Bangladesh Telecommunication Industry...Grameenphone dominates the oligopoly market The telecommunication in Bangladesh is oligopolistic in nature where only few operators serves the

Bangladesh

Telecommunication

Industry: A Comprehensive Review

76%

83%78%

88%94%

70.00%

75.00%

80.00%

85.00%

90.00%

95.00%

100 .00%

2014 2015 2016 2017 2018

G r o w i n g Te l e d e n s i t y i n B a n g l a d e s h

T h e d i g i t a l i z a t i o n

j o u r n e y c h a n g i n g t h e l i f e s t y l e o f t h e c o u n t r y p e o p l e . . .

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THE TELECOM INDUSTRY IN BANGLADESH: A

SUCCESS STORY OF TWO DECADES The country’s march towards materializing its vision ‘Digital Bangladesh’ has brought impressive growth in the telecommunication and information technology sector. The country’s active mobile subscriber penetration reached to 93.4% from meagre 30.6% in 2008. Bangladesh is now the eighth-largest mobile market in the world in terms of unique subscribers and the sector now contributes almost 1.8% of total GDP. Two major telecom service offerings are “Voice Calls” and “Internet Data” services. Revenue from voice calls still dominates the industry while contribution from data revenue is growing exponentially since the launching of 3G in Bangladesh.

Despite being the fifth largest market in Asia Pacific region, real industry penetration is still half of the country population implying healthy growth potential The telecom industry in Bangladesh has scaled up rapidly over past decade having a total of 157 million active subscription and more than 85 million unique subscribers. Unique subscriber penetration in Bangladesh rose to almost 55% by 2018 from only 1% in 2003 due to rapid adoption of telecommunication services. The industry has turned out to be fifth largest market in Asia Pacific Region, according to GSMA. However, about half of the entire population are yet to be connected with the mobile telecommunication network, also indicating that there is enormous room to grow. The real market penetration remained steady in the last three years as mandatory bio-metric SIM reregistration has slowed down the pace of new customer acquisition.

A multi-SIM market with growing subscriber addition The Bangladesh telecom market is mainly dominated by pre-paid customers and almost 98% of total subscriptions are prepaid, according to Grameenphone. Though industry penetration based on number of subscription is huge, a large portion of customer holds more than one subscription at the same time.

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2014 2015 2016 2017 2018

Bangladesh Telecom Industry Subscription(in million)

GP Banglalink Robi Airtel Citycell Teletalk

1989 License issued to Bangladesh Telecom

Limited (CDMA) and Sheba Telecom

1996 License issued to Telecom Malaysia

International Bangladesh and Grameenphone

Bangladesh Telecom Limited rebranded to

Pacific Bangladesh and Citycell brand

launched

1997 Launch of Grameenphone, AKTEL and

Sheba

1999 Launch of prepaid service

2002 1 million connections

2004 Launch of state-owned Teletalk

2005 Introduction of SIM tax

Launch of Warid telecom

2010 Bharti Airtel acquires Warid

AKTEL rebranded as Robi

2011 Renewal of 2G spectrum for 15 years

2012 Teletalk launches first 3G network in

Bangladesh

2013 Grameenphone, Robi, Banglalink and Airtel

launch 3G networks

100 million connections

2016 Merger of Robi and Airtel creates number

two operator by number of connections

Introduction of biometric SIM registration

2017 Unique subscriber penetration surpasses 50%

of the population

2018 Spectrum auction

4G services launched

Introduction of uniform voice tariffs

Launch of MNP

Key Milestones

Source: GSMA Bangladesh Country Report & EBLSL Research

Source: BTRC & EBLSL Research Source: BTRC & EBLSL Research

75.5%83.0% 77.6%

88.1% 93.8%

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

2014 2015 2016 2017 2018

Industry Subscrition Panetration

GP BanglalinkRobi+ airtel TeletalkCellular subscribers

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

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Mobile Subscriber Dynamics in Bangladesh

Unique Subscriber Count (mn) Unique Subscriber Penetration Rate

43.5% 28.0% 20.0%

2.3%

Mohammad Asrarul Haque Research Analyst

[email protected]

2

In 2016, SIM re-registration through the biometric process has been a major development in telecom sector. Due to bio-metric reregistration of SIMs in 2016, total number of active subscription dropped by 5% during the year as a number of subscribers did not complete the bio-metric reregistration within stipulated timeframe. In terms of performance, Grameenphone was ahead of other operators and 97% of its subscribers were re-registered through the bio-metric process. The growth in total number of subscriptions may slow down in next few years as a result of implementation of MNP service in Bangladesh in the late 2018 but real industry penetration is expected to continue its steady growth.

Along with stable voice traffic growth, market for mobile internet is enjoying hefty growth driven by high subscriber addition and increased penetration

Bangladesh has advanced significantly in internet connectivity. However, data penetration is still far below than other countries in the region. According to GSMA, only around one-in-five Bangladeshi’s are subscribed to mobile internet connection in 2017. As of December, 2018 there are around 85.6 million mobile internet connection in Bangladesh i.e., 54.5% of mobile users are now using internet with cellular phones. This significant deviation between mobile data connection penetration and mobile data user penetration is due to having multiple number of connections by the same users. The total number of Internet Subscribers has reached 91.348 million at the end of December, 2018. Of the total connections, 93.7% are through the mobile network, 6.3% through the internet service providers (ISP & PSTN) and only 0.06% through WiMAX that is available in cities. Qubee, Banglalion Communications and Ollo has been providing WiMAX connection in Bangladesh. Recently, Qubee has suspended its services for individual clients. Since the launching of 3G, WiMAX service providers are experiencing de-growth in subscription. Active WiMAX connection fell down from 0.504 million in 2013 to 0.083 million in 2018.

