Via Quartz, an article on Safaricom’s interests in the Ethiopian marketplace:

Safaricom opened an office in Ethiopia last month, as Kenya’s largest mobile operator aims to take on one of Africa’s most sought-after telecoms markets, with a population of around 120 million people. The company has hired local employees and built a multi-story office in downtown Addis Ababa after warding off competition from other telecommunication companies to secure a $850 million operating license in May.

Ethiopia’s telecoms market was closed to foreign investors for decades, but the government has recently embarked on a series of liberalizing reforms in the banking and telecoms sectors. Safaricom, the Nairobi-based telcom giant, earned global recognition as one of the earliest pioneers of mobile money, introducing its flagship M-Pesa product to Kenya in 2007. This is the success that it hopes to replicate in Africa’s second most populous country.

But while Safaricom will only have to contend with one competitor—government-owned Ethio Telecom with over 56.2 million subscribers and its mobile money service provider, Telebirr, with over 13 million subscribers—there will be significant hurdles along the way.

This is the last big unopened teleco market in Africa and probably one of the very few in the world.

The main challenge in the immediate term is that the earliest Safaricom can hope to launch M-Pesa will be in May while Telebirr will have had a head start of one year. Telebirr is also using its first mover advantage well, having recently signed an agreement with a Ghanaian fintech company, Zeepay, to facilitate cross-border payments. This is a bold move to tap into Ethiopia’s large, influential diaspora market.

“This is the last big unopened telco market in Africa and probably one of the very few in the world,” says Ethiopian-American Zemedeneh Negatu, the global chairman of the Fairfax African Fund, a US based investment firm. “It was closed off until last year, so I think for investors this is an excellent opportunity”.

Ethiopia is a promising but difficult market for Safaricom

Analysts expect Safaricom to target aggressive expansion in the local market based on a suite of products that includes data, voice, SMS, and mobile money.

Safaricom leads a consortium that includes Vodacom Group (South Africa), Vodafone Group (UK), Sumitomo Corporation (Japan) and the UK’s development finance agency, CDC Group. The group, operating under the name the Global Partnership for Ethiopia, beat off a rival-bid from South African telecoms giant MTN Group which made an offer of $600 million.

Though Safaricom’s original agreement with the government did not include mobile money, Ethiopia said the contract will be upgraded when a second telecoms license is issued, but has now offered hope that this might come sooner for Safaricom – as early as May. Though the government has declined to give a reason for the delay of issuance of licenses, experts believe that foreign telcos were concerned about the war in Ethiopia’s Tigray region.

“I fully suppose the reason behind the postponement is because of the conflict, because, at the time, there were announcements by western embassies to withdraw staff,” says Patrick Heinisch, an emerging markets economist at Helaba commercial bank.

The 15-month conflict gutted Ethiopia’s economy and left thousands dead, though there are recent signs of a tentative peace. However, reports of indiscriminate government drone strikes, and heated tensions between the Amhara, Afar, and Tigray regional governments over land in Western Tigray suggest that the crisis isn’t over just yet.

The war has battered Ethiopia’s economy – the IMF predicts growth of only 2% this year. The  second license is expected to be issued in the coming months, with Safaricom likely having a small head start.

Challenges that Safaricom might face in Ethiopia

Despite the advantage Safaricom has over other operators due to a strong track-record in the region, the household Kenyan company faces several additional challenges. One key difference between the two countries, is that Ethiopia’s population is not as digitally-savvy nor as wealthy as Kenya’s. However, most analysts believe there will be strong demand for Safaricom’s services as Ethiopia’s population has been underserved for decades.

“Product adoption should be relatively easy, I don’t see resistance for consumers using their phones for banking like in mobile money,” says Negatu.

Safaricom’s main competitor is Ethio Telecom, a state-owned enterprise. Although the Kenya-based firm enters the market as the more dynamic player, Ethio Telecom is set to offer serious competition after the government proposed selling a 40% stake to a foreign entity – most likely French operator Orange.

An early sign of discord comes as Safaricom and Ethio Telecom have failed to agree on an infrastructure sharing agreement for telcoms towers. Ethio Telecom currently has around 7,500 telecoms towers but Ethiopia needs double that figure to cover 95% of the vast and mountainous country, Negatu says.

Safaricom will look at sharing masts with Ethio Telecom and building new ones to extend services to hard-to-reach customers, he says, though this will be more problematic than in Kenya which is far less mountainous.

Another immediate priority for Safaricom is extending the 4G network outside Addis Ababa where it is currently limited. Safaricom announced in January that it will build a prefabricated data center in Ethiopia’s capital city for $100 million.

The much-needed foreign investment has reignited hopes that Ethiopia will soon turn a page on its period of instability and conflict. Ethiopia’s Communication Authority (ECA) director general believes the Safaricom-led consortium will invest $8 billion on critical infrastructure and services in Ethiopia over the next decade. Safaricom will officially launch commercial services in Ethiopia in April.