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The Financial Express

Telecom sector: Maximising long-term collective benefit

M Rokonuzzaman | Published: June 11, 2016 18:45:51 | Updated: October 23, 2017 04:35:13


Telecom sector: Maximising long-term collective benefit

Mobile operators are meant to be technology service providers to address communication needs of individuals, businesses as well as the government. With the growth of network technology and the emergence of smartphones, many standard services, such as those related to health, finance or education are expected to integrate this technology platform to expand their services, to offer more accessible and better quality services at lower cost. This is the usual progression of the production function with the growth of underlying technology capability.
The possibilities of expanding conventional services over mobile technology are increasing interdependence between mobile network and functionally specialised service providers. Expansion of essential services over the mobile network in digital form not only opens the door for offering better services to citizens, but also it creates the window for mobile network operators to be providers of those services. On the other hand, large service providers, such as the ministry of health or education find it not only an opportunity to improve quality, increase access and lower cost of delivering their services, but they also find themselves in a position of paying growing fees to mobile operators for delivering their services over the network. It appears that mobile operators are making preparations to capitalise the opportunity by being health or education service providers terming them as digital services. Such moves appear to be an encroachment-gradual advance beyond the usual or acceptable limits crossing the boundary of industry structure.
Let's look into possible scenarios further to compare options. In the past, major customers laid their proprietary telecommunication networks. For example, Bangladesh Railway deployed nationwide fibre optics transmission network to connect railway stations, offices and other establishments. Similarly, Power Grid Company deployed data network along power transmission circuit across the nation. Gas Transmission Company Limited created a similar facility for their Supervisory Control and Data Acquisition (SCADA) of the national gas grid. These networks have very high capacity; only small fraction is being used. Many other mid-sized customers, such as individual banks could not use these available facilities, as they remain mostly proprietary. On the other hand, Bangladesh Telecommunication Company Limited (BTCL) and other NTTN (Nationwide Telecom Transmission Network) operators have been struggling to find customers to commercialise the unused capacity of their nationwide transmission network.
The capacity of a single pair of fibre is far greater than the data transmission requirement of any large customer. As a matter of fact, a single pair of fibre can meet the total transmission requirement of all individuals and corporations, and also the government as a whole. By installing multiple dedicated networks, one for each large customer, we are wasting valuable resources. Moreover, due to segregation of demand, a commercial transmission provider is failing to offer less costly services by taking the advantage of economies of scale as well as scope. It should be noted that the key opportunity of reducing the cost of communication services is to take the advantage of scale, as per unit cost of output exponentially diminishes with the growth of traffic.  The prudent solution is to develop a common network for communication services. This network will offer dependable communication services at a fair price in a non-discriminatory manner to all customers. It's time to take lessons from our past mistakes and to focus on developing a common market of communication services to reduce wastage of national resources and minimise the cost of delivery for commercial providers to offer services to individuals, small and medium-sized firms, large corporations and the government alike at far lesser in a profitable manner.
THE OTHER SIDE OF THE COIN: Now let's look at the other side of the coin. The mobile network was initially developed as voice network. With the emergence of successive generations of technologies such as 3G, 4G or 5G, this network has been evolving as a high-bandwidth data network. Over this network, both data and voice are being handled in a seamless manner. On the other hand, mobile handsets have evolved from a voice device to a multipurpose information or digital service consumption device, having a new name: Smartphone. These smartphones could be loaded with feature-intensive custom applications to create windows for delivering diverse conventional services in digital form. Transformation of conventional service in digital form to be delivered over the mobile network and smartphones opens the opportunity of improving quality, increasing access and reducing cost.
Such opportunity of digital service delivery encourages mobile operators to be providers of such services. The opening of the entry of platform operators to be providers of such services raises a couple of serious questions. As mobile operators do not have the background in those functionally specialised services, what benefit of scale or scope will we get through such entry? Will the entry of mobile operators weaken competition among existing functionally specialised service providers to take advantage of digital service delivery opportunity? Are mobile operators in a position to exercise diverse counter-competitive tools such as cross subsidy, predatory pricing, vertical foreclosure and net neutrality to monopolise the market? Will dominant mobile operators get further market power to weaken the competition even among mobile operators?
Among these four questions, the answer of the first question is NO. Moreover, who will regulate the health, education or financial service delivery offered by mobile operators? Does it mean that multiple regulators will offer licences to mobile operators and regulate their corresponding service delivery?
Regarding the second question, mobile operators having ownership of the underlying platform of delivering digital services obviously poses a threat to the expansion of functionally specialised service providers over the same platform.  Mobile operators are in a strong position to apply multiple counter-competitive tools to weaken competition. It's likely that functionally specialised service providers will shy away from expansion of their services in digital form. As a result, society will be deprived of the benefit from the growth of technology to consume conventional services in digital form.
Moreover, with the entry in the digital service segment, the dominant operators will gain additional market power. With the expansion of business in functionally specialised service segment, the dominant operators will enjoy better scale and scope to offer the core (voice and data) service at a lower price or even free in exchange for consumption of digital services, resulting in further weakening the competition among mobile operators. As a matter of fact, making the voice as well as data service free has become the growing strategy among content providers to monopolise the market. Recent strategy of Google or Facebook of offering free internet to expand their content business in different parts of the world is a manifestation of such underlying business objective. To deal with such a monopolistic issue, the European Union has filed antitrust lawsuits against Google.
 Here are a few obvious questions. Do we want dominant mobile operators to occupy the digital service market to subsidise the voice and data service - making them even free - forcing all other mobile operators to bankruptcy? Is it a welcome message for the nation that it will end up with private monopoly in the telecommunication market? Is it the reason why market-led reform is being pursued to get rid of state monopoly?
 In an industrial economy, establishing and maintaining market structure by defining boundaries of operations for firms has been a crucial concern in governing competition.      
There has been a long struggle to nurture competition in the telecom industry. Over the years, a set of underlying principles has been developed to nurture competition in such an imperfect market.  The industry should be segmented to reduce the entry barrier and minimise the market power accumulation. Moreover, infrastructure sharing should be maximised to create possibilities of profitable competition for smaller operators, also to maximise benefit from scale and scope of already deployed facilities to reduce the cost of service. Until and unless there is significant opportunity to benefit from scale and/or scope, no operator should be allowed to operate in multiple segments. It is alleged that such fundamental principles have been violated in many cases in the telecom industry in Bangladesh. This problem should be seriously addressed to strengthen competition in the telecom market. Instead of being lured by short-term gain through boundary encroachment, the focus should rather be on maximising long-term collective benefit by focusing on strengthening competition.  
M. Rokonuzzaman, PhD, an academic, researcher and activist: Technology, Innovation, and Policy, is Professor, Department of Electrical and Computer Engineering, North South University.
zaman.rokon.bd@gmail.com

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