An assessment of level of service quality and customer satisfaction the case of ethio telecom

ABSTRACT The purpose of this quantitative descriptive research study was to assess the level of service quality and to identify the most important service quality dimensions that influen

ABSTRACT

The purpose of this quantitative descriptive research study was to assess the level of service quality and to identify the most important service quality dimensions that influence overall customer satisfaction Five dimensions of the SERVPERF scale namely; tangibles, reliability, responsiveness, assurance and empathy were used to measure the perceptions of customers of Ethio Telecom The research was conducted using data collected through a survey of enterprise customers in Addis Ababa 220 questionnaires were sent to the sample of the study and 170 usable questionnaires were obtained with a response rate of 77% The findings revealed that three of the service quality dimensions: reliability (t-value= 4.06 p <.001) empathy (t-value= 3 p<.005) and tangibles (t-value= 2.129 p<.005) influence the dependant variable overall customer satisfaction The findings also indicated that overall service quality was found

to be influenced by four of the five service quality dimensions namely, reliability value= 4.684 p <.001), empathy (t-value= 3.05 p<.005), responsiveness (t-value= 2.187 p<.005) and tangibles (t-value= 2.0 p<.005) Reliability, empathy and tangibles were found to be predictors across both overall service quality and customer satisfaction The study recommends Ethio Telecom to concentrate on these dimensions to achieve overall customer satisfaction and improve overall service quality

(t-ACKNOWLEDGEMENTS

I would like to express my very great appreciation to my supervisor, Mr Abdurezak Mohammed Kuhil for his valuable and constructive comments during this research study

I would also like to thank the staffs of Ethio Telecom at Enterprise Division for providing

me the relevant data I would also like to extend my thanks to fixed access network technicians at West and Central Addis Ababa Zones for their help in collecting data

To the respondents who participated in the survey I could not have done this without you I appreciate the time and effort you put into this study

Finally, I wish to thank my wife, Maheder Getachew and my children for their understanding, support and encouragement throughout my study

Table of Contents

Abstract ii

Acknowledgements iii

LIST OF TABLES vii

LIST OF FIGURES viii

Chapter 1 : ORIENTATION 1

1.1 Introduction and Background to the Study 1

1.2 Statement of the Problem 2

1.3 Purpose of the Study 3

1.4 Objectives of the Study 3

1.5 Research Questions 3

1.6 Delimitation and Scope of the Study 4

1.7 Significance of the Study 4

1.8 Limitations of the study 4

1.9 Assumptions 4

1.10 Definitions of Terms 5

1.11 Structure of the Thesis 6

Chapter 2 : TELECOMMUNICATIONS IN ETHIOPIA 8

2.1 Introduction 8

2.2 Social, Economic and Political Overview 8

2.3 The Telecommunications Industry 10

2.3.1 History 11

2.3.2 Telecommunications Regulation 13

2.3.3 Ethio Telecom 14

2.4.1 Strategic Directions 25

2.4.2 Objectives 26

2.4.3 Major Targets 27

2.4.4 Implementing Strategies 27

2.5 Summary 28

Chapter 3 : Literature Review and Theoretical Framework 29

3.1 Introduction 29

3.2 Characteristics of services 29

3.3 Perceived Service Quality 30

3.2.1 Disconfirmation paradigm 32

3.2.2 Performance-based paradigm 32

3.2.3 Conceptual Models of Service Quality 33

3.2.4 The Perceived Service Quality Model 33

3.2.5 The ‘Gaps’ model of service quality 34

3.2.6 Performance only model 39

3.3 Service Quality Studies in Telecommunications 42

3.4 Customer Satisfaction 45

3.5 The Relationship between Perceived Service Quality and Customer Satisfaction 47

3.6 Theoretical Framework 48

3.7 Summary 49

Chapter 4 : RESEARCH Methodology 51

4.1 Research Method & Design 51

4.2 Population and Sample 52

4.3 Survey Instrument and Data Collection 53

4.4 Measurement of Variables 54

4.5 Data Analysis 54

4.6 Reliability and Validity 55

4.7 Ethical Considerations 56

4.8 Summary 56

5.1 Sample Demographics 57

5.1 Findings Regarding validity and reliability of SERVPERF instrument 59

5.1.1 Factor Analysis 59

5.1.2 Reliability 60

5.2 Descriptive Statistics of Research Variables 62

5.3 Correlation Analysis 67

5.3.1 Relationships among service quality dimensions 68

5.3.2 Relationship between service quality dimensions and Overall Service Quality 69

5.3.3 Relationship between service quality and Overall Customer satisfaction 69

5.3.4 Relationship between Overall service quality and Overall Customer satisfaction 69 5.4 Multiple Regression Analysis 70

5.5.1 Modelling Overall Customer Satisfaction 70

5.5.2 Modelling Overall Service Quality 71

5.5 Summary 72

Chapter 6 : DISCUSSION CONCLUSIONS AND recommendations 73

6.1 Discussion 73

6.2 Conclusions and Recommendations 76

References 80

APPENDIX A-SURVEY INSTRUMENT 88

Appendix B- Factor Analysis 93

Appendix C- Cronbach’s alpha coefficient 94

Appendix D-Correlations 98

Appendix E- Regression 99

LIST OF TABLES

Table 2-1: Evolution of the Telecom industry-Important Milestones 11

Table 2-2: GTP Targets 27

Table 3-1: Service quality studies in the telecommunications industry 44

Table 5-1: Demographic Profile of Respondents 58

Table 5-2: KMO and Bartlett’s Test 60

Table 5-3: Total Variance Explained 60

Table 5-4: Reliability Statistics 61

Table 5-5: Reliability Statistics of Service Quality Dimensions 62

Table 5-6: Mean and Standard Deviation Scores for Perceived Service Quality Items 63

Table 5-7: Descriptive Statistics service quality dimensions 65

Table 5-8: Descriptive Statistics Overall Service Quality 66

Table 5-9: Overall Service quality 66

Table 5-10: Descriptive statistics of Overall Customer Satisfaction 67

Table 5-11: Overall Customer Satisfaction 67

Table 5-12: Correlations among service quality dimensions 68

Table 5-13: Correlation Coefficients between Dependant and Independent Variables 69

