ETE 521: TelecommunicationBusiness and ManagementModule 06: Overview of Bangladesh’s PSTNTelecom Sector.
Overview of the General CompetitiveLandscape of PSTN Service Market: In 2007, major development in the PSTN industry isBTRC’s policy decision of allowing PSTN operators toextend their networks in the Central Zone. The Central Zone, comprising the Dhaka city,Narayangonj municipality, Gazipur, Tongi, Savar, andJinjira is considered the most lucrative for landlineconnections. It is estimated that there is a demand of around 1million connections. BTRC has already granted license for the Central Zoneto four operators converting their Zonal licenses toNational license.
BTRC has been contemplating to issue two moreNational licenses to existing land phone operators. These operators may ramp up their subscriber base bytaking the advantage of high demand of the CentralZone. Another development may affecting the PSTN industryis BTRC’s decision for allowing ISPs to offer IP phone(VoIP) services. This decision has the potential to increase thecompetition in the fixed phone connections.
Historically till 1989, BTTB was the monopoly operator(also Regulator) providing the PSTN services (in factall types of Telecom services) in the country. An agreement was made with a private company,Bangladesh Rural Telecom Authority (BRTA) in July1989 to provide digital telephone service in 200Thanas of the country. Again in August 1994, another agreement was madewith another private company; Integrated services Ltd (ISL) to provide digitaltelephone service in the rest 195 Thanas of thecountry.
Performances of these two operators, to say the least,were very poor. Till June 2004, subscribers under BRTA was about17,800 and under ISL (name changed to ShebaTelecom after acquisition of Cellular Mobile license in1996) was about 3000 only. Later with the opening up of the PSTN licensing in2004, BRTA was converted into two PSTN companies(National Telecom & Peoples Telecom), both receivinglicenses to provide PSTN services in 4 Zones(excepting Central Zone) of the country. ISL which was changed to Sheba Telecom regained itsold name in 2004 (after sale of its full mobile share)and started to give the PSTN services in its previouslyallocated 195 Thanas.
In late 90’s, it was decided to give license to oneoperator to provide PSTN services in Dhaka multi-exchange area (which was later named as CentralZone). License agreement was made by MOPT with Worldtel,a foreign holding company, in August 2001, toprovide fixed telephone service in the present CentralZone area but the execution of the same did not startdue to various reasons. The license was revalidated in April 2004, but theimplementation of the same has not been started tilltoday. This license is likely to be cancelled shortly.
In 2004, PSTN service was fully opened for privateparticipation with issue of licenses through openlicensing system. For issuing PSTN licenses, the country was dividedinto 4 Zones in 4 parts of the country and the CentralZone at Dhaka. Total 37 Zonal licenses (except in Central Zone) wereissued to 15 local companies, of which 5 licenses of 2companies have been cancelled recently for theirfailure to start the operation.
These companies started operation at different time in 2005and 2006 but their performance in general is not at allsatisfactory. Apart from cancellation of licenses of 2 companies, fineshave been imposed on 3 companies for non-fulfillment ofservice provision as per roll-out plan and same are likely tobe imposed to another 2-3 companies very soon. Continuous fall of tariff of the mobile operators and equaltariff for their local and long distance calls, are some of thereasons for inadequate growth of the PSTN subscribers. Even the growth of BTTB telephones is stationery in last 3years and a good number of subscribers surrendered theirtelephones, especially outside Dhaka.
The demand for fixed telephone in Dhakamulti-exchange area is more than that ofthe other parts of the country, which is atpresent better served by the mobileoperators. But the issue of license in Dhaka multi-exchange area or Central Zone has beendelayed for a long time, firstly because ofthe policy decision of the Govt. andsecondly due to court injunction (filed byWorldtel) imposed on entry of newoperators in the Central Zone.
After the injunction was lifted, applicationswere invited for issue of PSTN licenses inthe Central Zone. Very recently (9th Sept’07), BTRC hasaccorded approval for issuing 4 licenses tothe existing PSTN operators: (RanksTelecom, Dhaka Telecom, SquareInformatics and National Telecom) in theCentral Zone, converting their licenses toNational PSTN licenses.
