The Way Forward

Cell phone revolution

M. Khalid Shams

Good business, high development impact

In 1995, the Government of Bangladesh took a bold decision to open up the mobile telecommunications for private sector operations. After an international bid in which as many as 14 GSM operators and their local partners had participated, licenses were finally awarded in November 1996 to three cell phone companies. The impact has been instantaneous and dramatic in terms of development of the telecommunications sector.

The teledensity in the country, which was less than one percent in 1997 and one of the lowest in the world, has jumped to more than six percent in less than nine years. The market since then has expanded faster than in any other country in the region. Virtually a quiet revolution has taken place, with cell phones ringing now in thousands of remote villages, including the coastal off-shore islands like Bhola, Hatiya and Sandwip. In these places people had never even seen a telephone set; they are now using chic new cell phones and talking not only to their relatives and friends, but even doing their business more profitably than ever before. The impact in economic and social terms has been enormous and probably need to be further assessed. According to the estimates used by the International Telecommunications Union, GDP could grow by USD 4000 with every additional phone connection in the least developed countries like Bangladesh. While there has been no empirical study as yet on the macroeconomic impact of mobile telephony in Bangladesh since 1997, any visitor to the cities, district towns and even remote rural markets, will see the flourishing new small shops that sell the handsets as well as products and packages of competing operators. The mushrooming phone service and repair centres in small towns and market places gainfully employ thousands of young people.

A mass market approach
Following the partial deregulation of the telecom sector, it became apparent that there was a big demand for mobile phones in the country. An approach to the mass market was first adopted by GrameenPhone which decided that real business was not in the sale of handsets as practised earlier. Rather the market was in high volume sale of cellular phone services in the urban as well as the rural areas. Telecom has now become the most vibrant sector in the economy and this has become feasible because of the initial risks taken and substantially large investments made by major cell phone companies like GrameenPhone. This is a sector which no doubt generates high revenues and profits, but the operators have to make very large and continuous investments on network infrastructure and technology development. Since its inception, GrameenPhone alone has invested more than USD 750 million on its network, IT development and related facilities. Most of the earnings of the company so far have been re-invested to expand the coverage and increase the capacity of GP's nationwide network.

In fact, as I look back on the early experience with the bidding process, operators faced many uncertainties about the business prospects in the country. Bangladesh never enjoyed a reputation of being particularly business friendly, compared to countries for example in the ASEAN region. There was considerable opposition from the government owned BTTB which felt threatened by the mobile operators. One remembers the frequent hartals and political uncertainty at the end of 1995, which finally drove away the Swedish telecom company Telia, with whom we had initially negotiated for introduction of village phones. I recall also the hesitations of companies like Telenor itself, the Norwegian telecom operator which finally became the partner of Grameen Telecom in setting up GrameenPhone.

A powerful tool in hand

From the very outset, Professor Yunus had stressed the need for a big thrust in the rural market, traditionally bypassed by the large telecom companies. We had insisted that as the name “Grameen” itself meant “rural”, the network must cover the villages of Bangladesh from the very first day. That was the reason why at the inaugural function of GrameenPhone which took place on March 26, 1997, the Prime Ministers of Bangladesh and Norway spoke not to any state dignitary, but to Laily Begum, a Grameen Bank borrower as well as the first Village Phone operator of the country. All the big experts, telecom consultants, government T&T Board and even local business people, thought this was an absurd idea. Who has ever heard of cell phones being operated by illiterate village women, coming from impoverished families? Now, there are close to 200,000 Village Phone operators, who are all members of Grameen Bank. Coming from the poor households in rural areas, they have dramatically increased not only their family income, but also their social status, by owning a mobile phone, which is used by other villagers for sending and receiving telephone calls.

Friendly regulatory & fiscal policies can stimulate further growth
The Government of Bangladesh has also benefited directly from the recent expansion of the mobile network and the new mass marketing strategy, specially that of Without investing a single Taka in this sector, the Government is earning very large revenues from taxes, duties and various other fees received from the cell phone operators. In fact, GrameenPhone would be currently the largest tax payer in the country --- its contributions to the National Exchequer have gone up from Tk521 million in 1997, to more than Tk11.5 billion in 2004. The amount is likely to increase in 2005 and beyond, as the subscriber-base of GrameenPhone grows along with the addressable market. So long the tobacco companies have been the largest taxpayers to the Government. Unlike the tobacco companies, however, the mobile operators are uniquely positioned to combine their business objectives of earning profits, with a direct social development impact on the lives of the ordinary people. As this sector grows, stimulating development of ICT, Government revenues can increase further.

