi) * Exclude£ Eritrea

Note: The Birr is the Ethiopfan currency. Before !ts llevaluatinn in 1992, l US $ = 2.07 Birr. The official exclmngc rnte al the end of 1994 wa.~ 1 US$ = 5,90 Birr.

Since its inception, the ETA' s investment activities have been carried out

through the "development program" approach. The achievements of this approach and

the problems the ETA has encountered in the investment process are described briefly

in the following sections.

2.3.l The First Four Telecommunications Development Programs (1958-73)

Since the establishment in 1953 of what was then known as the Imperial Board of

Telecommunications of Ethiopia (IBTE) (currently known as Ethiopian

Telecommunication Authority or ET A) as a semiautonomous organization, six

development programs have been carried out in Ethiopia. During the first four

development programs, implemented between 1958 and 1973, a total investment of

US$50.2 million was made. These development programs were financed partly from

14
the Board's own funds (45.4 percent) and partly from external sources--28.8 percent

from an International Bank of Reconstructions and Development (IBRD) loan, 22.3

percent from a Swedish International Development Agency (SIDA) loan, and 3.5

percent from a USAID grant.

By the end of the Fourth Telecommunications Development Program,

Ethiopia's telephone service had reached 343 cities and towns and there were 47,263

telephone subscribers, a total of 63,689 telephones, and 271 telex subscribers.

2.3.2 The Fifth Telecommunications Development Program (1974-79)

The Fifth Telecommunications Development Program (FTDP) was originally planned

to be implemented during the 1974-79 five-year period. The actual implementation of

the program, however, began in 1975 and lasted until 1984. During this period

Ethiopia experienced major political and economic difficulties. Widespread internal

conflict and foreign aggression had already exacerbated the country's shortage of such

critical development inputs as construction materials and foreign exchange. On the

international scene, the late 1970s and early 1980s was a period in which the price of

both oil and manufactured goods was rising rapidly. The value of the Japanese yen

was also rising, making Japanese equipment harder for the ETA to afford.

Although the total planned capital outlay for the Fifth Program was close to

US$62 million, the actual expenditure was over US$72 million. Urban exchanges

alone required 52 percent more than the planned outlay.

15
The achievements of the FTDP can be summarized as follows:

ten new automatic exchanges with a total line capacity of 32,200

were installed;

the capacity of existing exchanges in eighteen towns (including

the capital city) was raised by a total of 22,000 lines;

subscriber trunk dialing service was introduced into six towns;

a total route length of 1,917 kilometers of microwave radio

relay system, linking a number of regional capitals to Addis Ababa,

was established;

a satellite earth station and an automatic telex exchange were put

into service to cater to international routes. By June 1985 Ethiopia had

direct satellite links with a total of thirteen citiesin Africa, Asia, Europe, and the

United States; and direct microwave links were established with Djibouti,

Kenya, and Tanzania.

2.3.2.1 Financing the Fifth Development Program

The FTDP required about US$38.6 million in foreign exchange and US$21.8 million in

local currency. The foreign exchange was mainly raised through external borrowing

from the International Development Association (IDA), which extended a soft loan

amounting to US$34 million. The rest was provided by internal resources.

16
 Ethiopia's previous development programs had been financed by the ETA's

own funds as well as by loans from the IBRD and, to a lesser extent, SIDA.

2.3.3 The Sixth Telecommunications Development Program (1984-91)

The Sixth Telecommunications Development Program (SXTDP), which was originally

planned for 1984-88, was extended to 1993 for a number of reasons, the most

important being inadequate implementation capacity, shortage of construction materials

and foreign exchange, and delays in the mobilization of funds from donors. The

SXTDP differed significantly from the FTDP in the amount of capital expenditure

planned, in the targets it set out to achieve, and in the level of technology employed.

The total investment of the SXTDP amounted to US$150 million, 150 percent

higher than that of the FTDP. Of the total expenditure of US$150 million, imports of

equipment and machinery (switching, network, transmission, and auxiliary equipment)

as well as vehicles and supporting materials accounted for 65 percent.

The SXTDP set out to raise the country's telephone exchange capacity from

123,900 at the beginning of 1984 to 195,000 lines in 1988. The actual figure for the

target year was 125,665--35.6 percent short of the goal. Similarly, subscriptions were

expected to grow at an average annual rate of 12 percent from 89,544 in June 1984 to

140,000 direct exchange lines (DELs) in June 1988. However, the actual number of

subscribers in 1988 was 24.3 percent below target.

Given the overall weakness in Ethiopia's economic performance in the second half

17
of the 1980s and the ETA's inability to attract adequate funds in time, the actual

achievements of the SXDTP can be rated as satisfactory. Other achievements of the

SXDTP included the following:

subscriber trunk dialing facilities were extended to twenty-seven

towns--an increase of 69 percent on the figure at the beginning

of the program;

rural telecommunications penetration was raised by opening an

additional 150 public call offices;

international direct dialing was introduced in some exchange

areas; and

the second satellite earth station (standard A) working with the

Indian Ocean satellite space segment was established in 1986.

2.3.3.1 Financing the Sixth Development Program

The SXTDP was financed partly by the ETA's own funds and partly by external credit.

The ET A's own funds covered all of the local expenditures, amounting to US$48.4

million. The foreign exchange component of the total investment-- amounting to

US$102 million--was acquired from four external sources. The main sources were the

IDA, which contributed US$40 million, the African Development Bank (ADB) and the

Government of Italy, which each extended a loan of US$25 million, and the

Government of Sweden, which had a share of US$12 million.

