Ethiopia’s Telecoms – Competition Is The Value Creator, Not Privatisation

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Ethiopia is in the process of privatising the telecoms monopoly, Ethio Telecom. There’s a certain amount of licking of lips at the money that can be brought into central government by doing this. This not actually being he point of privatisation at all, and as someone from the Adam Smith Institute I will insist upon this.

Think on it. Ethio makes some sort of profit, or at least there’s an income to government from it. There is s capital value to Ethio. That capital value is closely related to the amount of profit that currently flows to the government and will, in future, flow to the new owners. It’s all rather one hand washing the other here. That capital value is, necessarily, the net present value of those profits that would be received in the future anyway.

Sure, we can argue that private owners will run the company more efficiently so that’s good. But the idea here about the money that’s going to come in isn’t the point at all:

After much speculation surrounding the privatization of Ethio-telecom, a telecom monopoly in Ethiopia, the Ethiopian Telecommunications Authority (ECA) has invited potential bidders to express their interest in acquiring a stake in the state-owned giant, which is projected to fetch billions of dollars to the cash strapped Ethiopian economy.

That’s not the reason to do it, that’s a way of selling it. For it means that this generation of politicians get to spend decades worth of those future profits. What fun, and who goes into politics for any other reason than having fun spending other peoples’ money?

The actual reason to do this privatisation thing is this:

The ECA is managing the license issuance process marking a major step in the liberalization of the telecommunications market. “The issuance of the two new licenses to telecommunications companies, in addition to the existing license held by Ethio Telecom, is part of the Ethiopia’s Homegrown Economic Reform Agenda to introduce competition into the sector,” ECA said in a press release.

Monopolies don’t perform well. We’ve seen this directly in mobile telecoms, countries with competing airtime providers have greater penetration into the population of mobile usage than places with a monopoly supplier. This is true even before we think about the joys of government running a monopoly.

Competing suppliers in a market place is a good thing. The good thing that comes from the new telecoms laws is the competition, not the privatisation. Even with the privatisation the good thing that comes from that is not the capital influx but rather than as the state is no longer directly running the company it’s possible that competition between the now three companies will be free and fair.

It always was true in the UK as elsewhere – the advantage of privatisation is nothing to do with the cash that comes in from doing it. It’s about not having government run something plus the at least possibility of gaining a competitive marketplace. Either or both of which are vastly more valuable than the cash anyway.

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Phoenix44John BMichael van der RietBloke in North Dorsetjgh Recent comment authors
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jgh
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jgh

What about infrastructure backbones? Is it possible to have a fully private free market have several providers of mass bulk links between eg London and Birmingham? It’s easy to ruthlessly compete on the service between the user and the network, but how you ruthlessly complete between multiple backbones? There’s only one National Grid, and it was a Conservative government that forced the regional and local suppliers to make it so, to the benefit of those suppliers.

John B
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John B

It was operating as a national system from 1938 onwards, and was Nationalised (along with everything) in 1947 by Britain’s Democratic Socialist Government aka Labour.

Would it be economically feasible to have a number of competing grids? What would be the advantage? The competition is in wholesale supply to the market and retail sale to the end-user. The grid is just the way electricity gets from the producer, via the retailer to the consumer, like mains water.

Bloke in North Dorset
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Bloke in North Dorset

We also know that duopolies are almost as bad as monopolies, cf Vodafone and Cellnet before the arrival of Orange et al, so it’s good to see another two licences being awarded.

If I was still consulting I would be advising clients to go for a new licence (depending on conditions) rather than take on the technical and commercial bagage of the monopoly incumbent. The revenue stream always looks good but long term it’s very difficult to turn it in to something lean and mean.

Michael van der Riet
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Michael van der Riet

Because unions. Check out the South African Airways saga.

Phoenix44
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Phoenix44

Because culture. I joined a UK company that had been privatised some years before, and still management was like the Civil Service. Tens of meeting rooms that had to be booked weeks in advance because there were so many meetings. Out of which nothing ever came.