Response to the Draft VAS Guideline (BTRC/LL/VAS(391)/2012, dated 31-01-2012)

LIRNEasia is a regional think tank that has, among other things, conducted research on VAS in Bangladesh. The comments below are based on (a) examination of the policy, regulatory and business issues pertaining to mobile VAS in the context of LIRNEasia’s 2008-2010 research program on mobile 2.0; and (b) detailed analysis of the practical experience of CellBazaar, a successful VAS developed in Bangladeshi conditions. The peer-reviewed journal article on a successful Bangladeshi value-added service, CellBazaar, is attached. LINK.

I also contributed to a report on ICT development in LDCs, of which Bangladesh is one: ITU, The role of ICT in advancing growth in least developed countries: Trends, challenges and opportunities. Geneva: ITU. This report outlines policy and regulatory good practices and makes specific references to value-added services offered by ANS operators. It does not recommend that ANS operators be prohibited from offering VAS.

No need for VAS licensing (entire document)
There is no rationale for VAS licensing that would be supported by present knowledge on ICT policy and regulation. Licenses are rarely issued at this granular level. At most, they would be “class licenses” that would impose certain minimal obligations and enable the regulator to contact the VAS provider if necessary.

Licensing is especially inappropriate at the present time, when mobile apps (primarily for smartphones but also for feature phones) are attracting significant venture capital (for example: Worthham, Jenna (2012, April 10), A billion-dollar turning point for mobile apps, New York Times). When the trend is for vast numbers of micro enterprises to develop applications that would be bought and sold on virtual “app stores,” the last thing one should do is impose onerous licensing requirements.

The enforcement of the prohibition of unlicensed apps on smartphones will be exceedingly difficult. The unintended consequence will be discouragement of local entrepreneurship and the widespread use of apps obtained from foreign sources.

Provision of mobile apps on feature phones requires active participation by ANS operators, since the app would have to “live” on the network given the limitations of the handset. In particular, “discovery” (ensuring that the potential customers become aware of VAS on offer) and payment for services (in the context of countries like Bangladesh where credit-card penetration is low) operators will play a critical role. The exclusion of operators from the provision of VAS would be inimical to the development of VAS for feature phones, used predominantly by the poor. The proposed licensing rules may thus be justifiably described as being anti-poor.

Intention appears to be disintegration of value chain (Clauses 6, 7 & 8)
The draft appears to be based on the faulty premise that it is necessary to enforce vertical disintegration of value added services and the provision of access network services. There is no international precedent for this. While it may be necessary to encourage fair treatment of VAS providers, it is unwise and impractical to (a) prevent ANS operators from offering VAS; and (b) expropriating the VAS services they have already developed legally and in full expectation of future revenues and synergistic support to other service offerings.

As documented in the ITU Report cited above (p. 48), standard contracts with 30:70 revenue splits that favor app developers are becoming the norm without regulatory intervention. It appears that forced disintegration is seeking to solve a non-existent problem.

The LIRNEasia study of CellBazaar shows that (a) it is possible for an independent VAS producer to become successful in Bangladesh without government licensing and intervention; and (b) that it may make sense for all concerned including the VAS entrepreneur to sell the service to the ANS at a certain point. The proposed rules seek to solve a non-existent problem and create a new one by depriving developers of access to capital and ready buyers for their businesses.

Expropriation of legally developed services creates a harmful precedent (Clause 8.8)
If we stay with the concrete example of CellBazaar, clause 8.8 results in the forcible expropriation of a business developed by Kamal Qadir and purchased in good faith by Grameenphone. The implications are broad and can negatively affect the entire sector and indeed the investment climate of the entire country.

I shall be pleased to elaborate on any of the above points or assist the Ministry to find productive ways to achieve the objectives of Digital Bangladesh. This proposal is harmful to the achievement of Digital Bangladesh objectives and should be withdrawn.