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REPORT ON

ANALYSIS OF TELECOMMUNICATION SECTOR

Submitted To

Mr. Avijit Mallik


Lecturer
Institute of Business Administration
University of Dhaka

Submitted by
M M Haque (54, 56D)
Md. Enamul Islam (03, 56D)
Md. Iqbal Hossain (15, 56D)

Institute of Business Administration


01 April 2018
Contents
Bangladesh- The Tiger Economy ....................................................................................................................................1
Bangladesh Economy Overview: ...............................................................................................................................1
Bangladesh Economy Data: ..................................................................................................................................2
GDP growth of Bangladesh: ..................................................................................................................................2
Population Ageing in Bangladesh: .............................................................................................................................3
Inflation Rate of Bangladesh: ................................................................................................................................4
Interest Rate of Bangladesh: .................................................................................................................................5
Exchange Rate of Bangladesh: ..............................................................................................................................6
Employment rate: .................................................................................................................................................6
Political Risk in Bangladesh: ..................................................................................................................................7
Foreign policy of Bangladesh: ...............................................................................................................................7
Forecast of Bangladesh economy for year 2018:..................................................................................................8
Telco Sector ...................................................................................................................................................................8
Defining the boundary ..............................................................................................................................................8
Contributor to the economy: ....................................................................................................................................9
The current scenario: ..............................................................................................................................................12
Data Value Chain .........................................................................................................................................................13
The entrance of international data: ........................................................................................................................14
Backbone of National Telecommunication Infrastructure: .....................................................................................15
From Sharing of Infrastructure to The Tower Companies: .....................................................................................17
Mobile Network Operators (MNO): ........................................................................................................................21
Frequency asset: .................................................................................................................................................25
Growth factors: ...................................................................................................................................................26
Growth opportunities: ........................................................................................................................................26
Cost drivers: ........................................................................................................................................................28
Porter Analysis for MNOs: ..................................................................................................................................28
Cyclicality ............................................................................................................................................................29
Industry Life Cycle ...............................................................................................................................................29
Advice for investors: ...........................................................................................................................................30
Some other future segments to look at: .....................................................................................................................30
BWAs: ..................................................................................................................................................................30
ISPs: .....................................................................................................................................................................31
IoT: ......................................................................................................................................................................31
The ultimate investing strategy: ..................................................................................................................................32
References ...................................................................................................................................................................... i

i
Acronyms
IGW – Internet Gateway

ICX – Interconnection Exchange

IIG – International Internet Gateway

NIX – National Internet Exchange

BWA – Broadband Wireless Access

ITC – International Terrestrial Cable

PSTN – Public Switched Telephone Network

NTTN – National Telecommunication Transmission Network

VTS – Vehicle Tracking System

IPTSP – Internet Protocol Telephony Service Provider

ISP – Internet Service Provider

VSAT – Very Small Aperture Terminal

MNO – Mobile Network Operator

MBH – Mobile Back Haul

SMW: SEA-ME-WE

SEA-ME-WE: South East Asia–Middle East–Western Europe

BTRC – Bangladesh Telecommunication Regulatory Commission

ARPU – Average Revenue Per User

IoT – Internet of Things

ii
Bangladesh- The Tiger Economy
Bangladesh Economy Overview:
The economy continues to show resilience this fiscal year, despite lingering obstacles such as the effects
of country-wide flooding in August and the ongoing accommodation of Rohingya refugees in the east.
Exports increased 7.4% year-on-year in the July-to-February period. In the same period, annual remittance
inflows rose 16.6% compared to the same period in the previous fiscal year. Meanwhile, on 1 March, the
governments of Bangladesh, India and Russia signed an agreement to work closely together on the
ongoing construction of Bangladesh’s first nuclear power plant. The plant’s completion, expected by the
mid-2020s, would give an important boost to electricity production in Bangladesh. On 7 March, the IMF
called for continued government efforts to increase revenue collection and implement delayed Value
Added Tax reform.

Bangladesh’s economic freedom score is 55.1, making its economy the 128th freest in the 2018 Index. Its
overall score has increased by 0.1 point, with improvements in the scores for judicial effectiveness and
government integrity outpacing declines in property rights, trade freedom, and labor freedom.
Bangladesh is ranked 29th among 43 countries in the Asia–Pacific region.

The Bangladeshi economy has successfully held on to its growth momentum, achieving 7%+ GDP growth
for the second consecutive year running, successfully shaking off major floods in its northern regions.
Bangladesh recorded GDP growth of 7.28% in FY17, beating India's growth rate of 7.1% to stand as the
fastest growing major economy in South Asia. The growth for FY17 represented an increase of 17 basis
points over the 7.11% growth achieved in the previous fiscal year. Inflation gradually eased until
December 2016, dropping from 5.4% in July 2016 to a low of 5.04%, before spiking up to 6.12% in
September 2017 due to major flooding in the agriculturally productive northern regions and resulting crop
losses. FDI inflows reached a record of USD 2.2 bn in 2016, but external sector performance suffered due
to infrastructural bottlenecks hampering exports, lackluster remittance and higher imports. The current
account ended in a deficit of USD 1.48 bn for FY17, and continued to deteriorate to stand at a deficit of
USD 3.3 bn in October, which led to a weakening of the BDT/USD exchange rate from a level of 78.4 in
July 2016 to 82.7 at the end of 2017. Going forward, we expect the export sector to bounce back on back
of sustained economic growth in Bangladesh's major export destinations and the completion of
renovation and relocation work among Bangladesh's major export industries as well as the depreciation
of the BDT. The political situation also remains stable, with the internal security situation greatly
improving after the 2016 Dhaka terrorist attack as a result of sustained police operations dismantling
terrorist cells throughout the country. The government meanwhile has continued on its ambitious plans
for investment in infrastructure, with the investment-to-GDP ratio crossing 30% level to stand at 30.5%
for FY17. Going forward, the following factors are expected to drive growth in the future: External sector
performance will pick up due to strong economic growth of major export partners and completion of
factory remediation works. After experiencing the twin shocks of the US Presidential Elections and Brexit
in 2016, the world political outlook is projected to stabilize and sustained economic growth in these
markets are expected to drive up demand for the export sector of Bangladesh. Completion of remediation
works in textile factories, combined with relocation of the tannery industries to the Savar leather estate
and the depreciation of the BDT is expected to lead to rebound of the export sector. The import growth
is projected to continue on its high trajectory due to huge spending on infrastructure by the government
to meet the needs of an industrializing economy. Record high private sector growth will continue to

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support higher output growth. The private sector credit growth has reached a 5-year record high of
19.06% in November 2017, after being in a continuous uptrend for the entire FY17 period. Given the
politically stable situation and increased investment in power and transport infrastructure, the growth in
private sector credit will boost the private sector and build the foundations for long term sustainable
growth.

Bangladesh Economy Data:


The following table summarizes the economic scenario of Bangladesh.
Table 1: Summary of Economic Data of Bangladesh

Particular FY 2016 FY 2017

GDP Growth 7.11% 7.28%

Inflation (Point to Point in 5.53% 5.94%


June)

Export Growth (July to June) 9.72% 20.12%

Import Growth (July to June) 5.45% 18.86%

Forex Reserve USD Bn (June) 30.14 33.21%

Private Sector Credit Growth 16.78% 16.17%


(July to June)

Net Govt. Borrowing BDT Bn 384.93 -203.29


(July to June)

Current Account Bal. USD Mn 3,706 -1,480


(July to June)

Call Money Rate (June) 3.70% 4.03%

91 Days Treasury Bill Rate )3.96% 3.09%


(June)

Repo Rate (June) 6.75% 6.75%

GDP per capita(USD) 1369 1602

Exchange Rate (vs USD) 79.05 82.95

(BB, 2017)

GDP growth of Bangladesh:


Bangladesh achieved the highest GDP growth rate in the South Asian region in 2017, and one of the
highest GDP growth rates among major economies in the world. Bangladesh achieved GDP growth rate of
7.28% for FY17, beating the target of 7.2%. Average GDP growth rate for the past 10 years now stands at

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6.26%. The government has set a GDP growth target of 7.40% for the 2018 fiscal year, which is achievable
given the stable political climate, investments in power and transport infrastructure and the high private
sector credit growth rates. Given current trends, GDP growth is likely to cross 8% in afew years.