18
2.3.4 The Seventh Telecommunications Development Program (1992-97)

In line with the ET A's longstanding practice of guiding its development activities via

five-year development programs, the Seventh Telecommunications Development

Program (STOP) received the government's approval for implementation in the early

1990s. Originally planned for implementation between 1990 and 1994, the STOP was

rescheduled for implementation during the period 1992-93 to 1996-97. Implementation

actually began in 1993.. Its major objectives were the following:

to extend basic telecommunications services to as many rural

communities as possible;

to provide telephone connections to as many urban customers as

would help narrow the existing demand/supply gap;

to improve the quality of service by upgrading as many

switching offices as was economically viable from manual to automatic

operation and maintaining the fault rate at a realistic minimum; and

to improve the international telecommunications service by

increasing direct links to additional countries in keeping with Ethiopia's

economic and cultural ties.

To accomplish these objectives, the STOP outlined a number of strategies that

included the following steps:

expanding existing facilities and installing new ones;

19
 reviewing the organizational structure with a view to adapting it

to changing needs;

improving the quality of service through proper maintenance of

plants and proper circuit dimensioning;

establishing a centralized maintenance workshop to effectively

undertake the maintenance of the new generation of equipment and

plants; and

expanding and upgrading the Training Institute so that more

extensive and higher level training could be offered.

Under the STDP the total number of telephone stations in Ethiopia, including

public call offices and manual and automatic exchanges, was projected to increase from

522 in June 1992 to 672 in June 1997--an increase of 150 new stations (see Table 2.2).

The number of stations with automatic exchanges alone was projected to rise from 35

in June 1992 to 58 in 1997. Total exchange capacity was to grow at an average annual

rate of 15 percent to reach 340,070 lines in 1997. Most of the projected increase

(158,592 lines) would be from automatic exchanges.

2.3.4.1 STDP: International Telephone Service

Table 2.2 Major Targets of the Seventh Telecommunications Development Program

20
 Item 1992-3 1996-97 Growth Rate ( %)

Telephone subscription 140,959 248,512 12

Automatic 122,628 233,080 14

Manual 18,331 15,432 -3

Telephone 175,168 309,018 12

Exchange Capacity 165,598 340,070 15

Automatic 141,108 299,700 16

Manual 24,490 40,370 10

Telephone stations 522 672 5

Automatic 35 58 11

Coin Boxes 1,130 2,273

15

Telex subcription 1,006 1,605 10

Source: ETA: Seventh Development Program (1992-93 to 1996-97), Vol. II

Using trend analysis, the STOP also assumed that the number of telephone

subscribers in Ethiopia would grow at the rate of 12 percent per year. However,

because the supply of telecommunications facilities has historically been highly

constrained by a number of factors, notably the shortage of foreign exchange,

21
projecting growth rates on the basis of historical data is far from an accurate way of

reflecting the dynamism of the market. The size of the Ethiopia's telephone subscriber

waiting list is extremely high (standing in the mid-1990s at 92 percent of total

connected lines and growing at 14 percent per year), and at the rate subscriptions were

forecast to increase, about seven years would be required just to clear the backlog. It

would be a commendable achievement indeed if the STDP succeeded in maintaining

the current gap between expressed demand and main line connections.

In the mid-1990s, two standard A earth stations working with the INTELSAT

system--a semi- and fully automatic gateway digital telephone exchange and a fully

automatic electronic telex exchange--provided international telephone and telex services

in Ethiopia. Both satellite and microwave circuits were used for international links, the

latter mode being limited to links with neighboring countries. In June 1991, Ethiopia

had direct satellite links with seventeen countries. Of these, only one (Ivory Coast)

was in Africa, seven were European Economic Community member states, and three

were Middle Eastern countries. Over 75 percent of Ethiopia's satellite circuits in 1991

were with France, Italy, Saudi Arabia, the United Kingdom, and the United States.

During the STDP, most of the investment allocated for international service

was expected to go toward increasing the number of circuits on existing links. The

number of direct telephone circuits was expected to increase from 249 in 1992 to 349

by the end of the program. Direct telecommunications links with Sudan and Somalia,

based on microwave radio relay systems, were also planned. In addition, Ethiopia

22
accounted for two missing links on the PANAFTEL network that Ethiopia and its two

neighbors were expected to complete as part of the PANAFTEL Project

2.3.4.2 STOP: Telex Subscription

With the expansion of microwave and UHF links, additional Ethiopian towns were

expected to be provided with telex service under the STOP. However, most of the

growth in telex connections would result from the addition of subscribers in cities and

towns already having telex service. The STOP envisaged a 10 percent annual growth

in telex subscriptions.

Ethiopia's international telex service was also expected to show significant

growth as a result of the diversification of international links under the STOP. Under

the plan, the satellite link that carried the largest volume of international telephone and

telex traffic was to be increasingly augmented by microwave and submarine cable

links. Since 1991, Ethiopia has acquired circuits on the submarine cable system that

links Southeast Asia, the Middle East, and Western Europe (popularly known as

SEA-ME-WE). The average annual rate of growth of international telex traffic during

the STOP was forecast at 9 percent.

The STOP also included other services such as facsimile and data

communication, which although already introduced as public services had not been well

developed through the mid-1990s. In addition, mobile telephony, which is not yet part

of the services provided by the ETA, was being considered for introduction in the near

23
future. Facsimile service, which is officially provided by the ETA and unofficially by

a few private operators, was expected to be upgraded during the STDP from the

current speed standard of one A4-size page every three minutes to one A4-size page

per minute. Data communication, which is currently limited to low- and

medium-speed transmission on point-to-point leased circuits, was expected to be

expanded to include switched data services under the STDP. In the early

1990s, Ethiopia's telex exchange was improved to accommodate data services at 4,800

or 9,600 bits per second.