Table 5-14: Correlations between Dependant Variables 70

Table 5-15: Multiple Regression Analysis Predicting Overall Customer Satisfaction In Terms of Service Quality Dimensions 71

Table 5-16: Multiple Regression Analysis Predicting Overall Service Quality In Terms of Service Quality Dimensions 72

LIST OF FIGURES

Figure 2-1: Gross Domestic Products, National Currency 9

Figure 2-2: eTOM Framework 16

Figure 3-1: Perceived Service Quality 31

Figure 3-2: The Grönroos perceived service quality model 34

Figure 3-3: The ‘Gaps’ model of service quality 36

Figure 3-4: The service quality dimensions 38

Figure 3-5: Conceptual model of service quality and service satisfaction 46

Figure 3-6: Factors that Affect Customer Satisfaction 47

Figure 3-7: Conceptual Framework 49

CHAPTER 1 : ORIENTATION

1.1 Introduction and Background to the Study

The contribution of service sector to the development of most countries is increasing from time to time Ethiopia too experienced a growth in the services sector in the last few years The contribution of the service sector to overall Gross Domestic Product (GDP) increased from 39.7% in 2009/2010 to 46.6% in 2010/11 (MOFED, 2011) One of the most important service sector in Ethiopia is telecommunications

In Ethiopia, telecommunication services investment is reserved for the government or a joint venture (domestic or foreign) with the government (Proclamation No 280/2002) However, down-stream activities of telecommunication (resale and tele-centre services, installation and maintenance of cables, wireless local loop, and virtual Internet Service Providers-ISPs) are open for domestic investors Global Mobile Personal Communication by Satellite (GMPCS) is allowed for both domestic and foreign investors

Ethiopia remains the last country in Africa to allow a national monopoly on all telecom services including fixed, mobile, Internet and data communications (Business Wire, 2012) Ethio Telecom is the sole provider of telecommunication services in the country

It provides fixed, mobile, and Internet services and maintains the international gateway The government of Ethiopia has recognized telecommunications sector as an important tool for socioeconomic development Accordingly, It has invested about $1.5bn (Lishan, 2010) into fixed, wireless and mobile network infrastructure, including third generation mobile technology, as well as a national fibre optic backbone In addition, in 2010 the government has outsourced the management of the incumbent for two years contract to France Telecom (FT) to create world class telecom service provider As of June, 2012 the company’s total subscribers in all telecom services reached 18.28 Million (http://www.ethiotelecom.et)

Despite the progress achieved in introducing new services, improving penetration and telecom infrastructure development, the quality of services has not improved The incumbent has always been criticised for focusing only on increasing its subscriber base

quality, late deliveries, incompetent personnel, inconvenient service hours, poor performance, and complicated procedures

In today’s world of global competition, rendering quality service is a key for success, and many experts concur that the most powerful competitive trend currently shaping marketing and business strategy is service quality (Abdullah, 2006) Researches proved that delivering superior service quality which results in customer satisfaction leads to the retention of existing customers and the attraction of new ones, reduced costs, an enhanced corporate image, positive word-of-mouth recommendations, and, ultimately, enhanced profitability (Berry and Parasuraman 1993; Rust and Oliver 1994; Cronin, Brady and Hult, 2000)

A customer’s perception of quality is critical to telecommunications service provider’s long term success because of the significant influence perceived quality has on

customer satisfaction According to Oodan, et al (2003) customer’s perception is the

main criterion by which telecommunications service providers can assess and measure the value of the quality they deliver Further, the authors argue that the service provider’s decision making would be incomplete without perceived service quality information

Customers in different segment have different needs, wants, perceptions, experiences

and view service quality differently (Zeithaml et al, 2001) Ethio Telecom has

categorized its customers into Residential (individual households) and Enterprise (businesses, government organizations, non-government organizations and embassies) The current study focuses on an assessment of level of service quality and satisfaction of enterprise customers as well as identifying service quality factors that influence satisfaction of enterprise customers

1.2 Statement of the Problem

Customers of Ethio Telecom, especially enterprise customers report a feeling of dissatisfaction with the quality and value of the services they receive from Ethio Telecom (Ethiopian Reporter, 2011; Fortune, 2011) A survey conducted by Horus Telecom & Utilities S.A in 2010 among business customers in Addis Ababa show that 75% were dissatisfied with the poor quality of fixed line service, 90% complained about

mobile service network problem, and 65% of respondents were dissatisfied with the poor quality of internet and data services they receive from the service provider (Baron 2010)

Poor quality of telecom services has significant impact not only on the revenue of Ethio Telecom but also on the competitiveness of enterprises, institutions and individuals at all levels In addition, this problem presents a challenge to Ethiopian government who has invested a huge amount of money in telecommunications infrastructure expansion and for management contract to create a world class telecom service provider

1.3 Purpose of the Study

The purpose of the study was to assess the level of service quality and to identify the most important service quality dimensions that influence overall customer satisfaction

1.4 Objectives of the Study

The overall objective of this study was to assess the level of service quality and satisfaction of enterprise/corporate customers with the services provided by Ethio Telecom The specific objectives of this research were:

1 To identify level of service quality as perceived by enterprise customers of Ethio Telecom

2 To examine whether a relationship exists between perceived service quality and overall customer satisfaction in Ethiopian telecom

3 To identify the most important perceived service quality dimensions that influence overall service quality and customer satisfaction

4 To assess an overall customer satisfaction level of enterprise/corporate customers of Ethio Telecom

5 To make recommendations based on the results of the study

2 What is the relationship between perceived service quality dimensions and overall customer satisfaction?

3 How significant are the identified service quality dimensions in predicting customer satisfaction and overall service quality?

