J.9_Appendix_9.0_-_RCS_Business_Model.pdf

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MCIT

8/26/2014

RCS Business Model & Operational Procedure

RCS Business Model & Operational Procedure

August 2014 Page i

Table of Contents

1. Introduction

2. Current Rural Telecommunication Service Environment

3. Other Countries Experience

3.1 Principles for Universal Access/Service

3.2 Strategies to Achieve Universal Access/Service

3.2.1. Remote and rural initiatives by governments

3.2.2. Conditional Licensing

3.2.3. Community-owned Systems and Cooperatives:

3.2.4. Micro-credit Programs

4. Strategies to Address the RTS

4.1. Village Phone Strategy

5. Proposed business model

5.1. Objectives

5.2. What is the service?

5.3. Who are the main participants?

5.4. Other supporting entities to implement the business model:

5.5. Target Customers

5.6. Price

5.7. Stakeholders and Relationships

5.8. Role of Each Stakeholder in the Rural Communication Services (RCS) Provisioning

5.8.1. Role of Main Participants

5.8.2. Role of Other Supporting Entities

6. Business Analysis - Sustainability

6.1. Ethio Telecom

6.2. Woreda Communication Service Cooperatives

6.3. Kebele Communication Service Cooperatives

7. Benefits and Beneficiaries of the RCS Business Model

7.1. Benefits to Kebele Communication Service Cooperatives

7.2. Benefits to Woreda Communication Service Cooperatives

7.3. Benefits to Ethio Telecom

7.4. Benefits to Ethiopian Postal Service Enterprise (EPSE)

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7.5. Benefits to the Rural Community

8. Keys for success

9. Operational Procedures for Rural Telecommunication Service Provisioning

9.1. Installation & Provisioning

9.2. Supply and Support Procedure

9.2.1. VC Distribution:

9.2.2. Maintenance

9.3. Replacement Procedure for Rural Wireless CPE and/or Modem for Internet service:

10. What should be included in the Service Level Agreement?

10.1. Ethio telecom’s Rights

10.2. Ethio telecom obligations

10.3. Cooperatives’ rights

10.4. Cooperatives’ obligations

11. Formation of Cooperatives

11.1. Requirements for selecting Woreda Level Cooperative Members:

11.2. Requirements for selecting Kebele Level Cooperative Members:

List of Tables

Table 1: Cost of CPE and Computer-Initial investment from ethio telecom ......................................... Page 14

Table 2: Total Monthly Cost to be covered by ethio telecom .............................................................. Page 15

Table 3: Total Income for Woreda Communication Service Cooperatives ........................................... Page 16

Table 4: Kebele Communication Service Cooperatives’ Average Income ............................................. Page 17

Annex: Volume of work, Revenue and commission details-EPSE

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1. Introduction

Ethio Telecom began its rural telecommunications development program in 2005 and started putting a new national telecommunications infrastructure in place. The Government set a strategy to use information and communications technologies as essential elements to stimulate economic activity in all public and private sectors in rural areas. Improving rural connectivity is a major priority, in particular for the national telecom development policy promulgated by the Ministry of

Communications and Information Technology (MCIT).

The strategic objective on introducing rural connectivity is to expand telecom service and make basic services accessible to 100% population with in 5km walking distance.

Now a days, for any country, any segment of population and any corner in the country, without

Telecommunication Technology one can‟t think of political, social and economic development of the nation. The government is therefore, emphasized its concern in its growth and transformation plan (GTP) for the development of the sector which is by the end of 2015 the geographic network coverage and subscribers number will have to reach in all rural areas. In line with this, special attention is given to the expansion of rural telecom service by addressing point of presence throughout the nation.

The ultimate objectives of these efforts is to provide reliable, cost-effective and qualified communication services all over the country by deploying state-of-the-art telecommunication infrastructure and systems which improves service delivery not only by giving access to the areas where communication facilities were not in place, but also by providing world standard telecommunication services to its customers with standard quality, affordable price and proper customer handling.

Since 2005, from the total of over16, 000 Kebeles all over the country ethio telecom has provided the basic voice telephone service for around 15,875 Kebeles.

However, based on the joint surveys made on the rural telecom service provisioning by the MCIT and ethio telecom, for the last eight years the rural telecom service provision has faced many challenges like: poor network coverage and service quality, frequent fault, absence of spare parts and lack of timely maintenance, in adequate local skills to maintain the system, absence of supply of voucher cards, limited logistics and scarcity of budget for regional telecom offices to carry out the project properly etc.

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Thus, in order to alleviate the challenges and gaps identified, MCIT and Ethio Telecom have developed a business model for sustainable rural communication services. The business model defined responsibilities, and developed work procedures and processes for the final implementation of the model.

2. Current Rural Telecommunication Service Environment

The Rural Telecommunications Service (RTS) is one of Ethio Telecom‟s service obligations as an incumbent operator to execute the government‟s plan in addressing universal access/service. The main purpose of this project is to deliver telecom services to under-served rural communities by making use of appropriate and cost-effective technologies, which will help to provide basic telecommunication services to the rural community.

Although the widely expansion of telecom services in rural areas is encouraging, there are many challenges that affect the effectiveness of sustainable service provisioning. As identified under the survey conducted by the joint team of MCIT and ethio telecom, major problems in rural telecom operations are identified.

