Actions need to be in tandem with \\\'Digital B’desh\\\' goal

Bangladesh, with its comparatively low GDP per capita, has been involved in the making of a highly competitive mobile telephone market. There had been a truly great year in 2007 with the mobile subscriber base increasing by 70%. Bangladesh mobile market also started showing signs of rapid growth from 2009. Telecommunication is the second largest sector contributing to the government revenue. In the fiscal year 2012-2013, it generated 12.86%, amounting to Tk 99.30 billion, of national revenue, making it the second largest sector for internal revenue. This sector is crucial in the sense that any issues or policies undertaken in this sector will directly affect the economic scenario of the country.
Foreign direct investment in telecom sector: Many underlying factors have contributed to increasing the FDI inflow in Bangladesh but the interest of foreign investors in energy and telecommunication sector stays the most important. Telecom sector has also become a major contributor of foreign direct investment (FDI) in Bangladesh. Bangladesh allows 100% foreign ownership of companies and five year tax holidays for new technology startups. In 2010, this sector has received 60% of the total FDI. There are currently only about 20 mobile VAS companies engaged in the Bangladesh market and there is room for many more as the mobile VAS sector is contributing only 3% of the total mobile operator's business.
3G is yet to shine in the horizon: Over the past decade, the top four mobile operators have been offering data services solely on 2G-GSM and 3G networks. However, despite the availability of 3G services, basic mobile services are still the most popular services.  Bangladesh has reached a satisfying level of internet penetration, however with negligible 3G use, with most people using the internet over a 2G connection via feature phones or low-end smartphones.
Case study findings: Recently, China Telecom experienced an overall ARPU increase by 3.6%after an additional 18 million 3G subscribers. This is because; 3G network encourages subscribers to use more data-intensive applications which boost overall data usage.
For a given level of total mobile penetration, a 10% substitution from 2G to 3G penetration increases GDP per capita growth by 0.15% (source: a Deloitte/GSMA study) This prospect should facilitate an increasing consumption of 3G enabled smartphones. The availability of inexpensive smart phone should one of the major goals of this year. In turn, this will generate additional revenue for Bangladesh Government.
Prospects of increase in ARPU (Average Revenue Per User)
To forecast the growth in revenue due to increase in 3G usage, we took Indonesia as the base country. This is because Indonesia has similar telecom environment like Bangladesh. In Indonesia, the 3G market had got off to a slow start like Bangladesh, but by 2012 there were sign of a surge in growth, with sales of smartphones jumping sharply. So, we can see that with similar internet penetration, the 3G growth rate of Indonesia is 27%. On the other hand, from the recent global study of telecom sector, it is known that the global increase in ARPU due to 3G increase in Asia Pacific region is estimated to 3.6%.
Therefore, estimated increase in revenue due to increase in 3G usage:
The telecom sector and government thus need to jointly monitor the usage of 3G. Moreover, with the new FDI policy in place (as stated above), with increase in 3G use, there will be an increase in VAS companies in Bangladesh, resulting in greater FDI and greater revenue generation. In addition to that the ARPU level can be boosted up by abolishing the import tax on new mobile handsets. Especially the prevalence of low priced smart phones will enable greater population to avail 3G services. Among the imported mobile phones Smartphones have over 200% growth last year.
Import duty on mobile handset: The Bangladeshi government currently taxes all new handsets that are imported to the country at a rate of 12%. The removal of this tax could also significantly boost subscriber numbers, compared with the counterfactual scenario of the import tax in place. We estimate that the subscriber base could be up to 1.8% to 2.9% larger if this fixed import tax were removed. This is because, it would push down the price of buying a mobile phone and therefore the overall cost of becoming a mobile subscriber.
If the handset tax were removed, a study by Frontier Economics shows that not only will more handsets be sold, but a greater proportion of these will be sold through legitimate means. The study also says that the fall in taxes following the removal of the fixed import tax could be almost completely offset by higher taxes from more subscribers (variable taxes), higher overall usage and more handset sales in the legitimate market (which are taxed according to general taxation, i.e. VAT at 15%). Thus, the immediate concern is moving the country to use advanced services with the availability of legal and inexpensive smartphones and affordable high-speed internet.
Removing illegal voip black market: The illegal Voice over Internet Protocol (VoIP) business is a huge racket in Bangladesh. The government is said to have taken measures to make sure the SIM card registration process could be completed as per national ID cards. BTRC is going to give some more directives for the mobile phone companies for their self-regulation. Despite seizures of VoIP equipment, the unauthorized business goes on unabated. According to the Senior Director of Banglalink, Mr.Zakiul Islam,  a mobile operator gets Tk 0.48 for each minute of a call, but the amount comes down to only Tk 0.18 if illegal VoIP is used. This causes huge loss for the government as well. Another study estimates that, the country received 30 million minute legal call each day while the volume of illegal call was 45 million minute.  After the price cut from US$4 cent to US$ 3 cent, the volume of legal call rate reached 40 million while the illegal call rate was down to 35 million. To respond to this, the telecom ministry has cut VoIP call rate by 50% to curb illegal business of the sector. The new rate of VoIP call will be US$1.5 cents instead of $3.0 cents. But if the whole process of attaining legal license and a low call rate of VoIP is not maintained then we will again see an increase in illegal VoIP calls.
Conclusion: In order to lock in the ambitious budget that the Bangladesh government has proposed for the fiscal year 2014-2015, we believe tapping in the mentioned issues in the next fiscal year will help in the generation of substantial revenue. For near future, Bangladesh government should focus on the telecom infrastructure development, smooth supply of optical fibers, increasing accessibility of new services and last but not the least, developing e-infrastructure. These milestone developments will be aligned with vision of digital Bangladesh.  
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