Fdi Situation of Telecommunication Sector in Bangladdesh free essay sample

As of September 2010, the BTRC has reported that there are 65. 4 million mobile subscribers in Bangladesh and the competition in this sector is increasing rapidly. Many foreign investors are now interested to do business in telecom sector in Bangladesh which reveals that Bangladesh has become a significant hub for telecoms. It has been forecasted that the average revenue from telecoms sector will be Tk1500crore a year. Bangladesh is a country which is densely populated and also is a flat and easily extends able coverage. The infrastructure and Tele-density is low which on the other hand made the market a perfect place for telecom business. According to the World Investment Report (WIR), increased reinvestment and intra-company loans offered by existing foreign companies, including those in telecom, energy and financial sectorshelped boost the FDI flow to Bangladesh in 2011. Bangladesh secured 15th position in the WIR ranking in 2010 with the country receiving $ 910. 33 million, while the ranking was 24th in 2008. We will write a custom essay sample on Fdi Situation of Telecommunication Sector in Bangladdesh or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The report said the annual growth in FDI was 24. 42 percent, which was just higher than the 23 percent worldwide growth, on an average, in 2011. It was the second time the countrys foreign direct investment crossed the $1. billion mark and it was possible due to different policy supports provided by the present government. The FDI flow would increase further if the government followed a more stable tax policy. According to the report, the garment sector attracted the highest $271 million last year followed by the banking sector with $249. 3 million and energy sector with $238. 2 million. The telecommunications sector got only $18. 09 million However, Bangladesh still lags a majority of other countries in the region in terms of mobile penetration. The potential to cross 100 million subscribers by 2013 is not unrealistic, particularly if the relatively high level of taxation on SIMs is reduced by the Government. The telecommunication sector was until early 1989 the sole monopoly of the public sector corporation known as Bangladesh Telegraph and Telephone Board (BTTB). It was the only provider of telecommunication network services in the country. However, in 1989 the government for the first time issued a license to a private operator for provision of cellular, paging and radio tracking services with exclusivity for five years. While it is true that the Public Switched Telephone Network (PSTN) market has been dominated by BTTB and there has been no significant competition in the fixed-line access market, the cellular market has recently featured more competitive elements than in the past. The major companies that are now involved in the telecommunication sector of Bangladesh are BTTB, Teletalk, Robi, Grameenphone, Citycell, Airtel, Banglalink, Dhakaphone and Worldtel. Currently there are 6 mobile operators in Bangladesh. They are namely- * Grameenphone – Joint venture ownership 62%Telenor and 38%Grameen Telecom . Banglalink – Joint venture with Orascom Telecom Co. originated from Egypt. * Robi – Axiata Group Berhad 70%, NTT Docomo 30% * Bharti Airtel – Airtel 70%, Warid Telecom 30% * TeleTalk – Public limited company but 100% share have been owned by the government of Bangladesh. * Citycell – Joint venture with SingTel Asia pacific investment Pvt. limited. . Grameen phone Grameenphone is a GSM (global system of mobile communication)-based cellular operator in Bangladesh. It has started operations on March 26, 1997. It is partly owned by Telenor (62%) and Grameen Telecom (38%). Grameenphone is the largest mobile phone company in Bangladesh with more than 26. 04 million customers. GP is one of the largest private sector investors in the country with an accumulated investment of almost Tk. 8200 crore. The company is recently going to call for IPO (Initial Public Offering) to collect capital from share market of the country of 6 core 50 lakh dollar (449 core taka). Banglalink With a slogan of â€Å"making it difference†- Banglalink started operations in February 2005. Previously, it was known as Sheba Telecom Pvt. Ltd that had been providing GSM (global system of mobile communication) services in Bangladesh since 1998. Orascom Telecom bought 100% share of Sheba Telecom in 2004 and gave its new name as Banglalink. banglalink, is the second largest cellular service provider in Bangladesh. As of August, 2011, Banglalink has a subscriber base of more than 2 million. Till now Banglalink has invested 6,324 cores BDT. for the development of network and infrastructure. Robi Robi is a joint venture between Axiata Group Berhad 70%, NTT Docomo 30%. It is the third largest mobile phone operator in Bangladesh in terms of revenue and subscribers. Robi formerly AKTEL started investing heavily with funds from Telekom Malaysia (the majority stake owner) on expanding its network in 2001 but the investment was far too inadequate in comparison with GrameenPhone’s investment. Airtel With a customer base of 2. 