PSTN Market EnvironmentAnalysis: BTTB is the main player in the PSTN market with a nationwide operation. Subscriber base of BTTB stands at 877,500in 2007. In addition to domestic voice services, BTTB is thesole operator of handling International calls. In addition to BTTB and 15 PSTN operators with Zonallicenses, Integrated Services Ltd (ISL) was given license tooperate in 195 Thanas and WorldTel was issued licenses toDhaka multi-exchange area. Information related to these 17 operators is provided inTable below. As mentioned above, four of these operators’zonal licenses have been upgraded to National ones. Four licenses of Bashundhara Communication and onelicense of Dominox Tech have recently been cancelled forfailing to start their operation.
No. Operators Date of start ofOperationSubscribersJune’2006SubscribersDec’2006SubscribersJune’20071 Bashundhara Comm. NA NA NA NA2 Ranks Telecom July’05 33,728 45,271 82,3643 Bangla Phone NA NA NA NA4 Jalalabad Telecom Jan’06 3,430 6,720 4,0195 Westec (Bay Phone) July’05 20,545 21,300 21,3006 Tele Barta July’05 27,869 39,728 48,5617 Dominox Tech. NA NA NA NA8 GEP Telecom NA NA NA NA9 One Tel Comm. Jan’06 7,247 10,913 20,13910 Dhaka Telephone Co. July’06 NA 2,450 6,80411 Square Informatix NA NA NA NA12 National Telecom Jan’06 6,735 6,735 4,62113 Peoples Telecom Jan’06 9,436 9,436 9,44614 S.A. Telecom July’06 1,465 2,57915 Nextel Telecom NA NA NA NA16 Integrated Services Ltd NA 3,430 3,689 5,52217 WorldTel NA NA NA NATotal Subscribers 112,420 147,707 205,355Growth Rate 31.39% 39.03%
From the above Table, it can be concluded that thegrowth of this market segment was very lowcomparing the growth potential and the growthenjoyed by the mobile operators during the sameperiod. It may be worth of mentioning that on the back dropof the PSTNs’ subscribers growth from 112,40 in 2006to 205,355 in June 2007, mobile subscribers growthwas 7.655 millions during the same period. Basically, mobile sector outperformed the PSTN by afactor of 82, as far as subscriber’s growth isconcerned.
Analysis of BTTB Service Market:Subscribers, CircuitCapacity and Revenue2003 2004 2005 2006 2007Telephone Subscribers 716,720 810,160 857,360 889,170 877,500Inland Trunk Circuits 37,070 44,810 45,540 47,120 49,230International Trunk Circuits 3,840 6,110 7,350 10,470 15,000Internet Subscribers 10,500 15,200 17,340 20,850 25,380Revenue in Millions Taka 2002-03 2003-04 2004-05 2005-06 2006-07Total Revenue 15448 15312 14248 13163 16665Inland Telephone Revenue 11997 11356 10403 10621 13087International Revenue 3362 3901 3709 2449 3182Revenue from other Sources 89 55 136 93 396
On the contrary to the high growth ofmobile subscriber base, BTTB’s subscriber’sgrowth did not show much progress asshown in Figure. However, BTTB’s Internet subscriber basegrew by almost 250% from 10,500 in June2003 to 25,380 in June 2007. Figure also shows BTTB startedexperiencing negative growth in theirsubscriber base since 2006-07 period.
Although the inland telephone Revenuegrew by 10% during this five year period,the International Revenue has dropped byalmost 6%. This poor performance of International callrevenue is due to the high growth of illegalInternational call termination businessusing VoIP. BTTB’s ARPU from inland telephoneservices has also dropped, from Tk 1,394 inJune 2003 to Taka 1,242 in June 2007.
Figure 5.3: BTTBs ARPU/Month During Last Five Years139411681011 99512422002-03 2003-04 2004-05 2005-06 2006-07ARPU/MonthinTaka
Analysis of Private PSTNOperators Service Market: The subscriber base of private PSTNoperators has been steadily increasing asshown in Figure placed in the followingpage. Although the total subscriber base of205,355 appears to be much smaller thanthat of BTTB. It should be noted that during this period,mobile subscriber base crossed 30 millionmarks.