GDP Growth rate


7.50%
7.24%
7.30%
7.11%
7.10%

6.90%

6.70% 6.55%
6.50%

6.30%
6.06%
6.10% 6.01%

5.90%
FY2012-13 FY2013-14 FY2014-15 FY2015-16 FY2016-17

Figure 1: GDP growth rate for Bangladesh (Bangladesh Economic Review, 2017)

Population Ageing in Bangladesh:


Population ageing is increasingly recognized as a process of major significance for all society. In world, the
elder people ratio is difference between developed and developing countries. In developing countries,
the proportion of older persons is expected to rise from 8 to 19 per cent by 2050, while that of children
will fall from 33 to 22 per cent. Though developed countries have been able to age gradually, they face
challenges resulting from the relationship between ageing and unemployment and sustainability of
pension systems, while developing countries face the challenge of simultaneous development and
population ageing. Developing countries like Bangladesh the elderly population is also increasing in a
remarkable rate. The table below shows the trend of increase in the number of elderly persons in
Bangladesh.

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20
18
16
14
12
10
8 Aged 60 years and above(in million)
6
4
2
0
year 1951 1981 1991 2000 2015
1911

Figure 2: Aging people rate in Bangladesh (BBS, 2011)

Future prediction of ageing people of Bangladesh will be 17.62m by year 2025. This figure, we see that
the percentage of the elderly in Bangladesh is increasing with the advancement of time. The percentage
of the elderly population in 2050 might be about three times higher than the percentage in 2000. The key
point here is that the elderly population keeps growing and will continue to grow.

Inflation Rate of Bangladesh:


Inflation was kept under control until the end of 2016, reaching a low of 5.04% in December, before
massive floods caused a loss of the import Boro rice crop in the fertile northern regions. This caused food
inflation to spike up sharply from the start of 2017, which was countered by the government repealing
import duties on rice and undertaking efforts to import rice from abroad. These steps managed to stem
the spike in inflation, stabilizing it around the 6% level. The inflation level is still higher than the MPS target
of 5.5%. There is a likelihood of oil prices rising in the international market due to strong global economic
growth, and this could lead to higher non-food inflation. However, once subsequent rice crops are
harvested, food inflation is expected to come back down.

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Inflation Rate
Inflation Rate

7.52
6.99
6.22 6.19 5.94
5.51

year 2012 2013 2014 2015 2016 2017

Figure 3: Trend in Inflation Rate of Bangladesh (Bangladesh Economic Review, 2017)

Interest Rate of Bangladesh:


If interest rate increase with the purpose of Fisheries Effect Interest Rate also increases. Therefore,
Interest Rate in Bangladesh was last registered at 6.75 percent in 02/28/2018 and Deposit Interest Rate
went down to 6.20 percent from 8.20 percent in 2015.Interest Rate all-time average stands at 7.14
percent and it's projection for 03/31/2018 is 6.75. Deposit Interest Rate averaged 9.51 percent and is
projected to be 5.56 in 2017.

The interest rate had been on a descent since January 2015 -- when lenders provided 7.26 percent.But in
July, most banks revised the deposit rate upwards upon expectation that the demand for money would
rise amid growing imports, Private sector credit growth hit 16.94 percent in July -- the highest in five years
and well above the 16.2 percent target set by the central bank for the first half of 2017-18.

Table 2: Interest Rate Picture of Bangladesh

Year Deposit Rate Lending Rate

2016(June) 5.54 3.70

2017(June) 4.91 3.92

2018(January) 5.01 3.90

(BB, 2017)

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Exchange Rate of Bangladesh:
Exchange rate defines a stable economic condition for any country. If exchange rate is fixed for a certain
period of time an exponential economic growth will happen for sure. Investors will have a clear view
towards the economy to invest on any sector for that country. But because of economic Impossible
TRINITY no government can control money supply, Interest rate and exchange rate concurrently.

On the 17th January 2017 1USD=77.617 Tk.

On the 10th January 2018 1 USD= 82.9550Tk.

The US dollar continues to appreciate against the taka although the central bank injected more than $1.11
billion into the market so far in fiscal 2017-18 as it tries to keep the exchange rate stable.

Employment rate:
From the historical analysis of the data from 1984 to 2017 we see the Unemployment rate of Male labor
force of the country decreased for a little while but increased slowly afterwards from1989 to 2004. But
onwards the rate of unemployment is decreasing. The reason may be attributed to development in
industrial sector, Information technology and the boom in the service industry. Employment rates are
defined as a measure of the extent to which available labour resources (people available to work) are
being used. They are calculated as the ratio of the employed to the working age population.

Unemployment Rate in Bangladesh is expected to be 4.50 percent by the end of this quarter, according
to Trading Economics global macro models and analysts expectations.

Bangladesh unemployment rate


5
4.5
4 4.5 4.5
4.2 4.1 4.1
3.5
3
2.5 3
Bangladesh unemployment
2 rate
1.5
1
0.5
0
YEAR 2010 2012 2014 2016 2017
2008

Figure 4: Trend in Unemployment Rate of Bangladesh (Bangladesh Economic Review, 2017)

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Political Risk in Bangladesh:
The political situation has stabilised, but the country remains vulnerable ahead of the parliamentary
elections in 2019.Despite a stable political system, Bangladesh is still vulnerable to spikes in tension
between the Awami League, the ruling conservative Muslim party, and the Bangladesh Nationalist Party
(BNP). Following the victory of the Awami League in the 2014 parliamentary elections, the country
experienced waves of violent protests and major blockades. The situation has since stabilized, but there
are fears of renewed tensions in the run-up to the parliamentary elections scheduled for early 2019.
Although it boycotted the 2014 parliamentary elections, the BNP is expected to mobilize massively in 2018
so as not to be marginalized politically. Finally, the country is set to suffer from a particularly difficult
business climate.

Short-term political risk (1=low, 7=high): Short Term political risk = Political risk related to short-term
export transactions. Political risk covers the risks of foreign exchange shortages, wars, revolutions, natural
disasters and arbitrary government actions. Countries are classified into seven categories (from 1-low risk
to 7-high risk) reflecting the intensity of political risk.

For that indicator, Credendo Group provides data for Bangladesh from 2014 to 2016. The average value
for Bangladesh during that period was 3 index points with a minimum of 3 index points in 2014 and a
maximum of 3 index points in 2014.

Bangladesh Short Term Political Risk


6

3 Bangladesh Short Term


Political Risk
2

0
year 2014 2015 2016 2017

Figure 5: Bangladesh Short Term Political Risk (theglobaleconomy, 2017)

Foreign policy of Bangladesh:


In Bangladesh, the principal taxes are Customs Duties, Value-Added-Tax (VAT), Supplementary Duty and
personal income taxes and corporate income taxes. The standard rate of VAT is 15% levied on transaction
value of most of the imports and supplies of goods and services.

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The tax law imposes income tax at 25 percent on listed entities and 35 percent for non-listed entities.
Corporate tax rate changes announced this year. Generally, a company’s export earnings are 50 percent
exempt.