Last 5 years CAGR in total number of internet subscribers in Bangladesh was 20.6% and that of mobile internet was 20.1%.

Contribution of data revenue to total revenue of the country’s leading mobile operator GP increased to 18.9% as on 2018 (up to 9 months) compared to meagre 3.4% in the year 2013, reflecting the overall industry scenario. Data Subscription in the last 2 months (November & December) experienced marginal decline due to lower internet use prior to national election.

4G Subscription is yet below expectation, however, 3G data consumption getting momentum after launching 4G

The 4G/LTE spectrum auction took place in the beginning of 2018 and 4G service was formally launched in February 19, 2018 by the three leading market players and state-run Teletalk also launched the service in December, 2018. 4G is the fourth generation of wireless mobile telecommunication technology, succeeding 3G, as defined by the International Telecommunication Union (ITU). Since its first commercial launch in 2009, 4G has become the fastest developing system in the history of mobile communication in the world.

However, even after launching 4G technology in Bangladesh, 3G coverage still dominates while 2G still poses handsome market share. The internet users in the country grew considerably in 2013 when the 3G internet service was launched. However, the number of internet subscribers grew slowly in 2018 despite the launch of faster internet service, 4G. High prices of 4G enabled devices, lower network coverage, and poor service quality are the reason for slow growth in 4G.

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807 851

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523580 600

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800

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120 0

140 0

Q1 Q2 Q3 Q4 Q1 Q2 Q3

2017 2018

Mobile Data Consumption (AMBPU)

GP Robi Banglalink

*AMBPU=Avg. MB per user per month; Source: Company Disclosures, Compiled by The Daily Star

0%10%20%30%40%50%60%70%80%90%100%

0102030405060708090

100

Jan

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Mobile Data Subscription Trend

Mobile Data User % of Industry sub. base

Source: BTRC & EBLSL Research

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Earlier, the regulator provided 3G license to 4 operators on 8th September 2013 under the 3G auction. Although, state owned operator Teletalk has been providing 3G services in Bangladesh since October 2012. Since the roll out of 3G in Bangladesh, cellular phone based data service has been enjoying robust growth. As per the BTRC’s latest statistics, cited in the New Age1, the number of 4G and 3G subscribers reached 11.7 million and 63.5 million respectively at the end of December, 2018 meaning only 13.7% of the country’s mobile internet users are using the fourth generation (4G) mobile phone service even after ten months of the launch of the service while 74.2% mobile data users using 3G internet and rest 12.1% using 2G internet. However, according to the leading mobile operator GP, the 3G data volume consumption witnessing significant growth after launching 4G by the operator even though 3G subscriber count witnessed a de-growth due to upgradation to 4G.

Under the 4G rollout obligation, the operators will have to take 4G network to all divisional headquarters within the first nine months of getting the license and to district headquarters within 18 months. They will get a total of three years to complete their rollout of 4G service across the country. If the operators comply with the obligations, they will get a refund of BDT 250 million in each segment. As per BTRC guidelines, mobile operators are supposed to provide 160 kilobits per second download speed in 2G service and 2Mbps in 3G service. In the case of 4G, mobile phone operators are supposed to maintain 7Mbps download speed and 1Mbps upload speed.

Currently Robi is leading the 4G/LTE in terms of capacity and coverage with spectrum band flexibility while GP is leading in terms of subscriber count. Robi has 4.2 million unique 4G subscribers and 3.4 million active 4G users as on October 20182. The 4G subscriber base of Grameenphone hit 5 million active subscribers in November 2018 (3.8 million in September 2018).3

Grameenphone dominates the oligopoly market The telecommunication in Bangladesh is oligopolistic in nature where only few operators serves the market while nearly half of the industry subscribers belongs to only a single operator. Due to increased competitiveness, the industry has witnessed some major incidence in past few years. With two mobile phone operators having been merged and another shutting down, a six-player market has turned out to be a four-player one. Robi (Axiata) with Airtel (Bharti Airtel) got merged to attain operational efficiency in 2016, which made them the second largest operator by number of connections. Meanwhile, Citycell, the country’s first MNO left the battle after a long period of struggle to survive in the industry. BTRC has suspended its operating license due to nonpayment of dues in Q4, 2016. Banglalink, another leading operator in the industry has been operating with steady growth in

the number of subscribers but its market share is continually on the wane. Teletalk, the only state-owned operator, failed to attract users despite having significant government support in various issues. The only operator that has been continually outperforming the industry in terms of both subscriber acquisition as well as profitability is ‘Grameenphone’, a concern of Norway based ‘Telenor’. GP

1 http://www.newagebd.net/article/61623/only-743pc-mobile-subscribers-use-4g-service 2 http://axiata.listedcompany.com/misc/4%20%20Robi_Executing%20dual%20brand%20strategy%20successfully%20and%204G%20leadership.pdf 3 https://www.thedailystar.net/business/telecom/news/grameenphone-gp-bags-5m-active-4g-internet-users-1657363