2.3.4.3 Financing the Seventh Telecommunications Program

In the early 1990s, the ETA estimated that implementation of the STDP would

require a total investment of about US$250 million, of which US$170 million would be

in foreign exchange. According to the financing plan laid out in the program

document, the foreign exchange component of the investment was expected to come

from external lending agencies. Since preceding development programs have been

financed through external loans, the ETA was optimistic about the possibility of

employing a similar mode of financing for the STDP.

The remaining US$80 million, which will be required in local currency, was

expected to be drawn from internal resources--for the most part from the ETA's own

funds. As laid out in the program's financing plan, the ETA is capable of generating

adequate funds from its net earnings and depreciation funds to cover the capital

24
expenditures required in local currency. Components of capital expenditure in local

currency include local purchases, civil works, labor, and other expenses that do not call

for importation of goods and services.

The STDP was expected to attract adequate funds from external sources.

However, despite the ETA's efforts to secure loans with favorable terms and

conditions, by 1994 it had managed to obtain only US$ 64 million from the African

Development Bank. There were indications, however, that the other financing

institutions involved in past programs, such as IDA, might also once again assist in

financing the STDP.

3.0 CURRENT STATUS OF TELECOMMUNICATIONS IN ETHIOPIA

3 .1 Services

Major telecommunications services offered by the ETA include telephone,

telegraph, telex, and facsimile. Ethiopia's telephone service is by far the most

important telecommunications sector service in terms of revenue generation and

coverage (see Table 3.1). In 1991, local, long distance, and international telephone

services had a combined share of 90 percent of the country's total telecommunications

gross revenue. Telegraph and telex together accounted

for a mere seven percent of the 1991 revenue. Other services including facsimile had a

negligible share of revenue in the early 1990s.

25
Table 3.1 Revenue and Expensesby Type of Services

(in millions of US Birr)

AnnualGrowth

Item 1985 1987 1989 1990 1991 1992 1993 Rate%

Revenue I05 ll9 127 152 187 192 215 10

UrbanTelephone 44 52 53 62 71 72 83 8.3

Interurban&

InternationalTelephone 43 48 52 70 97 IO 155 14.5

Telegraph& Telex 14 15 19 17 14 IO 12 0

Others 3.5 3.5 2.9 2,6 5,2 3 3.7 6.8

Expenses** 84 97 111 130 146 148 204 9.7

UrbanTelephone 15.4 19.4 24 30.3 30.5 28 34.6 12.1

Interurban&

InternationalTelephone 11.5 12 15.4 16.9 16.6 16.7 19.1 6.3

Telegraph& Telex 5.5 5.6 5.4 6.2 6.8 6,4 6.9 3.6

Others 51 60 67 77 92 97 144 10.3

Net Profit 21 22 16 22 41 44 50 12

Source: ETA: StatisticalBulletins(1989-93); ETA: 40th AnnualReport(1991-92)

**Includesprofit tax.

The 1992 and 1993 figuresdo not includethose of Eritrea, hence are not includedin the

growth ratecalculations

Ethiopia's local, long distance, and international telephone traffic grew at an

average annual rate of 10 percent, 9 percent, and 25 percent, respectively, between

1980 and 1991 (see Table 3.2). Local and long distance telephone services, although

more mature than the international services, have more potential for growth, as the

huge unsatisfied demand for these services indicates. With the installation of the first

26
satellite earth station in 1979, the importance of the international service grew. Today,

it is the fastest growing service, with two earth stations, microwave links, and a

submarine cable used for international services.

Table 3.2 Telephone, Telegraph, and Telex Traffic Trends

Average Annual Growth

Item 1953 1980 1985 1989 1990 1991 1992 1993

Rate*%

Telephone traffic

Local (mn) 10 194 295 312 362 396 424 471

lO

Long distance (TH) 190 3428 4318 4644 4364 4427 3000 3700

International (mn min.) 0.8 2.1 4.7 4.3 8,9 10.1 10.9

25

Telegraph traffic

Inland (TH) 125 158 252 269 291 257 140 150 2

International

(outgoing mn) 77 47 17 16 14 13 7 5

-13.2

Telex traffic

Inland (mn) - 329 730 1097 1114 860 340 340 9

International (fH min.) - 563 1057 1121 1020 800 670 570 3

Source: ETA: VIIth Development Program, VoL II

ET A: Annual Statistical Bulletin (1992/93)

Key : mn = million calls, min = minutes

27
 TH = Thousand

The l 992 and l 993 figures do not include those of Eriterea, as a result some

of the figures show sharp falls.

* Average Annual growth rates have been calculated excluding 1992 and 1993

In Ethiopia in the mid-1990s, the telegraph service, which in the remote past

was the only mode of message communication, was no longer a growing industry.

While inland telegraph traffic increased at an average annual rate of 10 percent

between 1980 and 1987 (followed by a downward slide of 4.6 percent per year between

1987 and 1991), outgoing international telegraph traffic decreased, falling at an average

annual rate of 13.2 percent between 1980 and 1991. Ethiopia's telegraph service was

expected to become even less significant as the availability of improved telephone,

telex, and facsimile services grows.

Telex traffic used to be one of Ethiopia's fastest growing services until internal

conflict along the main trunk route linking the capital and the second largest city,

Asmara, disrupted services, including all economic and social activities. Between 1980

and 1986 inland and international (outgoing) telex traffic grew at an average annual

rate of 18.9 percent and 11.3 percent, respectively. Although both services

experienced cyclical patterns in the following years, 1991 was the worst year, with

inland and international telex traffic diving by 29.5 percent and 27.5 percent,

respectively, from the previous year, mainly as a result of a civil war that engulfed

half the country. In May 1991, after years of bloody battles, the former government

was forced out and a new interim government formed.

