Bangladesh: “Market competition factor” is anti-consumer

Posted on August 14, 2011  /  1 Comments

Building on the previous blog post, I wrote up an op-ed on the latest developments of the Bangladesh license renewal drama that has been published in the Sunday Daily Star. What mistakes are made when incentives are not properly analyzed. More proof that the Bangladesh Ministry of Post and Telecom has a serious problem of capacity.

The “market competition factor,” as presented, penalises operators with more customers. It creates a disincentive to add low-revenue customers and, indeed, an incentive to shed marginal customers. This is harmful to the poor, those currently connected as well as those wishing to be connected.

Market shares change over time, especially in intensely competitive markets. The above analysis indicated that the announced formula will cause big operators to drop marginal customers and reduce market share (not revenue share). In addition, the cost advantages now offered to small operators should cause them to increase their shares. Will the “market competition factor” be recalculated periodically in light of the enhanced fluidity of market shares?

These problems can be solved and a tragic denouement avoided. Eliminate the “market competition factor.” Market competition, and thereby the consumer, are best served by ending this drama now, freeing the players to commence a new and more productive drama: Digital Bangladesh.

1 Comment

  1. Bangladesh had to offer free licenses 14 years ago, and all the foreign operators took advantages of the opportunity. Initially there was no spectrum acquisition fee for the access frequency of Mobile Operators.2G licenses issued to private telecom players at throwaway prices 14 years back. .Now the government should realize that foreign operators have earned huge revenue and profit in last 14 years from Bangladesh. Mobile operators got spectrum for free. If they had paid the fees, some billion would have been collected.

    Future Revenue projection for Mobile Operators

    Operators Active
    Crore ARPU Revenue in Next 15 years
    Grameen Phone Ltd. (GP) 2.9970 227 122457.42
    Orascom Telecom Bangladesh Limited (Banglalink) 1.9327 160 55661.76
    Axiata Bangladesh Limited W(Robi) 1.2368 197 43856.928
    Pacific Bangladesh Telecom Limited (Citycell) 0.1811 136 4433.328
    Total 6.3476 720 226409.436

    The total number of Mobile Phone Active Subscribers has reached 68.645 million at the end of December 2010 according to BTRC website. Next 15 years the number of subscriber will be doubled. Operator will actually earn more revenue what was projected here.

    Grameenphone Ltd (GP) reported Tk 43.40 billion revenues for the first half of 2011, a solid 21 per cent increase from the first half of 2010. Net profit after taxes for the first half of 2011 was BDT 6.77 billion with 15.6% margin compared to BDT 4.83 billion with 13.5% margin of the first half of 2010. EBITDA margin for the first half of 2011 was 50.6%, which also has increased by 2.0 percentage points compared to the first half of 2010.

    BTRC and MOPT issued a Draft Mobile Operators’ License Renewal Guideline on spectrum pricing and decided that the operators will pay at the rate of only Tk 150 crore for per megahertz of airwave, which will be multiplied by the total allocated spectrum and a market competition factor. The rate for all bands of spectrum — including GSM 1800 Mhz, 900 Mhz and CDMA 800 Mhz will be the same: Tk 150 crore. The revenue sharing proposal of 5.5 percent for the mobile operators and operators will pay 1 percent of their revenue to Social Obligation Fund, a new idea to help implement the government’s vision for a ‘digital Bangladesh’.

    Around the world, operators have paid significant sums of money for 2G spectrum allocations.
    The goal of Regulator is setting out a path for the current and future availability of spectrum and with the main principles of encouraging competition and growth and a level-playing field and maintaining a technology neutral stance.

    Let’s look at India as an example, At present, Indian Operators hold separate permits for each of the 22 circles in the country and these are valid for a period of 20 years. The government gave away mobile permits from mid-90s. About 11 mobile phone companies will have to renew their permits between 2014 and 2021.
    All leading GSM operators will have to give up ‘excess’ airwaves they have when their mobile permits come up for renewal beginning 2014. This implies companies such as Bharti Airtel, Vodafone Essar and Idea Cellular, among others, which currently have up to 10 MHz or units of 2G airwaves in many regions, will be given only 6.2 MHz of radio frequencies when they renew their permits.
    TRAI had recently prescribed that every MHz of 2G airwaves up to 6.2 MHz limit be priced at 1,769.75 crore INR ( BDT . 2919.26 Crore) which is 20 times higher than what is proposed for Bangladesh. You may think India population is huge, but indias mobile user is 800 million and Bangladesh 80 million. Subscriber in india is 10 times higher than Bangladesh. But Specrtrum is 20 times higher.

    TRAI also fixed that each MHz of spectrum beyond 6.2 MHz should be charged at Rs. 4,571.87 crore INR ( BDT . 7840.58 Crore) which is 52 times higher than what is proposed by BTRC and MOPT.

    In Bangladesh, Most of the operators are holding more than 6.2 MHz frequency. GP is using 22 MHz of spectrum.

    SL. Operators Total
    No. 800MzCDMA (MHz) 900MHz GSM/EGSMB and (MHz) 1800MHz GSM Band (MHz) Assignment (MHz)
    1. GP 7.4 14.6 22
    2. Orascom 5 10 15
    3. AXIATA 7.4 7.4 14.8
    4. PBTL 8.82 MHz for 15.12
    6.30 MHz for
    outside Dhaka

    In India, Universal Service Obligation Fund (USOF) is 5% of all operators’ revenues. In Contrast Bangladesh has proposed only 1% for Social Obligation Fund.

    Our Telecom Policy is formulated to encourage local businesses and enterprises in telecommunication sector.
    I strongly recommend BTRC and MOPT to reassess its spectrum fees and expectations of revenue generation from these license renewals.