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As more than 95 per cent of the country is covered by already deployed 30,000 towers, the policy should encourage access of smaller
operators as well as new entrants to this resource at negligible marginal cost, writes M. Rokonuzzaman
Despite growing revenue earnings of the telecom sector, financial performance of different operators, particularly in the mobile sector, appears to be highly imbalanced in Bangladesh. Record profit by the market leader against the backdrop of chronic financial ill health of the remaining mobile operators has raised concern about sustainability of competition in the sector. Creating possibilities of profitable competition for smaller operators has been a daunting challenge to sustain the momentum of the market-led reform of the sector.
Mobile tower is one of the most expensive facilities in building telecom network. Opening access to this expensive facility at favourable terms and conditions is one of the avenues for creating profitability for smaller operators. There is a trend among mobile operators to have separate infrastructure entities, known as mobile tower companies. According to media reports, all three major mobile operators have applied to the Bangladesh Telecom Regulatory Commission (BTRC) seeking permission for establishing these commercial entities.
Two years ago, the telecom regulator allowed Robi to set up a tower company, known as edotco, which has about 9,000 towers. This begs the question: why do the mobile operators get the permission to set up separate tower companies? Does such option increase utilisation factor of already deployed resources, lowering the cost of production? Does it also lower entry and expansion barriers faced by new as well as smaller operators?
In telecom policy making, there are two major challenges in front of Bangladesh. The first one is about taking the scale and scope benefit of already deployed resources to minimise the cost of production. The second one is to reduce expansion barriers faced by smaller operators preferably without taxing the larger ones. In the mobile telecom sector, towers are passive facilities having very high degree of economies of scale advantage. So far, almost 30,000 such expensive facilities have been installed, 12,000 of them owned by the market leader GrameenPhone (GP). In green field situation, the cost of erecting a telecom tower is the single most expensive cost element for incremental expansion of the network. But once a tower is erected, additional base stations could be mounted on it at a negligible cost.
It does not require much research to comment that there has been significant under-utilisation of this highly expensive component of the mobile telecom network in Bangladesh. In close vicinity, we find multiple such expensive towers, particularly in rural Bangladesh. Instead of having multiple towers, each belonging to individual operators, a single tower could have been sufficient to host multiple base stations of all the mobile operators. There is no doubt that such facilities should be shared to reduce wasteful investment. The contentious issue in sharing such a facility is about the price to be paid by other operators to the owning company. Does formation of a tower company by each of the major operators address this issue in favour of challenges faced by the industry? Such pricing should be in favour of smaller operators or new entrants so that possibilities of profitable competition for them increase.
In the process of taking policy and regulatory decisions about the proposition of tower companies, the priority should be given to creating opportunity of accessing already deployed facilities for smaller operators at a negligible cost. Such access to telecom tower, already deployed by larger operators, appears to be a must in governing the telecom industry of Bangladesh for making entry of new entrants attractive as well as lowering of expansion barrier faced by smaller operators. The question could be: why should an operator allow access to such an expensive facility to competitors at a fraction of cost of erection?
The telecom market behaves differently than many others, as it is an imperfect market. By taking the advantage of scale, the cost could be minimised without facing virtually any boundary. As a result, cost of production of the largest operator is likely to be the lowest in the industry. Moreover, due to network externality effect, the value of being a subscriber of the largest operator than being the subscriber of smaller operators is perceived to be higher. Such characteristics offer the largest operator to be the least cost of highest quality service, opening the opportunity of price setting capability for the largest operator. It appears that by taking the advantage of this characteristic, the market leader is setting the price to make profit while forcing smaller operators to take lower price and keep incurring losses. Solving this characteristic of the industry has become a paramount challenge for policymakers and regulators in Bangladesh. It is also understood that changes should be brought in favour of smaller operators or new entrants without penalising larger operator as much as possible.
Such issue of accessing facilities of incumbent PSTN (public switched telephone network) by mobile operators was well researched at the beginning of mobile service industry and provisions were created in favour of mobile operators across the world. There is no doubt that ensuring third-party access to communications facilities has been a difficult challenge for competition law and regulation across the world, which must continuously adapt to a fast-evolving environment. In principle, each operator should develop its own infrastructure when economically feasible. But, adherence to this principle opens up the opportunity for larger operators to gain market power to weaken competition. The underlying rationale is that being early entrants, existing major operators gained market power by taking the advantage of natural tendency of monopoly. In order to benefit from competition, one of the options is to lower the cost of expansion of networks for smaller operators by accessing unused facilities deployed by larger operators.
One of the examples of such provision was about allowing GP to access unused facility of the fibre optics network of Bangladesh Railway (BR) at a very small fraction of cost which BR incurred for its deployment. Although most of the prevailing examples are for opening access of facilities owned by incumbent PSTN operators or large customers to mobile operators, recently there are some success stories of opening the access of facilities owned by major mobile operators to new entrants, or smaller ones. For example, in France, due to favourable infrastructure-sharing guideline and its enforcement, a new operator known as 'Free' has infused strong competition causing rapid price erosion in a market which was virtually operating in a monopolistic situation. The question could be, despite the presence of infrastructure-sharing guideline, why is the industry failing to benefit from this opportunity? One of the disputable areas is the accounting standards and methods should be used to quantify incumbents' cost, a critical element for applying different access pricing methods. Due to lack of clarity and enforcement of regulations, disputes related to current and historical values, which may considerably differ, and the cost of service which could be much higher if it has to include a share of all common costs, rather than only long-run incremental cost, long-run average incremental cost or short-run incremental cost could undermine the benefit from telecom tower sharing. Even if it is necessary, the regulator should set price independently in favour of smaller operators or new entrants without causing direct loss to tower owners. There appears to be enough argument from the perspective of regulation and competition to defend such decisions if the situation deserves.
Instead of encouraging large mobile operators to set up separate companies for telecom towers, a more prudent approach would be opening access of smaller operators to these expensive facilities at favourable or negligible price. Creating such a provision is likely to encourage new operators to enter the market for offering high-speed data service at far less price than being charged by the existing mobile operators. As more than 95 per cent of the country is covered by already deployed 30,000 towers, the policy should encourage access of smaller operators as well as new entrants to this resource at negligible marginal cost. Policymakers and regulators must take this opportunity to encourage roll out of low-cost alternatives to deal with both high cost of data and weakening competition force of the telecom market of Bangladesh simultaneously.
M. Rokonuzzaman, Ph. D, academic, researcher and activist: Technology, Innovation and Policy, is Professor, Department of Electrical and Computer Engineering, North South University, Bangladesh. [email protected]