ETE 521: Telecommunication Business and Management

Module 06: Overview of Bangladesh’s PSTN Telecom Sector.

Overview of the General Competitive Landscape of PSTN Service Market:

In 2007, major development in the PSTN industry is BTRC’s policy decision of allowing PSTN operators to extend their networks in the Central Zone.

The Central Zone, comprising the Dhaka city, Narayangonj municipality, Gazipur, Tongi, Savar, and Jinjira is considered the most lucrative for landline connections.

It is estimated that there is a demand of around 1 million connections.

BTRC has already granted license for the Central Zone to four operators converting their Zonal licenses to National license.

BTRC has been contemplating to issue two more National licenses to existing land phone operators.

These operators may ramp up their subscriber base by taking the advantage of high demand of the Central Zone.

Another development may affecting the PSTN industry is BTRC’s decision for allowing ISPs to offer IP phone (VoIP) services.

This decision has the potential to increase the competition in the fixed phone connections.

Historically till 1989, BTTB was the monopoly operator (also Regulator) providing the PSTN services (in fact all types of Telecom services) in the country.

An agreement was made with a private company, Bangladesh Rural Telecom Authority (BRTA) in July 1989 to provide digital telephone service in 200 Thanas of the country.

Again in August 1994, another agreement was made with another private company;

Integrated services Ltd (ISL) to provide digital telephone service in the rest 195 Thanas of the country.

Performances of these two operators, to say the least, were very poor.

Till June 2004, subscribers under BRTA was about 17,800 and under ISL (name changed to Sheba Telecom after acquisition of Cellular Mobile license in 1996) was about 3000 only.

Later with the opening up of the PSTN licensing in 2004, BRTA was converted into two PSTN companies (National Telecom & Peoples Telecom), both receiving licenses to provide PSTN services in 4 Zones (excepting Central Zone) of the country.

ISL which was changed to Sheba Telecom regained its old name in 2004 (after sale of its full mobile share) and started to give the PSTN services in its previously allocated 195 Thanas.

In late 90’s, it was decided to give license to one operator to provide PSTN services in Dhaka multi-exchange area (which was later named as Central Zone).

License agreement was made by MOPT with Worldtel, a foreign holding company, in August 2001, to provide fixed telephone service in the present Central Zone area but the execution of the same did not start due to various reasons.

The license was revalidated in April 2004, but the implementation of the same has not been started till today. This license is likely to be cancelled shortly.

In 2004, PSTN service was fully opened for private participation with issue of licenses through open licensing system.

For issuing PSTN licenses, the country was divided into 4 Zones in 4 parts of the country and the Central Zone at Dhaka.

Total 37 Zonal licenses (except in Central Zone) were issued to 15 local companies, of which 5 licenses of 2 companies have been cancelled recently for their failure to start the operation.

These companies started operation at different time in 2005 and 2006 but their performance in general is not at all satisfactory.

Apart from cancellation of licenses of 2 companies, fines have been imposed on 3 companies for non-fulfillment of service provision as per roll-out plan and same are likely to be imposed to another 2-3 companies very soon.

Continuous fall of tariff of the mobile operators and equal tariff for their local and long distance calls, are some of the reasons for inadequate growth of the PSTN subscribers.

Even the growth of BTTB telephones is stationery in last 3 years and a good number of subscribers surrendered their telephones, especially outside Dhaka.

The demand for fixed telephone in Dhaka multi-exchange area is more than that of the other parts of the country, which is at present better served by the mobile operators.

But the issue of license in Dhaka multi-exchange area or Central Zone has been delayed for a long time, firstly because of the policy decision of the Govt. and secondly due to court injunction (filed by Worldtel) imposed on entry of new operators in the Central Zone.

After the injunction was lifted, applications were invited for issue of PSTN licenses in the Central Zone.

Very recently (9th Sept’07), BTRC has accorded approval for issuing 4 licenses to the existing PSTN operators: (Ranks Telecom, Dhaka Telecom, Square Informatics and National Telecom) in the Central Zone, converting their licenses to National PSTN licenses.

PSTN Market Environment Analysis: BTTB is the main player in the PSTN market with a nation

wide operation. Subscriber base of BTTB stands at 877,500 in 2007. In addition to domestic voice services, BTTB is the sole operator of handling International calls.