GP Banglalink Robi Teletalk

Launching Year: 2G 1997 1997 1997 2004

Launching Year: 3G 2013 2013 2013 2012

Launching Year: 4G 2018 2018 2018 2018

Source: Annual Report, Posts & Telecommunications Division, GoB

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3G Users in Bangladesh (in million)

3G subscriber 3G as % of total mobile data subscriber

46%

30%

22%

2%

Subscriber Market Share

GP Robi Banglalink Teletalk

Source: BTRC, Robi & EBLSL Research

71%

16%

13%

EBITDA Market Share (Q3,2018)

Grameenphone Robi Banglalink

Source: BTRC, Robi & EBLSL Research

4

dominates the telecom industry with 46.5 % of the total market share in terms of active mobile user as on December 2018. Banglalink was in the second leading position before the merger of Robi with Airtel. However, 8.2 million subscribers from Airtel have been added to Robi’s subscriber base through merger that uplifted the operator (Robi) into the second-leading position. As on September 2018, total mobile internet subscriber of GP stood at 36.3 million, Robi 28.3 million, Banglalink 20.0 million, according to the respective company disclosures.

Service quality depends highly on allocated spectrum & frequency to operators The much-awaited spectrum auctions in bands 900, 1800 and 2100 MHz concluded on 13 February 2018. Out of 2×46.4 MHz of spectrum on offer, only 33% of spectrum was sold. Besides, the mobile network operators had the opportunity to convert their prevailing spectrum licences to technology-neutral licences at a cost of USD 4 million per MHz and Banglalink, Grameenphone, Robi availed the offer.

February 2018: Spectrum Auction Result

Spectrum on offer Licences Sold Left Unsold

2x25 MHz in 2100 MHz band at a reserve price of $27 mn per MHz.

2×18 MHz in 1800 MHz band at a reserve price of $30 million per MHz

2×3.4 MHz in 900 MHz band at a reserve price of $30 million per MHz

Grameenphone: 2×5 MHz (paired) spectrum in 1800

MHz Total cost $155 million

Banglalink 2×5 MHz (paired) spectrum in 2100

MHz 2×5.6 MHz (paired) spectrum in 1800

MHz Total cost $308 million

2×20 MHz (paired) spectrum in 2100 MHz

2×7.4 MHz (paired) spectrum in 1800 MHz

2×3.4 MHz (paired) spectrum in 900 MHz

Source: Country Overview: Bangladesh by GSMA Intelligence

Earlier, in 2013, BTRC held a 3G auction where each MHz of paired spectrum in 2100 band was sold at USD 21 million against the base price of USD 20 million. Grameenphone (GP) bagged a 3G license for 10Megahertz (MHz) spectrum at USD 210 million, while Banglalink, Robi and Airtel each acquired 5MHz of spectrum at a price of USD 105 million. State-owned Teletalk also collected 10MHz of spectrum. After completion of the merger, Robi Axiata Bangladesh with its two operating brands ‘robi’ and ‘airtel’ conjointly holds the highest spectrum allocation from all three bands. However, as a condition for the merger Robi-Airtel had to surrender 5MHz spectrum in the EGSM or 900 band that were previously allocated to Airtel.

According to the management of a leading telecom brand of the country, 1800 MHz is the most suitable for providing 4G services. However, technology neutrality now allows operators to use any band for providing 3G or 4G services in the country.

7.45

7.45.2

19.615.6 17.4

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900 MHz (2G) 1800MHz (2G) 2100MHz (3G)

Spectrum Held by Mobile Operators

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53% 53% 51% 53% 53% 55%

Total Revenue Market Shares*Grameenphone Robi Banglalink

33%

43%

23%1%

Active Mobile Internet Subscriber Market Share (September 2018)

Robi GP Banglalink Teletalk

Top three players hold 98% of the market share with leading position seized by GP

Source: EBLSL Research Source: Grameenphone & Axiata Disclosure, EBLSL Research; *excluding Teletalk

Source: EBLSL Research

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The industry witnessed some major regulatory developments in last few years Past few years marked some major developments and reforms in local telecom industry and implementation of some major reforms are in progress. Significant Market Power Regulation was published in the late 2018 that might bring some control in the prevailing market competitiveness. The country upgraded to 3G cellular network in 2013 and rolled out 4G at the beginning of 2018. Besides, trial run of 5G has already been done. The industry experienced unprecedented growth, especially in data segment since the launching of 3G in 2013. The regulator has published Tower Sharing Licensing Guidelines and four companies have already been provided licenses to set up and operate telecom towers as part of its move to separate the network business from telecom services with the view to rationalizing the number of towers in the country. Telecom VAS guideline has been initiated where telecom operators are now entitled to offer Value Added Services (VAS). The government’s effort towards introducing MNP in Bangladesh and introduction of uniform call rates by eliminating off-net and on-net tariff structure in 2018 is another major incidence in the countries telecom industry.

