# **1. Introduction**

Broad access to information and communication technology (ICT) has great potential for poverty reduction and inclusive growth in developing countries, where ICT adoption is growing rapidly (World Bank 2016). Recent studies have shown that the expansion of broadband through fiber optics and mobile internet produces substantial benefits in household income and consumption, employment and productivity, and helps lift people out of poverty (see Bahia et al. 2020 on Nigeria, which accounts for the largest ICT market in Africa; Masaki, Granguillhome Ochoa, and Rodríguez-Castelán 2020 for Senegal; and Hjort and Poulsen 2019 on Africa). However, that ICT markets in most countries in Africa rank among the most concentrated in the world has limited the potential for equity and efficiency gains in digital technology adoption among households and firms across the region.<sup>1</sup> The considerable concentration in the ICT sector is linked to the fact that the region registers the highest relative economic rents per capita and the highest relative prices for ICT bundles among ICT firms in the world. Currently, 8 of the 10 most expensive countries for mobile communication services and 9 of the 10 most expensive countries in fixed broadband are in Africa.<sup>2</sup> The high prices of ICT services and assets translate into the allocation of large shares of household disposable income for these products, that could otherwise be used for alternative productive activities or consumption. The high prices of ICT services also reduce the potential for the adoption of digital technologies because poorer households may be priced out of these services, limiting their capacity to harness the benefits of ICT (Rodríguez-Castelán et al. 2020).

This paper introduces a novel method to estimate direct economy-wide welfare effects of expanding competition in the ICT sector, first, by estimating the welfare impacts on current consumers and, second, by identifying potential new consumers brought into the market by a reduction in market prices (due to greater competition) and then estimating the welfare impacts. This approach is applied to Ethiopia, where, until 2019, the ICT market was dominated by a monopoly.

The analysis relies on data from the 2015/16 Household Consumption Expenditure Survey (HCES) in Ethiopia (CSA 2018). The simulation follows a reform scenario whereby the mobile services market share of Ethio Telecom, the state-owned telecommunication enterprise, declines from 100 percent to 45 percent, virtually ending its monopoly. The paper then models and predicts the extent of the adoption of ICT services and the expected expenditures on mobile services among both current and new users and, thereafter, the total welfare effects among all consumers.<sup>3</sup> Overall, the introduction of competition in mobile services in Ethiopia would reduce poverty by 0.31 percentage point. This effect can be disaggregated into poverty reduction among current consumers and among new users. Competition in the mobile market would reduce poverty among current users by 0.22 percentage

> 1 According to data of the International Telecommunication Union (ITU 2020), the region hosts 21 of the 25 most expensive countries in mobile voice, 19 of the 25 most expensive in mobile data, and 22 of the 25 most expensive in fixed broadband.

> 2 See Inclusive Internet Index 2020 (database), Economist Intelligence Unit, London, https://theinclusiveinternet.eiu.com/. 3 This part of the analysis introduces WELCOM’s Market Competition and the Extensive Margin Analysis (mcema) module (RodríguezCastelán et al. 2021). For WELCOM, see WELCOM Stata Tool, Global Solutions Group on Markets and Institutions for Poverty Reduction and Shared Prosperity, Poverty and Equity Global Practice, World Bank, Washington, DC, <u>http://dasp.ecn.ulaval.ca/webwel/welcom.html.</u>

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