28
 Facsimile service is in its infancy in the Ethiopian telecommunications network.

Introduced as a public service in 1988, it had attracted over seven hundred subscribers

by 1993 and this figure was increasing at a rapid rate. Although it is too early for a

clear growth pattern to have emerged, facsimile service was expected to be an area of

rapid growth.

Another recent addition to services provided by the ET A is data

communication. With a handful of subscribers served with leased circuits and

generating limited data traffic, public data networks are just beginning to be important.

Since its introduction in 1987, only low- and medium-speed data transmission service

based on point-to-point leased circuits has been provided in Ethiopia. Switched data

network service was expected to be provided in

the near future as the demand for connections to such service increased rapidly--20

percent per year in the mid-1990s.

3.2 Network

The Ethiopian telecommunications network consists of an integrated system of

cables, manual and automatic exchanges, VHF/UHF and microwave radio relay

systems, satellite earth stations, and customer premises equipment.

3 .2.1 Telephone Density

The total number of DELs in Ethiopia in June 1993 was 132,000, resulting in a

29
density of 0.25 DELs per one hundredinhabitants(see Table 3.3). In the same year

the total numberof telephoneapparatuseswas 160,000, equivalentto a density of 0.31

telephonesper one hundredinhabitants--avery low penetrationrate even by African

standards. In 1987, the averagedensity ofDELs for Africa was 0.76 per one hundred

inhabitants.

Table 3.3 TelecommunicationsTrends: Selected Indicatorsof Growth

Item 1953 1980 1985 1989 1990 1991 1992 1993 Rate%

Telephonesubscription*4 64 96 !16 125 133 127 132 10

Apparatus* 5 86 !19 146 156 164 154 160 10

ExchangeCapacity* 80 124 162 171 176 164 169 7

Telex Subscribers 416 670 920 971 1003 880 912 8

Tel. Stations 65 398 476 494 506 512 466 475 6

WaitingSubscribers* 91 109 123 22 141 16

Fax Subscribers I !I 233 247 506 745 49

Staff/1000DEL 71 56 50 48 45 43 40

Fault/DEL 1.5 1.4 1.3 1.3 1.3

DEL/100 Population 0.17 0.22 0.23 0.25 0.26 0.25 0.25

Source: ETA: AnnualStatistical-Bulletins(1990-1993)

*in thousands

*The 1992 & 1993 figuresdo not includethose of Eritrea,hence the sharpdropin 1992.

30
 Of Ethiopia's total 1993 DELs, 89752 or 68 percent were in Addis Ababa, and

3785 or 2.9 percent were located in Diredawa, the second largest city. These two

cities together acconnted for only 4.5 percent of the country's population and 36

percent of the urban population.

In 1993, there were 475 public telephone stations in Ethiopia--or one telephone

station for every 2,341 square kilometers of land surface and over 90,000 rural

inhabitants. Because of the nonuniform distribution of these stations, however, there

are areas of Ethiopia where one telephone station must cover an area greater than 7,800

square kilometers.

The growth of exchange capacity in Ethiopia is far below the growth of

demand for telephone services. In 1993, there were 141,000 registered waiting

subscribers--the equivalent of 107 percent of the total connected lines. At the planned

connection rate of about 21,000 DELs per year, it will require about seven years just to

clear the backlog of registered telephone demand.

3 .2.2 Switching Capacity

Exchanges used in Ethiopia's telecommunications network can be categorized into three

types: manual, electromechanical, and electronic (digital). In June 1993, of the

country's total exchange capacity of 169,000 lines, 16 percent were manual, 46 percent

were electromechanical, and 38 percent were digital. The first digital exchanges were

31
installed during the Sixth Teleconnnunications Development Program.

3 .2.3 Transmission Facilities

The Ethiopian teleconnnunications network uses a combination of traditional and

modern transmission media. Most of the 506 cities and towns with telephone services

are interconnected with open wire lines as are all links carrying light traffic between

small- to medium-sized towns. The backbone of Ethiopia's long distance transmission

system is the 960-channel microwave radio relay system. Secondary routes, far from

open wire lines, are served by VHF and UHF systems.

3.2.4 Quality of Service

Faulty equipment, inadequate capacity (resulting in congestion in automatic

exchanges and canceling of booked calls in manually switched public offices), and

operational inefficiency affect the quality of Ethiopia's telecommunications service.

With respect to other African countries, the ETA's network had 1.53 faults per DEL in

1986 according to the ITU, which was lower than the fault rate in nine other African

countries. However, this was not necessarily an acceptable fault rate even for a

developing country: in 1986, more than ten subsaharan African countries had fault

rates per DEL of one or less. In 1993, the ETA reported a fault rate of 1.3 per DEL.

3.2.5 Financial Performance

32
 The 1980s was a period of financial difficulty for many state-owned enterprises

(SOEs) in Ethiopia. Some SOEs in the manufacturing sector, for example, reported

losses for consecutive years, and others had rates of return below the prevailing interest

rate.

Table 3.4 ETA's FinancialPerformanceIndicators

(in millionsof Birr)

Average Growth

Description 1975 1980 1985 1989 1990 1991 199J** Rate%

1. Revenue 35 48 105 127 152 187 192 215 II

2. Expense*

(withoutinterest) 27 37 75 95 91 130 132 150 IO

3. Net Profit 8 II 30 32 61 57 60 65 13

4. Avg Net Fixed Asset 72 81 133 166 204 229 222 225 7

5. RORon Asset

(3/4 x 100) II 13 23 19 30 25 27 29

6. CurrentAsset 39 72 137 174 219 211 200 190 II

7. CurrentLiability 12 41 56 54 56 66 217 236 II

8. Current Ratio (5/6) 3.2 1.8 2.4 3.2 3.9 3.2 .92 0

9. Total Asset 122 213 282 462 484 567 586 477 10

10. Long-tennDebt 29 62 43 186 186 193 161 133 13

11. Net-Asset

{7-(6+8)} 81 110 183 222 242 163 190 239 8

12. AssetCoverageRatio

(9/8) 2.8 1.8 4.2 1.2 1.3 1.4 1.2 1.8

Source: ETA: Annual Reports(1990 and 1993) andVIIthDevelopmentProgram.

