Telecom drains precious risk capital of the country

Once the telecommunication sector used to be a risk-free investment area. Upon making investment in state-monopoly, basically all the governments across the world used to get attractive returns. Developing countries like Bangladesh was facing capital shortfall to scale up this investment opportunity. To deal with capital constraints, most of the developing countries in late 80s started market-led reform, mostly as per the advice of multilateral lenders and international telecommunication union (ITU). Although such market-led reform has accelerated capital supply and expanded telecom service consumption, telecom has grown as a black-hole of drawing precious risk capital from many investors. Even governments are failing to generate profit from investments in state owned operators. For example, both the state owned telecom companies of Bangladesh, BTCL (Bangladesh Telecom Company Ltd) and TeleTalk, have been draining substantial amount of public fund only to report growing loss.
Along with the state-owned operators, most of the private investors are ending up in wasting huge amount of risk capital. For example, two Wimax operators are on the verge of closer after incurring loss of more USD500 million (being claimed by investors). Due to non-viable business prospect, almost all of the private PSTN (public switched telecom network) licence holders had to shut down their operations upon making huge investment. According to media reports in January, 2016, Dhaka Phone (a non-operational PSTN) had filed a Tk 4,0.18 billion (USD500 million) compensation suit against the telecom regulator for abruptly shutting down its service. Two other private PSTN companies also filed similar cases. In 2013, National Telecom and World Tel also filed similar money suits claiming Tk 9.60 billion and Tk 5.53 billion respectively against the regulator and the telecom ministry.
Over the last 20 years, the telecom sector of Bangladesh has been segmented into pieces and numerous licences have been issued-often to maximise revenue collection. In many situations, licence holders could not find profitable business in over-crowded markets. For example, most of the 26 ICX, 25 IGW, and37 IGW licence holders figured out loss making reality upon installing expensive imported equipment. Many of them shut down the operation making imported equipment junk, and some of them went into forming coalition to monopolise the operation. The issuance of almost 500 Internet licences of different categories is not only limiting the growth of profitable Internet service providers, but also impeding the cost reduction of Internet services. On the other hand, certain segments such as NTTN (nationwide telecom transmission network) are suffering from extremely small number of operators. Except couple of dominant operators, virtually all operators are incurring huge amount of loss, without virtually any possibility of profit. Even the government is apparently failing to dig out profitable growth opportunity for TeleTalk and BTCL. Although often corruption is blamed for losses incurred by the state-owned operators, rooting out corruption alone may not find profitable growth path.
The obvious question is: were there profitable business opportunities for those loss-making telecom operators? Did policy makers and regulators detect opportunities of profitable competition of private investment to offer services? If no, why were those licences issued? The position could be: it was the responsibility of the investors to detect profitable business opportunity before seeking licence. As a matter of fact, in an imperfect market like Telecom, profitable business opportunity significantly depends on the policy and regulator's decisions in governing the industry structure, defining acceptable competition behaviour, regulating types of products that could be offered, determining terms of accessing facility of other operators, determining taxes and revenue sharing, and deciding about the number of operators among others.
According to the telecom act of Bangladesh (2001), as stated in section 30 describing function and duties of commission, the regulator is supposed "to maintain and promote competition among the service providers in order to ensure high-quality telecommunication services." Therefore, in addition to issuing licences and setting terms and conditions, the regulatory commission has the responsibility to detect and create space for profitable competition of multiple operators. The underlying nature of the telecom industry shows the natural tendency of monopoly - due to economies of scale, and scope, and network externality. Moreover, technology progression continuously changes their roles. Regulators are supposed to take into consideration these factors to figure out profitable competition space. For example, the profitable opportunity of WiMax or LTE-based broadband wireless service is no longer a viable business proposition just to cater data demand. For long, mobile operators have been using economy of scope advantage in offering both voice and data services over the same network, as opposed to just data service being offered by BWA (broadband wireless) operators. As a result, mobile operators had the opportunity to use cross-subsidy strategy to offset the loss making mobile data service with voice revenue. Moreover, the growth of conventional cellular technology reaching 4G has virtually completely wiped out the business proposition of operators providing only wireless data service.
The broad role of telecom market governance is to create opportunities of profitable competition of private investment to offer better quality service at lower cost to more customers to create greater profit for producers-to maximise surplus for both consumers and producers. On the other hand, investors had also to make necessary homework to figure out what it takes to generate profitable revenue in competitive imperfect market of telecommunication.
In the given context, regulators and policy makers have the responsibility to predict technology progression, assess current industry structure and determine competition scenario to detect the viable business opportunity of both existing and aspiring operators. Accordingly, disclosures need to be made in the form of technology and policy briefs with adequate analytical merit to create awareness about evolving competition scenario. In the absence of such analytical exercise most of the operators are draining their risk capital. Such drainage is weakening the capacity of the country to take the advantage from competition to benefit from innovation to unlock additional economic growth potentials. Moreover, premature shutdown of operation is also leading to huge loss of precious foreign currency for importing expensive equipment. Conservative estimate of such wastage has reached more than a billion dollar over last 10 years. Thus to create profitable possibilities for operators, to minimise wasteful investment, and to serve the broader interest of the country, policy makers and regulators must take the responsibility of assessing the situation, creating awareness about it with adequate analysis, and updating policy and regulatory framework to nurture profitable competition space in the telecom sector.

M Rokonuzzaman Ph.D is academic, researcher and activist on technology, innovation and policy.
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