Mobile: The Mobility Empire In SAARC

What unites SAARC countries? Culture, socio-economic background,
language, or religion? It's all these and more. Technology has made the world
smaller undoubtedly, but it's the telecommunications platform that has caused
it to shrink further. In the SAARC region, telecom boom has played a significant
role in boosting economic growth and empowering people besides connecting them.

There is a natural proximity among the SAARC countries -
Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka, in terms of
trade promotion and other economic activities. However, the absence of a common
thread of a telecom network throughout the SAARC region is a stark contrast;
something that is being worked upon on the lines of European Union's telecom
proposal that aims to introduce special schemes for mobile users within the
region.

Let's Keep Talking

It was the first SAARC Communications Minister's Conference, held in
Colombo, in May 1998 that brought attention to the need for a robust
telecommunications sector to boost close trade cooperation in the region. For
the first time the ball was set rolling on a number of issues including
introduction of a special tariff for SAARC region, better utilization of
resources within member states, inter-regional communication for travelers and
entrepreneurs, evolution of a common position in international fora and
cooperation in equipment standardization.

The SAARC Wish List

Intra-regional communications for the traveler and entrepreneur should be facilitated by promoting country direct services, calling cards, cellular roaming and liberalized leased lines

Telecom tariffs within the SAARC region should be reduced to the lowest extent feasible

Direct links or hubbing/transit facility within the region for intra-regional traffic within SAARC countries

Special rates for transiting/hubbing regional traffic

Member states should be able to utilize the facilities of other members for their overflow traffic

Licensed ILD operators should be encouraged to frequently negotiate agreements for offering lowest possible tariffs

Increased capacity of submarine cables between SAARC nations

A common network infrastructure on the lines of NIXI, to serve as a carrier for inter-regional communication

Thereafter, the SAARC Technical Committee on Communications and
Transport and other such associations have been active in further strengthening
the commitment to promote telecommunication links and use of information and
communication technologies within the SAARC region.

However, we have a long way to go. The need to liberalize tariff
regime and reduction of taxes is a priority for every member country. Although
international calls tariff is the lowest amongst member countries, it has not
yet created the required level of intra-regional communication so as to
stimulate development and attract business opportunities. One reason to cheer
now is the possibility of roaming charges in SAARC region to come down heavily.
TRAI informs that the SAARC countries have already signed a resolution for this.

This resonated at the 5th CEO Conclave held in Colombo where
CEOs of top telecom companies (both private and public) from all the seven SAARC
nations, met for the first time. Shuhei Anan, CEO, Sri Lanka Telecom feels that
SAARC countries are connected to each other better today, something that was
only a dream in earlier times.

Former member of TRAI, DPS Seth says, "Talk of regional
cooperation is fine, but regulators need to sit with the operators for a
national debate in all respective countries. They should also keep in mind the
trend in the international community in order to ensure uniformity."
Chairman of Instaphone (mobile operator from Pakistan), Sultan Arfeen suggests,
"deregulation means more, not less regulation, as in the current telecom
scenario in SAARC, a regulator needs to regulate many more players than they had
to deal with earlier."

Telecom is undoubtedly the success story of the SAARC region and
success story of each member country is highly noteworthy.

Empowerment in Bangladesh

Bangladesh maybe one of the poorest nations in the world, but the booming
mobile phone industry has emerged as a key driver of economic growth. A study by
the international consultancy firm Ovum commissioned by the GSM Association (GSMA),
a global industry body of 690 operators, found that the mobile services industry
contributed $650 mn to Bangladesh's GDP annually. The total mobile subscriber
stood at a modest figure of 17.57 mn in Q3 of 2006 and it is estimated to reach
50 mn by 2009.

Lessons from Bangladesh

Despite its small size, other nations like India can take a lesson from
Bangladesh's telecom success in rural sector. Rather than focus on ARPU,
state-owned Grameen Phone has focused on extending service and profits. For
Grameen Phone's subscribers, a prepaid mobile solution from Bharti Telesoft,
translated into an affordable way to use mobile phone services. As a result,
Grameen Phone achieved a 55% growth in customer acquisition over 12 months. It
managed to drastically cut down the cost of prepaid services by eliminating
costs incurred for items such as printing, packaging, transportation,
warehousing, insurance, inventory and sales tracking.

Compare this with India where operators have frequently focused
on raising ARPU and it is generally assumed that only with government
intervention operators can serve such rural markets.

Gaining Momentum

For the momentum to continue, the government in Bangladesh needs to remove
specific taxes and import duties that hinder the uptake of mobile phones and
services. A study by Frontier Economics suggests that within three years of
removing taxes on new handsets and connections the number of mobile users in
Bangladesh could rise by an additional 2.5 mn, producing a net overall increase
in tax revenues.

Bhutan Rings in a Change

A country in isolation earlier, Bhutan has very recently started to improve
its telecommunications capability. Regardless of the mountainous terrain, in
late 2003, the country's first mobile service was launched by Bhutan Telecom
(b-mobile) and by early 2006 was claiming almost 40,000 subscribers, giving a
mobile penetration of less than 2%.