Regulatory Developments in 2018

Timeline Events

1st Quarter ‘Pay As You Go’ limit was introduced at BDT 5.0 per day

2nd Quarter Tower Company Licensing guideline was published on 1 Apr’18 where MNOs will not be eligible to participate

BTRC has disallowed registration of more than a SIM within three hours against a national identity card

3rd Quarter VAT on internet usage was reduced to 5 percent from 15 percent on 1 July 2018 BTRC revised tariff circuit in order to introduce single floor price for all MNOs effective from 14

Aug’18

4th Quarter All operators have launched MNP services on 1 Oct’18 Implementation of e-SAF (Online subscriber registration) SMP (Significant Market Power) Regulations, 2018 published by BTRC High Court ban on arbitrary call rate hike

Some recent regulatory developments having potential market impact are discussed here; 1. Significant Market Power (SMP) regulation aims to bring greater competition Much waited Significant Market Power Regulation for the telecommunication industry in Bangladesh has been finalized recently. A gazette has been published on SMP namely ‘Bangladesh Telecommunication Regulatory Commission (Significant Market Power) Regulations, 2018’ by the telecom regulatory body on 14 November 2018 with immediate effect. The regulation aims to bring greater competition in the telecom market with a view to ensuring improved customer service and safeguarding the industry from being dominated by a single player. However, Grameenphone Ltd. being the leading telecom service provider in the industry having almost 46% market share in terms of total subscriber, 54% total revenue market share and 43% mobile internet subscriber market share the operator is the only eligible candidate to be declared as an SMP by the regulatory commission. GP is likely to face additional/ special restrictions/ regulation while conducting business operations once it gets declared as an operator having SMP. The latest regulatory move from the government will have material impact on the growth prospect and future business of Grameenphone Limited.

Key highlights of the SMP regulation:

1. Any operator shall not engage in any anti-market activities that may have significant impact in the telecom industry, like

Any operator shall not engage in any kind of agreement or collusion that may have or cause any significant impact in the market to create monopoly or oligopoly situation.

Make mutual agreement, take decision or collective actions that may reduce/ hinder/ limit/ stagnant the market competitiveness

decide on buying/ selling prices or any other commercial agreement without consultation

limit or control product, market and technical development and local or foreign investment

Monopolistic control over market or sources of production

Imposing any unequal conditions in arm’s length transaction that may place the other party into disadvantaged position

Impose additional conditions

Pushing others to agree on additional conditions that are beyond the contract

Any explicit or implicit agreement or misuse of power with a view to establishing monopolistic control. Any anti-market agreement including above mentioned activities that may have significant impact will be

considered as void ab initio.

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An operator can’t impose any conditions on subscribers restricting to avail services from other operators. 2. Permission needs to be taken from the commission for any activities that may potentially reduce industry competitiveness. And commission may give permission beyond the SMP regulation if,

Related to national interest For the explicit wellbeing of the consumers or for definite economic or social welfare and not at the cost of

other operators’ interest In line with approved government regulations

3. Determination of significant market power: The commission may decide on significant market power considering relevant issues. The commission may consider, among other, following issues…

Structural Issues A. Market share and concentration level: while determining market share and level of

concentration commission will consider, among other, following issues

The operator’s assessed contribution to the total unit sold in the industry

The operators available capacity of the probable total unit sold in the industry

Percentage contribution to the total generated revenue by all operators. B. Vertical integration level in telecom industry C. Degree of entry barrier D. Trend in global trade and technology E. Product/ service differentiation and standard of revenue growth.

Behavioral issues A. Supply B. Price fixation C. Degree of freedom

The commission may issue directives considering other relevant issues along with above mentioned issues for determining significant market power.

If any of the service providers hold at least 40% control in terms of any of the below mentioned indicators over retail mobile service industry (the industry where commission allocated spectrum is used for providing voice, data & internet services and earns direct or indirect revenue from subscribers) that will be defined as Significant Market Power.

A. Number of total subscriber B. Annual revenue achieved C. Commission allocated spectrum and other properties

The commission shall, if required, discuss with other government bodies for determining SMP. The commission can identify an operator as an SMP and issue directives for ‘dos and don'ts’. If any activities from the SMP results in the reduction or arises any probability of reduction in the market

competitiveness in the country’s telecommunication industry, the commission may direct the operator to suspend relevant activities or, if required, direct to initiate any special steps or activities.

The commission will consider following issues while determining the result from any activities A. The extent to which the industry competitiveness has been damaged or likely to damage B. The operator’s explanation, if any. However, the operator’s intention will not be

considered.

Before issuing any directives, the commission will give a notice for providing explanation, if any, within 15 days.

The commission will take remedial measure if the said operator experiences any loss due to implementation of the above mentioned directives.

2. Implementation of uniform floor price increased average voice tariffs in the industry: The government has increased the

floor prices of voice call by eliminating the on-net and off-net differential call rates structure and introducing uniform call rates in the country. Previously floor price for On-net voice call was 0.25 and for Off-net, it was 0.60 per minutes while ceiling price was BDT 2.0 per minutes, excluding VAT and other regulatory charges. Now, floor price for both the on-net and off-net calls stands at BDT 0.45 per minutes. This increase in on-net floor prices has increased overall average price per minutes (APPM). Implementation of uniform floor tariff for on and off net calls has resulted into increase in revenue. However, with the new unified floor price of BDT0.45, the off net floor prices have gone down. The market has been experiencing increased competition with the introduction of uniform voice tariff. Also there was some reduction in outgoing minutes of usage after implementation of new voice tariff structure.