1.6 Delimitation and Scope of the Study

• This study covered only enterprise or corporate customers of Ethio Telecom in Addis Ababa All residential customers of the company and enterprise customers outside Addis Ababa were not included in the research

• The study will be based on performance perception-SERVPERF (Cronin and Taylor, 1992) as a measure of service quality

1.7 Significance of the Study

The study has identified which dimensions of service quality were important to enterprise customers This can be used by Ethio Telecom to commit resources to quality improvement in areas that have greater influence on customer satisfaction This study also helps for further research in the area that is not covered in this research i.e factors such as technical quality, brand image, price, and complaint handling

1.8 Limitations of the study

The study focused only on enterprise or corporate customers of Ethio Telecom in Addis Ababa city Because of resource constraints this study didn’t assess the perceptions of enterprise customers of different geographic regions and residential customers

Survey research has been employed in this study Therefore, limitations attributed to survey research may influence the results due to potential problem areas which include ensuring that the questions are clear and not misleading

Further, the participants were also assumed to be representative of enterprise customers in Addis Ababa City

1.10 Definitions of Terms

Assurance: is defined as the “knowledge and courtesy of employees and their ability to

inspire trust and confidence” (Parasuraman et al., 1988, p 23) In this study, assurance

is the understanding and politeness of Ethio Telecom employees and their capability to encourage trust and confidence as perceived by Ethio Telecom customers Assurance

is measured using 4 items of the assurance dimension of the 22-item SERVPERF

Availability: Availability is the likely-hood with which the relevant components of the

service function can be accessed for the benefit of the customer at the instant of request (Oodan et al 2003)

Customer satisfaction: Customer satisfaction is the degree to which a customer

believes that the use of a service evokes positive feelings (Rust & Oliver, 1994)

Empathy: Empathy occurs when a service provider demonstrates concern and care for

the individual needs and interests of customers, including convenient hours of operation and effective communication channels to customers (Parasuraman et al., 1988) In this study empathy is the caring and individualized attention that Ethio Telecom provides its

customers It is measured using 5 items of the empathy dimension of the 22-item SERVPERF

Enterprise customers (operational definition): Enterprise customers are companies,

government organizations, embassies and cooperatives who account for a major part of service provider’s businesses

Reliability: Reliability is the fulfilment of the service provider’s promises to customers

such as the service function will perform within the specified limits of speed, accuracy or availability for 24 hours a day and providing the appropriate service dependably and accurately (Parasuraman et al., 1988) In this study, reliability is the ability of the service provider to execute the promised service as perceived by the customers This is

measured using 5 items of the reliability dimension of the 22-item SERVPERF

Responsiveness: Responsiveness is the service provider’s prompt reaction to

customers’ needs (Parasuraman et al., 1988) In this study, responsiveness is the readiness of the Ethio Telecom to provide prompt services as perceived by customers

This is measured using 4 items of the responsiveness dimension of the 22-item SERVPERF

Service quality: Service quality is the “global judgment, or attitude, relating to the

superiority of the service” (Parasuraman et al., 1988)

Service provider (operational definition): In this study, service provider is defined as Ethio Telecom employees who work closely with customers to facilitate and accommodate customers’ needs while they are using the company’s services Customers rate their perceptions of the service quality of this service provider

Tangibility: Tangibility is the visual appearance of the facility, equipment, and

personnel of the service provider (Parasuraman et al., 1988) In this study, tangibles are facilities of Ethio Telecom as perceived by the customers This is measured using 4

items of the tangible dimension of the 22-item SERVPERF

1.11 Structure of the Thesis

The structure and content of this thesis is divided into six chapters as follows:

• Chapter one serves as an introduction and orientation to the research under review and it gives a broad outline of the background to the study, the problem statement, the purpose and objectives of the study and the research questions The delimitations and scope of the study, significance of the study, limitations, and assumptions are included The definitions of key terms are presented and finally the structure of the thesis is outlined

• Chapter two provides an overview of the telecommunications industry in Ethiopia

• Chapter three provides a comprehensive review of literature and theoretical frame work of the study

• Chapter four provides a full exposition of the research design and methodology

• Chapter five provides data analysis and presentation of the research findings of this study

• Chapter six discusses the outcome of the study, its conclusions, and recommendations

1.12 Summary

This chapter has provided the introduction and orientation of the research under review The research problem and research questions were posed, and presented The delimitations and scope of the study were identified Definitions of terms were also presented Chapter 2 will provide an overview of the telecommunications industry in Ethiopia

CHAPTER 2 : TELECOMMUNICATIONS IN ETHIOPIA

2.1 Introduction

After discussing the background to the study, the problem statement, significance of the study, delimitation and scope of the study in chapter one, this chapter aims at reviewing telecommunication industry in Ethiopia Thus, the first section focuses on the social, economic and political background of the country The second section provides a brief analysis of the telecommunications industry This discussion will be complimented with

a discussion on the history of telecommunication industry, telecommunications regulation, and the service provider (Ethio Telecom) Finally, the third section presents the country’s five years Growth and Transformation Plan (GTP)2010/11 to 2014/15 in telecommunications sector

2.2 Social, Economic and Political Overview

Ethiopia is part of the East African region commonly referred as the “Horn of Africa.” Situated between 3°30´ and 15º North latitude and 33° and 48° East longitude, it covers

an area of approximately 1.13 million km² Bordered by Somalia and Djibouti to the east, the Sudan on the west, Eritrea to the north, and Kenya to the south, Ethiopia is a land-locked country Ethiopia is one of the biggest in size and the second most populated country in Africa with a population of nearly 84 million (US State Department, 2012)

Economic Overview

Until recently, agriculture (mainly smallholder farming and livestock production) was the dominant sector in the economy While the services sector has recently outstripped agriculture in terms of its share of GDP (currently estimated at 46%) agriculture remains critical for broad-based growth The agriculture sector accounts for 42% of GDP, 80% of employment and 85% of Ethiopia‘s export earnings (African Development Bank, 2011) However, the impact of its ICT sector remained relatively small – the ICT sector contributes less than 2% to the economy It is low in comparison to the regional average, which is around 4% (Lishan, 2010)

The IMF has forecasted that growth in Ethiopia's economy over 2011-2105 will average 8.1% a year, the third highest rate in the world after China and India Ethiopia’s policy makers, aim for 11% annual growth for the same period, are working on infrastructure

projects worth tens of billions of dollars GDP is set to grow to Birr 919bn ($45.8bn) by

