Crunch time in Bangladeshi mobile market

Author: Ricardo Tavares
Published: 2014-09-15

Since its launch in 1996, the mobile industry in Bangladesh has seen consistently strong growth which outperformed GDP in every year until 2013. Since then the growth in subscribers and aggregate revenue for all operators has tapered off. The market is still growing, but not as fast as before. The long cycle of rapid growth tapping into pent-up demand for communications appears to be gone.

The government reaction in June 2014 was to create a new 1% tax earmarked for “health and education,” added to an already high level of telecom-specific taxes. Extracting more taxes from a plateauing pool of revenues may well be counter productive, as it could perpetuate the lower growth rate and so threaten investments.

The total cost of ownership of a mobile phone is high for consumers, most of whom are in the rural areas and make an average of $1.50 a day. As things stand now, the cost of acquiring a mobile device and activating the service is too high for those potential customers.

On the bright side 3G subscriptions are growing quite fast since the launch of the service last year. It is now up to the Bangladeshi government to develop a sophisticated policy package to ensure growth continues – based on 3G data traffic rather than the previous growth drivers of voice, SMS and EDGE.

Despite the strong initial take up, the mobile Internet momentum is likely to falter if there is no strong Internet ecosystem to sustain it. Bangladesh’s mobile Internet lacks local content, applications and services to entice cash-strapped users who have a monthly ARPU of less than $2.

A great opportunity to change direction comes with the proposed new telecoms policy, which is still in the pipeline. It will replace the existing policy which came into force 16 years ago in 1998 – and an awful lot has changed since then both in policy and technology terms. The government now has an opportunity – which it needs to seize with both hands – to assess the current state of the local mobile industry and create new avenues for growth. While mobile operators are bullish over the prospects of a fit-for-purpose policy, particularly if it is developed in consultation with all stakeholders, the government has been slow to realize the industry is stalling and that the engine of growth can only be re-started with a bold new policy initiative.

Tackling two areas in particular could halt the subscriber and revenue growth decline:

•    Reassessing telecoms taxes, and in particular immediately eliminating the SIM-card activation tax of BDT 300 ($4). Total tax collection from the industry can only grow significantly again if the activation tax is eliminated, reducing the total cost of ownership of a cell phone

•    Encouraging investments from both government and the private sector to build the mobile Internet ecosystem, stimulating development of local content, apps and services in partnership with local entrepreneurs.

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