Figure 5.4: Subscribers Growth of Private PSTN Operators112,420147,707205,355June 2006 December 2006 June 2007SubscribersinThousand
Among the top ten PSTN operators,RanksTel experienced the highestgrowth followed by Tele Barta asshown in Figure 5.5. Westec and One Tel’s subscriber basereached to the same level by the endof 2007 with 3rd position.
Figure 5.5: Subscribers Growth by PSTN Operators33,72845,27182,3643,4306,7204,01920,54521,30021,30027,86939,72848,5617,24710,91320,1392,4506,8046,7356,7354,6219,4369,4369,4461,4652,5793,4303,6895,522June 2006 Dec 2006 June 2007SubscribersinNumberRanks TelecomJalalabad TelecomWestec (Bay Phone)Tele BartaOne Tel Com.Dhaka Telephone CoNational TelecomPeoples TelecomS.A. TelecomIntegrated Services
In terms of market share occupancy amongthe top ten private PSTN operators,RanksTel leads the market with 40% share,followed by TeleBarta in 2nd position with24% market share. Westec and One Tel have the 3rd position,both with 10% market share. Market sharedistribution among the top ten PSTNoperators is shown in Figure placed in thefollowing page.
All these companies are relatively verysmall and they are treating their financialinformation very secret. SRGB market survey found that on anaverage each PSTN user has been payingTaka 395 per month, which turns that theestimated total revenue of those PSTNoperators would be about Tk 81 millionsper month. Based on that estimate yearly total revenueof those private PSTN operators should beabout Tk 972 millions.
Interconnection Issues: The regulatory requirement as well as the regulatory obligation ofinterconnection, as incorporated in the Interconnection Regulation, is equallyapplicable to the PSTN operators. BTTB is the oldest and the only PSTN operatorfor a long time before the mobile operators came in the Telecom market. So, forquite some time since late 90’s, the mobile operators used to get interconnectedwith BTTB and they had to invest in BTTB exchanges to get interconnection. Thescenario has been changed since last 2-3 years when there is virtually explosionin the mobile market, while the BTTB’s subscriber base almost remainedstationery. During this period, two private PSTN operators (BRTA and ISL) also came in themarket but they provided service in a limited scale and only in Thanas.Performance of these operators as well as their interconnection with BTTB wasnot satisfactory. In 2004/05, licensees were given to 15 PSTN operators to workin 1-4 out of 5 Zones (excluding Central Zone) of the country. Those privatePSTN operators made Interconnection with all mobile operators and BTTB, asrequired under Interconnection Regulation. The charges in all these cases with and between PSTN operators and also themobile operators have been fixed at Tk 0.66 per call per minute.
Network Infrastructure BTTB as the oldest and the only Telecom operator, built up theirlong distance networks at various time from primitive open wirecarrier system to the latest STM 64 optical fiber line. Thechanges/improvement made by them however, were slow,compared to the need of the market. It took long time to give licenses to the private PSTN operators(practically given from 2004-05) and that too excluding the mostimportant Central Zone. As such their subscriber base is still quitelow even compared to the only public sector PSTN operator BTTB,where it is virtually stagnant from last 3-4 years. This is why there is no growth in the long distance trafficgenerated by the PSTN operators and consequently no growth inthe long distance networks. During this time no license has alsobeen given for providing the NLD (national long distance) service,leaving practically BTTB as the lone PSTN operator giving the longdistance service. Other PSTN operators are meeting theirrequirement of long distance circuits through lease line of mobileoperators and BTTB.
Evolution of International Service: Till 1975, the International communication was fully manual, using theprimitive HF Radio system with ionospheric refraction as the mode oftransmission. With the commissioning of the Satellite Earth Station at Betbunia in 1975,the transmission system was replaced by a reliable means ofcommunication through Satellite; but the manual system for connection ofcalls continued. In 1986, the International Trunk Exchange (ITX) was installed, throughwhich automatic routing of international calls were made through subscriberdialing or operator dialing. The mode of transmission however remained through Satellite; until from2006 additional transmission media through submarine cable were broughtinto the system. At present, nearly 50% of over 19,000 international voice circuits are onsubmarine cable, with more than 80% of its bandwidth still remainingunutilized. The number and capacity of International Gateways (IGW) or ITXs werealso increased substantially, resulting in the increase of international trunkcircuits during the five year period from June 2003 to June 2007 by 400% .
