Caring her long lasted personal motto, Excellence, nothing less, Frehiwot Tamru, joined the telecom monopoly again back in July, 2018 as a CEO, after she served as a board member for few months. Frehiwot sat down with Capital’s Haimanot Ashenafi to discuss the path she chose to led the company and its overall activities.
Capital: Let’s begin with your recent report, how is the company sound and stable now what are the risks?
Frehiwot Tamru: Before I became CEO, I served on the board. When the company was handed over to us, the main challenge, from both perspectives, was business continuity. Telecom doesn’t operate in a vacuum there are vendors, partners and customers. The main challenge was the rough relationship we developed with our vendors that installed the infrastructure, like Huawei, ZTE and Ericson. This prevented them from signing the Service Level Agreements (SLA), which is the support package for the infrastructure they built. When we took over the leadership there were SLA contracts ready to be signed but they were not willing to do so. What was surprising was that they didn’t even want to sit-down and negotiate with us let alone to sign them. So, what the board understood was the lost bargaining power of the Telecom. This is happening when telecom is the sole industry operator. As our projects were financed by vendor financing and as the Telecom couldn’t pay its mature loans on time since 2016, our vendors lost trust in working with us.
A shortage in foreign exchange and the rapid decline in the capacity of the Telecom to generate foreign exchange has contributed to the problem. Most of our loans were provided from the Chinese Development Bank with the infrastructure built by ZTE and Huawei. As the companies who build the network were not willing to sign SLAs and maintain the infrastructure this became a huge risk for our business continuity. Therefore, negotiations and neutralizing the mutually benefiting environment was a bit intense.
We made it clear that we will pay for the service they have delivered and how that will be difficult if we can’t sustain the business. Advancing this relationship, I can say within the past six months, has been accomplished so far, as we managed to sign SLAs. The fact the we pay a significant amount of loan for the first time since 2016 has contributed to the reestablished trust between us. If we can continue with this pace, we will be able to cove mature loans up to date with even with higher foreign exchange contribution. We have paid USD 117.7 in the first half from our mature loan of 285 million. We have a total loan of USD 1.29 billion to be mature until 2029.
When we slash our price the network traffic raises and if we were not able to sign SLA in advance there will be problems. We were able to use the liquidated damages of our vendors to undertake the minor expansion project in Addis Ababa and other major cities covering USD 19.5 million from these confiscated loans and penalties. By the way a major improvement in the quality will be obtained when this project is operational within two to three weeks.
The other very significant risk was the non-empowerment of the management to make decisions and to sit-down with vendors on the future of the business. I talked with the vendors on my first days as a CEO, and the position we had was as if they were client and we are suppliers because of the huge lift of negotiation power. Also, the new management has come far in taking risks and making decisions on accumulated issues, which was a headache for the company. We also improved our system internally in terms of security. I can’t mention the details now, but it was a huge risk. We implemented some systems to increase the security level of our service besides strengthening the professional ethics of our employees.
The first half year was very difficult as the backlogs were consuming our time and energy in various areas. I can pick the issue of loaded procurements. We requested a LC since 2014, especially for spare parts. The fact that the Telecom has penalized companies, for not delivering based on their contract following the devaluation, created a rough relationship with our partners, which is also affecting our business. We minimized the tariff but if we can’t get enough devices the infrastructure can’t be utilized, and the revenue will be affected. So, we are taking every measure to raise the device supply.
Capital: How much liquidated damage do you have?
Frehiwot: There have been backlogged liquidated damages at the Telecom since the NGN (Millennium) and we are clearing the shelf. Since then there are projects pending and yet to be finalized. We believe we cannot fine tune the infrastructure waiting for vendors or launching huge transformative projects only, it is also important to use the incremental approach of project management which is crucial.
Capital: Have the tariff adjustments brought the changes you hoped for?
Frehiwot: The impact of the price adjustments was hugely seen in the shift of the share of data from voice this half year. The share of voice from the total service given was 73 percent the previous year now it has deepened to 63 percent. Internet traffic has increased 40 percent since the discount. The global trend shows that every successful Telecom company should work on better internet provisioning and improve its Value-Added Services (VAS) as it can increase revenue and provide a diversified service to customers. Emphasizing only basic telecom services has passed and we are working on data usage and improving the quality of the network. We were able to increase the demand by slashing the price and now it is about utilizing the demand created.
Capital: There are comments that the Telecom has an elastic revenue plan this year which is ten billion birr higher. Did the telecom plan to minimize tariff when declaring the plan?
Frehiwot: The plan was there before assuming the position and what I did as a new CEO was owning this plan, which have not considered the tariff adjustments. I had conducted various dialogues with the Chief Officers taking almost a month to know the company and do a SWOT analysis. After the new team conducted a survey about the good and bad of the company, we revised our plan based on the findings before presenting it to the board. Regarding financial plan, we argue if we need to revise or not considering the tariff adjustment. We decided to let the financial plan be where it is and to try our best to achieve to the highest possible amount.
