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The Driver of Growth

Bangladesh’s telecom industry has gone through a remarkable growth phase over the last two decades. The access of telecom services has expanded to virtually every doorstep of Bangladesh. More than 95% of geography is now under the coverage of multiple telephone networks. Telephone density has grown from less than 1% in 1990s to more than 70%. This industry is now generating more than $3 billion revenue. The government receives almost 50% of this revenue as taxes, duties and revenue sharing. Moreover, the Government also collects substantial revenue in issuing licenses and auctioning spectrum. For example, the industry paid $21 million dollar for each mega hertz of spectrum to rollout 3G services.
The expansion of telecom services has also created a large demand of mobile telephone handsets. By the end of 2016, the import of telephone handsets reached to over 30 million pieces. Among them, 8.2 million handsets are smartphones. To import this huge volume of handsets, Bangladesh had to pay more than $1 billion to foreign manufacturers. The expansion of 3G services and accelerated adoption of smartphones have also contributed to the rapid increase of Internet subscription, reaching to over 70 million. The consumption of bandwidth has also picked up reaching to almost 400 Gigabit per second—which has doubled year-on-year.
Such rapid expansion of telecom services in Bangladesh is primarily attributed to market led reform of the industry, and the emergence of mobile telecom services. Once the whole industry used to be state-monopoly. Due to the lack of capital and competition, Bangladesh suffered from extremely low telecom density and poor quality service. The opening of the industry to market forces started to draw capital to benefit from scale, scope and innovations. Although during the first decade of the market led reform, the progress was not significantly noticeable, but the emergence of mobile operators in late 90s triggered a massive change.
In the process of market led reform, the industry value chain has been segmented, both vertically and horizontally. Basically, the state-owned monopoly has disappeared from all major segments. The force of competition has been the driver of growth. The advent of private international connectivity providers through terrestrial cables has not only sharply reduced the wholesale price of bandwidth, but also has increased the reliability through redundancy. The domestic backbone has also benefited from competition through the entry of two private operators. To facilitate competition in access networks, intermediary operators such IIG (international Internet gateway) and ICX (interconnection exchange) have been introduced. The same industry, which had only one operator just 3 decades ago, has now more than 200 operators of different categories—including four mobile operators. The vertically integrated industry has now been segmented in more than 7 major segments.
Telecom industry is also graduating from voice centric telephone service delivery to data centric diverse service delivery platform. Already the rapid expansion of mobile financial services over the mobile network by taking the advantage from USSD (Unstructured Supplementary Service Data) has been a major success in addressing inclusion issues of financial services. It has been reported, “Mobile banking went from strength to strength, with transactions swelling 48.75% year-on-year to Tk 234,691.79 crore in 2016, according to Bangladesh Bank.”
Despite achieving remarkable successes, the industry faces many burning issues to address. The underlying competition force, which is attributed to rapid recent success, appears to be now on the path of speedy erosion. In the recent past, the mobile segment of the industry lost two operators. Although the market leader has been reporting record profit, but the remaining 3 operators are failing to bag virtually any profit. Despite growing investment of public fund, the state owned mobile operator is neither progressing to reaching to profit, nor growing as a strong competition force. In business as usual situation, the weakening competition capability of smaller three mobile operators is a cause of concern. It has become imperative to bring policy and regulatory reforms to create possibilities of profitable competition for these smaller operators, and also to encourage new operators.
Despite the growth of Internet penetration, primarily through mobile Internet subscription, the non-productive usage of Internet has become an issue. It’s being reported that more than 80% of Internet usages is primarily for the purpose of social networking and entertainment. Such usages pattern is raising serious question about the correlation between Internet penetration and economic growth. On the other hand, the video centric Internet applications, for exploiting opportunities in health, education, and farming, are suffering from unaffordable price of mobile data. Alternate technology options should be created in offering affordable Internet services to exploit growth potentials, particularly residing at the bottom of the pyramid.
The tendency of mobile operators to penetrate healthcare, financial or educational service market is also a concern. Due to the expansion of mobile networks across the nation, and accelerated adoption of smartphones, such essential services are poised to benefit from the opportunity of delivering those services over the mobile network through smartphones. The emergence of network operators to be providers of these services seriously undermines the competition force. The question of allowing mobile network operators and also domestic backbone service providers to be end-user level fiber optics based Internet service provider is also a contentious issue.
Although, the fiber optics backbone forms the core component in facilitating competition in the access network and minimizing the cost of services, but the competition force in the segment appears to be weakening. Particularly, the increasing roles of lone two private operators as large-scale contractual service provider in laying state financed backbone network is opening many questions related to the functioning of the market. The role of public finance to address the potential market failure, particularly for rural connectivity, may have justification. But the involvement of private operators as contractors of public financed projects operating in the same industry segment raises concerns, associated with the competition.
The lack of correlation between the wholesale international bandwidth price, charged by the international connectivity providers, and the end-user level price, charged by Internet service providers, is a notable concern. As a result, despite the rapid fall of wholesale Internet data price from Tk 28,000 to less than Tk 700 per Mbps, there has been a virtually insignificant change at the consumer-end price. The end-user level mobile data price is several thousand times higher than the amount paid by mobile operators to international connectivity providers. Such bleak reality does not offer hope to end-users for enjoying tangible benefit from the landing of the 2nd submarine cable.
Over the last two decades, although there has been significant growth in foreign direct investment, primarily for network deployment, and import bill payment obligation (reaching to over $1 billion) for increasing number of mobile handsets, but there has not been any progress in local value addition, in producing either telecom equipment or handsets. On the other hand, during 1970-1990, Bangladesh used to produce both telecom switches and telephone handsets. Despite having stated policy of taking steps in adding local value to telecom equipment, Bangladesh consistently suffered from erosion in adding such value—reaching to virtually zero.
There is no doubt that Bangladesh’s telecom sector has made significant progress in last two decades. Penetration growth, improvement in ease of access and progress in affordability of basic telecom services are phenomenal. But, weakening competition, non-productive usage driven mobile Internet service expansion, high mobile data price making it unaffordable for productive usages, and virtually zero local value addition in telecom equipment and handset making are major issues to be addressed to exploit underlying potentials of telecommunication industry—making it a stronger driver of growth.

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