Ethiopia’s new government thought that it was selling the “last Coca-Cola in the desert” when it decided two years ago to reverse decades of policy by opening up the country’s telecoms monopoly to foreign competition, according to one banker with knowledge of the auction.

After all, Ethiopia has 114m people and its economy had been growing at near double-digits for the best part of two decades. That made its telecoms market — a monopoly since 1894 when Emperor Menelik II installed the first line between Addis Ababa and the eastern city of Harar — the most important to liberalise since Myanmar opened its sector to competition eight years ago.

Yet when government officials unsealed the bids for two new spectrum licences last month they were disappointed at what they found, according to two people familiar with the process. Of the dozen or so companies that had expressed interest, including the likes of Orange, Etisalat and Saudi Telecom, only two submitted offers. One of those, a $600m bid from South African operator MTN, was rejected as too low. The licence will be retendered, possibly within months.

“I think they assumed that everyone would beat down the door to get in,” said one person advising a potential bidder. As a result, he added, the government failed to make the offer sufficiently attractive, particularly in light of growing concern over political instability.

For example, it prevented new operators from offering potentially lucrative mobile money services of the sort common in Africa or from bringing in third-party tower operators to build infrastructure, also normal practice elsewhere.

Ethiopia did accept one offer: an $850m bid from a consortium led by Safaricom, the biggest operator in neighbouring Kenya, which has one of Africa’s most sophisticated telecoms sectors and was a pioneer of mobile money.

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Its M-Pesa service, which allows people to store and send money by phone, has been credited with bringing tens of millions of unbanked people into the financial system. Ethiopia’s telecoms set-up, by contrast, is slow and expensive, and subject to political interference with frequent internet shutdowns.

Abiy Ahmed, Ethiopia’s prime minister and a driver of the privatisation process, put a brave face on the auction, declaring it the biggest foreign direct investment in the country’s history. The new consortium, officials said, would invest more than $8bn in the network and help create up to 1.5m jobs.

Analysts agree that, despite the rocky start, Ethiopia has at least embarked on a process that will revolutionise its telecoms offering.

Peter Ndegwa, chief executive of Safaricom, said that Kenya had demonstrated the power of “digital transformation” to change lives. “We can deliver a similar transformation while achieving a sustainable return to our shareholders,” he said of the Ethiopian service, which he said could be launched next year.

Safaricom, which is 35 per cent owned by Kenya’s government and 40 per cent by Vodafone and its South African subsidiary Vodacom, will control the new consortium with a 55.7 per cent interest.

Sumitomo, a Japanese trading house that has telecoms interests in Myanmar, has a 27.2 per cent stake and Vodacom has 6.2 per cent. The remainder is held by the UK’s CDC development agency, which invests in for-profit businesses with a positive social impact.

However, there are many issues to be resolved before Ethiopia’s privatisation brings the promised benefits.

First is the question of mobile money. Ethiopia originally told bidders that foreign companies could not offer cashless transactions, largely because of central bank restrictions on foreign banks. That would leave the incumbent Ethio Telecom, which launched a mobile money service, TeleBirr, only this month, as the sole provider.

Foreign companies complained that excluding the possibility of their providing similar services significantly reduced the value of a telecoms licence.

“Most of these companies generate a significant amount of their revenue from mobile money,” said Brook Taye, senior adviser to the finance ministry and part of the team overseeing the privatisation. “We were very frank with them: ‘Give the government time to work through the overall reform of the economy, which includes the financial sector, then it will gradually open up the sector further’,” he said.

After the auction was closed, Abiy indicated that new operators could offer mobile money services after all — and probably within a year. Ndegwa of Safaricom described that as “good progress” but said he wanted to see it confirmed in writing.

Another uncertainty is around sanctions. The day after the licence was awarded, the US announced measures against certain Ethiopian officials over concerns about grave human rights violations in Tigray, where a civil war erupted last November.

The US International Development Finance Corporation, the equivalent of the UK’s CDC, has offered the Safaricom-led consortium up to $500m in loan finance. That money is now in doubt, although it already came with the proviso that the consortium not buy Chinese equipment, a stipulation that could increase costs.

More broadly there is nervousness among investors over continued instability in Ethiopia and its potential to damage the economy.

A third area of concern is how much the playing field will be skewed towards Ethio Telecom, a 45 per cent stake in which is due to be sold to domestic and foreign investors later this year.

The exclusion of third-party tower operators is likely to increase the dependence of new licensees on the state-controlled operator — and if regulators drag their feet on opening up mobile money services then Ethio Telecom, which has 46m subscribers and reported 47.7bn birr ($1.1bn) in revenues last year, could cement its lead.

New operators also worry about access to foreign currency, notoriously problematic in Ethiopia. They will need dollars to import equipment during the rollout phase and, eventually, to pay dividends.

“We’ve spent quite an amount of time looking at the opportunity in Ethiopia, because the market is just amazing,” said a senior executive of one of the companies that withdrew from the process. “But you don’t have enough visibility for your forex, you don’t know how you will invest, how you can take your cash out.”

Still, telecoms privatisation marks a decisive step away from the past state-led development model that promoted national control of banking, logistics and telecoms. A year from now Ethio Telecom should have a foreign partner and be preparing to compete with two new foreign entrants. Both Orange and MTN are likely to consider new bids for the second licence, according to analysts.

GSMA, the global mobile industry trade body, forecasts that Ethiopia will have 16m new mobile subscribers by 2025. For the first time in more than a century they will have a choice of which operator to use.