The tariff adjustment slashed up to 40-50 and in some package offers up to 80% percent of the tariff and we could have minimized our targeted revenue at list by five billion birr or less. That’s why the management team says, that as the result of the tariff adjustment, they earn this year output after putting a lot hard work comparing it to the previous year’s minimum efforts. We have changed the structure of the company meaningfully; we have restructured some Divisions to apply shift procedure so service will be available by 24/7. We don’t need to wait until the morning to fix a network which is down as it helps both the employee and the customer. There will be accumulated work for them in mornings if we don’t maintain networks immediately and there will be an opportunity cost too. It also became routine for the management and some employees to pay extra- ordinary effort- including staying up the mid -night.
This has brought us a measurable change as we were able to minimize the provisioning date from the standard recognized by our charter which was seven days. Now it has become three days with a 48 percent execution rate, and we will work to improve even more.
I believe the Telecom achieved an image which it didn’t have before as a public enterprise. There must be a sense of ownership by the public. The Ethio-Telecom managed to install the infrastructure but how many citizens could afford this service? The reform began by providing affordable service to our customers, who the Telecom belongs to. By the way whatever the latest infrastructure will be obsolete without serving the customer and earing revenue. Telecom business is a volume business globally, what matters is making people utilize your service more instead of making it costly. Even if affordable service is one element to make people use the network more also presenting attractive products, seamless service provisioning and service payment is also essential. After we minimize tariff, we are also working to make top-ups easy. So, we are working on every element to improve the industry and if we can continue with the pace we are running, we hope to achieve our plan. What was difficult in the last six months was accommodating a change, running regular operation with extra ordinary backlogs.
Capital: Did the results of newly established division of International Business was observed in the half year? Can we take examples if so?
Frehiwot: The International Business Division (IBD) works to change the dependence of our international service only on roaming and interconnect calls. After we established the new division, we began diversifying the products changing the previous narrative which only depended on increasing international calls. The decision is rewarding, and we collected revenue from our new products of international top-up and A2P. The Application to person is an SMS service which is generated from different applications. We collect revenue from A2P in foreign exchange whose effect is going to be observed in the coming half year report. Data roaming is another area which we must work. Utilizing the existing service is also crucial and that’s why we took serious measures against fraud and developed our business model. The incoming international calls have reached one million per day since January which was 400,000 per day before the interventions.
When we deal with the inter operators or tariffs, we had a flat rate so we would give them our price and if they didn’t agree we used to just wave. So as the tariff became expensive operators chose gray markets instead of using our infrastructure. We are working on inter operators’ preferential agreements with every operator and they were amused by the change in doing business. The measure that we took on fraud also has a significant role in developing the number of calls we receive. We even went to some countries like Saudi Arabia to deal for a better preferential agreement besides resuming an interrupted business with this strategic country that has a lot of Ethiopian residents. We are expecting about 6 million calls per month from Saudi. We stopped working together in 2014 with the Saudi telecom (STC) when we asked them to settle a payment which comes through the gray market. The host or the initial wouldn’t be asked to do so according to the GSMA standard. Calls from STC were very expensive as the calls come through other operators and now there will be a very huge change in the price when it comes through our infrastructure. They told the team we sent that this was the first time they saw the Telecom coming in the business mind. As our team which incorporates representatives from the Federal Attorney General and from our legal and International Business negotiates well, we sent them the invoice and we are expecting that calls would begin coming in February. So, we will minimize the load on the government to cover our maturing loan from our IBD, whose fruits will be more observed in the coming half year. Since we paid our loan, were able to cover 51 percent of foreign exchange this semester.
Capital: Besides what you have done for the operation in the past few months, what measures did you take to increase the capacity of Ethio telecom in the coming competition?
Frehiwot: The way I see it we are getting ready to face competitors boldly. We were mixing business with civil service previously. If we can’t think as a business in the future market that will be end of the story. What we have been doing recently is directly related to changing that scenario and make a clear line which makes us business along with ensuring universal access. We must stop thinking like we live in a static world and measure our success only with sim card sales. We are living in a dynamic world and we should also consider other telecom service such as IoT and value-added services. By diversifying our business, we should be ready for the competitive environment. So, we are adjusting our view towards business. Besides the tariff adjustment we must work on improving our packages to keep our self in the track. Recognizing our obligations as government institution, we also make sure to operate in corporate business model. Ethio telecom contributes significant tax and dividend every year to the government.
Capital: The Ministry of Finance has indicated that the Telecom will be the first entity to be privatized is this becoming close to becoming a reality?
Frehiwot: As you are aware the market restructure is led by the Ministry of Finance. As a main stakeholder in the procedure we expressed our concern on this specific issue. I see it on the media what the Ministry office have released. Depending on the direction given by the government it was stated that Ethio telecom will be among the front-liners in the market liberalization. After the government announces the decision on June 2018 we are preparing to the new change. Preconditions are not yet due but one of the most fundamental issue of establish the regulatory is on the final stage. As the telecom sector is very attractive market many parties wanted to get information. We as a stakeholder expressed to the Ministry releasing premature information will confuse our employees. I attended gatherings of our employees and they requested an explanation about their future. There are traumas from the previous huge labor cut when Ethio telecom transforms from ETC. We have joined hands with other government institutions in charge of the market reform to carefully conduct the market restructure and to ensure that the transparency of the process. To ensure the success of the reform we are providing data and information to stakeholders equally when our mandate allows. This is because data and information are vital to interested parties So, I believe giving information on time is fundamental. This national reform agenda, the success lies on the hands of all stakeholders.