The tiny country proceeded to invest relatively heavily - to the
tune of around $27 mn in telecommunications infrastructure between 1996 and 2002
to provide the country with a modern fixed line network.

To end the monopoly of Bhutan Telecom, in November 2006, in an
open auction, the Tashi Group clinched the deal to operate the first private
mobile service in the country with a $17.32 mn offer.

SAARC
MOBILE SCENARIO

Bangladesh

17,575,234

1

Fastest growing telecom
sector in the region. Good rural outreach with innovative schemes

Taxes on handsets and
connections can be further lowered. Focus on quality services

5

Bhutan

70,000

10

Heavy investment in
telecommunication infrastructure

Invite more private mobile
operators and build a robust telecom policy

2

India

125,345,730

18

Over 5 mn mobile subscribers
added each month, started manufacturing of mobile handsets

Focus on emerging
technologies like wireless and 3G. Lowering ARPUs to push mobile
penetration in rural areas

13

Maldives

215,101

18

Fully digital network, free
and fair competitive environment

3G rollout for better
connectivity across all islands

68

Nepal

615,981

6

Mobile subscribers outnumber
fixed line subscribers

More liberalization of
telecom sector, room for more competition, improvement of mobile services
quality

2

Pakistan

38,996,182

22

Relaxed tax regime, low
tariff rates pushed mobile penetration

Service quality can improve
further, more localized content on mobile, invite more FDI in telecom

15

Sri Lanka

4,560,581

29.1

First to have 3G rollout in
South Asia, ahead in teledensity, healthy competitive environment

Localized content needed,
investment in telecom needs to pick up, National Telecom Policy to be
implemented

18

Undoubtedly, it is a step in the right direction considering the
present mobile subscriber base stands at around 70,000 and nearly 40,000 fixed
phones. This is not bad considering the fact that the population of the country
is just over 6,00,000.

Indian Telecom Dream

India is now the 4th largest market for mobile phone and by 2008 it is
expected to overtake both the US and Russia to become the second largest market
only after China. Sweeping reforms introduced by successive Indian governments
over the last decade have dramatically changed the nature of telecommunications
in the country.

The mobile sector has grown from around 10 mn subscribers in
2002 to over 125 mn (including both GSM and CDMA services) by end of 2006. The
adoption of Unified Licensing, a change in the access deficit charge regime,
increased sharing of infrastructure and coverage of new areas by operators will
contribute to ongoing growth.

India is poised to reach the magical figure of 250 mn mobile
subscribers by 2007 and around 500 mn by 2010. India has also been quick to
embrace emerging technologies and leapfrogging with 3G services in 2007.

While GSM technology remains the dominant technology platform in
the market, CDMA has quickly grabbed a 23% market share. Despite the huge mobile
subscriber base, this represented around 13% of India's 1 bn plus population.

What More can be Done?

To put more impetus on Indian telecom sector the Indian policy makers need
to address two important issues-promoting emerging technologies quickly and
aim at lowering ARPUs further. Compared to $2.41 in China, the operating expense
in India stands at $4. Infrastructure sharing and flexible tariff rates are
other keys to embolden the telecom sector.

Almost 100% Achiever-The Maldives

The Maldives with its relatively small population of 300,000, proudly boasts
to be the only country in the SAARC region with total teledensity of 96.87 with
a large mobile subscriber base of 257,548. This large archipelago of islands
faces a huge challenge in providing connectivity across all 1,190 islands.

Through the recent efforts of long-time monopoly telco, Dhivehi
Raajjeyge Gulhun (Dhiraagu), there is now full telephone service coverage of the
archipelago. Dhiraagu is a joint venture between the Government of the Maldives
(65%) and Cable & Wireless plc (UK) with 35%. In February 2005, new operator
Wataniya Telecom Maldives was issued a license to operate mobile services. The
overall market had reached an amazing 68% mobile penetration.

Lessons from the Maldives

Compared to the SAARC countries, Maldives is in a better position in terms
of telecommunications with a fully digital network. The recent restructuring of
Maldivian Telecom Policy has led to transparency in allocating spectrum. An
independent regulatory body ensures fair competition particularly between the
single existing service provider and new entrants.

Developing Nepal

Although with an unsettled political climate, Nepal has been moving steadily
towards a more liberalized telecom market. Positive regulatory changes in the
telecom sector have been implemented, including the incumbent telco losing its
monopoly status in the market. By April 2006, over 170 operators had been
authorized to provide a wide range of telecom services, including two for basic
telephony and two for mobile telephony.

Mobile services are provided in the country by two operators
namely Nepal Telecom and newcomer Spice Nepal. With Spice providing some serious
competition to the incumbent, the total mobile subscriber base had reached
6,15,981 by end of Q3 2006, a penetration of just over 2%, after the market had
expanded by 100% in 2005. The mobile customer base is increasing thanks to
pre-paid mobile service which has crossed mark of 7,50,000. One advantage of
Nepal's relatively young telecommunications network is that it is mostly
digital with much of the equipment installed during the last few years.