Forecast of Bangladesh economy for year 2018:

Table 3: Comment on Bangladesh Economy, 2018

Parameter Year 2018 Remarks

GDP Will increase a bit

Inflation Will climb a small margin Due to political vulnerability

Interest Rate Will climb with inflation rate Due to inflation rate

Employment rate Will be in a lower side than Due to market saturation


previous year

Political risk Will increase Due to 2019 national election

Foreign policy(tax) Will be in the higher side Due to enter into the developing
country region

Telco Sector
In the amazing growth of the economy, telco sector has played a significant role. Even in the digitalization
of the economy, the importance of the sector is undisputed. In any remote village of Bangladesh, even if
the physical infrastructure for communication is poor, telecommunication is strong and throbbing with
pride. It is time to define the boundary of telecommunication industry, because the area is so vast for
analysis.

Defining the boundary


First we will follow the age old way to define a word from dictionary. From Oxford Dictionary,
“Telecommunication is communication over a distance by cable, telegraph, telephone, or broadcasting.”
So, it includes a whole range from fixed line PSTN to wireless telephony to internet to mobile
telecommunication to radio to broadcasting. The reason, we have redefined the telecommunication word
is there is no chance to confuse the word with “mobile telecommunication”. To understand the range of
services are under the umbrella of telecommunication industry, we will look at the number of licenses
provided by BTRC as on June, 2017.

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Table 4: Different Licenses by BTRC related to Telecommunication (BTRC, 2016-17)

License Name Number


IGW 23
ICX 26
IIG 35
NIX 2
BWA 3
2G cellular 6
3G cellular 4
ITC 7
PSTN 12
NTTN 5
VTS 25
IPTSP 34
ISP-nationwide 134
ISP-zonal 174
ISP - category A 278
ISP - category B 17
ISP - category C 83
VSAT 30
Call center 202
Total 1981
From table above, we can understand that it is difficult to analyze the whole gamut. For example, to
analyze “call center”, we will have to go deeper on a whole new level. However, we cannot neglect some
other important branches of telecommunication other than mobile telecommunication. We choose an
alternative to the broad area of ‘telecommunication’; we name it ‘data value chain’. The reasons are
manifold, like data is the ultimate product of telecommunication and it is the future. Now, we will look
into the value chain of data, especially mobile telecommunication data.

Contributor to the economy:


Telecommunication industry has played significant role in boosting the GDP growth of Bangladesh. Below
is the revenue collected by BTRC. The main problem with the time series of revenue collection from this
sector is that there is always some delayed collection and thus do not reflect the essentials. For example,
in 2016-17 2141.15 crores BDT is due from BTCL, 1585.15 from Teletalk.

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Table 5: Revenue collection from Telecommunication Sector by BTRC

Revenue earned (in


crores BDT)
2001-02 3.45
2002-03 120.07
2003-04 147.85
2004-05 357.14
2005-06 735.7
2006-07 565.61
2007-08 1,677.85
2008-09 3,195.38
2009-10 2,370.98
2010-11 3,047.28
2011-12 6,957.70
2012-13 5404.69
2013-14 10,085.35
2014-15 4,219.19
2015-16 4,207.94
2016-17 4,066.48
Total 47,162.66

According to GSMA intelligence, mobile technologies and services generated 6.2% of the GDP of
Bangladesh in 2015, a contribution that amounted to around $13 billion of economic value. The report
further stated that the same year the sector produced employment for 760,000. One-third were directly
employed in this sector. The rest were employed in an indirect effect of the sector. In terms of public
contribution, the mobile ecosystem generated about 10% of the government’s revenue in 2015, valued
at $2.42 billion through general taxation, mobile-specific taxes, and spectrum licenses. GSMA Intelligence
expects that the economic contribution of the mobile industry in Bangladesh will continue to increase. In
value-added terms, it is estimated that the ecosystem will generate $17 billion by 2020. Employment
opportunities are also set to expand from 780,000 jobs in 2016 to 850,000 jobs in 2020, an increase of
around nine percent during that period. (Estopace, 2017) According to BB, in 2008 telco sector provided
8% of national tax revenue and 59% (highest) of total FDI. (BTRC, 2016-17) Telecommunication sector also
presents the third highest FDI stock up (13.44%) to September, 2017, after Gas & petroleum (25.11%) and
Textile and Wearing (19.32%). (BB, 2017)

In 2015, mobile technologies and services generated 6.2% of GDP in Bangladesh, a contribution that
amounted to around $12.7 billion of economic value. This includes the direct impact of the mobile
ecosystem as well as the indirect impact and the increase in productivity brought about using mobile
technologies. (Economic Impact: Bangladesh Mobile Industry, 2017) The estimation for contribution in
2016 is of $13.6 billion USD. The impact of mobile industry is generally divided into three domains, shown
in the following table.

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Table 6: Contribution of Telco Sector to GDP (Economic Impact: Bangladesh Mobile Industry, 2017)

Domains Description Total contribution Total contribution in


(billion USD) percentage of GDP

Direct Impact Ecosystem value added (wages, taxes 3.8 1.8%


and business surplus)

Indirect Impact Knock-on effect in sectors providing 1.4 0.7%


inputs in the supply chain of mobile
goods and services

Productivity Improved efficiency throughout the 7.6 3.7%


economy via the use of mobile
technology (agriculture, education,
finance, health)

Total 12.7 6.2%

Revenue Earned (crores BDT)


12000

10000

8000

6000

4000

2000

Revenue Earned (crores BDT)

Figure 6: Revenue from Telecommunication sector (BTRC, 2016-17)

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The sources of revenues in 2016-17 is shows in the following table. 2141.15 crores BDT from BTCL, 1585.15
from Teletalk are due in 2016-17.
Table 7: 2016-17 revenue sources (BTRC, 2016-17)

SI Description Revenue (in crores BDT)

1 License fee 194.09

2 Revenue sharing (1%) 2,648.90

3 Spectrum charge 949.25

4 License accusation fee 96.72

5 Application fees 0.21

6 Penalty 0.48

7 Delaying penalty 44.87

8 Merger fee 90.00

9 Others 41.96

Total 4,066.48

Mobile operators have a huge investment each year. Unfortunately the rate if reinvestment is going down.
The investment scenario by the MNOs is shown below:

Investment by the mobile operators:


Table 8: Investment by MNOs

MNO Revenue (BDT) Investment (BDT) Investment % of


Revenue
GP 12228,50,56,965 1523,82,78,290 12.46%
Banglalink 4817,40,00,000 901,50,00,000 18.70%
Robi axiata 6068,30,11,212 1982,95,16,250 32.66%
Teletalk 710,69,00,000 217,64,00,000 30.56%
Total 23824,89,68,177 4625,91,94,540 19.41%
The current scenario:
Now, once we have an idea of the value chain we will follow the data from entrance point to the end
consumers and see what the current scenario is. As scenario is changing very fast, we are unable to
present the most up-to-date information. From BTRC annual report dated on June, 2017 has a great
influence in our presented data.