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3. Introduction of Data Tariff Circuit on the card: BTRC is planning to introduce tariff circuit for data price (floor and ceiling price). Currently no data price range for mobile operators as well as broadband service providers is available. GP management is in favor of market determined rates while the second largest operator, Robi, is seeking for both upper and lower limits for mobile data rates to stop the ongoing 'price war’. The third largest operator ‘Banglalink’ is looking for just the ceiling price and not the floor price. According to a report from The Daily Star, Currently, price per megabyte of data ranges from BDT 0.09 to BDT 0.14 and citing the cost modelling study by the International Telecommunication Union, report says that, the minimum price should be BDT 0.26 per MB. Based on our experience from the revised floor price for voice calls, we can expect that setting the floor prices for data prices will actually result in increase in the average price per MB and ultimately will result in higher internet prices for the economic consumers. Considering the current state of digitalization, where people are increasing adopting to digital mode of life while access to internet is growing, any such floor price fixation will not generate any good thing for the industry in the long run though short term profit margins for mobile operators may accelerate. Any unexpected increase in mobile data floor prices may result in higher growth of broadband cable internet and more use of internet through WiFi connections might result in lower than expected mobile data usage growth.

4. Mobile number portability failed to catch mass attraction in the first 2months of launch: Mobile number portability was launched on the 1st of October 2018. In the first 2 months a total of 77,085 customers switched their network, of them, Robi received 62.0% customers, Banglalink 24.4%, GP 12.1% and Teletalk 1.5% of the customers through MNP. GP was reluctant to carry out any campaign regarding the MNP service thus resulting in lower number of customer acquisition by them through the MNP. GP has decided not to promote MNP due to complexity in the implementation of the service while another major market player, Robi is actively promoting MNP. During the period, a total of 1,35,159 customers requested for taking the service and of them 57% or 77,085 customers were successfully ported. Of the total porting, 35,597 customers of GP or 46.2% of total customers who took the MNP service opted out to other operators4. However, the number is very insignificant compared to GP’s total subscriber of almost 72.0 million as on October 2018.

5. Separation of tower business from MNO’s is underway: As an endeavor to separate tower sharing businesses from the telecom service businesses the regulatory body has published the ‘Regulatory and Licensing Guidelines for Issuing License for Tower Sharing in Bangladesh’ on 1st April 2018 after several discussion and feedbacks from the telecom service providers. The development aims to create two separate industries, the network business and the infrastructure services one, with the view to rationalizing the number of towers in the country. The governments’ initiative towards separation of tower and relevant infrastructure business is a positive development in the country’s telecom industry from the 'operator-as-a-service' viewpoint. In Bangladesh, there are almost 36,000 towers at present and majority of them are in the hand of MNOs. Only edotco, a concern of Malaysian Axiata Group, operates in the country under a statement of non-objection. Edotco has already received license for running infrastructure service business under the new guideline. Under the new industry landscape, tower companies will develop, build, own, acquire, rent, lease, operate and maintain towers while operators, including all mobile, WiMAX and other telecom service providers, will take services from them. Four new firms have already been selected for owning towers and providing network infrastructure to the mobile network operator. The winners are all joint ventures with foreign parties, which can have at most 70% stakes in the company. The firms are edotco Bangladesh Tower Company Limited, TASC Summit Tower, Kirtankhola Tower Bangladesh Limited and AB HiTech Consortium Limited. Despite no established standard regulatory regime, infrastructure sharing is well established in Bangladesh, with a prevailing tenancy ratio of around 1.25. Grameenphone, the market leader has been promoting co-location on its towers since 2010 and Robi has leased up its towers to third parties though parent company Axiata’s towerco edotco. Meanwhile Banglalink, a subsidiary of VEON, is attempting to divest its towers. The tower sharing in the country is expected to flourish under the new regulatory regime. Key Highlights of the Guidelines are: The Cellular Mobile Phone and/or Broadband Wireless Access (BWA) Operators having license from the Commission

shall not be eligible to apply for this license. The tenure of the license would be 15 years initially and would be extended gradually by five years, subject to

government approval The Licensee shall start its operation within 06 (six) months from the date of issuance of the license. Rollout obligation

period shall be counted from 180 days after the issuance of license. On the other hand, mobile phone operators will have to roll back their towers within five years, but they can build towers in places where the tower sharing companies have no presence. Tower companies have to go to all Upazilas in the next five years

4 http://www.newagebd.net/article/58355/robi-gets-highest-customers-thru-mnp-service

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o (a) The licensee(s), within 1st year of roll out, shall have to provide Tower Sharing Service covering up to all Divisions Headquarters.

o (b) The licensee(s), within 2nd year of roll out, shall have to provide Tower Sharing Service covering up to all Districts Headquarters.

The MNOs cannot set up any tower on the basis of roll out of tower companies. Besides, any MNO cannot rent tower to another MNO but they can sell the tower to the tower companies.

No entity having relations with mobile phone or WiMAX companies can apply for the tower sharing business license. License acquisition fee has been set at BDT 250 million while annual renewal fee BDT 50 million. Licensees will have to share 5.5% of their revenue with the government and contribute another 1% to the social

obligation fund from the second year of getting licences.

