in the short run with respect to the baseline headcount poverty rate of 24.21 percent and up to 0.80 in the long run because of the direct effect of lower prices (table 3).<sup>22</sup>

**Table 3. Poverty and Inequality Effects, Loss of Ethio Telecom Monopoly, Current Users**

|_Scenario_||_Poverty indic_<br>|_ators_<br>||_Inequality indicators_<br> <br>|
|---|---|---|---|---|---|
||_Headcount_|_Poverty gap_|_Squaredpoverty gap_|_Gini_|_Atkinson(epsilon = 0.5)_<br>_Entropy (theta = 0.0)_|
|Baseline|24.21|6.86|2.83|33.3|0.0934<br>0.1871|
|Reform scenario|23.99|6.78|2.80|33.5|0.0947<br>0.1898|
|Difference|−0.22|−0.08|−0.03|0.23|0.0013<br>0.0026|

_Source:_ Elaboration based on data derived from the WELCOM Stata Tool and the 2015/16 HCES; see CSA 2018. _Note:_ The reform scenario corresponds to a reduction in the market share of Ethio Telecom from 100 percent to 45 percent. The Gini index is based on consumption.

The results also show an average relative welfare gain of 1.09 percent among all current users of telecommunication services (table 4). The richest decile will gain Br 474.8 (in birr of 2015) on average, relative to Br 9.8 among the poorest decile. This corresponds to a relative gain of 1.7 percent among the top decile and 0.3 percent among the bottom decile. This suggests that households in the richest consumption deciles will benefit more in both absolute and relative terms from greater competition in the ICT sector compared with the poorest households, which is consistent with an expected rise in the Gini index of 0.23 point with respect to a baseline of 33.3 (see table 3).

**Table 4. Welfare Effects, Loss of Ethio Telecom Monopoly, Current Users**

|_Consumption values_|_All_|_Poorest_<br>_1_|_2_|_3_|_Co_<br>_4_|_nsumption d_<br>_5_|_ecile_<br>_6_|_7_|_8_|_9_|_Richest_<br>_10_|
|---|---|---|---|---|---|---|---|---|---|---|---|
|Annual mean per capita<br>consumption, birr|10,111|3,062|4,775|5,928|6,908|7,867|8,806|9,851|11,621|14,779|27,525|
|Absolute incidence, birr|110.36|9.8|23.8|39.2|53.1|55.9|61.3|88.3|116.3|181.1|474.8|
|Relative incidence|1.09|0.32|0.50|0.66|0.77|0.71|0.70|0.90|1.00|1.23|1.73|

_Source:_ Elaboration based on data derived from the WELCOM Stata Tool and the 2015/16 HCES; see CSA 2018. _Note:_ Consumption values are in birr of 2015.

The results correspond to the potential welfare effects only among current consumers (intensive margin effects). This likely underestimates the total welfare gains derived from breaking up the monopoly in the telecommunication sector because it does not include the potential benefits among new consumers. Thus, the expectation is that the total welfare effects of greater competition in the ICT industry will become more equalizing across the consumption distribution if one also considers the likely welfare effects among potential new consumers (extensive margin effects), given the lower uptake among households at lower income deciles.

# **4.2. Welfare effects among new users**

To test the above conclusions, the analysis next uses the change in prices deriving from the reduced market share of the dominant firm in the market to estimate the welfare effects among new users by

> 22 The price elasticity of demand used was −1.50 because there was no price elasticity of demand specific to Ethiopia’s mobile services market (Waverman, Meschi, and Fuss 2005). This preliminary estimate should be viewed with caution because it refers to 2005 and corresponds to values obtained for a pool of developing countries. However, this solution is adequate because of the scant empirical evidence on price elasticities of demand in mobile services in developing countries, particularly in Africa.

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