In addition to BTTB and 15 PSTN operators with Zonal licenses, Integrated Services Ltd (ISL) was given license to operate in 195 Thanas and WorldTel was issued licenses to Dhaka multi-exchange area.

Information related to these 17 operators is provided in Table below. As mentioned above, four of these operators’ zonal licenses have been upgraded to National ones.

Four licenses of Bashundhara Communication and one license of Dominox Tech have recently been cancelled for failing to start their operation.

No. Operators Date of start of

Operation

Subscribers June’2006

Subscribers Dec’2006

Subscribers June’200

7

1 Bashundhara Comm. NA NA NA NA

2 Ranks Telecom July’05 33,728 45,271 82,364

3 Bangla Phone NA NA NA NA

4 Jalalabad Telecom Jan’06 3,430 6,720 4,019

5 Westec (Bay Phone) July’05 20,545 21,300 21,300

6 Tele Barta July’05 27,869 39,728 48,561

7 Dominox Tech. NA NA NA NA

8 GEP Telecom NA NA NA NA

9 One Tel Comm. Jan’06 7,247 10,913 20,139

10 Dhaka Telephone Co. July’06 NA 2,450 6,804

11 Square Informatix NA NA NA NA

12 National Telecom Jan’06 6,735 6,735 4,621

13 Peoples Telecom Jan’06 9,436 9,436 9,446

14 S.A. Telecom July’06 1,465 2,579

15 Nextel Telecom NA NA NA NA

16 Integrated Services Ltd NA 3,430 3,689 5,522

17 WorldTel NA NA NA NA

Total Subscribers 112,420 147,707 205,355

Growth Rate 31.39% 39.03%

From the above Table, it can be concluded that the growth of this market segment was very low comparing the growth potential and the growth enjoyed by the mobile operators during the same period.

It may be worth of mentioning that on the back drop of the PSTNs’ subscribers growth from 112,40 in 2006 to 205,355 in June 2007, mobile subscribers growth was 7.655 millions during the same period.

Basically, mobile sector outperformed the PSTN by a factor of 82, as far as subscriber’s growth is concerned.

Analysis of BTTB Service Market:

Subscribers, Circuit Capacity and

Revenue

2003 2004 2005 2006 2007

Telephone Subscribers 716,720 810,160 857,360 889,170 877,500

Inland Trunk Circuits 37,070 44,810 45,540 47,120 49,230

International Trunk Circuits 3,840 6,110 7,350 10,470 15,000

Internet Subscribers 10,500 15,200 17,340 20,850 25,380

Revenue in Millions Taka 2002-03 2003-04

2004-05

2005-06 2006-07

Total Revenue 15448 15312 14248 13163 16665

Inland Telephone Revenue 11997 11356 10403 10621 13087

International Revenue 3362 3901 3709 2449 3182

Revenue from other Sources 89 55 136 93 396

On the contrary to the high growth of mobile subscriber base, BTTB’s subscriber’s growth did not show much progress as shown in Figure.

However, BTTB’s Internet subscriber base grew by almost 250% from 10,500 in June 2003 to 25,380 in June 2007.

Figure also shows BTTB started experiencing negative growth in their subscriber base since 2006-07 period.

Figure 5.1: BTTB's Subscribers' Growth

10,

500

15,

200

17,

340

20,

850

25,

380

716,720

810,160

857,360

889,170

877,500

June'2003 June'2004 June'2005 June'2006 June'2007

Su

bsc

rib

ers

Nu

mb

er

InternetSubscribers

TelephoneSubscribers

Figure 5.2: BTTB's Revenue Growth15

448

1531

2

1424

8

1316

3

1666

5

1199

7

1135

6

1040

3

1062

1 1308

7

3362 3901

3709

2449 31

82

2002-03

2003-04

2004-05

2005-06

2006-07

Re

ve

nu

e in

Mill

ion

Ta

ka Total

Revenue

InlandTelephoneRevenue

InternationalRevenue

Although the inland telephone Revenue grew by 10% during this five year period, the International Revenue has dropped by almost 6%.

This poor performance of International call revenue is due to the high growth of illegal International call termination business using VoIP.

BTTB’s ARPU from inland telephone services has also dropped, from Tk 1,394 in June 2003 to Taka 1,242 in June 2007.