* Expenseincludesprofittax

33
** The 1992 and 1993 revenueand expensefiguresdo not includethoseof Eritrea.

The ETA is one of the few SOEs that has registered a reasonable rate of return

for consecutive years since 1980. Table 3.4 shows the ETA's financial position since

1975. Its gross revenue grew from Birr 35 million in 1975 to Birr 187 million in

1991, an average growth rate of 11 percent per year. The increase in revenue derived

mainly from telephone services, which accounted for 90 percent of gross revenue in

1991. Expenses (excluding interest) increased from Birr 27 million to Birr 130 million

in the same period and grew at an average annual rate of 10 percent.

The ETA's average rate of return between 1975 and 1980 stayed at around 13

percent, a couple of percentage points higher than the prevailing interest rate. With

the introduction of a new tariff in 1980, the rate of return started to improve,

maintaining since 1983 an average annual rate of 20 percent. Table 3.4 also shows two

financial ratios that illustrate the ETA' s ability to meet its currently maturing debts and

to potentially borrow additional funds on a long-term basis.

The liquidity ratio, which had generally stayed over 2 since the mid-1970s,

rose sharply beginning in 1985, as a result of the buildup in inventories of investment

items at the beginning of the Sixth Telecommunications Development Program.

Since 1987, the ETA's asset coverage ratio has declined rapidly after reaching

highs of 4.2 and 3.4 in 1985 and 1986, respectively. This decline was not an

34
indication of a long-term financial difficulty, however, but a natural byproduct of

Ethiopia's development programs: the rise and fall of the asset coverage ratio

following the sharp rise of one of the components of the ETA' s assets and the phasing

out of a long-term debt are cyclical patterns observed around the beginning and end of

the development programs.

The ETA has steadily improved its bill collection performance. Collection of

sales as a percentage of the collectible amount rose from 72 in 1985 to 80 in 1988.

The rather high outstanding balance was mainly caused by bills not settled by

government organizations who complained of budgetary constraints.

The ET A is legally expected to contribute to government revenue in a number

of ways. These include customs duty and municipal tax on imported goods, income

tax, sales tax, capital charge, and residual surplus. Of these, the ETA has dutifully

settled only customs duties, income tax, and sales tax. Customs duties amounted to 24

percent of CIF (Assab) until 1992 when it was lowered to 17 percent and income tax

to 50 percent of gross profit. Because of the controversy surrounding the government

decree (Proclamation No. 163 of 1979 on Public Financial Operations) on payment of

capital charge and residual surplus, the ETA's customs and income tax obligations have

not yet been fully met. According to this proclamation, the ETA (as well as all public

enterprises and financial agencies) is expected to pay the government an annual capital

charge amounting to 5 percent of the state capital plus the general reserve fund.

According to the Proclamation residual surplus, which amounted to 90 percent of the

35
ET A's profit after income tax, was also payable to the government annually.

Since August 1992, a new public enterprises proclamation which, among other

things, repealed the article on the payment of capital charge and replaced the one

regarding payment of residual surplus by payment of state dividend the amount of

which will be decided by the owner (Government) has been in place.

While the tug of war was going on between the government trying to enforce

the proclamation and the various public agencies trying to resist payment (of residual

surplus, in particular) the ETA consistently drew on these funds for its investment

requirements, based on government-approved plans. All in all, by the mid-1990s, the

ETA had paid to the Ethiopian government Birr 426 million in the form of income tax

and capital charge since the mid-1970s--nearly Birr 19 million annually.

3.2.6 Tariff

A major tariff revision for telecommunications services in Ethiopia was made in 1980.

This revision brought a new tariff into effect with the following specific changes:

urban call charges were raised by 50 percent;

interurban call charges were raised by 15 to 20 percent (20

percent being applied to the lower side of the range);

subscription and rental rates remained unchanged; and

international calls were to be based on international and bilateral

agreements.

36
 In early 1991, when the government introduced a new sales tax policy, the

ETA raised all its charges by 12 percent. The extra revenue from this new tariff,

however, actually went to the government. In July 1994 (i.e after fourteen years since

the last tariff revision), the Government approved a new tariff structure. The tariff

revision focused on telephone subscription installation charges and rentals, domestic

telephone and telex calls, and international telephone and telex calls.

The 1994 tariff revision raised:

urban call charges by 43 %;

international call charges by 75 %; and

subscription chanrges by 165 %;

Operator-assisted interurban call charges, however, remained unchanged.

3. 2. 7 Staff Training

At the time the Imperial Board of Telecommunications of Ethiopia (IBTE) was

established it had 642 employees, of whom 96 were expatriates, including the general

manager and the high-level trained manpower engaged in administrative, financial, and

technical activities. By 1974, however, after years of effort by the ETA and the

government, all of the 5,620 employees on IBTE's payroll were Ethiopian nationals.

In addition to the higher institutions of learning Ethiopia has developed over the

37
years, the Telecommunication Training Institute has played an important role in the

development of its telecommunications human resources. The Training Institute,

whose activities are broadly divided into preservice and in-service training programs,

trained 5,620 staff persons between 1954 and 1991, of which 3,262 were in the

technical, 1,930 in the traffic, and 528 in the administrative and financial areas (see

table 3 .5). Foreign nationals sponsored by their respective employers also attend the

regular technician courses offered by the Training Institute.

