World Bank Assessment Reveals Depth Of Safaricom Ethiopia’s Troubles

Safaricom Ethiopia posted USD 325 million losses in 2024

The Ethiopian Communications Authority (ECA) should consider issuing licenses for satellite operators like Starlink in order to maximize connectivity and digitization, urges a new report by the World Bank.

The ‘Ethiopia Telecom Market Assessment’ launched by the World Bank and Digital Development Partnership (DDP) this week highlights the potential low earth orbit (LEO) satellite providers such as Starlink and OneWeb offer in terms of providing easily configured internet services to remote unconnected rural areas.

LEO satellite services could also prove a useful tool for humanitarian response efforts, according to the assessment.

“Ethiopia should adjust its licensing framework to accommodate new entrants under class licenses or other low-entry requirements, ensure fair pricing for leased network access, and remove bureaucratic barriers preventing market entry,” it reads.

Although the assessment praises the government’s decision to liberalize the telecom sector, claiming the move boosted GDP growth, it also criticizes the uneven playing field between state-owned giant Ethio telecom and recent entrant Safaricom Telecommunications Ethiopia.

Safaricom Ethiopia was formed after the Global Partnership for Ethiopia, a consortium composed of Kenya’s Safaricom, Vodafone, and the Japanese Sumitomo, acquired Ethiopia’s first telecom operator’s license in May 2021 for a USD 850 million fee.

The company entered the market with USD 1.6 billion in funding, of which USD 100 million is owed to the World Bank’s International Finance Corporation (IFC).

“The planned level playing field has not fully emerged. Asymmetries stem in part from the fact that EthioTel [sic] was not obliged to pay the same license fees (USD 1 billion in total) as Safaricom. EthioTel has been deemed to be the operator with SMP in six market segments (and Safaricom in one). Also, Ethiotel is pricing voice calls below the cost of the mobile termination rate (MTR) set by the regulator. This means that Safaricom loses money on every single call made to EthioTel customers, as it needs to match EthioTel prices,” reads the World Bank’s assessment.

The report estimates Safaricom’s MTR losses at USD 1.6 million a month.

It raises concern about “possible preferential arrangements for state-owned enterprises in handling government mobile money transactions” and alleges that Ethio telecom has recently blocked access to Safaricom apps like its flagship mobile money platform mPesa.

It also accuses Ethio telecom of undercutting the competition.

“Most African operators lose money on data, at least in the early years of service, but the rates that EthioTel offers, of around 16 US cents per GB since devaluation, may be unsustainable. In other countries in Africa, the price rarely falls below 25 US cents per GB. EthioTel also offers additional discounts to customers that buy data packages using its Telebirr service, creating a ‘club effect’ that encourages users to stay on the same network,” reads the assessment.

The World Bank wants to see the Communications Authority take measures to correct what it sees as unfair competition.

“These concerns warrant further investigation by national authorities,” reads the report.

It also highlights challenges facing Safaricom in terms of infrastructure, which it relies on Ethio telecom and state-owned Ethiopian Electric Power (EEP) to provide.

The report reveals Safaricom pays out USD three million to Ethio telecom each year for infrastructure rental.

“The absence of independent tower companies and infrastructure companies has constrained options for cost-effective deployment and slowed network expansion while simultaneously increasing EthioTel’s wholesale revenue, reinforcing asymmetries in market structure,” it reads, noting that Safaricom’s CAPEX investment exceeds USD 2.2 billion.

The assessment highlights Ethio telecom’s dominance in the sector. The state enterprise registered close to USD 700 million in revenues in the 2024 fiscal year, more than 12 times the USD 53.6 million Safaricom Ethiopia registered during the same period.

Safaricom Ethiopia lost USD 325 million in 2024, according to the report.

“Safaricom’s FY24 revenue (USD53.6 million) does not even cover the annual costs of its licenses (USD1 billion over 15 years, including mobile money, or USD 66.7 million per year). Thus, this raises concerns about long-term investment sustainability and return on capital,” it reads.