But the Government needs to put in place a rational and transparent fiscal and regulatory regime, instead of adopting ad hoc policies that bring about abrupt changes. Setting up the Telecom Regulatory Commission was a positive step and it would be important for the Commission to remain transparent in its regulatory decisions. It must ensure a level and equitable playing field that is conducive to development of this vital sector. There is a felt need for greater transparency and equity in allocation of spectrum frequency. For example, the spectrum earmarked for mobile operators, should not be allocated to PSTN or the fixed-line operators.

Similarly, the taxation policy needs to stimulate the growth of the telecom sector and not stifle it. Imposition of the SIM tax or connection fee in this year's budget was a big surprise and a great disincentive for prospective customers. It has frustrated the expansion plans of the private operators. Demand for cell phones being very price sensitive, the new tax has effectively raised the start-up cost of a mobile phone subscription in the market. Whereas, the regional countries have witnessed elimination of the connection fee and only a nominal taxation of the handsets which are imported, we have in fact reversed the trend by imposing the SIM tax. As a consequence, the Government has foregone the opportunity of earning higher total revenues through VAT on the large number of calls people would have made because of increased sales. We should not think in terms of short term gains, by killing the goose that can indeed lay golden eggs.

Another area where we have lagged behind the neighbouring countries for no apparent reason is in restricting the use of the Voice Over Internet Protocol (VOIP) technology, which can enable the telephone users to make international calls at a very affordable rate. A decision was taken by the National Task Force on IT, chaired by the Prime Minister, more than two years back that the Government will legalise VOIP and allow private operators to have their own international gateways. It was a national priority -- unfortunately, nothing has happened although people speculate that delay was primarily to protect the vested interests of a few illegal VOIP operators. Now that the submarine cable link has been established, opening up the VOIP and private investments in broadband wireless internet services have become all the more necessary. Each day's delay will cost us dearly in terms of lost opportunities to develop an internationally competitive ICT industry.

Mainstreaming IT Education in Secondary schools ---- the One Track We Need to Follow
The potential for growth of the ICT sector in Bangladesh, following the submarine cable link is indeed an exciting one. New technologies for development of broadband wireless internet, like Wifi and Wimax, can finally provide internet access all over the country. But we need to create the environment which will further encourage the private operators to make additional investments for their development. There is, at the same time, a need for more focused approach to IT education in the secondary schools, if we are to develop the human resource base as well. Time is ripe for bringing about necessary changes in the curriculum of the secondary schools and provide the required physical infrastructure along with trained teachers. We should quickly avail of the offer of Bill Gates to train up 10,000 school teachers in computers and do everything that may be necessary for this purpose. A small country like Costa Rica had done exactly the same thing more than a decade ago, with clear cut, focused policy of the government to promote IT education starting at the primary level. Oscar Arias, the former President of Costa Rica, in a recent feature published in the Newsweek, spoke of the strategic intervention by his government. He said, "In 1988, while I was President, our government teamed up with the non-profit Omar Dengo Foundation to install computers in elementary schools. Since then the program has reached over 1.5 million students, more than half of whom live in underprivileged areas. Exactly 10 years after the first computer was installed, Intel opened a USD 500 million microchip plant in San Jose. Among the attractions, Intel cited geography, a democratic tradition and an educated work force. Public investment in education and private investment in the high-tech sector are undisputedly linked."

It is a simple straightforward formula that should lead us to mainstreaming IT in our school system. This is a one track, focused approach to school curriculum change about which there should not be any controversy. We missed the opportunity to access submarine cable more than a decade ago, because of an inexcusable inertia and lack of far sight. The time has come when we must make special efforts to make-up for that loss. The Government, the private sector and the Regulatory Commission must put their act together to make up for the lost time. There is no reason why we cannot do it this time!

..............................................................................
The author is a former civil servant, the Deputy Managing Director of Grameen Bank and currently the Managing Director of Grameen Telecom.