At the national level, Ethiopia's technological backwardness is partly

manifested in a general shortage of trained manpower. The telecommunications

subsector may be one of the exceptions, however, in that it has developed adequate

institutional capacity to produce the trained manpower required to install, operate, and

maintain the system.

Table 3. 5 Training by Type of Studies

Training Category 1954 1970 1980 1985 1988 1989 1990 1991

Technician 163 82 95 65 283 325 256 222

Traffic 78 113 102 232 430 208 272 8

Administration 59 16 43 291 447 409 615

Total 241 254 254 440 1004 980 937 845

38
Source: ETA, Statistical Bulletins

4.0 THE FUTURE OF TELECOMMUNICATIONS IN ETHIOPIA

4.1 The Policy Environment: Nationalization and Centralization

Although teleconununications in Ethiopia has been state owned since its inception, state

ownership of important manufacturing industries, banks, insurance companies, and

many other firms became a priority item following the military's seizure of state power

in 1974. Between 1 January and 3 February 1975 alone, all Ethiopian banks, thirteen

insurance companies, and seventy-two of the country's largest industrial enterprises

were nationalized by government decrees. Since then, only the government has been

involved in major investments in the agricultural, industrial, and service sectors. The

private sector dominated only small-scale peasant agriculture, small-scale and cottage

industries, retail trade, and road transport operations.

State control of economic activities intensified during the following decade and

culminated in the launching of a Ten-Year Perspective Plan (TYPP) for the period

1984-85 to 1993-94. The TYPP, which had "Expanding and Strengthening Socialist

Production Relations" as one of its major objectives, was to serve as the leading

economic policy document in the years that followed. According to this document, all

major investments in all sectors were to be the responsibility of the state, and an

39
increasing share of the country's wholesale and retail trade was to be handled by the

state trading organizations.

The total investment envisaged in the TYPP was about US$15 billion, of which

agriculture's share was 23 percent. The share of the manufacturing industries and

transport and communications was 14 percent each, and telecommunications claimed its

fair share of 1.2 percent of total planned investment. The lion's share of the TYPP

investment went to the state sector, which accounted for over 90 percent of the total

investment.

The TYPP, among other things , highlighted the government's intention to lay

the foundation for Ethiopia's electrical and electronics industry. Among the 216

industrial projects planned for implementation during the plan period, five were related

to the manufacture of electrical and electronic goods. Radio and television and electric

motor and electric bulb factories, among others, were to be established during the plan

period.

The other important feature of the TYPP was its strong advocacy for the

building of a science and technology capability in Ethiopia. About US$0.6 billion--3. 7

percent of total national investment--was allocated in the TYPP for the development of

this capability. Policy and institutional measures were also laid down toward the

realization of this objective.

In hindsight, it is now clear that the TYPP was too optimistic. During the

first seven years of the TYPP's existence (1984-90), only US$4.5 billion worth of

40
investment out of a total projected gross investment of US$10.5 billion was actually

carried out--an implementation rate of only 43 percent. Almost all projects suffered

shortages of foreign exchange and other capital inputs.

In those first seven years, the TYPP experienced very weak economic

performance due essentially to recurrent drought, war, and inappropriate policy.

However, although the poor economic performance during this period was reflected in

all sectors of the economy, including telecommunications, the investment performance

of the telecommunications sector was far better than the rest of the economy, with 82

percent of the projected investment of the TYPP actually realized.

4.2 Economic Reform

The first major economic reform after the TYPP was the new Economic Reform

Program announced by the then ruling party in March 1991. The major elements of

this economic reform were the following:

the promotion of a mixed economy;

the creation of an appropriate atmosphere for the market

mechanism to guide economic decisions;

active encouragement of the private sector through a series of

new incentives;

reorientation of the public sector management toward

competitiveness and profitability;_

41
 formation of cooperatives on a strictly voluntary basis; and

greater decentralization of economic decision making.

The most distinct feature of the new economic policy was its intention to move

to a market-oriented economy, expanding the role of the private sector and streamlining

state-owned enterprises to make them profitable. The implications of these objectives

on agriculture, industry, and the service sector were far-reaching. For example,

large-scale private commercial farming, which had been totally nonexistent prior to the

new economic policy, was expected to attract a large number of investors. Typical

incentives offered to investors included exemptions from customs duties and income tax

for up to five years.

The new investment code opened up a large number of activities for private

entrepreneurs. With the exception of the defense industry, postal and

telecommunications services, air, rail and large-scale shipping transport as well as radio

and television broadcasting services, all other sectors were, in principle, now open for

1
private investment.

Before the Economic Reform Program could be fully implemented, however,

the government was overthrown by the Ethiopian Peoples Revolutionary Democratic

Front (EPRDF) in May 1991, which shortly afterward formed Transitional Government

of Ethiopia (TGE). The new economic policy announced by the TGE in December

1991 represents Ethiopia's most recent move toward institutional and policy reform at

42
the national level.

The new economic policy comprises the following general provisions:

1. The state sector will be limited to economic activities which are

instrumental in the overall economic and social development of the country and to those

areas which, for various reasons, do not attract private capital. More specifically, the

state develops the country's economic and social infrastructure, human resources and

research institutions; safeguards the well being of society through price stabilization

mechanisms; creates an enabling environment for the people, in general, and the

private sector, in particular, for their wider participation in development.

2. The private sector will be encouraged to engage in diverse economic

activities without limitations on the amount of capital to be employed.