The problems associated with RTS service provisioning include:

Poor network coverage and service quality - low radio signal quality

Absence of Voucher cards around and/or nearby rural areas

Commission for attendants is not attractive

Absence of regular service delivery; service is not available during office hours, since attendants are not willing to work on the existing unattractive commission.

Tariff abuse, the community is paying beyond the stated tariff

Service is interrupted for long period due to frequent faults & absence of timely maintenance

Theft/damage of CPE and related items due to lack of knowledge/support

No separate room for service provisioning, most of CPE is located inside Kebele managers‟ offices; in addition some use the service other than the presumed objective.

Poor awareness about the service availability

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Currently there is no well-organized request for new service. The request for service from

MCIT through PMO to Network Special Project Section is not well organized and there is no clear data base regarding connected Kebeles (MCIT)

Currently the handover process is using handover format which contains only equipment check list, and checking functionality of CPE signed with Kebele representatives

(Attendants); there is no formal SLA.

Housing facility is not uniform in Kebeles, some are giving houses in different standards, and sometimes the service is in Schools, and Health Centers

Fault registration is currently through 994. Although there are areas having mobile coverage, in some remote rural areas attendants may not get any optional telephone line for fault registration.

Mobile penetration has reduced the demand for the service

Absence of clear accountability/responsibility

Resource problem in regional/zonal maintenance team (man power and vehicle) hinders the activity of maintenance team

As a matter of fact, the survey results have indicated that to sustain the services and achieve the target set in Growth and Transformation Plan (GTP) in creating 100% real accessibility of rural telecom services in 5 km walking distance, the challenges and gaps identified shall be mitigated.

In this regard, the proposed model would be expected to solve the problems affecting the service provision.

3. Other Countries Experience

In many countries rural telecommunication is based on the concept of universal access. That is affordable telephone and internet services are within reach of the whole population of a country.

The concept of universal access, its content and the implementation of policy vary depending on a country‟s specific needs. But in order to be effective, the concept and policy must be sufficiently flexible to adapt to the changing needs of the country concerned.

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3.1 Principles for Universal Access/Service

Affordability:- telecommunication services should be provided at affordable rates;

Quality of service :- services provided should be of good quality and acceptable standards;

Geographic access:- telecommunications services should be made available or accessible regardless of geographical location;

Availability:- telecommunications services should be accessible to a larger proportion of the population in a country.

3.2 Strategies to Achieve Universal Access/Service

Strategies for achieving universal access/service include amongst others:

Establishment of Universal Service Fund as auxiliary vehicle for the financing of universal service / access;

Imposition of Universal access/service obligations on licensed operators to ensure delivery of services in under-served areas;

Encouragement of community participation in the provision of telecommunication services;

Application of preferential or discounted tariffs for achieving good quality access to schools, health centers, tele-centers or other community access centers; and

In most developing countries, universal access requires establishing a certain level of telephone service to meet the needs of communities where the existing telephone penetration is low or non-existent. Typical access targets are 1 public telephone per 500 population, or 4 to 5 telephones (1 payphone plus 3 to 4 business or institutional lines) per village. In some circumstances where populations are particularly dispersed, universal access policy may require only that people in rural and remote have access to telephone service within a certain distance from their community.

This is typically measured by the length of time required for a community member to walk to a telephone 2 to 5 kilometers outside their community. For example, the goal of Grameen Telecom in Bangladesh is to have one telephone accessible within a ten-minute walk for every rural villager. Likewise, there is no one common (universally agreed) model for rural telecommunication; different countries use different methods for insuring universal access.

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Among these, the highlights of the most familiar models perused by different countries to insure universal access objectives are summarized as follows:

3.2.1. Remote and rural initiatives by governments

This is a funding assistance to improve remote, rural and regional telecommunications services.

The funding was made available to services providers and not-for-profit organizations by letting contracts to deliver specific services (Australia).

3.2.2. Conditional Licensing

In some other countries, the government imposes on operators some percentage (from 1% to 2%) of their total revenue as a levy for the purpose of equitable distribution of telecommunication service to the rural areas (Peru, Brazil, South Africa, and Dominican Republic etc.)

In Peru and Brazil, for example, the telecom provider is required to contribute 1% of gross revenues to a rural telecommunication fund as a license condition. Similarly in South Africa, the national provider is obliged to roll out 1.7 million lines in disadvantaged areas during their 5-year exclusivity period. In addition, in Dominican Republic 2% operator levy is imposed to fund the rural telecommunication service.

3.2.3. Community-owned Systems and Cooperatives:

In this approach the community has given central attention to expand telecommunication services in the rural areas. The financial source of is from both international partners and the local community (Uganda)

On the other hand a number of other countries used cooperative organizations, which are active in rural areas (e.g. electrical cooperatives, agricultural cooperatives, etc.) to provide universal access by granting them incentives such as periods of exclusive operation to encourage provision of service in rural areas (e.g. Bolivia and Poland).

3.2.4. Micro-credit Programs

It is applied by linking existing and successful micro-credit organizations with rural telecom operators to expand Public Calling Office (PCO) coverage in rural areas. This helps operators by relieving from many of the „headaches‟ associated with rural telecom operation.

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Small loans to rural entrepreneurs, such as those established by GrameenPhone in Bangladesh, can effectively enable new ICT operators to establish PCOs which provide a variety of services including telephone, fax, email, the Internet, photocopying and word-processing services.