Fourth generation of wireless mobile telecommunication technology (4G) was launched in Bangladesh in the beginning of 2018. Mobile operators are yet to make any significant investment in this technology. Hence, tower companies will bear the responsibility to upgrade the towers for providing 4G connectivity. As a result of this development, mobile operators in Bangladesh will no longer be required to own capital-intensive infrastructure. Tower companies will allow mobile operators to rationalize their capital expenditure and 4G investment spending. This will enable mobile operators to concentrate on QoS and selling minutes and megabytes, improve efficiency in other service area in spite of making capital expenditures in towers. Besides, the opportunity to divest existing sites to the tower companies will result in positive short term cash flows and potential one-off gains for mobile operators. Operators will be able to focus spending on service differentiation from the free-up funds through divestment of transmission assets. Earlier in February 2017, VEON-owned Banglalink had announced that it was keen to offload its 9,000 towers to tower companies once the licensing regime is finalized. Edotco Bangladesh, part of the Axiata Group, with about 8,200 towers as on 2017, was the only tower company operating at scale in Bangladesh under a no-objection certificate (NOC) from the BTRC after taking over the management of 5,300 tower assets from Robi. edotco Bangladesh was created in response to the draft tower company guidelines in Bangladesh. The entrance of three new foreign-backed competitors will be positive in creating more competition within the sector which will likely drive down access rates charged to operators.5

6. BTRC bars mobile packages with less than 7 days of validity: BTRC has recently scrapped all the voice and data packages from mobile operators with up to 6 days of validity with effect from 27 January 2019. This initiative may result in reduced consumption of voice and data pack, mostly from short tenure bundle offers in next few quarters. However, to satisfy the economical mobile phone users the operators will have to introduce low priced weekly packages and offers that will ultimately result in lower revenue growth than expected and higher cost. But we believe that overall impact of this new regulatory measure is insignificant and not a major concern for the investors.

7. High Court ban on Call Rate Hike: In 13 December 2018, the High Court has issued a ban on future mobile call rate hikes and on charging subscribers for dropped calls for all telecom operators in the country. It also issued a rule asking the government and the mobile phone operators to explain in four weeks why hiking mobile charge without soliciting opinions from the subscribers should not be declared illegal6. However, we are in general not expecting any further call price hike in future. So, such action will not have any significant impact on the expected revenue growth of mobile operators.

A number of socio-economic factors driving the growth in telecommunication industry As the country is progressing towards increased digitalization, with growth in per capita income and change in the life style of its citizens, mobile subscription has become a part and parcel of everyday life of its population irrespective of the income level. Most people now hold more than one mobile phone set and more than one subscription, which is also resulting in significant growth in market penetration.

Stable macro-economic scenario driving the growth in Bangladesh Telecommunication Sector: Growing GDP is also driving the country towards its digital growth. The economy of Bangladesh has been witnessing average 6% plus growth rate over the last decade and has run above 7% over the past two years while the economy is growing at an increasing rate over the last 5 years. Bangladesh aspires to be middle income country by 2021, which will require increasing GDP growth to 7-8% per year. Post and telecommunication sector grew by 6.68% in FY 2017-18 with 2.58% contribution to GDP (at Constant Prices) during the year, according to BBS data. According to industry insiders, a 1% increase in mobile penetration could lead to an increase in the GDP growth rate by 0.28%, while a 1% increase in internet penetration can lead to an increase of up to 0.077% in the GDP growth rate. Communication services, particularly the mobile phone based services (MPS) market continued to drive the telecommunications industry which led to the high growth of Post and Telecommunication sub-sector.

5 https://www.fitchsolutions.com/telecoms-media-technology/tower-licenses-boon-bangladeshi-mobile-market-16-08-2018 6 https://www.thedailystar.net/backpage/news/no-more-rate-hike-charges-dropped-calls-1673398

9

Favorable macro-economic indicators kept the country ahead of its other regional economies. Domestic interest rate is declining and single-digit lending rate is helping corporations to finance for capital investment at a low cost. Private sector credit is also experiencing growth. In the last 8 years, CAGR in foreign exchange reserve was 20.6%, reflecting the country's strength from the economic and financial point of view. Bangladesh usually needs a reserve of about 10 billion U.S. dollars to meet its import bills for three months in light of an internationally accepted standard.

Growing population along with large number of young and middle aged group population are accelerating the pace of growth in telecommunication industry: The country has a population of 168 million and is expected to grow by 1.04%. 35.8% of them reside in urban areas and the annual rate of change in urbanization is 3.19%. Increased urbanization is transforming the traditional structure of communication and with increased digitalization, the country is progressing towards more connectivity. Widespread access to internet is increasing and mobile phones have become part and parcel of everyday life. Young and middle-aged people are the major users of mobile communication devices and around 60% of the entire country belongs to these two groups.

Lower subscription penetration compared to other market: Bangladesh belongs to one of the 10 countries having highest number of mobile subscribers in the world but the country’s mobile subscriber base for both voice traffic and internet is still far below than that of other developing economies in the world that signifies ample growth prospect for the industry.