3. All laws and policies, including investment, tax and labor laws as well as

monetary, credit and interest policies will be revised to the extent that they facilitate the

implementation of the new economic policy.

In addition to these general provisions, the new policy stated the following with

respect to communications:

Since of the role of telecommunications and postal service as essential public

services, these services will remain under state ownership. However, the possibility of

private sector participation will be explored and appropriate policies and regulations

will be issued to that effect. According to the new economic policy, the role of

43
Ethiopia's private sector in the telecommunications sector was to be defined later.

From the preceding quotation, however, it can be surmised that Ethiopia's basic

telecommunications services are unlikely to be open in the future for private sector

competition.

4.3 Liberalization of Telecommunications Services

Since the beginning of 1991, the ETA has relaxed some aspects of its long-held

monopoly position. For the first time in its history, the ETA issued a policy that allows

subscribers to operate their own facsimile equipment on the ETA' s network. This

policy further stipulated that the private sector could import facsimile machines that

meet the ETA' s specifications as well as distribute them to subscribers.

This move was the beginning of a new liberal policy toward private sector

participation in the provision of Ethiopia's telecommunications services. Although the

facsimile terminal equipment was the only telecommunications facility open to private

ownership and distribution in the mid-1990s, telephone equipment, teleprinters, data

modems, PABXs, and the like were also possible candidates for the liberalization

policy. 2

In 1990, the ETA was encouraged by the government's announcement of a new

economic reform program that provided for increased participation by the private

sector in many sectors of the economy . Historically, the growth of Ethiopia's

telecommunications services has been seriously hampered by the shortage of facilities,

44
from customer terminal equipment to exchange capacity. The emerging trend of

encouraging private participation in the provision of terminal facilities will therefore

undoubtedly ease some of the burden carried by the ETA.

In order to increase the significance of the liberalization policy, the ET A will

first have to allow wider private participation to cover at least the telephone apparatus

and teleprinters. Second, private participation will have to be extended to cover the

provision of certain telecommunications services on value-added networks (VANs).

The areas of data communication and information may also be included in the list of

services for private sector participation.

5.0 CONCLUSION

Telecommunications in Ethiopia is almost as old as the technology of electrical

communication itself. Ethiopia adopted telephone technology fairly quickly and in the

early days of its telecommunications development it was not very far behind the rest of

the world. The first long distance telephone line in the world was installed between

Boston and New York in 1885, it was only nine years later that Ethiopia's long distance

telephone line between Addis Ababa and Harar (spanning 480 kilometers) became

operational.

The development of Ethiopia's telecommunications should be assessed

primarily in relation to the overall economic and social development of the country;

The political environment, national development policies, and socioeconomic order

45
have influenced the growth of the telecom sector. Despite the resource and policy

constraints that the telecommunications sector has endured in the past, there has been

progress. Ethiopia has a relatively efficient telecommunications services sector,

affordable to several thousand citizens and a telecommunications administration run by

an adequately trained, all-Ethiopian staff.

On the other hand, the telecommunications sector is characterized by very low

telephone accessibility and penetration rates--even by African standards. The number

of registered waiting subscribers reached 87 percent of the total actual number of

connected subscribers in 1990--and in early 1995, the figure was still climbing. While

the rural service suffers from a shortage of physical facilities, which is characteristic of

the network as a whole, the low financial returns in rural areas is an additional obstacle

to the existence of service throughout the country.

From the analysis of this chapter, it is clear that the most critical issue facing

Ethiopia's telecommunications today is the huge gap between the demand for the most

basic telecommunications service and the existing capacity. Other problems of

increasing importance include quality of service and the demand for new services. The

provision of efficient, adequate, and reliable telecommunications services requires the

availability of adequate resources--financial, human, and material. But the most serious

resource shortage is finance, particularly foreign exchange. This constraint sterns from

Ethiopia's inability to expand its export base and, in reference to telecommunications,

from the absence of a domestic capability for manufacturing telecommunications

46
equipment.

Overcoming the constraints described in this chapter is a prerequisite for

modernizing Ethiopia's telecommunications network and extending services to the rural

areas. This will be a protracted process, calling for a short-term measure for removing

immediate hurdles and a long-term plan that takes into account the need for a

sustainable development of local telecommunications manufacturing capabilities.

5 .1 Future Demand for Telecommunications Services

Even before the Ethiopian government's economic reform of the early 1990s, the

growth in demand for both traditional and new telecommunications services was

extraordinary. But the increasing number of waiting subscribers is only one indicator

of the magnitude of the demand for that basic communication facility--the telephone.

The opening up of Ethiopia's economy through increased private sector participation

in all sectors and in the service sector in particular, will, undoubtedly, bring about

more dramatic changes in the magnitude and structure of demand for

telecommunications services.

In addition to basic telephone service, significant increases in the demand for

data communication and information services as well as for telecommunication services

for entertainment (such as cable TV) is expected in the short to medium term.

Moreover, the ETA has been approached by some customers requesting new services

such as packet-switched data communication, faster facsimile and mobile telephone.

47
Demands from the public are not limited to the provision of new services by the ETA

itself, however, but also include requests for relaxation of the ET A's monopoly right

in such areas as importation of customer premises equipment.

In summary, the vitality of Ethiopia's telecommunications sector will depend on

the effectiveness and clarity of the government's economic policy in general and its

telecommunications policy in particular as well as on the responses of the private sector

and all other parties concerned with the development of the country's

telecommunications.

