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Current economic situation challenging for telcos

The current economic situation has emerged as one of the main challenges for the telecom sector  of Bangladesh as sustained high inflation could hinder the purchase of telecom services, according to a top executive of a multinational mobile phone company.

"The biggest concern for me is the country's overall macroeconomic environment, including forex availability and inflation, which is affecting operators like Robi," said Vivek Sood, group CEO of Axiata Group Berhad.

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"When people can't afford services, they perceive them as expensive, leading to reduced consumption," he added in a recent interview with The Daily Star.

The Malaysia-based Axiata has a controlling stake in Robi Axiata, which is the second-largest mobile network operator in Bangladesh.

"The exchange rate of taka is currently experiencing depreciation, and forex availability has also become a challenge," he said.

"But so far, our management has been commendable in handling letters of credit and ensuring timely payments. However, this situation is not sustainable for long-term prospects," Sood added.

Vivek Sood

He said the availability of US dollars and the associated exchange rate pose major concerns for Axiata's operations in the country.

This is because despite Robi's strong performance, Axiata's US dollar earnings from the company are being adversely affected by the exchange rate.

"I believe this is an area where a concerted effort from banks, the central bank, and regulatory bodies is crucial. Otherwise, it will adversely impact our long-term ability to invest in Bangladesh," he added.

However, he reiterated Axiata's rock-solid commitment to Robi in regards to managing the US dollar shortage.

"As far as Axiata is concerned, we will provide the necessary support to Robi when required in case of operational difficulties," said Sood, who also served Grameenphone as CEO.

He suggested that the telecom regulator or government should assess which industries are driving economic growth or facing challenges during these difficult times.

"By doing so, the government could implement the right kind of taxation that would facilitate our continued investment in the business," he said.

Sood also said Bangladesh stands out as one of the most robust markets among all emerging and frontier markets.

Axiata serves a customer base of 176 million across the nine markets in which it operates, with 56 million of these customers located in Bangladesh.

As such, Sood spoke with exuberance regarding the prospects of Bangladesh's market.

For Axiata, Bangladesh provides a substantial customer share, and the consistent GDP growth of the country, hovering around 6-7 percent, presents ample opportunities.

"With a very young population, approximately half of which is aged between 18 and 55, there is a strong demand for digital content and services, making Bangladesh an attractive market," he said.

Besides, studies indicate that Bangladesh is likely to maintain its growth, offering significant opportunities in digital services and ventures beyond mere connectivity.

However, there are also challenges to be considered.

"While we have achieved significant revenue growth, translating it into profit has always been a struggle in this market. Consequently, obtaining a return on our investment is a challenge," Sood said.

"Having said that, we are a long-time player and will continue to invest in this market to deliver the vision of Smart Bangladesh," he added.

From Axiata's perspective, Robi contributes significantly to its financials, accounting for one-fifth of its revenue and one-third of its customer base.

Robi is a company that has experienced growth, especially with the implementation of 4G services that commenced in 2018.

"This has had an incredible impact," he said.

"However, the challenge, as I mentioned, is multifaceted. Firstly, this market demands substantial investment, primarily in terms of capital expenditure to fuel growth," he added.

A key reason for this is the country's extremely low average revenue per user (ARPU).

Axiata provides services with an ARPU of $1.3 in Bangladesh, whereas it receives around $4 or $4.5 per user in other markets.

Secondly, the existing tax regime is not very favourable.

For instance, the imposition of a minimum turnover tax is counterproductive for investment as it does not consider the profits earned but is based on revenue.

Moreover, the tax rates are higher in Bangladesh than any other market where Axiata operates.

"I believe that by closely collaborating with the government and proposing solutions, we can make this market more attractive for foreign investment, unlocking significant opportunities," Sood said.

He also spoke about the country's decision on entering the 5G era.

According to him, the challenge with 5G is the lack of well-defined use cases and a slow evaluation of its practical applications.

He said Bangladesh represents a market where there is substantial room for the development of 4G as data consumption lags behind international standards.

In this context, it is important to emphasise that 5G should not lead to the proliferation of multiple, separate networks, as was the case with 4G.

Additionally, spectrum pricing should be transparent and well-defined.

But in a market like Bangladesh, it might be more prudent for mobile operators to consolidate networks for greater efficiency before a full transition to 5G.

Successful 5G implementation requires extensive infrastructure, including fibre networks for backbones and tower connectivity.

However, the current licensing framework restricts significant fibre investments, which has been a challenge even for 4G operations.

Device availability and affordability also pose concerns, especially given the relatively high device prices in the 5G market, exacerbated by a slowdown in the Chinese market, Sood added.

With this backdrop, he opined that the government should strike a balance between encouraging 5G adoption and ensuring affordable devices for the people.

In his perspective, regulatory bodies should first focus on readily available services that could be potentially developed further in the 4G domain.

Second, a comprehensive policy framework should be established that encompasses infrastructure development, fibre optics deployment, device availability, spectrum pricing, and the prevention of multiple network constructions, which can significantly drive up implementation costs.

Asked about the ability of mobile operators to lay fibre in countries where Axiata operates, Sood said all countries other than Bangladesh grant permission in this regard.

"In Bangladesh, operators are not allowed to lay fibre, creating a significant bottleneck in building a robust network backbone," he said.

Sood highlighted Robi's remarkable achievement in the second quarter of 2023, when it registeredthe highest revenue growth among all operators in the Asia Pacific region.

"19 percent growth is an exceptional performance that can be attributed to a comprehensive strategy executed by the management team," he said.

This strategy involved a recent spectrum rollout, improvements in the voice network, excellence in distribution, strategic brand positioning of Airtel in Robi's strongholds like Cumilla and Chattogram, efficient investment monetisation, and an increase in data consumption.

"The focus now shifts to ensuring that this impressive growth performance translates into improved profitability," Sood added.