Ethiopia's ECA resets termination rates to boost competition

Ethiopian regulator resets termination rates to boost competition

The Ethiopian Communications Authority (ECA) says that it has set price caps on mobile and fixed termination rates for the next five years in a bid to foster better competition in the country's telecoms sector.

The move is rooted in a 2022 interconnection agreement between state-owned incumbent telco Ethio Telecom and then-new mobile licencee Safaricom Ethiopia, which was mediated by ECA. Under that agreement, the ECA set mobile and fixed termination rates at ETB 0.31 (US$ 0.005) per minute, with the understanding that it would revise the rates after it completed a cost study to set the rates based on actual cost of termination.

According to documents released last week, the ECA has completed the cost study, using data contributed by Ethio Telecom and Safaricom, and has reset the terminations rates at ETB 0.23 per minute for mobile, ETB 0.15 for fixed-line and ETB 0.05 per SMS.

The rates take effect on May 1, and will gradually decline over the next five years to 2029 to ETB 0.19, ETB 0.12 and ETB 0.04, respectively.

The ECA emphasised that the new termination rates are a price cap, “therefore, all mobile and fixed telecommunications operators have the freedom to negotiate interconnection rates that are lower.”

The ECA said it implemented a “top-down fully allocated cost (TD-FAC) model” to calculate the rates, “as this relies primarily on financial and accounting information that should be readily available."

The move to set termination rates was justified by a separate market review by ECA to “examine competition dynamics in the telecoms sector, and propose pro-competitive remedies where necessary”. Perhaps unsurprisingly, that study concluded that Ethio Telecom – which still holds a monopoly in most telecom segments apart from mobile services – has “significant market power (SMP) in various wholesale markets, prompting the proposal of remedies such as price controls, mandatory agreements filing, and non-discrimination obligations.”

The regulator said the objective of implementing cost-based termination rates is to establish a level playing field for telecoms players.

“By ensuring that rates are set based on the costs of providing services … the intention is to promote competition among operators, prevent anti-competitive behavior, and encourage a market structure that benefits consumers by offering them a variety of choices and competitive prices,” the ECA document said.

The ECA’s interest in promoting a competitive telecoms playing field may also be rooted in its struggle to licence a third operator to take on a duopoly that essentially comprises an entrenched state-owned incumbent and a start-up mobile competitor.

Last year, the ECA opened bids for a third licence, but despite some interest from international players, ultimately no one made an offer, at least partly due to concerns about political unrest in some parts of the country. The licencing process was suspended in November.

The government announced plans to partially privatise Ethio Telecom as far back as 2021, but has yet to do so. The latest plan is to sell 45% of the company to investors and list 10% on the local stock exchange. As we reported in February, the listing is planned to take place later this year. However, there have been no takers for the 45% stake since Orange bailed out of a potential deal last year.

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