Often-cited success criteria of market-led reform of the telecom sector in Bangladesh are: teledensity, Internet penetration and tax revenue. There is no denying the fact that there has been a phenomenal progress along these indicators over the last two decades. More than 95 per cent of the country is now under the coverage of multiple telephone networks. According to data provided by Bangladesh Telecom Regulatory Commission (BTRC), mobile phone subscription in Bangladesh stood at over 143 million in November 2017.
According to official figures, Internet penetration, mostly mobile, has remarkably increased reaching 80 million. Moreover, bandwidth consumption has exponentially grown reaching 486 Gbps in September 2017 from 186 Gbps in December 2015. Through two submarine cables and several terrestrial cables, Bangladesh has a very reliable as well as competitive connectivity with the international network. Smartphone penetration has also been increasing at a rapid pace. Revenue of the telecom sector has reached over $3.0 billion — almost 1.5 per cent of gross domestic product (GDP). Government collects more or less 50 per cent of this revenue as duties and taxes, making it a significant source of public finance. With all these attractive numbers, should we be concerned about the health of the telecom sector of Bangladesh and raise concern about governance issues?
The notable success in the telecom sector of Bangladesh has been driven by three major factors: 1. Availability of capital and smart strategy, primarily through foreign direct investment; 2. Rapid growth of technology options; and 3. Growing purchasing power of the consumers, primarily due to remittance income and labour-intensive export earning of the ready-made garment industry. Instead of demand-driven, major cellular operators pursued the supply-driven growth strategy. Having access to low cost foreign fund, these operators speedily expanded the network covering the whole country within a very short span of time to benefit from scale advantage. By capitalising the economies of scale and network externality effect, these operators crafted the option of making telecom service accessible to all at far less price than before, to make profit.
Cellular technology also offered added advantage to this strategy. Connecting users with wireless local loop was a cheaper as well as a more useful option, as opposed to wire-line connectivity.
During the last two decades, both the necessity and affordability of telecom services sharply increased primarily due to out-migration of almost 10 million workers, and migration of more than 4 million people from rural communities to major cities to work in the readymade garments industry.
One of the major governance successes of Bangladesh was to pursue the policy of market-led reform and to welcome foreign direct investment (FDI) in the sector. But such success has created significant governance challenges. These are far more difficult than issuing licence and ensuring the compliance of terms and conditions by the operators.
By taking the scale advantage, operational efficiency and favourable customer profiles, the dominant mobile operators have gained substantial market power. That is to deliver outputs of: the highest quality at the least cost to make the most profit. Such advantageous stage has opened the opportunity of setting price to make profit, while compelling competitors to take lower price to incur loss. As a result, the dominant operators are earning record profit, as against continued loss incurred by competing mobile operators. In the absence of smarter policy, it's more or less impossible for other operators to reduce this market power.
It is for the government to come up with policy options in creating opportunities for smaller operators to increase quality and reduce cost, without restricting decent business practices of the market leaders. The issuance of nationwide telecom transmission network (NTTN) was a smart policy move. The development of a common transmission service market is crucial to lower the entry and expansion barrier, to reduce the market power accumulation, and also to minimise the cost of delivery. But, unfortunately the NTTN service sector suffered from demand-led investment strategy. As a result, the NTTN segment has failed to exploit the potential fully to be a strong enabler to the expansion of local access network and to reduce the cost, particularly to address wire line and Wifi broadband service and rural connectivity.
To address this weakness, the government infused fund through both BTCL (Bangladesh Telecom Company Limited) and two private NTTN operators. It has been reported that the recent contracts given to private NTTN operators have allowed or asked NTTN operators to offer user-level Internet services, which is a violation of basic principle of developing common transmission service market.
Meanwhile, the health of NTTN service market has been weakening. There is a need of smart policy intervention to infuse competition in the NTTN segment to encourage supply-driven strategy to make transmission market as the enabler to stimulate competition in the access network--particularly to ease the barrier of expansion of wire line, WiFi and other technology-based Internet services and to lower the cost.
Despite having the supply of very low-cost international bandwidth, end user-level Internet price in Bangladesh is far more expensive than it should have been to unlock economic growth potential at the bottom of the pyramid. Mobile-centric costly Internet diffusion is mostly failing to positively correlate Internet penetration to GDP growth. Rather smartphone-centric consumption of content and services is raising the alarm of non-productive usages, even raising the concern of causing addiction among the youths. Smart policy intervention is needed to reduce more than 95 per cent cost addition in the domestic transmission and local loop in delivering Internet services. The price fixing by the regulator based on cost modeling may not function, as except the market leaders, all other mobile operators are loosing money. The options of rapidly expanding the wire line access network, reducing the cost of domestic transmission and offering multiple services (such as cable TV, Internet and telephone services) over the same network are areas to focus on. Instead of providing additional public fund, reducing taxes and assigning contractual services to private operators, policy options should look for strengthening the competition force to benefit from supply-led demand creation and innovation-for offering better quality Internet services at lower cost.
In a business-as-usual environ, the major segment of the market is tipping towards private monopoly, mostly owned by the foreign equity holders. There is no denying that the telecom success story of Bangladesh is significantly attributed to the supply-led growth strategy, fuelled by foreign investment. But, should we not learn from this success how to strengthen the capacity of domestic entrepreneurs to stimulate the competition further?
It appears that in the absence of a major policy reform, there has been little or virtually no room for new entrants or smaller operators to find prospect for competition, particularly in the access network. It does not necessarily mean that we should create uneven competition landscape by closing the window for best business practices to flow in the industry to offer better services at lower cost to consumers. The major governance challenge is to create possibilities of profitable competition for smaller operators without restricting the far-sighted functioning strategy of best performers. With the change of technology, innovation, strategic behaviours of operators, and consumption patterns, policies and regulations should be continuously tuned accordingly.
M Rokonuzzaman Ph.D is academic, researcher and activist on technology, innovation and policy. [email protected]