9 million and a pan-Bangladeshi presence, Airtel is the countrys fourth-largest mobile operator. The Indian firm has invested $300 million and takes management control of Warid from the Dhabi Group, which is retaining a 30% strategic shareholding as well as board representation. Bhartis investment, the largest by an Indian company in Bangladesh, will be utilized to expand Warids operations and network. Overall, the Indian firms investment would be to the tune of $1 billion, according to a company statement. Citycell Citycell (Pacific Bangladesh Telecom Limited) is the first mobile communications company of Bangladesh. It is the only CDMA (Code division multiple access) network operator in the country. Citycell’s total mobile subscriber base is 1. 56 million now owned by Singtel with 45% stake and the rest 55% owned by Pacific Group and Far East Telecom. Teletalk Teletalk Bangladesh Limited is a public limited company, registered under the Registrar of the Joint stock companies of Bangladesh. Total (100%) shares owned by the Government of the Peoples Republic of Bangladesh. This is the only Bangladeshi mobile operator and the only operator with 100% native technical and engineering human resource base. Government incentives Apart from some reserved public sector, Bangladesh welcomes investment from overseas sources. The investment could be made independently or through joint venturing with the local companies. Bangladesh desires foreign invest in the following special industries. * Industry that is export oriented * Industry producing high-tech product that could either be import substitute or export-oriented. * Basic industries based on local raw materials * Technology intensive industries. Investment Incentives Bangladesh has a very liberal policy to attract foreign investment. 100% foreign investment is allowed. Even no permission needed from the government to establish new industry. The investor only has to register by Board of Investment Bangladesh. Bangladesh government is focusing on stimulating the economy with heavy foreign investment. Despite Bangladesh is a big market, government policies to encourage the foreign investor to invest in the country are very attractive. Some of them are given below. Tax exemption – 5 to 7 years depending on the area of investment. Duty – for export oriented industry, the import duty is 0% and for other industry it is 5%. Tax law – In case of bilateral agreement, double taxation could be avoided. Exemption of income tax is up to 3 years for expatriate person. Remittance – The investor can transfer the whole profit and dividend to his native land. Ownership – 100% self owning is allowed and also joint venture is encouraged. Government policies about new licensing opportunities The government’s policy for foreign investment is quite liberal. Most of the procedures are taken care of by BTRC so that the investor finds it very easy to accomplish the procedure. In case of setting up a call center, BTRC is providing the simplest way of licensing procedure with a minimal cost. In the Telecommunication sector, all aspects of business are governed by the Telecommunication Act, 2001. There are rules and regulations for foreign companies to setup their business. The rules are applicable for everybody irrespective of their origin or investment outlay. Neither of the rules reflects any hindrance for international entry. Telecom business runs on spectrum which is a very scarce resource of any country. It is no different in Bangladesh. As the spectrum is limited, an oligopoly business environment is there for its survivors. Because of that the license to an operator is not always readily available. BTRC provides license according to the feasible market needs. Moreover, Bangladesh government has initiated a Regulatory Reform Commission (RRC) as well as Bangladesh Better Business Forum (BBBF) to review the existing government rules amp; regulations and to work towards identifying and solving the problems prevailing in the fields of investment. The BBBF will mostly work with foreign direct investment. The government is encouraging private sector to invest more in the industry as they think that the industry is playing a vital role in developing the socioeconomic structure of the country. And to ensure that, the government has taken several attempt. Giving private sector the license for fixed line telephone is one of those attempts. Due to the environmental facts, the foreign entrants should adjust their equipments according to demand of the environment. Government interruption in strategy making The government only interrupts at the occurrence of any anti-competitive behavior of any company. Government does not control the pricing strategy but has