Bangladesh has seen significant growth in telecommunication sector. Some of the indications are as
follows:

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Table 9: Current status of Telecommunication Sector (BTRC, 2016-17)

2002-03 2008 June, 2016 June, 2017


Mobile subscribers 5.05 mn. 46 mn. 136.5 mn (84% of
total pop.)
3G subscribers 28.8 mn. 36 mn
Internet subscribers 0.1 mn. 4 mn. 63.2 mn. 73.3 mn.
Bandwidth usage 10 GBps 500 GBps
Number of licensees 139 608 1980
Smartphone users ~10 mn.
User of social media 30 mn.
Mobile money 10 bn. BDT per day
transaction
3G users 28.8 mn. 36 mn. (+ 7.2 mn.)
Teledensiry 0.54% 84.43% 87.32%
Internet density 0.1% 39.34% 45.29%
Price of Bandwidth 127,000 BDT / 625 Tk BDT / Mbps 625 Tk BDT/Mbps
Mbps
Revenue to BTRC 1.2 bn BDT 40.67 bn BDT
Network coverage 50 districts 64
Radio comm vendor 31 57
license
Spectrum licenses 35 835
BTS 69009 78066

The number of mobile subscribers has increased constantly. This has been a good indication for
Bangladesh, that mobile penetration was 84% as of June, 2017. IN the last 10 years more than 90 million
people have come under the radar of telecommunication. 3G subscribers have also increased with the
same space. 36 million people are now 3G subscribers as of June, 2017. This number is expected to grow
in the last year. The new charm is data over voice. Internet penetration is 45% and the number of
subscribers stands at 73.3 million. Bandwidth usage, according to BTRC has seen mouth dropping growth.
500 Gbps from 10 Gbps in 10 years timeline. The trend will continue in the next decade as well. Mobile
financial services have become a part of people’s life, by transacting 10 billion BDT per day. There were
around 30 million users of social media as of June, 2017 and smartphone users’ number stands at around
10 million. With the decreasing price of smartphones, this number will shoot up in the next year. One of
the most amazing things has happened in case of affordability of bandwidth, the price is only 625 Tk/
Mbps which was 127,000 BDT in 2002-03. With the addition of SMW 5, arrival of 4G, Bangabandhu
Satellite launch, the price will go much lower. There are around 78k BTSs operated by MNOs. With the
new regulation on active sharing, this number will not grow much.

Data Value Chain


If we have not demotivated the non-technical readers with enough technical words, here it goes
challenging for the portfolio managers to keep it legible. We will attend the end consumer to reverse value
chain. There are on a broad sense three ways a customer can consume voice and data. It is good to
mention that from now on, if not otherwise mentioned, data will include voice data too. The three ways
are:

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1. Through Mobile Network Operators (MNO) or mobile telecommunication
2. Via Internet Service Providers (ISP)
3. Via Broadband Wireless Access (BWA)

There are other options of playing with data transaction, like IP telephone, VoIP, PSTN; but due to the
shady future, we will not use them in our analysis of telecommunication. Because these technologies are
dying, it is the duty of the portfolio manager to advise the investors to keep away from them.

Now we will go into 1st tier of supply of data. MNOs provide their service with the help of towers. To this
date, in Bangladesh towers are owned by MNOs. But the convention is not going to look the same in the
upcoming days.

THE FUTURE. Robi applied to BTRC for creating a subsidiary named Edotco, to run their 9,000 towers
in 2015. GP filed for creating their own subsidiary of towers in February, 2017. Banglalink also did the
same in December, 2016. Regulation for infrastructure sharing, high capex, world trend have expedited
to the trend towards separate tower company. Banglalink is already in the way of selling its towers of.

American Tower Co., the biggest tower company in the world, owns towers across the globe. Bharti
infratel, essar group, GTL Ltd., Indus Towers are tower companies from India. So, we project that like Robi,
other MNOs will detach their infrastructure from network and service.

With the data craving from new technologies like, 3G, 4G/LTE, data infrastructure needs to be firmer than
ever. The backbone of the towers are the optical fiber network provided by NTTN license holders. BWAs
use the similar infrastructure like the MNOs, but mostly they share the towers from MNOs. ISPs directly
buy bandwidth from IIG license holders. They also use fibers from NTTN license holders. The international
data is transacted through IIG (international internet gateway). There are currently three ways
international traffic are transmitted into the land of tigers. There are two submarine cables SMW-4 and
SMW-5 entering into Bangladesh. SMW4 lands in Cox’s Bazar and SMW5 lands in Kuakata. There is also
an agreement with India, through which ITC license holders can use the dry path though Benapol. A
simplistic sematic is shown below:

Figure 7: A simplistic schematic to understand the data path

The entrance of international data:


As we have already said there are only three physical point for fast data communication with the outside
world. However, with the satellite communication, communication can be established. But in most cases,
that is the alternative path, because of the expense is higher and performance is poorer. However,
satellite is very important when there is any physical damage in the physical infrastructure. The capacity
of the entrance points are shown below:

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Table 10: International Data consumed by the IIGs in 2016-17 (BTRC, 2016-17)

SMW-4 160.371 Gbps


SMW-5
ITC 281.008 Gbps

SMW-5 went live in September 10, 2017 with the capacity of 3000 Gbps. At first phase, Bangladesh will
use only 2200 Gbps and gradually the full capacity will be depleted.

Backbone of National Telecommunication Infrastructure:


The countrywide network of fibers provide the backbone for the high speed data transmission. One needs
an NTTN license to lay fibers. Before 2008, MNOs used to lay their own fibers. But to bring healthy
competition and reduce monopoly nature of the business, BTRC introduced NTTN guidelines. According
to the guideline, no MNO can apply for the license. This is to separate access layer from physical layer and
bring level playing field. There only 5 entities entitled to lay fibers. The current scenario is (as on June,
2017):
Table 11: NTTN License Holders (BTRC, 2016-17)

License holder License date Network coverage Market share


(km)
Fiber@home 2009 33883 44.50%
Summit communications Ltd. 2009 28532 37.47%
BTCL 2014 6,906 9.07%
PGCB 2014 4,402 5.78%
BD Railway 2014 2,421 3.18%

The two big players are the private organizations too. The comparison among the two major players are
shown in the table below:
Table 12: Comparison of the two largest fiber network providers (as on June, 2017) (BTRC, 2016-17)

F@H Summit Communications Ltd.


Network coverage 30598 km 26732 km
Upazilla coverage (of 485) 404 355
District coverage 64 64
Leased fiber (PGCB) 1901 km 1800 km
Swapping fiber (BTCL) 1384 km -

Fiber@Home is a clear winner in this respect. But Summit’s connection allows them to get many
government projects. Government, under a2i, invites quotes for projects to connect the government
offices through fiber.

According to the 2008 NTTN guideline, mobile operators cannot build their fiber optics anymore. As on
June, 2017 their optical fiber position:

15 | P a g e
Table 13: Optical fiber coverage of MNOs (BTRC, 2016-17)

GP Ltd. 2490 km
Robi Axiata Ltd. 730 km
Airtel Bangladesh Ltd. 303 km
Teletalk Bangladesh Ltd. 101 km
Banglalink Digital Communication Ltd. 3000 km
Pacific Bangladesh Telecom Ltd. 1127 km

By June, 2018 all the 485 upazillas will be under the radar of physical fiber network. To maintain a
consistent network, powerful fiber network is a must.

Important Asset. Fiber network is a very important asset for telecommunication industry. With time,
the demand for fiber network will grow. With the advent of 4G/LTE and 5G, the presence of fibers will
be more prominent. The two firms in this sector, can expect a consistent growth in revenue flow in the
upcoming days. Because, none of them are public, it is not possible to present any financials about
them.