Figure 5.3: BTTB's ARPU/Month During Last Five Years

1394

11681011 995

1242

2002-03 2003-04 2004-05 2005-06 2006-07

AR

PU

/Mo

nth

in T

aka

Analysis of Private PSTN Operators Service Market:

The subscriber base of private PSTN operators has been steadily increasing as shown in Figure placed in the following page.

Although the total subscriber base of 205,355 appears to be much smaller than that of BTTB.

It should be noted that during this period, mobile subscriber base crossed 30 million marks.

Figure 5.4: Subscribers' Growth of Private PSTN Operators

112,

420 14

7,70

7

205,

355

June 2006 December 2006 June 2007

Su

bsc

rib

ers

in T

ho

usa

nd

Among the top ten PSTN operators, RanksTel experienced the highest growth followed by Tele Barta as shown in Figure 5.5.

Westec and One Tel’s subscriber base reached to the same level by the end of 2007 with 3rd position.

Figure 5.5: Subscribers' Growth by PSTN Operators

33,7

28

45,2

71

82,3

64

3,43

0

6,72

0

4,01

9

20,5

45

21,3

00

21,3

0027,8

69

39,7

28 48,5

61

7,24

7

10,9

13

20,1

39

2,45

0

6,80

4

9,43

6

9,43

6

9,44

6

1,46

5

2,57

9

3,43

0

3,68

9

5,52

2

June 2006 Dec 2006 June 2007

Sub

scri

bers

in N

umbe

r

Ranks Telecom

Jalalabad Telecom

Westec (Bay Phone)

Tele Barta

One Tel Com.

Dhaka Telephone Co

National Telecom

Peoples Telecom

S.A. Telecom

Integrated Services

In terms of market share occupancy among the top ten private PSTN operators, RanksTel leads the market with 40% share, followed by TeleBarta in 2nd position with 24% market share.

Westec and One Tel have the 3rd position, both with 10% market share. Market share distribution among the top ten PSTN operators is shown in Figure placed in the following page.

Figure 5.6: Market Shares of Private PSTN Operators

One Tel 10%

Dhaka Telephone3%

National Telecom2%

Peoples Telecom5%

S.A. Telecom1%

ISL3% Ranks Telecom

40%

Jalalabad Telecom2%Tele Barta

24% Westec (Bay Phone)10%

All these companies are relatively very small and they are treating their financial information very secret.

SRGB market survey found that on an average each PSTN user has been paying Taka 395 per month, which turns that the estimated total revenue of those PSTN operators would be about Tk 81 millions per month.

Based on that estimate yearly total revenue of those private PSTN operators should be about Tk 972 millions.

Interconnection Issues: The regulatory requirement as well as the regulatory obligation of

interconnection, as incorporated in the Interconnection Regulation, is equally applicable to the PSTN operators. BTTB is the oldest and the only PSTN operator for a long time before the mobile operators came in the Telecom market. So, for quite some time since late 90’s, the mobile operators used to get interconnected with BTTB and they had to invest in BTTB exchanges to get interconnection. The scenario has been changed since last 2-3 years when there is virtually explosion in the mobile market, while the BTTB’s subscriber base almost remained stationery.

During this period, two private PSTN operators (BRTA and ISL) also came in the market but they provided service in a limited scale and only in Thanas. Performance of these operators as well as their interconnection with BTTB was not satisfactory. In 2004/05, licensees were given to 15 PSTN operators to work in 1-4 out of 5 Zones (excluding Central Zone) of the country. Those private PSTN operators made Interconnection with all mobile operators and BTTB, as required under Interconnection Regulation.

The charges in all these cases with and between PSTN operators and also the mobile 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 their

long distance networks at various time from primitive open wire carrier system to the latest STM 64 optical fiber line. The changes/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 most important Central Zone. As such their subscriber base is still quite low 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 traffic generated by the PSTN operators and consequently no growth in the long distance networks. During this time no license has also been given for providing the NLD (national long distance) service, leaving practically BTTB as the lone PSTN operator giving the long distance service. Other PSTN operators are meeting their requirement of long distance circuits through lease line of mobile operators and BTTB.

Evolution of International Service: Till 1975, the International communication was fully manual, using the

primitive HF Radio system with ionospheric refraction as the mode of transmission.