imposed a tariff range with highest and lowest parameters. The operators are free to design their own pricing within the provided price range. But it is important to keep a low pricing strategy. A superior service quality can be obtained to gain a differentiated competitive advantage in the market. To be sustainable in the market, the company should be aware of the corporate social responsibilities. Entry-Exit barriers Foreign investors are encouraged to demonstrate their commitment to Bangladesh by forming joint ventures with local companies and within the telecommunications sector. Government will consider equity participation of up to 100% of the overall shareholdings of the telecommunications operating company. The Government will make all endeavors to remove all procedural and other impediments for quick implementation of the projects including investment proposals from foreign investors in the telecom sector to meet the growing and unmet demands of telephones in the country. For quick implementation of the projects, the Government reserves the right to take decisions as appropriate. The finding part of this project has also revealed that Bangladesh government is very liberal about foreign investors. Bangladesh has been ranked 107 out of 178 countries for ease of doing business. Government is giving easy entry facilities and options. Easy licensing facility, tax free time frame, 100% ownership possibility and also 100% profit enjoying option making the entry very easy and tempting in the country. According to the BTRC chairman the government does not interrupt the strategy making of a company as long as the strategy does not arise any uncompetitive environment. The mobile operators can have their own price plan within a price range determined by the government. But product differentiation and keeping the price low with a quality service can be a crucial strategy to grasp the market immediately. And also government is taking new initiatives for taking care of foreign investment by establishing organization like BBBF. These findings prove that the government policy is very welcoming for new entrants. Challenges In terms of future industry challenges one of the immediate issues is one of regulatory uncertainty as the Government has not yet announced the renewal process or cost for the licenses of four (GP, Banglalink, Robi and City Cell) of the 6 Telecoms that expire in 2011. In addition, there is a lack of clarity about the timing and process of 36 auction licenses. This needs to be resolved reasonably quickly if future investment plans by the existing Telecoms are not to be delayed A particular concern is that with the 36 auction licenses in India generating S 14. 7 billion in revenues for the Government of India, whether the Bangladesh government sets license renewal fees so high as to reduce the growth of 36 networks in Bangladesh. There is clearly should be a balance between the revenue objectives and the developmental benefits of continued rapid mobile subscriber growth and internet/broadband penetration. Socio-Political situation of the telecommunication sector Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate. These include tax policy, employment laws, environmental regulations, trade restrictions and tariffs, and political stability. Political environment in Bangladesh is always unstable. Frequent changes of government and policymakers reluctance or incapability to implement or design progress oriented policies is a major drawback for the telecom industry, an industry that is constantly changing in terms of technology. Potential direct entrants to the telecom industry in Bangladesh are relatively restricted at the moment, due to control over licenses. However, recently companies are finding other ways to penetrate the industry, that is, through merging with existing market members. Recently Airtel merged with Warid Telecom through acquisition of majority share in order to enter the Bangladesh market. Other potential entrants who may be interested to come to Bangladesh include Reliance Telecom and Tata Indicom. Social factors include the demographic and cultural aspects of the external macro-environment. These factors affect customer needs and the size of potential markets. Social factors include health consciousness, population growth rate, age distribution, career attitudes, and emphasis on safety. The telecom industry has definitely made an impact on the job market of the country, taking in thousands of employees and creating new career opportunities every day. Diversified offer such as cheap internet cost, job alert, Ramadan alert, prayer alert, vaccination alert, news update, mobile banking, transport ticket purchase, call block etc raising awareness, sharing and transferring knowledge and making the life easy by satisfying customer needs. The overuse of mobile phones has often triggered arguments regarding safety, but the Bangladesh market does not regard it as a threat.