Why are stars falling from the mobile sky of Bangladesh?

Once the mobile telecom sector used to be the hotbed of investment, particularly foreign direct investment in developing nations.  Like many other nations, Bangladesh’s foreign investment sky was dominated by the mobile sector. In 2013-2014 alone, among USD1,730 million foreign direct investment,  USD525 million was destined for the mobile sector. At good time, potential investors were waiting in the queue with millions of dollar license fee to enter in the mobile space. Among big name multinationals, NTT Docomo, SingTel, and AirTel are notable. None of these investors did have short of cash and technology know how, but why could not they turn their investments as success stories in Bangladesh? In many of the cases, their voices were matter, as they had significant share holdings. For example, AirTel had 100% ownership in their recently defunct Bangladesh operation. NTT Docomo once had 35% equity stake in Robi. CityCell’s 45% equity was owned by SingTel. All these three major investors have profitable large telecom operations across the globe. Why are they failing to replicate their successes in Bangladesh?     

    Technology: Once CDMA had the promise to be the dominant technology in the mobile space. The adoption of CDMA by CityCell in mid 90’s was a big news in the global mobile telecom community. But over the years, the mobile technology standard tipped to GSM. Switching to emerging technology at right time is a management challenge. Once successful many companies in the word got bankrupt due to the failure of smart switching decision at appropriate time. Due to late switching attempts, Kodak, Digital Equipment Corporation, NOKIA and RCA among many global giants could not sustain their businesses. Despite having lessons available across the globe over the century, the management of CityCell did not learn to switch to survive, let alone to succeed. If they had felt that CDMA were a better technology platform for data services, they had to rapidly expand data service long before. Being lone the CDMA provider, the operator also had the difficulty to attract customers from other operators due to high switching cost, from users' side—for the need of changing the handset. 

 Innovations: Instead of attempting to sell the same products, as competitors are offering, focus should be on offering better products at less price to make money in innovation space. Both quality and cost of telecom products have high degree of economies of scale and scope. By increasing the customer base, an operator reduces the cost of production due to the economies of scale advantage. On the other hand, due to the network externality benefit, users prefer to be with operators having the larger customer base. Moreover, all customers do not have the same level of consumption of services and sensitivity to price as well as quality. Early adopters constitute the most profitable segment—highly sensitive to quality, but far less to price. Although, CityCell was blessed with early adopters, once contributing to the highest ARPU in the industry, but the operator was rapidly loosing these golden geese due to the poor quality of service and technology lock-in effect. On the other hand, AirTel like other late entrant GSM operators was targeting the laggard segment of the customers. Basically, their strategy was to offer poorer product at less price, but incurring the cost more than the dominant provider. As a result, although the dominant provider (having 42% market share) has been making hefty profit, but the loss accumulation of smaller operators has been simply growing—leading to the exit of two MNOs from the market.   

Policy and Regulation: Due to both supply and demand sides’ economies of scale and scope benefits, Telecom industry has high degree of natural tendency of monopoly. For nurturing the competition in this imperfect market, policy and regulation should create space for profitable competition for smaller operators, without restricting or taxing the market leader. Among available tools, infrastructure sharing is a very useful one. Major physical facilities owned by early entrants like BTCL or GP should have been shared at marginal cost with late entrants to reduce the cost of production for smaller operators. Despite having the presence of infrastructure sharing guideline, the regulator apparently did not seriously apply it in creating the space for cost reduction for smaller operators. Some of the transmission facilities owned by major customers should have been released long before in the market at marginal cost, particularly to support the expansion of smaller operators. Inter-connection issues should also have been addressed in favour of smaller operators. Moreover, the regulator had to foresee the technology dead-end to take necessary measures to encourage the lone CDMA operator to switch the technology platform long before---if that were appropriate.

It appears that Bangladesh’s telecom market is plagued with collective failures of technology decision, strategic management of innovation, policy insights and regulatory measures. In absence of conducive policy and regulation creating the space for possibilities of profitable competition, it’s more or less impossible for smaller operators to reach to profit in the Telecom market. On the other hand, the mobilization of investment to expand the network alone does not also produce profitable business. It’s time for policy makers, regulators, investors and management of operators to be smarter than before to create profitable space for competition of multiple operators to offer better products at lower price—before it’s too late to end up with private monopoly.

Creating wealth out of innovation appears to be far more challenging than issuing license and laying technology infrastructure. Look forward to sharing your views.