Increased smartphone penetration resulting into higher data consumption: With increased smartphone market penetration and afterwards the launching of 3G and 4G services in the country, mobile internet subscription witnessed tremendous growth along with growth in overall internet penetration. Currently, there are almost 100 million mobile phone devices in the country, according to industry experts. Use of smartphone in Bangladesh is growing in line with reduction in smart phone prices and increase in purchase power of people. According to Grameenphone Ltd., total smartphone penetration of the country stood at 28% as on August 2017. Along with branded smartphones, low cost Chinese phone are driving the growth. Branded manufacturers have already started to manufacture/ assemble smartphones locally, which will bring affordability. Besides, prevailing 2G devices in the market are to be replaced with 3G & 4G enabled devices in the market which will bring more uses in Data. Moreover, the proliferation of smartphones will continue and the number of data users will keep growing.

27.76%

19.36%

39.73%

6.93% 6.23%

0.0 0%

5.0 0%

10. 00%

15. 00%

20. 00%

25. 00%

30. 00%

35. 00%

40. 00%

45. 00%

0-14 years: 15-24 years: 25-54 years: 55-64 years: >65 years:

Age Distribution Structure

Source: CIA (US Central Intelligence Agency) World Fact Book

32.3

45.0

49.4

52.9

54.3

54.4

55.5

64.7

80.1

80.5

84.4

84.4

84.6

87.7

89.4

90.9

94.8

96.5

97.1

0.0 20.0 40.0 60.0 80.0 100 .0 120 .0

Indonesia

Egypt

Iraq

Thailand

China

Bangladesh

Tunisia

Turkey

Malaysia

France

Germany

Singapore

Spain

Belgium

Hong Kong, China

Japan

United Arab Emirates

Norway

Denmark

Internet Subscrition Panetration Rate '17

73.4

87.1

87.3

88.1

89.8

96.4

104.6

105.5

107.8

110.4

123.2

125.6

133.5

133.9

135.1

148.2

149.8

176.0

249.0

0.0 50.0 100.0 150.0 200.0 250.0 300.0

Pakistan

Iraq

India

Bangladesh

Myanmar

Turkey

China

Egypt

Norway

Philippines

Nepal (Republic of)

Viet Nam

Japan

Malaysia

Sri Lanka

Singapore

Oman

Thailand

Hong Kong, China

Mobile Subscriber Panetration Rate '17

Source: International Telecommunication Union (ITU) & EBLSL Research

2012 2013 2014 2015 2016 2017

0.301.40

4.00

6.50

8.009.00

Smartphone Sales in Bangladesh (in mn)

Source: Bangladesh Mobile Phone Importers Association (BMPIA), Cited by the Daily Star

10

Heading towards “Digital Bangladesh” vision by the government driving the growth in telecommunication industry: The government of Bangladesh is working towards accelerated use of information and digital communication systems to materialize its “Digital Bangladesh” vision by 2021, which is directly driving the growth in internet uses in the country. Realization of this vision remains a political priority and is supposed to enable significant growth in local telecom industry. Nearly all of the government services are now online-based, and they are also implementing aggressive campaigns to educate the masses about internet use alongside offering IT-based training programs and increased access to information technology. These efforts are culminating into huge growth in internet uses. The government is also working to take the rate of internet penetration in the country to 100% from present 47.9% by 2021, ensuring high speed broadband internet at cheaper rate to all the government offices, educational institutions, health centers and union parishads, expanding 3G network to all across the country and launching 4G.

Cultural transformation driven by increased globalization: The country is undergoing a transformation journey in terms of its socio economic factors, rapid changes have been observed in the life-style of its population. Heading towards globalization is also reshaping the prevailing culture as well as trade and commerce. Connectivity has been an integral part of modern-day life, thus accelerating the growth in mobile communication and internet uses. Meanwhile, use of social media platforms like Facebook, WhatsApp, Viber etc. and video streaming sites like YouTube now became part of everyday life for all classes of people mostly among the young and middle-age group. And the use of such media is growing every day, ultimately resulting in more and more use of internet data. Steady population growth and increase in purchase power will continue to drive the telecom sector growth.

The sector experiences rigid regulatory environment and high taxation The telecom industry is highly regulated and highly taxable sector in Bangladesh. Publicly traded/ listed corporations are imposed with a 40% income tax while unlisted telecom operators are exposed to a 45% income tax, a much higher rate compared to any other industry. Meanwhile, BDT100 for each new or replacement SIM is also applicable. Besides, there exist 5.5% of the revenue sharing from mobile operators with the government that will remain unchanged up to 2033.

Challenges ahead for telecom operators despite having bright industry prospect The industry outlook seems bright however the prospect of individual operators might not be as good as the industry. The country has a large population base with steadily increasing disposable income, consistent GDP growth, and low penetration of internet connectivity. The country is now undergoing a transformation period towards going more digital, that will have a major contribution from telecommunication industry and the industry will also enjoy a robust growth along with this transformation journey. Rigid and uncertain regulatory environment remains a key concern for the operators as strict regulation, high taxation and several pending disputes between mobile operators and NBR are yet to be resolved. Fresh development in regulatory landscape might bring changes in existing business operations of telecom operators. The government of Bangladesh and telecom regulatory body, BTRC is working to bring various new regulatory developments.