Grameen Phone experience in Bangladesh, which is based on a shared access model, has also been successfully extended to other countries. The Grameen Phone experiences show the importance of relying on an existing institutional infrastructure of the Microfinance helped it in succeeding and the use of a share access model. Similar initiatives on tying up Adopting E-governance the rural telecom initiative in the country to some exiting Institutional Infrastructure like cooperatives or Microfinance institutions and NGOs would ensure more sustainable success of the launch of the services.

4. Strategies to Address the RTS

Village Phone Strategy: this strategy is applicable in many countries, in this strategy ethio telecom will avail one Free Line per Kebele for public use plus availing four additional lines for Kebele Administration, Health Offices, Educational Institutions, and Agricultural

Centers. (Voice + Internet)

Rural pay phone strategy (Using CDMA or GSM Technology)

New discounted offers for Enterprise customers in rural areas: CDMA wireless Fixed

Line, GSM Mobile etc.

New discounted offers for Residential customers in rural areas: CDMA wireless Fixed

Line, GSM Mobile

N.B.: This document focuses on the Village Phone Strategy; however the service support and supplies of other strategies would also be discussed in this document.

4.1. Village Phone Strategy

In rural areas there are often no affordable and accessible telecommunications services.

Telecommunications providers are reticent to place public access telephone booths in these locations as the initial investment and ongoing maintenance costs do not make for a viable business proposition.

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Governments, through their regulators, often place “Universal Access” requirements on telecommunications providers. These requirements result in an infrastructure investment that can make access available to some degree. These services typically operate at a loss and the telecommunications provider maintains them as a duty to their licensing obligation.

Why is it such a challenge to provide telecommunications to rural areas? High initial infrastructure investment, relative low call volumes, high maintenance costs due to harsh environments, cash security costs (for coin operated phones), card availability (for prepaid airtime systems), technical illiteracy, remote locations, and high transportation costs are just some of the impediments to providing rural telecommunications access.

Village Phone addresses these issues. It provides a profitable new market niche for telecommunications companies, new and profitable rural Village Phone Operators, and affordable and accessible access for communities.

What is Village Phone?

Village Phone is a methodology that creates a profitable partnership and a channel to market to bring telecommunications services to the rural areas of a developing nation. It offers a framework to extend telecommunication service to the rural communities in countries where an investment has already been made in infrastructure.

Village Phone is based on a business model that is sustainable for all of the participants and enables the rural community to have access to valuable communication services. Additionally, through this telecommunications service, rural individuals can gain access to information that increases their productivity, earns better prices for the goods they produce, and saves on the direct and opportunity costs of traveling away from home.

By leapfrogging fixed infrastructure and leveraging existing wireless infrastructure, Village

Phones offer a viable strategy for increasing tele-density in developing countries and helping the rural community lift themselves out of poverty.

Studies have shown that there can be a cost to not making a phone call – up to eight times more expensive than the cost of the actual phone call. The rural community cannot make telephone calls simply because there is no access, not because they cannot afford to or don‟t wish to.

The cost of developing and maintaining an infrastructure to place telephones in these rural areas often prohibits telecommunications operators from entering this market. Another barrier is the

August 2014 Page 8 lack of a mechanism that allows them to interact with their customers, selling airtime and making financial transactions. What is missing is essentially a „channel‟ that would allow Telecom

Operators to connect with their potential market.

By their very nature, microfinance institutions have deep roots into rural communities. They are trusted institutions with detailed knowledge of the local communities and an existing infrastructure for regularly visiting these communities to transact financial services with their rural clients. These deep links into the community are essential for introducing new services and the potential contribution of microfinance institutions to new business initiatives targeting rural communities is often undervalued. Here is a „channel to market‟ to bring telecommunications services to the rural community.

By utilizing microfinance institutions as a channel to market, the telecommunications industries in

Bangladesh were able to tap a market that was previously inaccessible because of the prohibitively high cost of developing and maintaining a channel to this enormous market.

Hence, this paper will mainly focus on customizing the Village Phone Strategy, which was successful in Bangladesh; considering external and internal factors in Ethiopia specially in choosing the best way of „Channel to market‟ by focusing on organized parties in the rural community, such as cooperative societies, women associations, youth associations etc.; and suggest the best way of implementing it.

5. Proposed business model

5.1. Objectives

The main objective of this proposal is to examine the current rural communication service provisioning and propose a business model that will ensure sustainable service provisioning to the rural community.

Specific objectives include:

Examine the current scenario in the rural telecom service environment and service provisioning

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Develop a Business Model that will ensure sustainable communication services in rural areas, increase penetration, and improve the performance of the existing service provisioning

Develop procedure for each activity and define the role of each stakeholder in the Rural

Communication Services (RCS) provisioning

5.2. What is the service?

Provide rural community in all the Keble access to basic voice and Internet Services

(Village phone and/or pay phone)

Develop discounted offers to rural Enterprise and Residential customers

Provide the service to four government offices of Kebele Administration, Health, Education, and Agricultural Offices; based on the price that will be developed by ethio telecom

Provide the service to other Enterprise and Residential Customers

Provide rural community postal services

5.3. Who are the main participants?

Ethio Telecom, Ethiopian Postal Service Enterprise (EPSE), Woreda, Woreda

Communication Service Cooperatives, Kebele Administrations, Kebele Communication

Service Cooperatives, and End Users.