2015 Although income (GDP) per capita at current prices was only $342 in 2011 (down from $350 in 2010 and $389 in 2009 due to population growth), it is forecast to grow swiftly, to $480 by 2015 (African Business, 2011)

The Ethiopian Economy has revealed double digit economic growth for the past consecutive years Based on the targets of the five years 2010/11-2014/15 Growth and Transformation Plan (GTP), growth is expected to continue at a double-digit rate, exports are projected to rise significantly, and some degree of transformation is anticipated in all three major sectors of the economy—agriculture, industry and services To highlight the most notable targets of the GTP, the macroeconomic environment is projected to show: growth of 11 percent per year (14 percent per year under a high-case scenario); rising domestic savings -from 7.4 to 15 percent of GDP; rising investment from 22.8 to 28.2 percent of GDP (MoFED, 2010)

Data Source: International Financial Statistics (IFS)

Data Extracted from IMF Data Warehouse on 10/5/2012

Social Overview

In recent years, there have been improvements in human development in several areas, including raising school enrolment and improving health and sanitation and water supply services Despite these positive developments, Ethiopia’s human development index continues to be lower than that of most Sub Saharan African countries The United Nations Development Program’s Human Development Report of 2011 ranks Ethiopia

174th out of 187 countries in Human Development Index (Human Development Report, 2011)

Political Overview

Ethiopia is a federal republic under its 1994 constitution The executive branch includes

a president, Council of State, and Council of Ministers Executive power resides with the prime minister; therefore decisions with regards to the communications sector come from him

Ethiopia promotes a policy of ethnic federalism, dissolving significant powers to regional, ethnically based authorities The country has nine ethnically-based semi-autonomous administrative regions and two special city administrations (Addis Ababa and Dire Dawa), which have the power to raise their own revenues Considerable administrative power is devolved to the regions and down to the district level The communication sector is regarded as a national strategic asset, therefore planning of the telecom sector has little input from these regions and districts (Lishan, 2010)

2.3 The Telecommunications Industry

Globally, the development of telecommunication industry is one of the most important indicators of social and economic development of a given country In addition to this, the development of communication sector plays a vital role in overall development of all sectors related to social, political and economic affairs The World Bank (2009) report indicated that for every 10 percentage points of increased penetration, annual GDP growth increased between 0.7 and 1.4 percent for fixed, mobile, internet, and broadband services

2.3.1 History

Telecommunications in Ethiopia is more than a century old, and the first time a small telephone network was established was in the year 1894 It was used to be administered under the Ministry of Posts Telephone and Telegraph until 1952 Then, it was later separated from posts and became an autonomous entity under the Ministry by the enactment of Telecommunication Proclamation No 131 of 1952 By this proclamation, a telecommunication entity, called "Ethiopian Telecommunication Board" which exclusively regulates and operates telecommunication services was established Without affecting its functions, the name was later changed to Ethiopian Telecommunication Authority The Ethiopian Telecommunication Authority was working

on an exclusive basis as an operator and regulator

As the historical development process of the communication industry, the sector

demanded the importance of the separation of the telecom policy, regulation and the operation The government of Ethiopia by proclamation No 49/1996 (latter amended by proclamation No 281/2002) established a separate federal telecommunication

regulatory entity called Ethiopian Telecommunication Agency (ETA) The government owned operator known as the Ethiopian Telecommunication Corporation (ETC) was also established by Council of Ministers Regulation No 10/1996 In 2010, ETC

establishment Council of Ministers Regulation No 10/1996 was repealed and Ethio Telecom was established as a National Telecommunications Service provider by

Council of Ministers Regulation No 197/2010 Both, the regulator and operator are accountable to the same body: Ministry of Information and communication Technology

Table 2-1: Evolution of the Telecom industry-Important Milestones

The Harrar-Addis Ababa telephone line completed Dire Dawa-Djibouti

telephone line work had been started

1902 The Addis Ababa-Asmara telephone line work had been started

completed

1906 The Dire Dawa-Djibouti telegraph had been completed

1907 Emperor Menelik advocated Ethiopia’s membership of the International Telecommunications Union (ITU)

The Ethiopian Government signed a contract agreement for the building

of a radio transmission and reception station

The invading fascist Italian forces destroyed most of Ethiopia’s

communication lines A 1,500 line capacity automatic telephone exchange was installed in Addis Ababa

1952

Establishment of Imperial Board of Telecommunications of Ethiopia being separated from the Ethiopian Postal Services

1975 The organization was renamed as “Provisional Military Government of

Socialist Ethiopia Telecommunications Service”

1979 Establishment of Sululta Satellite Earth Station began operation

1981

The Organization was renamed as “Ethiopian Telecommunication

Authority” The Addis Ababa- Debre Markos- Bahr Dar- Gondar microwave line became operational

1987 The second Sululta Satellite Earth Station began operation

1988

Digital exchanges went operational in Addis Ababa and other major towns for the first time

1990 A Domestic Satellite Earth Station went operational

1996 Ethiopian Telecommunications Corporation established as a Corporation

1997 Internet Service was introduced - Ethio Internet established

1999 Mobile Telephone Service was launched- Ethio Mobile established

2001 Virtual Telephony Service was introduced

2001 Digital Data Network Service was introduced - Ethio Stream established

2003 Smart Calling cards introduced

2003 International Mobile Roaming Service was realized

2003 Satellite Mobile Service was launched

2003 Pre-paid mobile system introduced

2004 ETC commenced Broadband Multi-media services

2005

The first phase of nationwide installation of about 4000 km long Optical

Fiber Network Across to six directions of the country from the metropolis to Dire Dawa- Djibouti, Dessie- Mekele, Bahir Dar- Nekemte, Jimma and