Teledensity is expected to go up further: According to GSMA Intelligence, the number of unique mobile subscribers is projected to reach to 107 million with 60% real penetration rate by 2025 from prevailing 85 million with 51% penetration. Besides total SIM connection is expected to be 190 million with 102% penetration rate by 2025 from prevailing 157 million (as on December 2018), with 93.4% penetration. Meanwhile, unique mobile internet subscription is also expected to grow at a CAGR of 10% and will reach 73 million by 2025 with 41% penetration rate from 35 million in 2017, with only 21% penetration rate7. Over the next decade, increasing consumers’ affordability, falling prices of smartphones, technology advancement (4G/LTE/5G) and wider network coverage etc. are key factors that will drive the growth.

Increased data consumtion, driven by 4G, will result in heafty revenue from data: Introduction of 4G in early 2018 will help further amplify data service growth as service quality will increase and result in additional data subscribers from rural areas. According to Grameenphone, 3G smartphone users have 34% and 4G smartphone users have 116% higher ARPU than feature phone users due to higher uses of data volume. So, with the launch of 4G, ARPU of the market operators are likely to increase significantly. However, the industry is yet to reap the full potential of 4G connectivity.

Further regulatory intervention can be expected to improve the industry competitiveness: Looking forward, the potential for further merger/ consolidation in the industry cannot be overlooked if present state of industry competitiveness prevails. Top three players are in a battle to acquire new subscribers with

7 https://www.gsmaintelligence.com/research/?file=a163eddca009553979bcdfb8fd5f2ef0&download

Feature phone 150 MB data usage/month

3G Smartphone 950 MB data usage/month

4G/LTE Smartphone 2000 MB data usage/month

Data Uses Potential Based on Technology

Source: Grameenphone Ltd. & EBLSL Research

11

aggressive marketing strategy. The government has already introduced Significant Market Power (SMP) regulation to protect the industry from becoming monopolistic by any single operator.

Revenue from voice traffic might witness declining trend due to increased over-the-top (OTT) service as a result of data user growth: Globally, telecom companies have started facing competition from non-traditional players such as over-the-top (OTT) service providers. The pace of technological advancements and the magnitude of user benefits derived from OTT services will make them the default choice of customers. Voice ARPU will increase in the next year due to revised uniform floor in the late 2018 however may decline in the long run due to increased OTT (Over-The-Top) calls and price competition in the industry but data ARPU is expected to grow further in the years to come due to increased data consumption and new data subscriber addition.

According to TeleGeography estimate, over 5 billion monthly users in September 2018 used 7 OTT applications (WhatsApp, Facebook Messenger, WeChat, QQ, Viber, Line, and KakaoTalk). The rise of mobile social media is taking over the share of voice traffic globally and a turning point in the international voice market was marked in 2015 with declining voice traffic caused by increased OTT calls. This decline in traffic may reflect a permanent, structural shift: the mass adoption of new “over-the-top” communications services that are reshaping the international communications market.

Source: TeleGeography, Extracted by EBLSL Research; Note: OTT traffic reflects in-app cross-border traffic only, and excludes calls originated on apps but terminated to the PSTN.

The telecom sector has been experiencing a rapid change around the world. The average revenue per user (ARPU), a long-standing metric for measuring financial performance, has been steadily declining over the last decade. Worldwide, telecom companies are now experiencing big challenge of shifting their focus to non-voice services to continue growing. As the industry penetration is maturing while industry experiencing tremendous competition, especially in the area of voice call segment, MNOs are eying towards redesigning their business models by introducing more customer friendly products as well as trying to reap the benefit of country’s digital growth by offering cloud based services and business diversification. However, in the near future, growth will be driven by data and the internet services, customer analytics services and new technology-led capabilities.

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

050

100150200250300350400450500550600

199

8

19

99

20

00

20

01

200

2

20

03

20

04

20

05

200

6

20

07

20

08

20

09

201

0

20

11

20

12

20

13

201

4

20

15

20

16

20

17

20…

International Voice Traffic 1998-2018International Traffic Traffic Growth

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Carrier and OTT Traffic 1998-2018

Carrier Traffic+OTT Carrier Traffic only

Important Disclosures

Disclaimer: This document has been prepared by the Research Team of EBL Securities Limited (EBLSL) for information purpose only of its clients residing both in Bangladesh and abroad, on the basis of the publicly available information in the market and own research. This document does not solicit any action based on the material contained herein and should not be taken as an offer or solicitation to buy or sell or subscribe to any security. Neither EBLSL nor any of its directors, shareholders, member of the management or employee represents or warrants expressly or impliedly that the information or data or the sources used in the documents are genuine, accurate, complete, authentic and correct. However all reasonable care has been taken to ensure the accuracy of the contents of this document. Being a broker, EBLSL may have a business relationship with the public companies from time to time. EBLSL and its affiliates, directors, management personnel and employees may have positions in, and buy or sell the securities, if any, referred to in this document. EBLSL disclaims liability for any direct, indirect, punitive, special, consequential, or incidental damages related to the report or the use of the report. This document is not directed to, or intended for distribution to or use by, any person or entity that is citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. The information and data presented herein are the exclusive property of EBLSL and any unauthorized reproduction or redistribution of the same is strictly prohibited. No part of this report should be copied or used in any other report or publication or anything of that sort without proper credit given or prior written permission taken from the authorized publisher of this report. This disclaimer applies to the report irrespective of being used in whole or in part.

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