5.4. Other supporting entities to implement the business model:

MCIT, Regional ICTDA, Regional Administrations, Zonal Administrations, Regional

Cooperative Agencies, Zonal Cooperative Offices, and Woreda Cooperative Offices.

5.5. Target Customers

Rural Kebeles community, four government offices (Kebele Administration, Health, Education, and Agricultural Offices), and other Enterprise and Residential customers residing in rural areas.

5.6. Price

Provide telecom services with the prevailing service prices (usage price), zero CPE price for the public and discounted CPE price for rural enterprise and residential customers.

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Develop offers for rural community like free air time for awareness creation (during the first 1 st week), discount in internet usage price, and CDMA terminal subsidy.

Provide postal services with the prevailing service price

5.7. Stakeholders and Relationships

5.8. Role of Each Stakeholder in the Rural Communication Services (RCS)

Provisioning

5.8.1. Role of Main Participants

1. Ethio Telecom: ethio telecom will play the major role in:

Installation and provisioning of rural telecommunications infrastructure, (for village phone covering all costs of CPE and Computer)

Determine tariff structure for Cooperatives

Payment to the low level maintenance service for Woreda Communication Service

Cooperatives

Ethio Telecom

Kebele

Administration

Woreda Communication

Service Cooperatives

(Union)

Kebele

Communication

Service

End Users

SLA

Support These could be:

• Kebele Communication Service Cooperatives

• Women Associations

• Youth Associations etc.

Woreda Administration and Woreda ICT

Support

SLA

Ethiopian Postal

Services Enterprise

SLA

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Supporting service delivery (VC distribution, maintenance, replacement), support supplies and trainings, Training to Woreda Communication Service Cooperatives

To strengthen Woreda Communication Service Cooperatives ethio telecom will use the Cooperatives as an Alternative Channels, provide additional responsibility and benefit in distributing VC in the Woreda with a limited monthly amount of

200,000 – 300,000 Birr

Facilitate “help line” center for village phone operators, and

Monitoring & evaluation of quality of rural telecom service provisioning

2. Ethiopian Postal Service Enterprise (EPSE)

Provide standardized postal boxes for each rural Kebele

Determine tariff structure for rural postal service

Payment in terms of commission for Woreda and Kebele Communication Service

Cooperatives

Supporting service delivery

Training to Woreda Communication Service Cooperatives

Monitoring & evaluation of quality of postal service provisioning

3. Woreda Communication Service Cooperatives:- it will:

Initiate Request for Service

Involve in the supply and support value chain in the RCS service delivery process including low-level maintenance.

Training the Kebele Communication Service Cooperatives on service delivery

Engage in VC distribution to the Rural Kebeles, Provide technical support and maintenance of CPE and Computers, Fault Reporting – high –level maintenance, and

Monitoring and evaluation of rural telecom service provisioning

Work with EPSE to deliver postal services to the rural community

Monitoring and evaluation of rural postal service provisioning

4. Kebele Communication Service Cooperatives /Women Associations/Youth

Associations etc: Attendants will:-

Provide telecom services to the rural community using approved tariffs

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End users service sales support (calling, charging, payment, ...)

Inform the Woreda Communication Service Cooperatives at the time of service interruption and disconnection

Proper handling of equipment and physical security.

At least fixed eight hours daily service provisioning

Subscriber record updating

Post the appropriate tariff in visible areas of the resale facility so as to enable customer viewing.

Has to handle incoming call by notifying the left message to the community through notice- boards

Provide printing, copying and secretarial services

Work with EPSE to deliver postal services to the rural community

Monitoring and evaluation of rural postal service provisioning

5. Woreda Administration:

Woreda Administration could initiate the request for new service

Woreda Administration will select at least 10 young who are willing to engage in the

RCS provisioning

Woreda, and Woreda ICT will handle the formation of each cooperative in each

Woreda

The Woreda will communicate ethio telecom after the formation of Cooperatives

6. Kebele Administration:

Make available standard housing facility for the operation of RCS (Room size at least

4m*4m)

Handle the selection and formation of Kebele level cooperatives

5.8.2. Role of Other Supporting Entities

1. MCIT

MCIT gives directions and facilitate the playground for the implementation and successful operation of the business model

MCIT will have a leader and liaison role between Ethio Telecom, Ethiopian Postal

Services

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Enterprise and Other concerned federal and regional units, which are important for the implementation of the business model

MCIT will communicate different Regional government offices to play their part in the formation of RCS cooperatives

2. Regional ICTDA

Regional ICTDA will give direction to Zone/Woreda ICT offices and coordinate the formation of Cooperatives and give the required support until both Woreda & Kebele

Communication Service Cooperatives are formed.

The Regional ICTDA will follow-up and monitor the completion of housing facilities according to the required standard and report to MCIT and/or Ethio Telecom.

After the formation of cooperatives Regional ICTDA will report to MCIT and/or Ethio

Telecom

Regional ICTDA will facilitate the playground for the implementation and for the successful operation of the business model

3. Regional and Zonal Administrative Offices

The Regional and/or Zonal Administrative Offices will give direction to the lowest government hierarchies of Woreda and Kebele Administrative offices to work and collaborate with Ethio Telecom and EPSE until the implementation of the RCS

Business Model.