Awassa was started

2006

The six digits fixed line and mobile telephone numbers have been changed

to seven digits and the area codes from two to three digits

2007

Next Generation Network (NGN) of fixed telephone line, Third Generation Network (3G) of mobile service based on Wide Band Code Division

multiple access (WCDMA) and dense wavelength division Multiplexing

(DWDM) based optical fiber transmission were introduced in Ethiopia

2010 Ethio Telecom was established on Monday 29th November 2010

Source: http://www.africaphonebooks.com/official/ethiopia_en/milestones.html

2.3.2 Telecommunications Regulation

The Ethiopian Telecommunication Agency (ETA) is institutionalized with the objectives

of promoting the development of high quality, efficient, reliable and affordable telecommunication services in the country The establishment of ETA is to

institutionalize the implementation of government policies and directives To this end, the following main Powers & Duties are given by the law to the ETA

• To specify technical standards and procedures for the provision of

telecommunication services;

• To ensure that telecommunication services conform to the specified standards of quality;

• To regulate tariffs relating to basic telecommunication services;

• To license and supervise operators of telecommunication services;

• To regulate types of telecommunication equipment which may be connected to a telecommunication system;

• To authorize and supervise the use of frequencies allotted to Ethiopia

Accordingly, it has issued license to Ethio Telecom, to provide fixed, mobile and Internet services on an exclusive basis in exchange for efficiency and quality of service requirements and infrastructure expansion targets Furthermore, ETA has also performed quality control activities and has started evaluating the operator's performance on the basis of the license agreement

ETA has been setting and approving standards for telecommunication equipment In addition, since its establishment ETA has been allocating frequency for spectrum users

As per the amended proclamation No 281/2002, the Agency is issuing licenses for the private sector on telecommunication services such as resale, cabling, terminal equipment maintenance and exchange

2.3.3 Ethio Telecom

Ethio Telecom is the sole provider of telecommunication services

in Ethiopia It provides fixed, mobile, and Internet services and maintains the international gateway Ethiopia remains the last country in Africa to allow a national monopoly on all telecom services including fixed, mobile, Internet and data communications (Business Wire, 2012)

Despite pressures from international financial institutions, Ethiopia’s telecom market structure has continued to be state-owned Close observation also shows that it is unlikely that liberalization will take place in the short term According to Lishan (2010) Telecommunications is viewed as a strategic asset for the economy and national security in the horn of Africa country Another obvious reason why the government would like to hold on to the state-owned enterprise is its interest in recouping the massive investment it made in recent years and repay the US$1.5 billion loan The government has sunk so much borrowed capital into the network that it is highly risk-averse and therefore likely to maintain the status quo (Lishan, 2010) He further notes that policy makers of the country argue “liberalization will not result in positive universal access to the poor people due to the profit motives of the multinational companies that are interested in the cream telecom market”

The purposes of EthioTelecom’s establishment are stated in Article 5 of Council of Ministers Regulation No 197/2010:

1 To provide and make accessible Next Generation Network based world class standards information technology services;

2 To build competent Next Generation Network based workforce with appropriate knowledge, skill, attitude and work culture to provide world class telecom service;

3 To engage, in accordance with development policies and priorities of the government, in the construction, operation, maintenance and expansion of telecommunications networks and services;

4 To provide domestic and international voice, data, video and other related value added services;

5 To provide communication services using integrated information technology platform, including rebroadcast television services;

6 In line with directives and policy guidelines issued by the Ministry of Finance & Economic Development, to sell and pledge bonds, to negotiate and sign loan agreements with local and international financial services;

7 To engage in other related activities necessary for the attainment of its purposes

To ensure that Ethio Telecom runs parallel with top telecom operators, the Ethiopian government has reached an agreement with France Telecom, one of the world’s leader

telecommunications company This agreement has helped Ethio Telecom to improve its management capability through the transfer of world-renowned know-how and skills Accordingly, Ethio Telecom is now trying to adopt Enhanced Telecom Operations Map (eTOM) business framework for the business process management The Enhanced Telecom Operations Map® -eTOM (see Figure 2-2) has been developed by the TeleManagement Forum as a reference framework for categorizing all the business activities that a service provider will use. It describes all the enterprise processes required by a telecommunications service provider and analyses them to different levels

of detail according to their significance and priority for the business (ITU-T Rec M.3050.1, 2004).

Source: ITU-T Rec M.3050.1, 2004

Figure 2-2: eTOM Framework

Company Strategy

Ethio Telecom will achieve its goal of both providing a reliable network and of improving customer services through a range of different levers that are part of its development strategy

Ethio Telecom will develop and enhance the information system This will help to decrease the delay for provision, sales and activation as well as to provide more reliable information to customers

Ethio Telecom will develop a world-class human resources management This will help to improve employees’ ability to meet the needs and expectations of customers

Ethio Telecom will implement control standard processes This will help to

increase reactivity and to faster customer access to services

Ethio Telecom will develop better sourcing & facilities processes to speed the day to day operational activities This will help to faster delivery and repair and will offer more transparency to customers

Source: http://www.ethiotelecom.et/

Company Objectives

In line with its mission, Ethio Telecom has ambitious goals:

being a customer centric company

offering the best quality of services

meeting world-class standards

building a financially sound company

To reach these goals, all our divisions focus on:

developing and enhancing network and information system

ensuring easy access and coverage to the whole population

creating a strong brand

developing human resources management

improving financial, sourcing and facilities processes

Source: http://www.ethiotelecom.et

Company Values

Ethio Telecom commits to understand, meet and exceed the telecommunications needs and expectations of our country at large and of customers in particular Ethio Telecom respects our customers and recognizes that their revenues allow Ethio Telecom to operate

Ethio Telecom recognizes that the company employees are the most valuable asset and want to create an efficient corporate management environment that allows them to develop and grow

Ethio Telecom commits to high-level job performance, customer service

quality, organizational excellence and continuous improvement in all areas

Ethio Telecom stays motivated and encouraged to meet all the challenges that

we will face

Ethio Telecom will make every effort to achieve a superior financial return

Ethio Telecom upholds ethical standards, being honest in all assignments

Ethio Telecom will hold accountable to all our stakeholders

Source: http://www.ethiotelecom.et/

2.3.3.1 Number of Subscribers

Ethio Telecom’s total subscribers in all telecom services reached 18.28 Million as of the

end of June 2012 (http://www.ethiotelecom.et/)