Let’s try to dissect the fiber business for a better understanding of the investors.
Table 14: The Fiber Business

Topic Comment
Number of players Only two private players. And there is no chance that more licenses will be
provided. It is difficult to say about their market share, because in different
segments, they provide services. From coverage point of view, Fiber@Home is
at slightly superior position.
Existence of duopoly Cartel is done by the regulatory body, BTRC. So, chances of collusion is limited.
Revenue model Capacity sales, dark core sales, MBH, government projects
Price Price range is selected by the regulatory body, so that, the price of internet does
not go beyond the limit.
Tax benefit Till 2025, the business is tax exempted.
Revenue sharing 1% of the revenue has to be shared with BTRC
Growth drivers As demand for data increases, the requirement for consistent fiber increases. It
is expected that the fiber business will grow exponentially till 2025 due to the
induction of 4G/LTE. The introduction of 5G in Bangladesh is not still
foreseeable. The government’s pressure to reduce the price will not allow the
revenue to grow exponentially. But still it will grow.
Expected growth The revenue will show consistent growth till 2025. It’s almost impossible to
predict the actual growth without actual numbers. But after 2025, with the tax
involved and maturity of 4G technology, there will be very limited growth (not
more than the inflation).
Cost structure The Capex is huge for fiber business. But the two companies have already
established the majority of their infrastructure. The Opex is comparatively
limited. So, this is a good time to invest in these companies considering the
revenue growth and less repetitive opex.
Porters five forces Rivalry: market sharing between the two players. There is almost no rivalry.

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Threat of new entrant: It is impossible that there will be any new player in the
fiber business.
Threat of substitute: There are some technological substitutes, but they are not
mature enough to compete. For example, internet through balloons, an attempt
by google and facebook is an example. Other examples include connection
directly via satellite, but the antenna requirement is so huge, that it is still not
feasible in terms of mobility. So, there is very little chances of
Suppliers’ power: Government being the supplier has ultimate bargaining power
over the players. So, this bargaining power of the suppliers is very high.
Buyers’ power: Because government is the ultimate decision maker, there is
also limited bargaining power of the buyers. Moreover, there is high switching
cost for the buyers.
Cyclicality Data has become almost a commodity. There will not be much change in data
usage with economy. So, this business can be told as defensive industry.
Life-cycle Due to the growth in data demand, this industry is in growth stage. With the
advent of 4G, there is a boost in its growth.
Investment Advice Invest in fiber business and divest in 2024. And keep track of introduction of
5G in Bangladesh.

From Sharing of Infrastructure to The Tower Companies:


There are multiple forces that are leading to infrastructure sharing:

1. Government regulation requirement to reduce radiation, resource repetition, fast network


expansion etc.
2. International trend to go towards infrastructure sharing
3. Costs of technology transfer; increasing demand for data. Establishing new towers will raise the
cost and thus the consumers will have to pay a lot higher price.

BTRC’s infrastructure sharing rules does not allow active sharing; only passive sharing (non-electrical)
sharing is allowed. According to the rule, mobile operators are sharing towers, sites, fiber cable and
generators.

This is a futuristic section for the investors. There is only one Tower Company in Bangladesh, edotco.
However, the other prominent MNOs will soon sell their towers by creating subsidiaries. Banglalink has
already auctioned for their towers in an international platform. American Tower Co. has bid for GP’s
towers. So, the future is obvious that there will be separate tower companies from MNOs. The reasons
for introduction of Tower Companies are manifold:

1. International trend: Internationally tower companies are separate from the MNOs. American
Tower Company is one of the most dominant in the world market. They also own towers in India,
South Africa, Sub Sahran region, Europe. In India, Bharti infratel, essar group, GTL Ltd., Indus
Towers are the tower companies. The same trend follows in Indonesia, Thailand, Philippines and
other Asian countries.
2. High capex, infrastructure sharing: With introduction of new technologies, towers need to be
adjusted with each technology. For example, for 4G, MNOs will need denser towers.
Transformation to new technologies seem more expensive, if considered with towers. Sharing of

17 | P a g e
infrastructure is the ultimate solution. But if the tower company is not separate, it is difficult to
share infrastructure. BTRC has issued “Guidelines for infrastructure sharing, 2008”. However, only
passive sharing is allowed. BTRC is working with ITU to create guidelines for active sharing also.
3. Government regulation: According to media news, a new licensing guideline is coming to form
Tower Companies. (GrameenPhone, 2018)

The formation of tower companies is now certain, but it will be interesting to see how many of them
will come into action. American Towers will surely bid for their presence. (thedailystar.net/business,
2017) The below is the number of towers in Bangladesh, in comparison to other countries:

500 462
450
400
350
300
250 220
Thousands

200
150
94
100 70
52
50 34 30 30 23 16 14
0

Figure 8: Towers by Country (Tower Exchange, 2016)

To estimate the number of prospective tower companies in Bangladesh, we will look at the number of
major tower companies in the Southeast Asia region. They are shown below:
Table 15: Major Tower companies of Asia

Country No. of towers Major tower


(‘000) companies
India 462 5
Japan 220 2
Indonesia 94 3
Vietnam 70 3
Thailand 52 3
Pakistan 34 3
South 30 1
Korea
Bangladesh 30 1 (Edotco) ++
Malaysia 23 3
Philippines 16 2

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From evidence of Thailand, Pakistan and Vietnam, it is expected that there will be at most three separate
tower companies in Bangaldesh. Other than edotco, there could be two more tower companies comprised
of Banglalink and GP’s towers. Because, Teletalk does not have many towers, their tower will be bought
by these three tower companies. Because the formation of tower companies will be happening very, we
cannot ignore the interest of the investors in this arena. We are giving our comments on this industry
based on the following assumptions:

1. There will be not more than three tower companies


2. The company getting the towers of GP, will have minor advantage over others. Edotco will have
advantage from experience.

We are doing a similar table below to give investors a summarized idea for tower companies in the
following table.
Table 16: The Tower Business

Topic Comment
Number of players At max there will be three major players. From media news, it is heard that
MNOs are not getting their satisfactory price for their towers’ private auction.
Existence of The inception of the tower companies will be based on cartel of market. For
oligopoly example, Edotco will be most probably serving Robi. The other two will serve
Banglalink and GP. Teletalk’s towers will have some effect like Bangladesh Jatiyo
Party has effect in bargaining effect in election.
Revenue model Tenant services
Revenue sharing 1% of the revenue has to be shared with BTRC
Growth drivers Consumers have become data hungry, there are two basic growth drivers for
tower business: data craving and technology. The introduction of 4G will require
more towers. The 5G, in far future will require far more towers in adjacent
distances.
Expected growth 4G technology will require more towers. So, to create true 4G experience, tower
companies will have to place new towers. New towers have to be established,
which requires much Capex. But with time, there will be steady flow of cash. In
terms of revenue, it will take time to see the advantage of revenue growth.
Cost structure The Capex is huge for tower business. But the MNOs have already created a vast
and redundant group of towers. There are approximately 30,000 towers and
only 15-16% are shared. The Opex is comparatively limited.
Porters five forces Rivalry: there will be little rivalry among the tower companies, because they are
established players in the global arena. They will cartel among the MNOs.
Threat of new entrant: Once the tower companies will be formed, there will not
be any new entrant. The reasons are: 1. Licenses are expensive; 2. Requires huge
investment; 3. A saturate market.
Threat of substitute: There are some technological substitutes, but they are not
mature enough to compete. For example, in-build solutions can be taken as
substitute. But these technologies will be more of complement for the towers.
So, very little threat of substitute.
Suppliers’ power: Government and fiber companies are their suppliers. Both
have very high bargaining power. However, because this is highly regulated by
the policies, there will not be bargaining collusion.

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Buyers’ power: MNOs, BWAs are their buyers. MNOs have high bargaining
power, specially being their parent companies the same, it will be difficult to
bargain. But BWAs will have little bargaining power. The BWAs will have to
collude with MNOs to retain their bargaining power. The same is already
happening: Qubee and Robi have introduced bundle offers. Such will happen
more in the coming days.
Cyclicality Data has become almost a commodity. There will not be much change in data
usage with economy. So, this business can be told as defensive industry.
Life-cycle Tower industry is a tenancy based industry, so they are almost always in the
mature stage. However, with introduction of new technologies (4G, 5G) pushes
them to growth stage. It takes some years to mature in response to the new
technologies.
Financials Because no company is public, we cannot compare their EV/EBITDA multiples.
But in the following graph, there are some EV/EBITDA multiples for relevant
companies. Because this industry is generally a mature stage, EV/EBITDA
remains high generally.
Investment Advice By 2019/20 tower companies will appear in Bangladesh. From the news we
get, the auction prices were not very high, so they will be underpriced initially.
And they will take some time to revalue them. Towers are good for value
investors. They, being in mature stage, create good dividends. Because, 4G will
shift them to growth state, they are also good for growth investors.

