The Financial Express

In need of smarter strategy to strengthen Teletalk  

M Rokonuzzaman   | Published: August 16, 2019 21:41:01 | Updated: August 21, 2019 21:06:20

In need of smarter strategy to strengthen Teletalk   

Among the four mobile operators in Bangladesh, state-owned Teletalk is the smallest. With less than 3 per cent market share, Teletalk has an insignificant role to play in shaping the market-led reform of Bangladesh's telecom industry. On the other hand, the market is suffering from weak competition force, as one of the operators has attained significant market power (SMP). The government now appears to be interested in reviving the market forces. One of the options being contemplated is to empower Teletalk to make it a strong option for the subscribers. A plan has been reported for massive investment. As high as $1.2 billion is being planned to borrow from foreign sources to expand the network coverage and upgrade the technology to 5G. Will this investment enable Teletalk to offer certain services that private operators cannot or are not willing to deliver? Will it empower Teletalk to grow as a strong competition force to erode the significant market power? Or, will it make Teletalk a profitable company?

 To assess the merit of massive investment in the state-owned company, telecommunication industry reform should be reviewed. Unlike other industries, the telecom industry experiences high economies of scale and scope advantages as well as network externality effect on the demand side. As a result, the bigger the operator, the lower is the cost of service. Eventually, the greater is the perceived value. Such an attribute is known as a natural tendency of monopoly. Due to this reason, until the 1980s, more or less every country in the world used to have a single operator-to ensure state-owned monopoly. But there are several limitations of monopoly. One of the major limitations is that monopoly attempts to maximise the profit even though optimisation strategy typically leads to a sub-optimal quantity of goods for the consumers. To maximise its own producer surplus, often monopoly does it at the expense of decreasing the overall social surplus.

Dealing with monopoly in an appropriate way used to be the main issue for most advanced countries for long. In the developing as well as least developed countries, state-owned monopolies were facing capital scarcity. Due to the limited availability of capital, state-owned operators in these countries had very small network. As a result, telephone service in these countries used to be highly expensive. Moreover, only a small portion of the geography was covered resulting in very low telephone density. For example, Bangladesh's telephone density was around 1 per cent in the 1980s. To address these two issues (monopoly and capital shortage), most countries in the 1980s took the decision of market-led reform of the telecom industry.  s

Due to the entry of multiple operators, customer base got divided, lowering the scale advantage. The deployment of multiple networks covering the same geography also led to redundant resource deployment. As a result, the benefit from competition did not keep increasing with the number of operators increasing. Rather, it showed a bell-shaped curve. Moreover, excessive competition force could also lead to a situation, which is worse than having a monopoly. The policy of segmenting the industry, the number of licenses issued, licensing terms and conditions, and the competition behaviours of the operators play a vital role affecting the benefit from the market-led reform. To make sure that the market operates at an optimum level of competition in maximising social surplus, policymakers and regulators have a strong role to play. Among these roles, they should to continuously monitor whether any operator is attaining price-setting market power. On the other hand, operators are supposed to pursue a smart strategy to reach profit and sustain it. They should also be watchful about whether they are caught in an inescapable loss trap.

 Among the four operators in Bangladesh, GP has the largest market share with 75.3 million subscribers, followed by Robi and Banglalink, having 47.9 million and 34.6 million respectively. In this league, Teletalk has just 3.8 million. As the industry has a high economy of scale advantage, per-unit cost of production of GP appears to be the lowest, while Teletalk is likely to have the highest cost of production. On the other hand, the perceived value of service of GP seems to be the highest, while Teletalk is likely the least preferred provider. As a result, by charging the highest price, GP is sustaining the most extensive customer base as well as profitability. On the other hand, by offering the lowest price, Teletalk is generating loss-making revenue because of its small market share. The volume of customers and perceived value play significant roles in affecting operators' ability to minimise cost and charge required price in generating profitable revenue. In the prevailing situation, GP is in a position to set the price just above the cost in making a profit, while competitors are required to take lower than GP's price and incur loss.

 As all other operators have far more extensive coverage of the country, Teletalk is not in a position to make a strong claim that it is catering for un-served markets. With the highest cost of production of per unit service, as the customer base is the lowest, Teletalk is not in a position to influence the competition force either. By expanding its network, what will Teletalk achieve is a question worth looking into. As the whole country is already covered by the networks of multiple private operators, Teletalk's network expansion will not likely lead to anything new. As far as 5G is concerned, private operators will perhaps have a stronger response. The next point: will it take Teletalk closer to profitability?

 In order to reach profit, Teletalk needs to acquire the required volume of subscribers, preferably similar to what GP has. On top of it, the perceived value of Teletalk's service should be higher than that of GP. In retrospect and given applicable theories, Teletalk must attain these milestones to reach profit. By expanding the network, Teletalk will likely be in a stronger position to acquire customers. The question is: how many? As all the available customers have already been acquired by other operators, Teletalk must pull out customers from them.

 Now, how much Teletalk needs to invest in doing so? To build a competitive network, Teletalk's investment should take into consideration GP's investment. As reported in the media, as against Teletalk's $350 million, GP already invested $5 billion. Upon making the needed investment in improving the network quality as well as coverage and improving the customer care, Taletalk needs to pursue predatory pricing tactics to allure customers from other operators, which appears to be unlawful. Moreover, the cost of predatory pricing in alluring customers seems to be enormously high. For example, Jio in India spent $33 billion to allure 160 million subscribers only (as reported by Forbes in March 2018). It appears that added investment is neither going to play a meaningful role in improving the competition scenario nor help Teletalk progress towards profitability.  To perform a significant role in enhancing the strength of market-led reform as well as improving the financial health of Teletalk, it's time to chalk out a smarter strategy before pouring additional fund. 

M Rokonuzzaman PhD is an academic and researcher on technology, innovation ands policy. zaman.rokon.bd@gmail.com




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