Capital: What have you done to improve procurement procedures?
Frehiwot: When I joined Ethio telecom here procurement complaints have become a daily job. So, we try to study the source of the problem which was the backward procurement manual. My office has become a dispute settlement bench, which begun affecting my day to day activities. So, we establish a team composed from the legal and sourcing divisions to study the problem. They have identified that the procurement manual is the source of problems. Amending the manual was a solution and we almost finalize the final draft which is going to be approved by the board soon. The second intervention was establishing an internal process which have allocated days to hold discussions with business partners. Another fundamental bottleneck was how we deal with suppliers which is manly emanates from a fear of association with corruption and punishment because there exists an underlying assumption that a close relation with supplies is a sign of malpractice. This thinking makes us smooth relationship with our business partners.
Capital: What steps have been taken to make property management better?
Frehiwot: Property administration was our main problem. The entire management team went to our warehouse and observed surprising and shocking conditions. We have disposed various items and generated millions from that besides we are preparing to donate them. We are identifying items to donate to our universities.
We have established a Fleet and Facility Division which conducted inventories of our property all over the nation. Issues of file transfers when it evolved from ETC to Ethio telecom also caused other problems. So, we audited our properties, and we found land without title deeds. In relation with the land 1,551 plots were identified including the areas which have the towers. We differentiated which lands to develop. The Flit and Facility division is one team we established to take care this issue. This inventory will help us make better decisions about our restructure and the market reform by the government. We are also working on cost optimization which is crucial. We will minimize unnecessary expenses and we will increase areas which need more investment like increasing the salary of our employees. Though our revenue was 80%, we achieved 91% earning before tax – the 10% out of the 91% is from the saved expenses.
Capital: How has telecom changed in its 125 years of existence?
Frehiwot: Our company seem to lag a bit behind from its 125 years of existence. But it couldn’t walk independent of the national economy. There were plans to celebrate the anniversary this year, but I reconsidered this plan as I feel we have a lot of things to address before the celebration.
Before the tariff reduction we even had negative references in the public and what we think of our self didn’t fit what the people think about us. Therefore, we decide to readjust the way we celebrate it. We had to work to satisfy our customers as a priority. We have published some marketing items to spark the idea and planning to undertake other activities involving customers.
What I can say about the future Ethio telecom is that it can be a strong company in the future market. This is what I am working for. Hopefully Ethio telecom will stand strong in the soon to come market. Though the future is challenging but its full of opportunities as well.
I aspire to make Ethio telecom a pride of its customers and the government. I want to establish a full sense of ownership by Ethiopians. The post 125 years is absolutely going to be different given the market restructure. The decision whether the infrastructure and the service are going to be differentiated or not is also going to determine the future of the telecom.
Regardless, the coming years will demand hard work than the previous years. Even if time seem to be shorter, my team and myself are working to make sure this company will succeed in the market structure.
In the last six months, we have dispersed 21 billion birr out which 4 billion-birr was Tax and 3 billion birr was dividend. So Ethio telecom will continue playing this critical role. Me and the entire staff are happy for our role. With regard to our relationship with customers, we are working hard to provide better service. In every sector its normal to have a gap between demand and supply and I believe there is nothing you call absolute satisfaction but trying to the most achievable extent.
There are needs of stakeholders such as customers, employees, management and owner and management is all about balancing and satisfying these needs. In my presence, I will keep doing all I can to make Ethio telecom a competent business corporation. Of course, we want to be an enabler in the economy not only a direct role player. We have exercised a new internal rule which focus on disclosing things in a transparent manner. We noticed citizens are dissatisfied because of failed promises as the result we are making trying our best to deliver. I also hope when the sector is privatized, Ethio telecom could worth a value that it earns. I see there are attempts to compromise its value knowingly and unknowingly, this refers to both institutions and individuals. Ethio telecom as operator apologies for its service-related mistakes and is ready to refund payment collected from its customers erroneously. However, giving it a bad name that it didn’t deserve is inappropriate.
Capital: Will telecom’s transformation become a reality in the near future?
Frehiwot: The TP2 expansion project tender submission date was closed on October 31, 2018, and no company come forward, which was a good opportunity for us. The plan of TP2 was massive expansion which would have roughly doubled our capacity. So, implementing this when the government is planning to restructure the market is unwise and we have to wait how the decision is going to rule. As the decision whether to retain the infrastructure, the service or both is not yet decided. Therefore, we need to wait for that to be decided so to make the right investment. And also the investment needs to consider financial capacity and unpaid loan schedule. For now, we need to prioritize our priorities including investment opportunities. We will continue working on international business and other services. The main reason why we are focusing on incremental improvement and utilizing existing resource is to be in line with the new telecom market structure and to strategic investment decisions.