Future Outlook :Economies of scale are the key success factor in thetelecommunication business. It has been gathered that all thesePSTN operators have very limited equity investment capacity. As aresult, their borrowing capacity from Banks is also very limited.Due to this weak investment capacity, these operators failed todevelop large scale networks for leveraging the benefit ofeconomies of scale.It has also been gathered that none of these operators havereached to a level where operating expenses could be met byrevenue. We came to know that there has been no significantdevelopment in the investment capacity front.These companies must increase their investment capacitysubstantially in order to expand their network capacity to anoptimum level.
The opening up of the central zone to PSTN operators appears to bea positive development. But, in order to capitalize this opportunitythey must build large scale network. If they failed to do so, most of the calls originating from theirnetworks will be ending up in the networks of mobile and BTTBoperators resulting in huge payment of interconnection charges. As a result, they will face serious limitation to lower their tariffbelow interconnection charges, which was recently Tk 0.66 /minute.Some mobile operators have already lowered their tariffs below Tk1.0/minute. Very recent reduction of interconnection charges by 40% will reducethe hurdle for PSTN. But, the continued reduction of mobile phonetariff is eroding such source of competitive advantage very soon.The offering of CityCell’s tariff of Tk 0.25/minute anytime (24 hoursa day) between any CityCell numbers does not keep room ofoffering any tariff advantage for PSTN operators to customers..
Lack of mobility, low tariffs of mobile operators, andinterconnection charges are major limitations faced bythese small PSTN operators. To over come those limitations, they must built largescale network and bring service level innovations. These operators should work with BTRC for allowingthem to offer data, video and other services inaddition to voice to make their offerings costcompetitive in the market place. Until and unless they do so, their future does not lookbright.
Moreover, the BTRC’s approval of allowing ISPs to offer IPtelephone services have increased the competition level offixed phone services in the city area. It should be noted that there is no niche market segment forthem. They need to compete with mobile operators, ISPs and BTTBfor their phone services. It has been gathered that BTTB hasbeen lowering tariff and increasing their responsiveness tocustomers’ need. It is worth of mentioning that almost 40,000 BTTBsubscribers have surrendered land phone connection in mostplaces outside Dhaka in recent months. As a result, the future prospect of the PSTN industry appearsto be not so bright.
It was also learned that instead of focusing on PSTNbusiness development, those operators were primarilyinvolved in illegal call termination business using VoIPover last couple of years. As a result, they missed the opportunity of buildingcustomer base when there was serious demandamong customers for low cost land phoneconnections. SRGB market survey reveals that most of the PSTNoperators are planning to diversify their services byoffering Internet service. Ranks Telecom has alreadybeen offering Internet service.
With the development of highly competitive mobileindustry, there appears to be no unique competitiveadvantage in the voice segment for the PSTNindustry. In order to succeed, they should focus on developinga large scale network for leveraging the economies ofscale benefit and must offer diverse services such asdata, video and leased line (i.e, bandwidth) inaddition to voice. The success factor appears to be investment capacityfor leveraging economies of scale benefit and servicediversification in the data, B2B bandwidth, and videosegments.
Households and offices are major customers of this service. InBangladesh, there are more than 500,000 small and medium sizedenterprises. Most of these enterprises do not have BTTB’s fixedphones. These enterprises are target customers. In Bangladesh, there are more than 2 millions CATV subscribers,mostly urban households. More than 50% of these house holds donot have BTTB’s fixed phone connections. These households are target customers of PSTN services. There arealmost 500,000 educational institutions, government offices, NGOoffices, hospitals, clinics and other office establishments. A significant portion of these establishments do not have BTTB’sconnections. These are also PSTN target customers. It’s worth of mentioning that BTTB has so far given approx 1 millionfixed phone connections. Therefore, it could be estimated that thetarget customer segments for PSTN services is as high as 2millions.