160 150

140
123
120
Thousands

100

80

60
45
39
40 28 27
20 15 15 13 13

Figure 9: EV multiple and number of towers of Tower companies from Asia and Global market ( (Tower Exchange, 2016) and
calculation)

20 | P a g e
Mobile Network Operators (MNO):
The recent times have seen dominance of data over voice. Mobile penetration is 84%, which is pretty
amazing, but it does not mean that the mobile penetration will get stuck at this point. The CAGR of mobile
penetration has been one of the highest in Asia. The following figure shows a proof of that.

INDONESIA VIETNAM SRI LANKA PHILIPPINES INDIA BANGLADESH PAKISTAN

CAGR 1.7% CAGR 6.8% CAGR 8.8%


CAGR 7.7%
CAGR 3.4%
146.0% CAGR 3.6%
148.9% 123.8%
CAGR 2.0%
102 89.
.7% 2% 120.5%

86.1% 77.5%
134.0% 100. 55.8% 70.9%
8%
72.8%
64.3%

2011A 2016A 2011A 2016A 2011A 2016A 2011A 2016A 2011A 2016A 2011A 2016A 2011A 2016A

Figure 10: Growth of Mobile Penetration of Bangladesh in comparison to Asian Countries (TeleGeography, 2016)

The penetration can exceed well above 100%. From the following chart, we can see that, in comparison
with other Asian countries, the penetration level is still not catching up with the trend.

148.9% Mean (excluding Bangladesh): 122.7%


134.0%
123.8% 120.5%
86.1% 77.2%

Indonesia Vietnam Sri Lanka Philippines India Bangladesh

Figure 11: Comparable mobile penetration (TeleGeography, 2016)

We can see from the above graph that Bangladesh has potential to catch the trend of 122.7% of mobile
penetration. The most unfortunate part is that Bangladesh even sees lower ARPU, compared to other
countries. The evidence is in the following chart:

21 | P a g e
Malaysia $18.2
China $8.5
Thailand $6.6
Vietnam $6.0
India $3.2
Philippines $2.5
Pakistan $2.2
Indonesia $2.3
Sri Lanka $2.2
Bangladesh $1.9

$0.0 $5.0 $10.0 $15.0 $20.0

Figure 12: Average revenue Per User, 2016

From Grameen Phone’s 2018 invstors’ presentation we get that,

1. 45 million subscribers, of which 98% prepaid


2. Multi-SIM market with around 55% real mobile penetration
3. 36% internet penetration*, rapidly increasing
4. ARPU of around USD 2
5. Scale benefit drives healthy margin for top 3 players
6. Continuously developing regulatory landscape

So, the market is a prepaid dominate one. After the biometric registration, it has been easier to know the
real mobile penetration. The true penetration stand at 55%. The following chart taken from Grameen
Phone, we can see that 2016 had dip in registration due to biometric registration. The steady growth in
real penetration strengthens our current argument that the growth will continue.
Figure 13: Number of subscribers in million and real penetration
(GrameenPhone, 2018)

Subscribers (mn) and real penetration


55%
200 51% 51% 60%
44% 46%
50%
150
40%
100 30%
134 126 145 20%
50 114 120
10%
0 0%
2013 2014 2015 2016 2017

Subscribers (mn) Real Penetration

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As we have already mentioned there are four major players in the market, this is a dominant player
market. An oligopoly, where the dominant player sets the rule. Grameen phone is the undisputed leader,
with more than half of the market share.

Market Share of the MNOs by Revenue


100%
90% 25% 25% 24% 23% 26%
80%
70%
22% 23% 24% 23% 20%
60%
50%
40%
30% 54% 54%
53% 52% 52%
20%
10%
0%
2013 2014 2015 2016 2017

GameenPhone Banglalink Robi

Figure 14: Market share by service revenues of MNOs (GrameenPhone, 2018)

Only the market leader, Grameen Phone is in stock exchange. So, the financials about other companies
cannot be found. We present the financials about grameen phone in the following chart.

Revenue (BDT bn) and EBITDA margin


140 128 60%
115
120 103 105 58%
97 59%
100 56%
bn BDT

80 54%
55%
60 52%
53% 53%
40 50%
51%
20 48%
0 46%
2013 2014 2015 2016 2017

Revenues (BDT bn) EBITDA margin (%)

Figure 15: Revenues and EBITDA margin of Grameen Phone (GrameenPhone, 2018)

The above chart shows that 7% revenue CAGR and 12% EBITDA CAGR in 4 years. The growing EBITDA
shows the presence of scale importance. 14% operating cash flow CAGR with margin improvement. While
grameen phone is making a lot of cash out of the business, the same is not true for other entities. Robi
wanted to go public, but the requirement that the company has to make positive net profit in consecutive
two years, is not fulfilled by Robi yet. With the merger cost, RObi’s capital market launch is further
delayed.

23 | P a g e
Revenue (bn BDT) and Growth (YoY)
34 33.2
32.4 32.2 19.0%
32 30.6
29.8 17.0%
30
15.0%
28 15.5%
13.0%
26 12.8% 11.0%
24 11.2% 11.1%
9.0%
22 7.0%
8.0%
20 5.0%
Q4'16 Q1'17 Q2'17 Q3'17 Q4'17

Revenue (BDT bn) Growth (YoY)

Figure 16: GrameenPhone's Revenue and growth of the last quarters

NPAT (BDT bn) and Margin


9.0 30.0%
7.9
8.0
7.0
7.0 6.6
6.0 25.0%
6.0 5.4
24.4%
5.0
21.4% 20.0%
4.0 21.0%
3.0 18.0% 18.5%
2.0 15.0%

1.0
0.0 10.0%
Q4'16 Q1'17 Q2'17 Q3'17 Q4'17

NPAT (BDT bn) Margin

Figure 17: NPAT (BDT Bn) and margin of GP (GrameenPhone, 2018)

24 | P a g e
From GrameenPhone’s 2018 report, we find that there is 9.2% voice revenue growth against 29.1% data
revenue growth. This is the reality of the industry that there is more prospect in data growth compared
to voice revenue growth. The beauty of the industry is that still there is still place for penetration. The real
mobile penetration is 55%. And the voice revenue is still growing. It is believable that GP is getting the
benefit from its scale. This is not the case for Robi and Banglalink, let alone Teletalk. These players are
finding it difficult to get positive cash flow. Teletalk, being a government organization, lacks the
managerial efficiency and strategy to be profitable. The business requires huge Capex due to the tower
investment. This makes it difficult to reach the cut-off. In terms of strategy, Robi Axiata seems to be the
most strategically forward looking. They have already detached their tower forming Edotco. The other
telcos are following them. Moreover, Robi has invested heavily into data. Grameen Phone is also investing
in digging data. Banglalink, so far, does not have any clear direction. The trend says that the future is al
about data.

