Affordability is Biggest Barrier to Mobile Internet Adoption in Ethiopia: Report

Affordability remains the biggest barrier to mobile internet adoption in Ethiopia, according to the latest report by the Global System for Mobile Communication Association (GSMA). Despite a marked drop in basic data prices by both telecom operators in the country over the past few years, consumer surveys showed a year-on-year increase in the percentage of people who cite affordability as the most significant barrier.

The report unveiled in a high-profile ceremony attended by CEO’s of both telecom operators at the Hyatt Regency Hotel on Thursday provides insights into the drivers and barriers of digital transformation in the country.

John Giusti, Chief Regulatory Officer at GSMA, underscored the need to address cost barriers to address the hurdles of affordability during his opening remarks. He pointed to possible interventions via tax breaks, reduced duties, and incentives as worthy routes of exploration.

Ethiopia imposes a 10% duty on the import of smartphones, a 15% value-added tax (VAT) on airtime, data, and international calls, as well as annual spectrum fees. Compounded, these costs present a significant affordability barrier for a country where 86 million people live in poverty.

Despite progress in recent years, Ethiopia’s 4G internet coverage is nearly at 40% of the population, while 3G coverage has reached 40 million users. Tax cuts and benefits for telecom infrastructure development, digital finance, and a review of the excise tax are recommended by the report.

Furthermore, Ethiopia’s recently adopted economic program, with the support of the International Monetary Fund (IMF), entails comprehensive reforms to increase the country’s tax-to-GDP ratio multiplefold, which could exacerbate affordability issues.

GSMA advises increased adoption of digital technologies to widen the tax base in the medium term alongside support for the adoption of mobile broadband by reduced duties on handsets and removal of excise taxes on services.

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The report estimates additional tax revenues of 22 billion birr if the government implements the reforms proposed towards expanded adoption of digital government.

Until the recent price hike, Ethiopia's state-owned telecom operator, Ethio Tel, had reduced its data prices by nearly 70% over the past six years to promote affordability.. The operator, which issued 100 million ordinary shares to the public two weeks back has also unveiled a plan to distribute 250,000 phones at zero profit as part of its rural expansion program.

Frehiwot Tamiru, CEO of Ethio Telecom, revealed a partnership with telecom infrastructure company ZTE that could see the local manufacture of affordable entry phones in the coming years. She also highlighted the importance of expanding digital literacy, the second barrier towards adoption, to drive national digital transformation.

“Transformation of our culture is crucial,” the CEO noted.

Safaricom Ethiopia is also contributing to expanding digital literacy. Wim Vanhellepute, CEO at the Ethiopian subsidiary of the Kenyan mobile operator, recalled a recent partnership with the Vodafone Foundation that targets digitization for youth. He acknowledged the existence of significant room for progress in expanding 4G access in rural Ethiopia.

“The key enabler is still the government,” Wim noted.

Safaricom has managed to expand its user base to around 6 million in its two years of operation as it catches up with an incumbent that had a monopoly for 127 years. Ethiopia’s duopolistic telecom market could also soon welcome a third operator. 

Balcha Reba (Eng), Director General of the Ethiopian Communication Authority, hinted at the potential entry of a third operator into the market soon. He acknowledged the need to foster ‘healthy competition’ as the country targets universal accessibility, cross-border connectivity, and last-mile linkages. However, this is not the first time Ethiopian authorities have floated the idea of a third operator, with previous attempts failing to materialize in recent years.

As a 10% increase in mobile internet penetration is estimated to increase GDP per capita by up to 2.5% in Africa; insights into barriers provide crucial input for decision-makers.