The total number of subscribers per category is:

- Mobile 17.26 million

- Fixed line 805 thousands

- Internet and data 221 thousands and

- GPRS 2.44 million

The total customer base as of June 2012 has shown 59% increment when compared with the last fiscal year Of which the Growth rate of Mobile is more than 64%, while internet & data services is more than 72% This figure has indicated the strongest growth rate for an established operator However, users are heard of seriously complaining about the poor service quality There are days when the internet service completely stops functioning As a result, enterprise customers are facing challenges to carry out their activities

SIM and voucher cards distribution

Ethio Telecom has implemented a new distribution strategy to achieve product & services availability and sales objectives as well as to meet customer expectations To this end, the number of distributors increased to 45 wholesalers and more than 34,000 points of sales (retailers) in the country More than 1.4 Billion Birr sales revenue has

been achieved from voucher as of June 2012 (http://www.ethiotelecom.et/)

2.3.3.2 Product offerings to enterprise customers

Ethio Telecom renders the following services to its enterprise customers: Fixed Line,

Mobile, Internet and data services (http://www.ethiotelecom.et/) The following

discussions include details of the different product offerings

1 Fixed Line Service

a Fixed Line: Fixed Line is traditional wired phone service, it delivers voice, fax and Internet services, and it is fixed in locations such as homes and offices, no mobility It is most importantly reliable and cheap alternative for businesses

b Fixed Wireless CDMA: Fixed wireless refers to the operation of wireless devices or

systems in fixed locations such as homes and offices It is much similar to the ordinary fixed telephone service; it uses Fixed Wireless Terminal (FWT) which enables it to give

a voice, data and other value added services It works wherever CDMA network is available It substitutes the service of the ordinary fixed telephone by providing only the voice service The tariff of fixed wireless is the same as the traditional fixed line

c ISDN (Integrated services digital network): Integrated services digital network

(ISDN) is an international communications standard for sending voice, video, and data over digital telephone lines or normal telephone wires ISDN supports data transfer rates of 64 Kbps (64,000 bits per second) It can be considered the step of internet evolution that lies between dial-up and DSL/Cable ISDN internet service is basically a telephone-based network system that operates by a circuit switch, or dedicated line It can transmit data and phone conversations digitally over normal telephone wires No longer would one have to miss a call in order to access the internet, or shut down the internet to make a telephone call There are several kinds of access interfaces to ISDN defined as Basic Rate Interface (BRI), and Primary Rate Interface (PRI)

d Fixed Line Value Added Service (VAS): There are different packages of fixed line

value added services which are very important for both enterprise and residential customers

- CLIP/ Caller Line Identification Presentation: enables to identify the person calling the number displays on your screen while the phone is ringing

- Call Waiting: Alerts you when a caller wants to speak to you

- Call Barring: Barring national & international calls to control who makes these calls using your fixed line

- Abbreviated dialing- Calling abortively

- Don't disturb- Do Not Disturb routes all your calls to your voicemail

- Call Divert- Incoming calls are sent to another number or mobile number

- Fixed Hot line- Dial a number automatically when the handset is lifted

- Call-Conference- Lets you speak to two or more people at the same time

- Short number call- It is similar to the normal fixed line calls except that this calls are made through short numbers (three digits)

2 Mobile Services

a GSM Mobile (prepaid/ post-paid): The service is given using SIM (Subscriber

Information Module) It has voice, data, SMS, and other value added capabilities, In order to use the service in pre-paid scenario; it is required to charge using stretchable cards and for postpaid services, users are charged at the end of every month (usage charge + Rent)

Services offered in addition to Voice are

SMS (Short Messaging Service)

Call divert: it allows an incoming call to a called party to be redirected to another

mobile or fixed telephone number

Call waiting: is a feature that alerts someone using the phone to an incoming call

and allows switching between calls

• It can be activated from the phone

Call barring: This service enables to restrict or bar certain or all types of calls to

and from your mobile phone,

• General Packet Radio Service (GPRS)

• It is a mobile data service available to users of GSM mobile phones

• It provides moderate speed data by using unused microwave resources in the GSM network

• To use GPRS setting access point to APN etc.com is required

• Credit transfer service for prepaid mobile customers: This innovative service

enables prepaid mobile customers to transfer air time from their prepaid mobile account to another prepaid mobile account

• USSD command service introduction: USSD command (meaning

Unstructured Supplementary Service Data) is a Global System for Mobile (GSM) communication technology that is used to send text between a mobile phone and

an application program in the network Applications may include prepaid

recharging, prepaid balance inquiry, etc

• Ethio Telecom has also recently enhanced other products and service offers

such as Machine to Machine, Bulk SMS and Short Code Premium, in signing

partnership with content providers

b WCDMA: It offers a wide range of advanced services; high speed internet

access, video and High Quality image transmission, video conversation, online chat, it requires cell phones that support 3G services, users are charged at the end of every month (usage charge + Rent), accessing calls while browsing the web pages is possible, you can transmit and receive data at greater speed and capacity, and it also supports all services offered by 2G GSM Services offered in addition to Voice

c GoTa: GOTA (Global Open Trucking Architecture) is a service given using the

CDMA2000 wireless network for the purpose of group communication, the

service allows two or more individuals to communicate and also use it for private and group calls, and the service also allows the subscriber to make external calls

by also subscribing to the mobile wireless service

d Satellite Mobile Telephone: Satellite Mobile Telephone service enables customers

in every part of the globe to be beneficiaries of telecom services through satellites stationed on the universe This kind of service needs special telephone apparatus This telephone services have been also provided to those customers found outside the mobile telephone coverage They provide similar functionality to terrestrial mobile telephones; voice, short messaging service and low-bandwidth internet access are supported through these systems It is important service for enterprises mainly working

in an area not covered by the GSM network

e Mobile Roaming service: Roaming service will provide the ability for wireless

customers to automatically make and receive voice calls, send and receive data, or access other services when travelling outside the geographical coverage area of ET, by means of using a visited country’s operator’s network Simply, roaming will enable ET mobile subscribers to make use of mobile or radio (wireless) related services beyond the network coverage of ET There are two types of roaming services These are out bound roaming and in bound roaming This service is provided only for GSM post paid customers