4. Regional Cooperative Agencies, Zonal and Woreda Cooperative Offices

The cooperative offices will cooperate and work with Woreda and Regional

ICTDA/Woreda ICT, for the formation of Woreda and Kebele Communication

Service Cooperatives.

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6. Business Analysis - Sustainability The Village Phone program should create a win-win scenario for all stakeholders over the course of multiple years. This win-win scenario is often discussed in terms of financial sustainability or profitability, but it is not limited only to this measure of sustainability.

There are multiple levels at which this business operates and all must be viable in achieving their own target. There will be subsidies from ethio telecom in terms of availing the required infrastructure facility to provide voice and internet service in each rural Kebele and each aspect of the overall system is expected to operate profitably and sustainably. Let‟s see the model at various levels:

6.1. Ethio Telecom

Airtime sales yield profits on prior infrastructure investments for Ethio Telecom. Ethio telecom will reach a great number of users in rural areas and recognizes that they can do so profitably using shared access model and will generate additional revenue by utilizing the new channels that will be created after the implementation of this model.

Ethio Telecom will cover all CPE costs and Initial Computer costs (one for each Kebele). The cooperatives will get the computer on loan and payment of the cost to ethio telecom will be on installment basis. After the payment of cost of computers, cooperatives will be the owner of the computer. The following table shows the estimated cost of installation:

Table 1: Cost of CPE and Computer-Initial investment from ET CPE cost per Kebele - a 6,200

Unit cost of Computer (Desktop) - b 6,000

Cost of Standard Chair & Table for PC - c 1,500

Power Divider - d 350

Tools for low level maintenance (Complete) - e 5,000

Printer Cost (all in one ) - f 5,000

Cost of Installation/investment per Kebele (a+b+c+d+e+f) 24,050

Total Cost of Installation/investment overall the country 362,938,550

Source: Cost of CPE from O & M Office; cost of computer, chair, table & printer - estimated, , cost of power divider & tools: current market price

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Additionally, Ethio Telecom is expected to cover the costs for low level maintenance service for

Woreda Communication Service Cooperatives. The following Table shows details of these costs.

Table 2: Total Monthly Cost to be covered by ethio telecom

Estimated Cost for Low Level Maintenance

Transportation cost for low level maintenance

* Average Distance to travel to Kebele in Km (Both-way trip) 60

* Fuel Consumption per Km 0.125

* Fuel Cost per liter (in Birr) 21

* Average monthly low level faults =24*1/3*70% 6

Transportation Cost/Month/Woreda (a) 945

Low level Maintenance cost/line (in Birr) * 184

Low level Maintenance Cost/Month/Woreda (in Birr)=184*6 faults (b) 1,104

Estimated Cost for Low Level Maintenance/Woreda c=(a+b) 2,049

Total Estimated Cost for Low Level Maintenance/Month = d*710 Woredas (X) 1,454,790

Estimated Cost for High Level Maintenance

Transportation cost for High level

* Average Distance to travel to Kebele in Km (Both-way trip) 60

* Fuel Consumption per Km 0.125

* Fuel Cost per liter (in Birr) 21

* Average monthly High level faults =24*1/3*30% 2

Transportation Cost/Month/Woreda (a) 315

Per-Diem (2 employees *284 Birr*2 faults) (b) 1,136

Cost of Spare part/month/Woreda 4,100,400/710 Woredas=5,511 Birr (Estimated by Network PMO Special Project) (c) 5,511

Estimated Cost for High Level Maintenance/Woreda d = a+b+c 6,962

Total Estimated Cost for High Level Maintenance/Month = d*710 Woredas (Y) 4,943,226

Ethio telecom’s Monthly Cost for Maintenance/Month (X+Y) 6,398,016 *low Level maintenance cost (Daily allowance + average salary/30days) =134+1500/30= 184 Birr

6.2. Woreda Communication Service Cooperatives

Woreda Communication Service Cooperatives will serve as a distribution channel to the rural

Kebeles and receives ongoing revenue from the share of air time sales as well as commission from VC distribution by engaging as an Alternative Channel (with limited amount)

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Table 3: Total Income for Woreda Communication Service Cooperatives

1. Income from VC Distribution /Alternative Channel/

Amount of VC per Month (in Birr) 200,000

Commission 3%

Monthly Income from VC Distribution (a) 6,000

2. Income from Low Level maintenance

Average monthly low level faults =24*1/3*70% 6

Low level Maintenance cost/line (in Birr) * 184

Monthly Income from maintenance (in Birr) (b) 1,104

3. Income from Postal Services

Letter Service (ordinary, registered, small packet and post box rent) 481

Parcel / Registered/ Service 93

Money Transfer /Electronic/ Service 25

EMS 219

Monthly Revenue from postal services/Kebele (in Birr) 818

Total Monthly Revenue from postal services/Woreda (24 kebeles) (in Birr) (x) 19,625

Transportation cost for postal service distribution

* Fuel Consumption per Km 0.125

* Fuel Cost per liter (in Birr) 21

* Average Distance to travel to Kebele in Km (Both-way trip) 60

* Average monthly postal transaction =24*3 times/month 72

Transportation Cost/Month/Woreda (y) 11,340

Monthly Income from postal service (c) = (x-y) 8,285

Total Monthly Income for Woreda ICT Cooperatives = a+b+c 15,389

Monthly Income for each Member (10 members) 1,539

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6.3. Kebele Communication Service Cooperatives