Lesson from Nepal

The success of mobile telephony is the fact that mobile subscribers
outnumber fixed line subscribers. The widespread availability of affordable
mobile alternatives has helped boost cellular subscribers to a total of 979,227,
compared to 576,693 fixed lines (Nov 2006).

Pakistan-A Reformist

Pakistan has slowly transitioned a regulated state-owned monopoly to a
comparatively deregulated competitive structure. Pakistan's mobile sector,
which had started to grow strongly over the last few years, continued its rapid
expansion. After growing by almost 170% in 2005, the mobile subscriber base has
reached 38 mn (14% penetration) by Q3 of 2006.

An important aspect of reforming the telecom sector was the
privatization of PTCL (Pakistan Telecommunications Co.). The country's four
mobile operators have been joined by two new namely Warid Telecom and Telenor
Pakistan.

The GSM Association (GSMA)
has been tracking SAARC's telecom success story with a keen eye. In an
exclusive interview with VOICE&DATA, Ricardo Tavares, Sr VP of
Public Policy at the GSMA, shares the organization's views on what more
can be done to boost telecom in the region.

Reaching the
rural population remains a common challenge for operators in the SAARC
region. How can they tackle this challenge?

Serving rural areas needs cost cuttings as much as possible. Governments
can help that process by ensuring that their regulatory policies aren't
skewed towards supporting the rollout of fixed networks. The governments
that have formed universal service funds should spend this money on
supporting the roll out of mobile networks rather than fixed networks,
which are far more expensive to deploy and are often impractical in rural
areas.

What more
can be done by the SAARC countries to achieve high mobile penetration?

According to a McKinsey-GSMA study, "Wireless Unbound" countries
experience significant economic and social benefits when mobile
penetration reaches 20%. We are happy to note that the industry is now
targeting very low-income segments of the population. For continuing
growth and increasing social and economic benefits to society, taxes must
be lowered, especially SIM card taxes and import duties on handsets. Also,
the licensing regimes need to be clear and enforceable. We are concerned
about WLL operators violating the terms of their licenses in Pakistan and
Bangladesh, which discourages investment by mobile operators.

Should the
SAARC countries opt for a common framework of policy and regulation?

I think most policy makers and regulators in the region look at what is
happening in their neighboring countries and therefore there are mutual
influences and a race to the top. It is important to create dialog among
regulators in the region, and the GSMA has encouraged best practices
through meetings and debates. Some convergence of policies could certainly
emerge, or it is already emerging, but it is important not to force it.

Foreign investment in telecommunications is of $1,905 mn, which
is 54% of all foreign investment in the country (source: SAARC Report,
VOICE&DATA) attest to the success of the government's program. It is
estimated that the mobile service providers will invest around $1,329 mn in
2006-07.

Lesson from Pakistan

Pakistan government did not impose any additional tax on mobile phone but
kept the previous 15% general sales tax on mobile phone service and Rs 500
activation charge on new connections unchabged. Pakistani government is
expecting that it will get Rs 35 bn from the mobile phone industry by doing so.
This amount of revenue will come to the state coffer with the assumption that
mobile phone connection will have a 150% growth in the coming fiscal year (1
July 2006-30 June 2007).

Sri Lanka-Telecom Leader

Though plagued by civil war, Sri Lanka is the most competitive
telecommunication market in the SAARC region. It became the first South Asian
nation to launch mobile services in 1989, five years before India did!

Today it is also the first in the region to begin 3G services.
Island's biggest mobile operator, Dialog TeleKom is the first in South Asia to
commercially launch 3G mobile services, giving customers the facility for high
speed web browsing, video streaming, online games, music and movie downloads.
Other operators like Mobitel, a subsidiary of Sri Lanka Telecom is also gearing
up for 3G.

Its no surprise then that Sri Lanka's mobile phone penetration
is due to peak at 38% in 2008. The island's mobile market is growing at 10 to
12 % a month. However, on the downside mobile operators are struggling to offer
localized content (Sinhalese) for the majority non-English speaking population.

The Indian Connection

BSNL and Sri Lanka Telecom have added a new dimension to bilateral cooperation
between the two nations with the launch of the Bharat-Lanka optical fiber
submarine cable in October 2006. Shuhei Anan, CEO, Sri Lanka Telecom calls the
cable a milestone in the SAARC region. BSNL's chairman and MD AK Sinha sees
this as an opportunity to have a bilateral telecommunication link with not only
Sri Lanka but also with in speeding up tourist traffic among countries like
Nepal, Bangladesh and possibly Pakistan and Afghanistan.

The Road Forward

The telecom scenario in the region is poised to get more exciting as
competition hots up and regulatory reforms are getting in shape to welcome next
generation on mobile communication, 3G. However, the path is to be tread with
caution.

Market structure, regulatory framework and technology are all
evolving simultaneously making it difficult to foresee the necessary changes.
Rapid improvements in reforms and policies are the need of the hour.

Meanwhile let all decision-making bodies, operators and
powers-that-be, keep talking.

Malovika Rao

malovikar@cybermedia.co.in