3 Internet and Data services

a Broadband internet: Broadband Internet is a relatively fast Internet service provided

through wired and wireless connections

Wired broadband internet: The wired broadband is provided through copper or

fiber with different access methods (ADSL, ADSL2, ADSL2+, and VDSL2) It can

be provided with different speed depending on customers’ requirement and the access they use Customers can buy CPEs or rent from Ethio Telecom

Asymmetric Digital Subscriber Line (ADSL) is one form of the Digital Subscriber Line, a data communications technology that enables faster data transmission over copper telephone lines Through ADSL customers will get a better,

affordable, reliable and faster internet connection starting from only 950 birr per month

Wireless broadband internet: The wireless broadband internet service can be

given through EVDO, VSAT and AIRONET EVDO is a standard for high speed wireless broadband The acronym is short for "Evolution, Data Only" or

"Evolution, Data Optimized" It is a CDMA technology that supports a High speed internet data connection with a peak speed of 3.1mb/s and with an average speed of 800kb/s -1.7mb/s It works where ever CDMA network is available EVDO is given in both post-paid and pre-paid format It offers you fast, affordable and mobile Internet access by using an EVDO modem and a computer (desktop

or laptop) It is now available throughout Addis Ababa and about 200 major

towns and cities throughout Ethiopia It is in bundled in three packages 1, 2 and 4 GBs, so that it can meet different needs of customers

b Broadband Data (MPLS- VPN): Virtual private network (VPN) is a network that uses

a public telecommunication infrastructure, such as internet, to provide remote offices or individual users with secure access to their organization’s network and data Ethio Telecom gives VPN service mainly through MPLS (Multi Protocol Labeled Switch) network MPLS-VPN is a virtual private network with a multi protocol labeled switch to deliver data, voice and video services using a shared telecom infrastructure Its goal is

to provide the organizations with the same, secure capabilities, but at a much lower cost

c Internet VAS: The following internet value added services are offered by Ethio

Telecom: Domain Name, Internet Protocol (IP) address, Graphic Scanning, Counter

Service, Web hosting/ virtual hosting, dedicating server and hosted server web hosting

five years Growth and Transformation Plan (2010/11 to 2014/15) strategic directions, objectives, major targets and implementation strategies

Areas of focus for the telecommunications sub-sector are:

• To upgrade the existing ICT network to accommodate the latest information technologies and improve network quality and expand services

• An all inclusive telecommunications service delivery and ICT support where it is a requirement of other development programs will be put in place

• The human resource capacity of the sector will be built Ongoing projects to develop the network will be finalized IT services available across the country, including high quality integrated telecommunication services packages (converged value added services), will be provided, at a reasonable price

• Fixed line and mobile telephone service provision will be expanded nationwide

To accommodate the latest information communication technologies, all telecommunications infrastructures will be digitized

• The Internet service expansion program will benefit city governments, woreda cities, academic institutions, including high schools and universities, research institutions, social organizations and the private sector

• The ongoing network expansion program will be strengthened by building a high capacity fiber optic transmission line and linking it through neighbouring countries

to international marine cables This initiative will provide the country’s global digital gateway

• The ongoing comprehensive Universal Telecommunication Access Program will

be expanded and extended to include additional social services apart from its existing calling service This will enhance the Program’s role in the implementation of development strategies and plans of other sectors

• Telecom canters will be built and those already operational in rural areas will expand their services and be better integrated with ICT and other programs Developing and expanding human resources, especially for regulatory tasks in the fast advancing and growing sector, is very important and has been given due attention during the plan period It is also important to ensure that the telecommunication service is up to international standards and where telecom resources are limited (for instance national frequency spectrum, telephone numbers, numbers and Internet Provider addresses) that they are used fairly and economically A further focus is to ensure the security of the telecommunications service by combating illegal use of the network and transmissions of illicit content

2.4.2 Objectives

The key objectives are to ensure a competitive (in terms of price and quality) and secure telecom services, and build a far reaching national capacity in telecom development and management Emphasis is on finalizing the construction of the ongoing network infrastructure and applications to expand services A need based network may also be expanded The rural universal telecommunications access program will be expanded and the quality of fixed line, mobile phone, Internet and data service provisions improved and maintained A conducive environment to use of the latest telecommunications technologies will be created A fair and economical utilization

of national frequency spectrum, telecommunication numbers and Internet Provider addresses is ensured Illegal telecommunications activities will be prevented (MoFED, 2010)

2.4.3 Major Targets

In the five year Growth and Transformation Plan (GTP), the government has planned to achieve the following targets (MoFED, 2010).The targets to be achieved by the telecommunications sub-sector is presented in the following Table2-2

Table 2-2: GTP Targets

2.4.4 Implementing Strategies

Three key implementation strategies are identified First, the national telecom company

is being reformed such that it is transformed to have an institutional capacity that delivers high quality and competitive services The telecommunications provider will be fundamentally upgraded to meet international standards using the services of reputable foreign companies The second strategy concerns the establishment and effective enforcement of comprehensive policy and regulatory frameworks to prevent and control illegal activities in the industry An effective mechanism for the control and prevention of illegal telecommunication activities will be put in place to ensure telecommunications security Finally, all initiatives in the industry will be designed and executed in order that they could promote the domestic production of ICT goods (inputs, components, etc.) and domestic delivery of ICT services during the GTP period

2.5 Summary

The main purpose of this chapter was to contextualise the telecommunications industry within the Ethiopian environment in general Given that the present study was undertaken about Ethio Telecom customers’ perception of quality of service and satisfaction, it was necessary to highlight certain telecommunications related statistics and provide a background In Chapter 3 a comprehensive review of literature and theoretical framework of the study will be presented