With the commissioning of the Satellite Earth Station at Betbunia in 1975, the transmission system was replaced by a reliable means of communication through Satellite; but the manual system for connection of calls continued.

In 1986, the International Trunk Exchange (ITX) was installed, through which automatic routing of international calls were made through subscriber dialing or operator dialing.

The mode of transmission however remained through Satellite; until from 2006 additional transmission media through submarine cable were brought into the system.

At present, nearly 50% of over 19,000 international voice circuits are on submarine cable, with more than 80% of its bandwidth still remaining unutilized.

The number and capacity of International Gateways (IGW) or ITXs were also increased substantially, resulting in the increase of international trunk circuits during the five year period from June 2003 to June 2007 by 400% .

Future Outlook :Economies of scale are the key success factor in the telecommunication business. It has been gathered that all these PSTN operators have very limited equity investment capacity. As a result, their borrowing capacity from Banks is also very limited.

Due to this weak investment capacity, these operators failed to develop large scale networks for leveraging the benefit of economies of scale.

It has also been gathered that none of these operators have reached to a level where operating expenses could be met by revenue. We came to know that there has been no significant development in the investment capacity front.

These companies must increase their investment capacity substantially in order to expand their network capacity to an optimum level.

The opening up of the central zone to PSTN operators appears to be a positive development. But, in order to capitalize this opportunity they must build large scale network.

If they failed to do so, most of the calls originating from their networks will be ending up in the networks of mobile and BTTB operators resulting in huge payment of interconnection charges.

As a result, they will face serious limitation to lower their tariff below interconnection charges, which was recently Tk 0.66 /minute. Some mobile operators have already lowered their tariffs below Tk 1.0/minute.

Very recent reduction of interconnection charges by 40% will reduce the hurdle for PSTN. But, the continued reduction of mobile phone tariff is eroding such source of competitive advantage very soon. The offering of CityCell’s tariff of Tk 0.25/minute anytime (24 hours a day) between any CityCell numbers does not keep room of offering any tariff advantage for PSTN operators to customers..

Lack of mobility, low tariffs of mobile operators, and interconnection charges are major limitations faced by these small PSTN operators.

To over come those limitations, they must built large scale network and bring service level innovations.

These operators should work with BTRC for allowing them to offer data, video and other services in addition to voice to make their offerings cost competitive in the market place.

Until and unless they do so, their future does not look bright.

Moreover, the BTRC’s approval of allowing ISPs to offer IP telephone services have increased the competition level of fixed phone services in the city area.

It should be noted that there is no niche market segment for them.

They need to compete with mobile operators, ISPs and BTTB for their phone services. It has been gathered that BTTB has been lowering tariff and increasing their responsiveness to customers’ need.

It is worth of mentioning that almost 40,000 BTTB subscribers have surrendered land phone connection in most places outside Dhaka in recent months.

As a result, the future prospect of the PSTN industry appears to be not so bright.

It was also learned that instead of focusing on PSTN business development, those operators were primarily involved in illegal call termination business using VoIP over last couple of years.

As a result, they missed the opportunity of building customer base when there was serious demand among customers for low cost land phone connections.

SRGB market survey reveals that most of the PSTN operators are planning to diversify their services by offering Internet service. Ranks Telecom has already been offering Internet service.

With the development of highly competitive mobile industry, there appears to be no unique competitive advantage in the voice segment for the PSTN industry.

In order to succeed, they should focus on developing a large scale network for leveraging the economies of scale benefit and must offer diverse services such as data, video and leased line (i.e, bandwidth) in addition to voice.

The success factor appears to be investment capacity for leveraging economies of scale benefit and service diversification in the data, B2B bandwidth, and video segments.

Households and offices are major customers of this service. In Bangladesh, there are more than 500,000 small and medium sized enterprises. Most of these enterprises do not have BTTB’s fixed phones. 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 do not have BTTB’s fixed phone connections.

These households are target customers of PSTN services. There are almost 500,000 educational institutions, government offices, NGO offices, hospitals, clinics and other office establishments.

A significant portion of these establishments do not have BTTB’s connections. These are also PSTN target customers.

It’s worth of mentioning that BTTB has so far given approx 1 million fixed phone connections. Therefore, it could be estimated that the target customer segments for PSTN services is as high as 2 millions.