Kebele Communication Service Cooperatives will sells airtime of voice and internet usage and also generate additional revenue from non-airtime sources such as message delivery, solar charger, Commission from VC sales to Kebele community, and from other business. The following table shows Kebele Communication Service Cooperatives average income from RCS provisioning:

Tabel-4: Kebele Communication Service Cooperatives’ Average Income

Kebele Communication Service Cooperatives

Price/ minute or per page

Year-1 Year-2 (Y1+25%) Year-3 (Y2+30%)

Total Min utes total page s per day

Total Income in Birr

Total Min utes total page s per day

Total Income in

Birr

Total Min utes total page s per day

Total Income in

Birr

1. Income from Voice Call

Average VPO minutes sold per day (50 minute)

Within Town 0.23 25 6 31 7 41 9

Within Zone 0.46 15 7 19 9 24 11

Across Zone 0.83 10 8 13 10 16 13

Total Daily Revenue from voice call(ET Revenue) 21 26 34

Commission (50%)/day 10 13 17

Income from outgoing Voice Call/month

Income from Incoming call/month (2 birr/call * 2 calls/day * 26)

Total Monthly Income from Voice Call (a)

2. Income from Internet Service

Total Revenue from Internet Service 0.4 120

48 180

72 240

Total daily Cost (ET Revenue) 0.115 120

14 180

21 240

Average VPO Income/day 34 51 68

Total Monthly Income from Internet Service(b)

1,334

1,778

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3. Revenue from Postal Service (10% Commission -- Refer Annex 2)

Letter Service (ordinary, registered, small packet and post box rent)

1,203

1,564

Parcel / Registered/ Service 186 233 302

Money Transfer /Electronic/ Service 50 63 81

EMS

Total Monthly Income from Internet Service(c)

1,635

2,044

2,658

4. Revenue from Secretarial Services (Estimated)

Printing 2 10 20 20 40 40 80

Copying 1 10 10 20 20 40 40

Typing 3 5 15 10 30 20 60

Average Revenue from Secreterial Service /day

Monthly Revenue from Secretarial (x)

1,170

2,340

4,680

Average Monthly cost for Paper & Toner (y)

Total Monthly Income from Printing, Copying & Secretarial Services (d=x-y)

1,715

3,899

Total Monthly Income for Kebele Communicaion Service Cooperatives (a+b+c+d)

3,571

5,538

8,883

Monthly Income for each Member 714

- 1,108

- 1,777

N.B. Average VPO minutes sold per day is calculated by considering 57 minutes in Bangladesh and 20 minutes in Uganda, the estimated minute usage/day is 50 minutes

Note that, the estimated revenue and costs for Woreda and Kebele level ICTs is calculated, assuming;

they will manage their own activity independently, however if the Cooperative agency proposes a best way of organizing and managing the RTS using One merged Cooperative (Union), the organizational structure and revenue sharing will be determined by the rules of Cooperatives

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7. Benefits and Beneficiaries of the RCS Business Model

The major beneficiary of this business model is the rural community. The business model will assure stainable telecom and postal services and creates job opportunity for the local youth. The beneficiaries of this model include:

7.1. Benefits to Kebele Communication Service Cooperatives

Income: At the local level, the Cooperatives, who decide to become communication service providers, must see a return on their investment for the business to be sustainable. The income generated by the phone calls, internet usage and postal service fees can go into pocket of members in terms of commission. Also, typically, the cooperatives manage another business, such as a VC

Distribution, printing, copying and secretarial services, and other related businesses to increase their monthly income.

Status: The community status of the Cooperatives increases as their support, knowledge and contribution to the community increases.

7.2. Benefits to Woreda Communication Service Cooperatives

The Woreda Communication Service Cooperatives will have an income from VC distribution

SIM sales and other service sales in terms of commission, payment from ethio telecom for low level maintenance services and payment from EPSE in terms of commission. Create opportunity for growth by addressing the untapped rural market like low cost handset sales, availing solar powered mobile chargers to the community etc.

7.3. Benefits to Ethio Telecom

Ethio Telecom will fulfill government objective of providing sustainable basic telecommunication services in rural areas. Using these model ethio telecom will eliminate existing problems associated to service delivery, will promote the untapped market and new opportunities will emerge, will be cost effective, will improve network coverage in remote areas and will bear out its corporate social responsibility.

7.4. Benefits to Ethiopian Postal Service Enterprise (EPSE)

EPSE will fulfill government objective of providing sustainable basic postal services to the rural community. Using this model EPSE will eliminate existing problems associated to service

August 2014 Page 20 delivery, will promote the untapped market and new opportunities will emerge, will be cost effective, will improve its service coverage in remote areas and will bear out its corporate social responsibility.

7.5. Benefits to the Rural Community

While obtaining market information and arranging business services clearly are benefits, for rural villagers the fact that they no longer have to travel many kilometers simply to get telecom and postal services, stay connected to families and friends, reduce the gap between rural and urban, change the life of rural populations by connecting them to the world, promote safety, security and good governance in the area etc.