CHAPTER 3 : LITERATURE REVIEW AND THEORETICAL

FRAMEWORK

3.1 Introduction

In this chapter a comprehensive review of the literature regarding the study variables and a theoretical framework of the study is presented The literature review includes five primary topics Characteristics of services include how services differ from goods in terms of how they are produced, consumed and evaluated Perceived service quality illustrates how service quality is conceptualized The different conceptual models of service quality will also be discussed under this topic The discussion on service quality

in telecommunications describes findings from previous studies on telecommunications service quality Customer satisfaction discusses the two conceptualizations of customer satisfaction and how they affect customer’s behaviours in evaluating the performance of

a service provider The relationship between service quality and customer satisfaction topic includes an overview of previous findings on the relationships of the two constructs The basis of the theoretical framework of this study will be discussed under theoretical framework

3.2 Characteristics of services

Before discussing the concept of service quality it is necessary to understand service and its characteristics Goods are physical objects or devices that provide benefits for customers through ownership or use and service is an act or performance offered by one party to another (Lovelock, 2001) Services differ from goods in terms of how they are produced, consumed and evaluated Some of the most commonly accepted characteristics of services are intangibility, heterogeneity, inseparability, perishability and lack of ownership (Lovelock, 2001)

Intangibility: Services are intangible (Kotller and Keller, 2006) and are viewed as

performance instead of real objects (Parasuraman et al, 1985, 1988) Therefore, services can’t be tested, measured and standardized From the customer’s point of view when purchasing goods, the customer can rely on many tangible elements (colour, style

or hardness) On the other hand when purchasing service, there are fewer tangible

cues In most cases tangible evidence is limited to physical facilities, equipment and personnel As a result of this intangibility, the firm may find it difficult to understand how

consumers perceive their services and evaluate service quality (Parasuraman et al.,

1985)

Heterogeneity: Services are heterogeneous their performance often varies from

producer to producer, from customer to customer, and from day to day Consistency behaviour from service personnel (i.e uniform quality) is difficult to assure moreover, the involvement of the customer as co-producer of service delivery means that the service provider has less control over the consistency of the service experience Because of this it is difficult for the service provider to maintaining and managing

uniform service quality (Parasuraman et al., 1985)

Inseparability: The production and consumption of services are inseparable (Kotler

and Keller, 2006) To be more precise, most physical goods are produced first, then sold and later consumed, unlike most services, which are sold first and then produced and consumed simultaneously As a consequence, quality in services is not engineered like goods at the manufacturing plant, and then delivered intact to the consumer

(Parasuraman et al., 1985)

Perishability: Services are perishable and can’t be stored, returned or sold on another

day Once the service is delivered to the customer, the customer will immediately judge delivered service and transform the decision into a perception of service quality (Kotler and Keller, 2006; Lovelock, 2001)

Lack of Ownership: Services do not result in ownership of anything (Lovelock, 2001) Lovelock (2001) argues that lack of ownership is perhaps the key distinction between goods and services

3.3 Perceived Service Quality

Before the service revolution, quality was recognised as a strategic tool for attaining operational efficiency and improved business performance (Jain and Gupta, 2004) Although initial efforts to define and measure service quality emanated largely from the

goods sector, Parasuraman, et al (1985) laid a solid foundation for research work in the

area in the mid-1980s

Based on their research and after reviewing literature on services Parasuraman et al

(1985) concluded three important concepts of service quality:

• Service quality is more difficult for the consumer to evaluate than goods quality

• Service quality perceptions result from a comparison of consumer expectations with actual service performance

• The evaluation of service quality doesn’t solely depend up on the outcome of the service; it also involves the evaluation of service delivery

These findings are consistent with similar research undertaken by Grönroos (1983) Using the literature on consumer behaviour, Grönroos found that perceived quality of a

service will be the result of consumer comparisons of their expectations with the service against their perceptions of what the service would be Quality of a particular service is

whatever the customer perceives it to be Perceived quality thus differs from objective quality, which involves an objective assessment of a thing or an event on the basis of

predetermined standards that are measurable and verifiable (Parasuraman et al., 1988)

In contrast, perceived service quality involves an overall impression (or “global” value

judgment) of a service; as such, it is a type of attitude (Parasuraman et al., 1988).

Figure 3-1: Perceived Service Quality

Source: Adapted from Gronroos, 1993

However, some service quality research studies (Cronin and Taylor, 1992; Babakus and Boller, 1992) have focused only on the performance of service quality dimensions, rather than obtaining the mathematical difference between performance and expectations, as depicted in the disconfirmation paradigm This has led to the emergence of the “performance theory” The theory states that satisfaction and service quality are directly related to the perceived service performance characteristics of the

service Since this theory focuses only on the performance of a given service or product, it is called the “performance-only paradigm”

Two distinct schools of thought are easily identifiable, despite the fact that operationalisation of service quality differs from researcher to researcher One group of researchers supports the disconfirmation paradigm of perceptions minus expectations; and the other group supports the performance-based paradigm of the perceptions-only version of service quality The following section includes discussions about the two contradicting paradigms that form the basis for measuring service quality

3.2.1 Disconfirmation paradigm

According to Gronroos (1983), consumers evaluate (perceived) service quality by comparing expectations with experiences of the services received Focus group interviews held by Parasuraman et al (1985) further affirmed that service quality is derived from the comparison between a customer’s expectations for service quality performance versus the actual perceived performance of service quality (perception minus expectations) Parasuraman et al (1988, p 17) also stated that “perceived service quality is viewed as the level of discrepancy between consumers’ perceptions and expectations” According to Parasuraman et al (1985, 1988), service quality is an overall evaluation similar to attitude, the “expectancy disconfirmation” model is an appropriate operationalisation of service quality, and service quality (as a form of attitude) results from the comparison of perceptions with expectations

3.2.2 Performance-based paradigm

The performance-based paradigm highlighted that there is little theoretical evidence, if any that supports the relevance of perception-minus-expectations gaps as the appropriate basis for assessing service quality (Carman, 1990) Cronin and Taylor (1992) have affirmed that an unweighted performance-based approach is a more appropriate basis for assessing service quality The use of performance-based measures of service quality over gap measures has also been supported by Babakus and Boller (1992) The performance-based paradigm can therefore be best summarised

by Cronin and Taylor’s (1992) viewpoints that perceived service quality is best