Frequency asset:
Frequency is a limited and most important asset for MNOs. The details of frequency allocation is shown
in the following table (BTRC, 2016-17):
Table 17: 2G technology Frequency Allocation

Spectrum Operator Allocated bandwidth Comments


(MHz)
900 MHz GP Ltd. 7.4
Robi Axiata Ltd. 7.4 Merger with Airtel
Banglalink Digital 5
Communication Ltd.
Teletalk Bangladesh Ltd. 5.2
900 MHz (E-GSM) Airtel Bangladesh Ltd. 1.6 3.4 MHz has been
retrieved. The left is
merged with Robi
1800 MHz GP Ltd. 14.6
Robi Axiata Ltd. 7.4 Merged with airtel
Airtel Bangladesh Ltd. 10.0 Merged
Teletalk Bangladesh Ltd. 10.0
Banglalink Digital 10.0
Communication Ltd.
CDMA 800 MHz Pacific Bangladesh Cancelled
Telecom Ltd.

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3G Technology (WCDMA), 2013:

Table 18: 3G technology requency Allocation

Spectrum Operator Allocated bandwidth Comments


(MHz)
2100 MHz GP Ltd. 10
Robi Axiata Ltd. 5 Merged
Airtel Bangladesh Ltd. 5 Merged
Teletalk Bangladesh Ltd. 10
Banglalink Digital 5
Communication Ltd.

For 4G techonology, the BTRC will give away 25 MHz in 2100 MHz band with a floor price of $27 million per
MHz. It will also put up for sale 18 MHz in the 1800 MHz band and 3.4 MHz in the 900 MHz band, both starting
off with $30 million per MHz.

Growth factors:
1. Real mobile penetration is currently at 55% appx; even there is an upward pressure to more
penetration according to the data suggests.
2. Affordability of marginal subscribers is improving. The GNI per capita has reached 1610 USD and
Bangladesh has completed the primary criteria for being developing country.
3. There is still space for voice growth, which is evident from Grameen Phone’s report. And data will
grow exponentially. The future is there.
4. The price of smart phones going down, there is still more growth opportunity for data. And usage
of data heavy apps like youtube, iflix will give boost in data hunger of the youth. The average age
of the population supports the fact that there is important growth in upcoming time.
5. The telecom industry is prepaid-heavy. With the increasing affordability, consumers will move
towards consistent performance. So, postpaid services, unlimited data packs, B2B etc. will thrust
the sector’s revenue.
6. IoT and M2M are not yet very popular in Bangladesh. In future, the devices will get data hungry
as well.
7. ARPU is the major growth factor for this industry. But the truth is that Bangladesh provides one
of the lowest ($2) in Asia.
8. Network and distribution: Network is very substantial for business entities. With time, network
will become more important for perception of quality.

Growth opportunities:
Data:
Data has become so important part of the revenue stream of telecom industry, that every player is giving
extra attention to the sector. From grameen phone’s report, we can get an assumption on the growth of
data in the recent years. The following is the data usage of the grameen phone subscribers.

26 | P a g e
Average data usage and growth
160 150 30%
28.00%
140
25.00% 25%
MB per month per user

Growth in data usage


120 22.00%
20%
100
17.00%
80 15%
60
60
40 10%
40 33 33
7%
5%
20
0 0%
2013 2014 2015 2016 2017
Axis Title

Figure 18: Average Data Usage by users and growth in data usage (GrameenPhone, 2018)

The CAGR of data usage is 64%; and the growth is expected to continue for a long time. Mostly due to the
introduction of 3G and 4G/LTE. The real LTE is yet to come to the door of the consumers. But with
government’s consideration to push down the price of bandwidth, the price of 3G, 4G offers will go down
and the data consumption will rocket up in near future.

Price of smartphones:
Competition among local manufacturers has brought down the price of smart phones to people’s reach.
Moreover, the affordability and literacy are also increasing.

Average price of smartphones and


smartphone penetration
Average price of smartphones (USD)

160 150 30%


28.00%
SMartphone Penetration

140
25.00% 25%
120 22.00%
20%
100
17.00%
80 15%
60
60
40 10%
40 33 33
7%
5%
20
0 0%
2013 2014 2015 2016 2017

Figure 19: Average price of smartphones and smartphone penetration (GrameenPhone, 2018)

The figure above shows the steady penetration in the market. Recently TSS has also started producing
smart phones under the brand name of ‘DOEL’. We expect this will also help the growth of penetration.

27 | P a g e
ARPU uplift:
3G smartphone users have 34% and 4G smartphone users have 116% higher ARPU than feature phone
users.

Cost drivers:
1. One of the important cost driver for telecom industry is the high Capex of tower infrastructure.
2. High Income tax
3. Revenue sharing

But with the formation of tower companies, the Capex can be retrieved in a quick way. However, from
the news what we learn that the MNOs might not get the best price and they might have to sell the towers
at a discount. But it is good for the overall telecom industry. Now they can concentrate more into data
delivery and consumer service.

Porter Analysis for MNOs:


Rivalry among existing firms
Cellular Telephone Service industry comprises four players currently: Grameenphone, Robi Axiata,
Banglalink and the state-owned Teletalk. Each company is trying to increase the market share by lowering
call rate, superior network coverage and better value added services and this competition has driven the
industry’s Average Revenue Per User (ARPU) to a very low level. Though the number of subscribers
experienced 5-year compound annual growth rate (CAGR) of 8.6%, ARPU of the industry declined from
BDT 172 in 2011 to BDT 149 in 2016 as the call rate declined. Industry ARPU increased in 2017 as biometric
SIM-registration process shrunk the user base.

The rivalry among existing competitors is very high.

Threat of new entrants


Bangladesh has already four giant mobile companies. They have created significant brand positioning and
economies of scale in network coverage which also act as entry barrier. Government and rules and
regulations like imposition of huge tax on Sim card, strong tariff control by the authority, can also create
difficulties to entrants.

The threats of new entrants are moderate to week.

Threat of substitutes
Mobile telecommunication is a high tech industry. The substitutes that would replace the products or services of
today are strongly related to the factor of innovation. Substitutes of Bangladesh mobile companies are PSTN
operators, VOIP service, skype, imo, messenger, wimax and etc. Also, fixed broadband usage is increasing which is
much cheaper than mobile internet rates and in most occasions, it’s faster as well. For this people are using more
internet based communication systems through fixed broadband.

The threat of substitutes is moderate in Bangladesh.

Bargaining power of buyers


Buyers have four mobile telecom operators in Bangladesh. Price sensitivity is high as people can switch to company
which is trying to offer cheaper rate compared to others. There is opportunity for buyers to select the best company.
Bangladesh buyers get the most priority in telecommunication industries.

The bargaining power of buyers is high.

28 | P a g e
Bargaining power of suppliers
The bargaining power of suppliers in the mobile industries varies depending on the brand name and
strategic importance of the supplies as well as the size of the company. Such as Ericsson, Nokia, Siemens
in the mobile telecom machinery industries are that type of suppliers who enjoy strong power in the
industry. Its major clients included Grameenphone, Robi Axiata, Banglalink,Teleitalk and BTCL. Recently
Huawey technology played an important role in. modernizing network infrastructure on the new 4G
platform. Since the number of the suppliers is very limited, the suppliers have this power to leverage on
this, because this is limiting the choice of the operators and making the switching cost very high for them.

The bargaining power of suppliers in the industry is moderate to high.

Cyclicality
As telecommunication has become a part of our daily life activities, telecommunication service providers
fall into the defensive industry. So, Cyclicality is not found in this sector.

Industry Life Cycle


Maturity in Voice
Market is almost saturated in the “Voice” service with low subscriber growth. Overall subscriber growth
resumed in 2017 as industry recovered from subscriber dip caused by bio-metric SIM registration in 2016.
Currently 141.68mn subscribers with 86.0% voice penetration and 45.1% data penetration according to
BTRC.

