Data from the 2015/16 HCES show that household expenditures on mobile services in 2016 corresponded to 1.4 percent of total consumption (CSA 2018). The share was lower among households at the bottom of the income distribution. Thus, the average expenditure of the lowest income decile on mobile phone services was about Br 83 a year (US$10 a year at purchasing power parity) (table 1). This represented 0.43 percent of the decile’s total consumption. Meanwhile, the top income decile spent Br 1,729 (about 2.31 percent of the corresponding decile consumption). In demand across the consumption distribution, only 14 percent of households in the poorest decile reported positive spending on telecommunication services, while the corresponding share among households in the top consumption decile was 76 percent. The low spending on mobile services may be partially explained by the lack of adequate network infrastructure. An estimated 15 million Ethiopians are out of reach of the cellular network, and 60 million are without access to the internet. This barrier is coupled with the high costs of handsets that are driven by import duties and a concentrated retail market.

**Table 1. Household Expenditures on ICT Services, by Consumption Decile, 2015/16, %**

|_Household expenditure_|_All_|_Poorest_<br>_1_|_2_|_Con_<br>_3_|_sumption_<br>_4_|_decile_<br>_5_|_6_|_7_|_8_|_9_|_Richest_<br>_10_|
|---|---|---|---|---|---|---|---|---|---|---|---|
|ICT|1.456|0.427|0.663|0.882|1.020|0.947|0.928|1.185|1.331|1.628|2.314|
|Mobile services|1.439|0.423|0.657|0.874|1.014|0.937|0.917|1.181|1.319|1.615|2.274|
|Fixed line telephone services|0.016|0.004|0.006|0.007|0.006|0.010|0.011|0.004|0.012|0.012|0.036|
|Fixed internet services|0.001|0.000|0.000|0.000|0.000|0.000|0.000|0.000|0.000|0.001|0.004|
|Households with positive<br>expenditure on mobile services, %|42.05|13.99|24.97|33.46|36.30|37.79|37.41|44.60|52.74|63.18|76.06|

_Source:_ Elaboration based on data of the 2015/16 HCES; see CSA 2018.

The government has made substantial strides in poverty reduction since 2004. National estimates of the poverty headcount ratio declined from 39 percent in 2005 to 24 percent in 2015 (World Bank 2020). These gains have largely been focused in urban areas, leading to an increase in inequality, albeit the Gini index, at 35.0, is low relative to peer countries.

# **4. Results**

This section discusses the main results of the proposed approach. First, it shows the impacts of the expected reduced concentration on current users. Second, it examines the welfare effects generated among potential new users by the estimated price declines caused by greater competition. Third, it discusses limitations of the simulation approach proposed.

# **4.1. Welfare effects among current users**

For the simulation, the baseline scenario is a monopoly in the telecommunication industry.<sup>21</sup> The reform scenario simulates a shift to a competitive market through gradual steps. One way to interpret the results is to picture the perfectly competitive scenario as a long-run counterfactual and the different steps to reach that equilibrium as short- and medium-term counterfactuals.

> 21 See annex 1 for information on how the approach models the monopoly. The approach also allows the user to model oligopoly and partial collusive oligopoly.

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