8. Keys for success

There are four vital elements to ensure the long-term success of the RCS program:

The program should be structured so that all parties benefit. This can be in quantifiable economic terms and in also in other more intangible ways. For instance, while the ethio telecom benefits financially (revenue from a previously unreached market niche);

constituents also see ethio telecom as it is socially responsible. The Company often has a

“Corporate Social Responsibility Mandate” which RCS can help fulfill. The additional public relations that the program generates also help ethio telecom‟s image. The Kebele

Communication Service Cooperatives owns a profitable business and also builds status in their community as a communications and information connection. If the RCS providers are Women Associations, and Youth Associations their community role will serve to increase the overall status in their community.

The Woreda Communication Service Cooperative should be used as a „channel to market‟. These cooperatives will have a trusted business relationship with the Kebele

Communication Service Cooperatives.

The Regional microfinance institutions should provide the required financial resource for

RCS Program, if the Woreda and Kebele Communication Service Cooperatives want to expand their business.

Ethio telecom and EPSE should provide reasonable commission, new offers and rates to sustain the RCS Strategy

August 2014 Page 21

Selection of cooperative members should be from local community

Government support is essential (Region/Zone/Woreda/Kebele)

Workshops and Trainings are also important for awareness creation

9. Operational Procedures for Rural Telecommunication Service

Provisioning

9.1. Installation & Provisioning

a. Initiate Request for service (MCIT/ethio telecom /Woreda Administration/Kebele

Administration/ Woreda Level Cooperative).

b. Enterprise Complex and Special Projects Section will receive the request, validate and send to Network Special Project Section

c. Network Special Project Section will validate the request and transfer to Installation

Team. The Installation Team will install and Activate the CPE - (Based on the Special

Project Government Request & Other Trial Project Work Procedure – NWD-GRW 1)

NWD-GRW 1 Procedure:

Network PMO special project section will receive the request that arises directly from Enterprise Complex and Special Projects Section

Network PMO special project section analyses the request and try to coordinate different stake holders to provide the service requested Rural connectivity voice, other enterprise/residential requests by coordinating and contacting concerned divisions in accordance of the type of request

Network PMO special project section follow-up until the work has been completed and try to collect the data to inform the status if it is necessary to requester.

Network PMO special project section does trial projects from its conception to its implementation which is relevant to ethio telecom such as alternate energy solution, Indoor network solution etc. from different vendors and report its result by analyzing its benefit to ethio telecom

Network PMO special project section supports all Network Division departments by transversally communicating with other Divisions ISD, S&F, and EnD

August 2014 Page 22

d. CPE and Pay Phone Section of Regions and Zones, will hand over the CPE to

Woreda level cooperatives, after signing SLA

e. Subscriber record update will be managed by Network Special Project Section, Enterprise Complex and Special Projects Section, CPE and Pay Phone Sections and Regional/Zonal Enterprise)

f. Reporting - Network Special Project Section/ Enterprise Complex and Special

Projects Section / Regional Enterprise

9.2. Supply and Support Procedure

9.2.1. VC Distribution:

ethio telecom will avail the VC card at near-by shop

Woreda Communication Service Cooperative will purchase the VC and distribute to Kebele Cooperatives or to retailers

Kebele Cooperatives will consume the VC or sell to other Enterprise/Residential customers in the Kebele

9.2.2. Maintenance

9.2.2.1. Preventive Maintenance

Preventive maintenance of CPE, Computers and Other accessories will be handled by Woreda

Communication Service Cooperatives. Preventive maintenance will be scheduled every three months, and Woreda level communication cooperatives will manage to maintain all Kebeles communication service accessories before fault occurs.

9.2.2.2. Low Level Maintenance

The low level maintenance of CPE, Computers and Other accessories will be managed by Woreda

Communication Service Cooperatives. The low level maintenance includes: user cable and hand set cord cut/load cable problem/, system side block due to not recharging the VC amount, terminal key pad problem, loose cable connection etc.

9.2.2.3. High Level Maintenance

Regarding the higher level maintenance, ethio telecom will take the responsibility of maintaining, replacing, and removal of CPE.

August 2014 Page 23 if it is a terminal problem ethio telecom will change the terminal by the new one using replacement procedure

If the line is blocked due to billing case ethio telecom also tells the customer to pay their rent nearest ethio telecom center (for Enterprise & Residential Customers)

If the terminal problem is due to spare part case ethio telecom tries to solve the problem by changing simple spare parts such as like charger, solar, battery, etc. by payment

CPE Terminal Maintenance Process

9.3. Replacement Procedure for Rural Wireless CPE and/or Modem for

Internet service:

a. CPE and Pay Phone regional/zonal supervisor receives the line problem through system then prepares the template to be filled for provisioning or maintenance purpose of Wireless vice and Internet lines

b. CPE and Pay Phone supervisor assigns technician team and provides the template

c. Case-1: if the CPE is in good condition, the technicians are requested to maintain and check functionality of CPE and report

d. Case-2: if one of the CPE is not in good condition, it shall be confirmed by the technician and the technician will request for replacement, then the supervisor will decide and avail the equipment to be replaced

e. Case-3: if the CPE is damaged due to force major or stolen, the Kebele

Communication Service Cooperative shall bring a written confirmation letter from

Start

WLL Fault coming by TT, by from

Woredas

Problem, terminal, or

Spare part

Terminal Enterprise

Spare part ethio telecom changes the faulty equipment

August 2014 Page 24

Kebele Administration, and Kebele Police to Regional CPE and Pay phone, then the

CPE and Pay phone will forward all documents to Network Special Project Section

(Corporate), the Network Special Projects Section will communicate Legal Division for decision. After the Legal Division confirms and allow for replacement, the

Network Special Project Section will give order for replacement and follow up until the Station is operational.