Growth stage in Data


Mobile data subscribers are increasing exponentially due to massive increase in use of mobile internet at
the retail level. The number of data subscribers in Bangladesh increased by 44.5% since the end of 2015.
This sharp rise in mobile internet using population is powered by increasing smartphone usage as cheap
smartphones are becoming ubiquitous. Adoption of 4G and LTE, proliferation of low cost smartphones,
rise of digital streaming platforms and social media would contribute to Data penetration reaching 90%
within next five years.

Decline stage of SMS


Due to the increasing usage of messenger, imo, snapchat, viber etc., SMS option is in the decline stage
with decreasing usage of sms through telecom operators.

Merger/Acquisition
In 2017, Robi and Airtel merger was finalized. Airtel was the fourth largest player in the segment. The
Merger was the largest in the country’s history.

Decline stage of Citycell & Teletalk


Citycell, the first cellular telephone service provider in the country’s history, went bankrupt this year. The
company used CDMA technology where cell connection is tied with the device whereas the GSM and GPRS
technology used by other telcos allow switching cell connection by swapping SIM cards.

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Teletalk, despite major advantages, could not capitalize due to poor marketing. Condition of company is
fairly depending on maturity.

Advice for investors:


The MNO industry is going through a reshaping. The future for GP and Robi is still bright. They are expected
to see considerable growth. However, due to considerable amount of expenditure in M&A, robi will have
a hard time to reach the breakeven. It will also face some positioning issue among the consumers.
Banglalink, is not showing any clear direction in terms of strategy. This is very frightening along with the
state owned Teletalk BD Ltd. BTRC has decided not to sanction the tariffs due by Teletalk. There is
substantial amount of risk in Banglalink and Teletalk’s future. Our common perception about their risk
factors are:
Table 19: Risk level and growth opportunities of different MNOs

MNO Risk level Growth opportunities


GP Low High
Robi Moderate High
Banglalink High Moderate
Teletalk Very high Low
Our advice is to go with grameen phone’s stock. However, Robi has a potential to giver higher return in th
coming days, due to their strategic aggressiveness and preparedness. The merging of Robi and Airtel is
not a separate incident. The similar is happening around the globe: O2 - three in UK; T-mobile - Orange in
UK, Vodafon-Idea in India etc. So, GP stock is still comparatively a good investment. Robi’s stock is also
expected to give good returns.

Some other future segments to look at:


BWAs:
Broadband Wireless Access service providers provide wireless broadband service. At present, fixed line
broadband is popular. But there will be some changes in the future. The city corporation is trying to make
the city wire-free: the idea is that there will be only electric lines overhead. Then the ISPs have to lay
underground fibers, which will prove immensely costly. Even, in remote ares, where the infrastructure is
not advanced, BWA is an interesting option to exercise. At present, there are only three players in the
BWA industry.
Table 20: Broadband WIreless Access Service

Year of licensing Band License holder Brand Name Bandwidth


2008 2.3 GHz Augere Wireless Qubee 35 MHz
Broadband Ltd.
2008 2.5 GHz Banglalion Banglalion 35 MHz
Communications Ltd
2013 2.5 GHz Bangladesh Internet Ollo 40 Hz
Exchange Ltd.

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The time-series for BWA subscribers is shown in the following table (BTRC, 2016-17):

Table 21: Subscribers of fixed line internet (BTRC, 2016-17)

Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17


AWBBL 9066 64,371 128,757 134,895 115,757 82,798 49,987 32,832
BCL 220 102,316 200,899 191,322 164,958 96,989 61,959 40,993
BIEL 1,011 1,627

The current number of subscribers is 5 lacs. The price of bandwidth for BWA is expected to go down. Due to the
advantage of active sharing, there will be convergence of fixed line and mobile network. This means there will be
joint Combo offers are expected, like Robi + QUBEE package has already hit the market. More of such synergies will
be seen. Our bet against Robi is that they are always one step ahead in terms of strategy. 15 ISPs have taken license,
but they do not have frequency allocation. This segment is segment is still in its introduction stage. But they will
surely grow when time comes. The confidence comes from the world trend. Bangladesh telecom industry is following
the developed market’s footprint. Moreover, one of the BWA has 5G compatible frequency license. So, the investors,
who can keep their money for considerable amount of time, they can invest in BWAs.

ISPs:
The internet service provider industry is highly fragmented. The extreme rivalry among the players, easy
access of new entrants, low license fees, low switching costs of the consumers, high bargaining power of
the suppliers and consumers- the industry is almost perfectly competitive. Only some corporate ISP
providers are giving VAS like cyber security, cloud computing etc. the evidence of fragmentation can be
seen from the following table with ISP licenses.
Table 22: Fragmented scenario for ISP business (BTRC, 2016-17)

SI License # ISP Operational

1 Nationwide 129 105

2 Central Zone 70 54

3 Zonal 76 60

4 Category-A 325 221

5 Category-B 31 9

6 Category-C 91 46

Total 722 495

IoT:
Internet of things is another futuristic segment to look at. The only visible thing in Bangladesh is Vehicle
Tracking Sytem (VTS). Currently the number of VTS license holders is 25. This segment has also in the
introduction stage. There is immense growth opportunity. But for some reason, the providers have not

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able to gain customer confidence. The arrival of a lot of players has probably ruined the chance to leverage
the growth opportunity.

The ultimate investing strategy:


We have shown three segments of data value chain in our sector report for telecommunication sector.
This report focuses more on near future and produces investment proposal for long term investors. The
summary of our investment proposal are shown below:

1. We have excluded the BSCCL from our investment proposal. This works more as a utility company,
so the investment scenario is very dull.
2. The fiber companies will show significant growth by 2025. We have suggested to invest in Fiber
Company as early as possible and divest by 2025.
3. The tower companies will arrive at Bangladesh by 2019/20. Due to possible low auction prices,
they will be undervalued at the beginning. So it is better to invest at the very beginning. After
some time, they will act as mature companies and will provide good investments. So it is better
for the safe investors.
4. The MNOs are going through a shift. GP is an all-time winner, in terms of growth and paying
dividend. There is still a lot of population to tap with data. GP is everyone’s favorite investment.
But Robi is our silent favorite. They have been doing everything right, before everyone else is
doing. Their tower separation came much before others, their investment in data scratching, their
collaboration with a BWA (Qubee)- all these are good strategic movements. We believe that Robi
will get benefit from their strategic decisions and their return will be high. However, we advise to
divest from Banglalink due to their lack of any strategic decision. Teletalk has a potential to be
sold, because of their operational inefficiency.
5. Being a technology driven sector, it is important to keep abreast of new technologies. This is
ultimately value chain for data. Those firms who have better at data craving, are good prospect
for investment.

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References

(2017). Bangladesh Economic Review. Dhaka: MoF-BD.

BB. (2017). Bangladesh Bank. Retrieved 2018, from https://www.bb.org.bd/openpdf.php

BBS. (2011). Dhaka: Bangladesh Bureau of Statistics.

BTRC. (2016-17). Annual Report. Dhaka: BTRC.

(2017). Economic Impact: Bangladesh Mobile Industry. GSMA.

Estopace, E. (2017). telecomasia. Retrieved March 24, 2018, from


https://www.telecomasia.net/content/mobile-contributed-62-bangladesh-gdp-2015

GrameenPhone. (2018). Presentation on Feb, 2018. Dhaka: Grameen Phone.

TeleGeography. (2016). TeleGeography.

thedailystar.net/business. (2017, July 05). Retrieved from thedailystar:


http://www.thedailystar.net/business/regulator-offer-3-licences-run-mobile-towers-1428361

theglobaleconomy. (2017). Retrieved from theglobaleconomy: https://www.theglobaleconomy.com/

Tower Exchange. (2016). Journal of the telecom tower industry in EMEA, CALA and Asia.

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