5 .2 Future Telecommunications Policy

5.2.1 The Role of the Private Sector in Services and Manufacturing

In early 1995, the government's policy maintains that telecommunications is a

public utility that should remain under state ownership, with the provision that some

aspects of the service may be opened to private participation in the future. Wholesale

privatization or some similar measure may not serve the country's long-term interests,

however. On the one hand, there is the need for an adequate, reliable, and modern

telecommunications network and, on the other, the ever nagging aspiration to develop

the capability to manufacture telecommunications equipment locally. The policy that

should evolve must ensure, for the short term, the influx of private capital needed to

compensate for the shortfall in public investment for the improvement and expansion of

telecommunications services and, for the long term, the development of a

48
telecommunications equipment manufacturing capability.

The role of the private sector in the provision of Ethiopia's telecommunications

services must be clearly defined. Private sector participation may be limited in the

beginning to the terminal equipment market and value-added networks and then

gradually move to areas currently known as basic telecommunications services. Such a

move might be seen as an

infringement of the ET A's long cherished monopoly right and as a loss of an important

revenue source for the government. But at the same time it should come as a relief to

the ET A to be spared the massive burden of being the sole satisfier of customer

demand--a responsibility the ETA alone can never hope to fulfill in the near future.

With respect to government revenue, the potential tax revenue from the private sector

should be more than able to offset the loss of revenue that will result when the private

sector takes over some of the ETA' s line of activity.

The new government economic policy of the early 1990s provided for wider

private sector participation in the manufacturing sector. Only heavy engineering and

metal industries as well as plants producing basic drugs, fertilizers, and chemicals are

singled out for state ownership. From this, it appears that electronics industries in

general and telecommunications equipment manufacturing in particular are now open to

the private sector. Even so, the new economic policy is only a broad guideline that

should be translated into concrete laws and regulations to be meaningful for the private

sector.

49
 To develop Ethiopia's electronics industry, which should start almost from

scratch, a policy of active promotion should be employed. Modern telecommunications

equipment manufacturing is knowledge-intensive, and as such it requires the close

collaboration of foreign investors who can bring in both technology and capital. This

will require an appropriate incentive mechanism for attracting foreign investors.

5. 2. 1 Restructuring the ETA

Regardless of whether the private sector's entry into the telecommunications sector is

instituted or not, the ET A will remain the most important carrier in Ethiopia's

telecommunications industry. Serious thought should therefore be given to the

periodical review of the organizational structure of the ETA with a view to meeting the

challenges of the future.

If the private sector is to have an increasingly significant role both as a

provider of telecommunications services and as a supplier of equipment, the role of the

ETA must be redefined. The ET A's current regulatory function combined with its role

as a provider of telecommunications services can only be acceptable in a monopoly

situation. Given the government's intended liberalization policy, a new structure that

separates regulatory powers from commercial roles will therefore be necessary.

Having defined the roles of the ET A vis-a-vis the telecommunications industry

as a whole, the other crucial aspect to be considered is management of the ET A itself.

During the first two decades of its existence, the ETA enjoyed a certain degree of

50
autonomy: its board of directors determined its annual capital expenditures, appointed

the general manager, and so forth. However, following the nationalization drive of the

previous govermuent, the management autonomy of the ETA, along with all other

SOEs, had been drastically curtailed. Until a new enterprise law issued in 1992 paved

the way for hundreds of SOEs to be run on commercial principles.

Future restructuring of the ETA should therefore at least restore the level of

management autonomy that prevailed in its early years. Finally, the tariff issue is

another important element related to the question of the ETA's autonomy: setting

tariffs may remain the responsibility of the govermuent, but an efficient tariff revision

mechanism should be established nonetheless.

5.3 CONCLUSION

Telecommunications in Ethiopia is almost as old as the technology of electrical

communication itself. Ethiopia adopted telephone technology fairly quickly and in the

early days of its telecommunications development it was not very far behind the rest of

the world. The first long distance telephone line in the world was installed between

Boston and New York in 1885, it was only nine years later that Ethiopia's long distance

telephone line between Addis Ababa and Harar (spanning 480 kilometers) became

operational.

The development of Ethiopia's telecommunications should be assessed

primarily in relation to the overall economic and social development of the country;

51
the history of Ethiopia's telecommunications, one can observe how the political

environment, national development policies, and socioeconomic order have influenced

the growth of the telecommunications sector. Despite the resource and policy

constraints that the telecommunications sector has endured in the past, there has been

considerable progress. Ethiopia has a relatively efficient telecommunications services

sector, affordable to several thousand citizens and a telecommunications administration

run by an adequately trained, all-Ethiopian staff.

On the other hand, the telecommunications sector is characterized by very low

telephone accessibility and penetration rates -- even by African standards. The number

of registered waiting subscribers reached 87 percent of the total actual number of

connected subscribers in 1990--and in early 1995, the figure was still climbing. While

the rural service suffers from a shortage of physical facilities, which is characteristic of

the network as a whole, the low financial returns in rural areas is additional obstacle to

the exstension of service throughout the country.

From the analysis of this chapter, it is clear that the most critical issue facing

Ethiopia's telecommunications today is the huge gap between the demand for the most

basic telecommunications service and the existing capacity. Other problems of

increasing importance include quality of service and the demand for new services.

The provision of efficient, adequate, and reliable telecommunications services requires

the availability of adequate resources-- financial, human, and material. But the most

serious resource shortage is finance--particularly foreign exchange. This constraint

52
stems from Ethiopia's inability to expand its export base and, in reference to

telecommunications, from the absence of a domestic capability for manufacturing

telecommunications equipment.

Overcoming the constraints described in this chapter is a prerequisite for

modernizing Ethiopia's telecommunications network and extending services to the rural

areas. This will be a protracted process, calling for a short-term measure for removing

immediate hurdles and a long-term plan that takes into account the need for a

sustainable development of local telecommunications manufacturing capabilities.

53
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54
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56