10. What should be included in the Service Level Agreement?

10.1. Ethio telecom’s Rights

ethio telecom has the right to monitor the service provisioning activates at any time during the service provisioning time ethio telecom may terminate the contract if the cooperatives:

- fail to deliver the service in the requested standards

- use the facilities for purposes contrary to FDRE laws and/or directives of ethio telecom

- Other reasons that can be constructed to link with the above mentioned ones ethio telecom may change the number upon the request of the customer provided that is convinced of the existence of a reasonable ground for the change.

10.2. Ethio telecom obligations

Availing network infrastructure, CPE, Computer, power supply and related items.

Network operation and maintenance - High level CPE and related maintenance (to be defined further)

Avail tariff and other procedure manuals

Establish fault registration and complaint handling process

Line activation

Subscriber record updating

VC distribution up to Woreda level cooperatives

Payment of commissions/incentives to cooperatives and unions.

Training and support

August 2014 Page 25

10.3. Cooperatives’ rights

The cooperatives have the right to be compensated on revenue based on the commission.

The cooperatives have the right to request for additional facilities in terms of additional telephone and internet lines etc. provided that ethio telecom has the infrastructure to supply such facility and the cooperatives are able to pay for additional request.

The cooperatives have the right to terminate the agreement for any reason by giving one-month advance written notice to ethio telecom.

10.4. Cooperatives’ obligations

Post the appropriate tariff in visible areas of the phone station

Inform Woreda Communication Service Cooperatives/ethio telecom at the time of service interruption and disconnection of all Wireless and internet services, including

Enterprise customers and Residential users in the Kebele

Payment of Computer costs on installment basis

Proper handling of CEP equipment and Computer.

Agreement not to abuse end-users via tariff and customer care.

Fixed daily hours (at least eight hour service) for service provisioning

Purchase and recharge VC.

Subscriber record updating

End users service support (calling, charging, payment, change ...)

Low level CPE and related item maintenance (to be defined further)

Handle incoming call by notifying the left message to the community through notice-boards

11. Formation of Cooperatives

According to Cooperative Societies Proclamation No. 147/1998, Co-operative societies may be established at different levels from primary up to the federal level.

A primary society shall be established by persons who live or work within a given area.

August 2014 Page 26

The number of members in a primary society to be established shall not be less than ten.

Notwithstanding of this criteria, the appropriate authority may specify in the directive, the minimum number of members that could make a society economically feasible.

Following the formation procedure Woreda Communication Service Cooperatives and Kebele

Communication Service Cooperatives will be formed. The Regional ICTDA, Zonal ICT, Woreda

ICT and Kebele Administrative Offices will be responsible to coordinate and support in their formation.

At Woreda level the Woreda Communication Service Cooperative with a member of 10 will be formed in the objective of Expanding communication services in rural areas and supporting

Kebele level Communication Service Cooperatives.

Kebele level cooperatives will be formed at Kebele having a member of 3 to 5.

Cooperative Agencies could propose the best way of organizing and managing the RCS at

Woreda level and Kebele level, either using one merged Cooperative (Union) or separate cooperatives. So, the organizational structure and revenue sharing will be determined by the rules of Cooperatives.

11.1. Requirements for selecting Woreda Level Cooperative Members:

Education qualification: at least Technical and Vocational graduates ( Level 1)

Resident of the Woreda or one of Kebeles in the Woreda

Youths have to be favored

Young Women candidates should be favored

Respected and accepted by the society

Willing and committed to engage in the rural communication service sector and serve the society

11.2. Requirements for selecting Kebele Level Cooperative Members:

Education qualification: at least Grade-10 (In some convincing situations, where there is no option, the revision of minimum educational requirement could be decided by MCIT, if the Regional ICTDA suggests)

Resident of the Woreda or one of Kebeles in the Woreda

Youths have to be favored

August 2014 Page 27

Young Women candidates should be favored

Respected and accepted by the society

Willing and committed to engage in the rural communication service sector and serve the society

N.B: If Women and Youth Associations (as an option) handle the operation at Kebele level, the minimum requirement of educational qualification should be maintained

August 2014 Page 28

Annex

Page | 1

Volume of work, Revenue and commission details-EPSE

No Products/ service

Domestic

Reven ue/birr international

Reven ue/Birr

Total Revenue

5% commission for Woreda

Communicatio n Service

Cooperatives

10% commission for Kebele

Communicatio n Service

Cooperatives

Total Commissi on 15% Remarks Traffic per month

Aver age price /birr

Traffi c per mont h

Aver age price /birr

1 Letter Service 1. All Revenues depend up on the efforts of the agent workers

1.1 Ordinary letter 100 2 200 50 36.48 1824 2024

101.20

202.40

1.2 Registered letter 100 10.85 1085 20 57.03 1140.6 2225.6

111.28

222.56

1.3 small packet 0 10

297.4 3 2974.3 2974.3

148.72

297.43

1.4 Post Box Rent 50 48 2400 0 2400

120.00

240.00

2. The price given are the average price as the…