Fair competition among technology service providers: Delivering specialised e-services

M Rokonuzzaman | Published: May 14, 2016 20:20:29 | Updated: October 22, 2017 19:03:59

In the telecommunication industry, the value added service (VAS) product has an evolving definition. Conventionally, Value Added Service (VAS) originated from enhanced telecom services, which add value to the standard or core telecom-services offering like voice calls or fax transmission. Typical examples of VAS include voice call-related services such as call waiting, call forwarding, multiparty conferencing and voice mail. The emergence of mobile telecommunication promoted two other most popular services like, Short Messaging Services (SMS), and Multimedia Messaging Services (MMS). Broadly, these enhanced technology services could be defined as Telecom VAS. Due to their technical nature of service, telecom or mobile operators were entrusted to be providers of such services without much policy debate. The role of regulator has been in defining service guidelines, determining licensing fees and regulating fees charged to customers.
Among many other factors, emergence of smartphones, the conversion of voice centric telecommunication network to data network and high speed local-loop wireless connectivity (like 3G or LTE) are opening up the opportunity of delivering functionally specialised services such as health, education and media over the telecommunication network. There is a growing tradition of prefixing 'e' to these services, such as e-heath, e-education or e-newspaper, when they are delivered over electronic network and devices. Adding m, instead of e as prefix to these services, when delivered over mobile network, is also common. Contentious policy issues are: 1) should we allow mobile network operators to deliver such e-services as VAS, and 2) who should define service level agreement of such functionally specialised services to be delivered over the technology infrastructure?   
The basic purpose of issuing licence to telecom operators is to offer quality technology services at an affordable price in a non-discriminatory manner. With the growth of technology -- as opportunity is evolving to offer diverse services over such technology network -- should we allow mobile operators to be providers of such services? These telecom operators are basically technology integrators, network operators and customer services providers. In course of time, they have also delegated technology integrator's role to global system integrators. They have neither technology development capability, nor track record of delivering specialised services. The question of engaging them in delivering specialised services appears to have confusing merit to deserve discussion. To draw a parallel, should we entertain discussion whether the department of roads and highways should be allowed to be bus service provider?  
From the underlying theoretical point of view, unless and until there is significant opportunity to benefit from economies of scale and scope, and innovation, network operators should not be allowed to enter the service segment of the value chain.

The entry of mobile network operators (MNOs) in the functionally specialised service delivery market opens the door of enabling MNOs to apply multi-dimensional tactics such as vertical foreclosure, cross subsidy and predatory pricing to weaken competition. As the nation has invested over decades to develop functionally specialised service providers in each major service segment such as financial, media, entertainment, education, health, and insurance, instead of asking MNOs to enter these industries, the more logical policy option is to ask them to be dependable, fair technology service providers. Such role of MNOs will rather strongly facilitate competition among specialised service providers to offer better products at less cost to more customers, over the telecom network and smartphones.
Now, let us look at the second contentious issue: who should formulate guideline and regulate the delivery of the functionally specialised e-services, to be delivered over the telecom network? Without getting into debate, it could be easily said that Bangladesh Telecom Regulatory Commission (BTRC) is most capable as well as the appropriate organisation to handle Telecom VAS. But, what about regulating e-education, e-health or e-media-as these will be increasingly delivered over the telecom network? Do we ask similar questions about the involvement of energy regulatory commission in regulating production of ceramic tablewares or healthcare services, as they require energy? Due to convergence of diverse service delivery channels, there appears to be some degree of lack of clarity about the definition of these e-service products along with the role of regulatory authority. Irrespective of delivery channel, regulation of delivery of functionally specialised services should not be guided by concerned regulatory bodies and policy-making institutions, such as ministries of health, finance, or education.
Now, there could be reference that many other nations have been allowing MNOs to be e-service providers. Without getting into the details to know about the availability of scale, scope and innovation advantage, the availability of functionally specialised service providers and implications within specific context of those nations, it may not be wise to replicate policy decision of other countries. There are examples that in some African countries, MNOs have been allowed to be mobile financial service providers. In certain instances, such policy decision has created monopoly: monopoly of MNOs, not of banks, to offer financial services. Is it desirable? To get rid of the disadvantages of monopoly, the telecom industry has been guided to undergo reforms through market forces, to maximise surplus for the society by minimising deadweight loss and maximising benefit from dynamic efficiency through competition. Due to high economies of scale and scope advantages, the telecom industry has the natural tendency of monopoly. If policy decisions are taken without carefully looking into the underlying technology having strong influence on competition strategy, there is high risk that the industry will tilt to monopoly.
In the telecom industry, implication of a policy decision takes long (may be even decades) to be visible. In many situations, the cost of retracting a policy decision could be extremely high, or may be even insurmountable. The nation has suffered from inappropriate policies, such as colossal wastage of resources in the private PSTN (public switched telecom network) industry. It's not always true that decisions taken by other countries are always better than ours. It does not sound rational to follow others without analysing their policy decisions within their context to understand how far they are prudent as well as adaptable within our local context. Many Asian countries suffered from financial melt down, except Bangladesh. Was it desirable for Bangladesh to suffer from similar meltdown by following policy decision of other nations?  
There could also be question whether we can apply regulation to standardise the behaviour of MNOs and other providers to have fair competitive environment. Due to information asymmetry, it has been found that the policy of segmenting the value chain and limiting the entry of operators in appropriate segments minimising the interest of applying counter competitive practices such as vertical foreclosure, cross subsidy and predatory pricing works far better than regulating and penalising. As a matter of fact, before the advent of market based reform of the telecom industry, regulation was the tool to govern the state monopoly. With the finding that regulation was not an appropriate tool, the industry was reformed to take advantage from market forces. Moreover, when Bangladesh has a large number of specialised operators in every major service segment, what is the merit of allowing only a handful of MNOs, which have no specialised capability, while raising concern over weakening competition?
Now the question of new revenue source and survivability of the MNOs come into discussion. Although the success of policy and regulation in governing the telecom sector depends on many factors, one of the important success factors is to create possibilities of profitable competition of multiple operators. Keeping in view the pending merger of AirTel and Robi, weak financial health of TeleTalk and CityCell, and long loss-making track record of BanglaLink, one may raise the vital question of the success of market-led reform of the telecom industry of Bangladesh. Despite the fact that when survivability of most of the operators is in question, the market leader is reporting very high profitability: more than BDT 12 net earning (or profit) for each share of BDT 10. It indicates that in each of last five years, this company made more profit than the amount shareholders invested (paid up capital) to build the company. Such profitability disparity does not appear to be a good health indicator of the state of competition of the sector. Policy makers and regulators have reasons to look into the matter. Instead of looking into the core underlying issues of governing market led reform of the telecom industry, the argument of taking policy decision of opening the entry of MNOs in functionally specialised services, runs the risk of aggravating the competition scenario, with the likelihood of spreading the counter competitive forces among other major service segments of the society-which are poised to take significant advantage from democratisation of wireless network and smartphone.   
There could be many other issues which need to be debated to derive insights to feed into policy discussion to address the disconnect between policy decisions and interpretation of evidences within sound theoretical framework. Instead of keeping room for the MNOs to become specialised services providers in the name of VAS, the smarter policy option will be to encourage them to develop as dependable fair technology service providers and intensify competition among the already existing service providers to deliver essential services like health, education and financial services over telecom network and smartphones.

M Rokonuzzaman Ph.D, academic, researcher and activist on Technology, Innovation and Policy, is Professor, Department of Electrical and Computer Engineering, North South University, Bangladesh. zaman.rokon@yahoo.com

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