Mobile operators' rural drive far from easy

The gap between subscriber acquisition costs and the returns has begun to worry the mobile operators who are set to invest and roll out operations into the most untapped rural markets.
The operators' glum investment mood has hindered the growth of the mobile industry in the last few years. Six operators added only 7.79 million subscribers in 2009, down from 10.27 million in 2008.
The operators predict continuous slow growth, as prospective customers belong to the poor rural areas, which ultimately widens the gap between the costs per customer and the returns.
Shihab Ahmad, director (marketing) of Banglalink, said it was not a worry for an operator to bear the customer acquisition costs a few years back, as the market's monthly average revenue per user (ARPU) was Tk 600 then.
"Customer acquisition was not a matter of anxiety for the operators at that time as returns came quickly. But now it has become a burden," he said.
Except Grameenphone and Robi, the monthly ARPU for the four other operators ranges between Tk 140 and Tk 160 now.
Ahmad said when an operator adds a customer to its network, the company has to spend Tk 80 as bank financial costs, Tk 30 for operating costs and Tk 10 for maintenance and distribution.
The operator has to pay the rest of the money (Tk 20) to subsidise the SIM (subscriber identity module) tax. With such an expenditure model, an operator needs 40 months to recover the Tk 800 SIM tax for each subscriber.
"It's difficult to consider profitability after bearing the cost," said Ahmad.
However the early entrants like Grameenphone and Robi are enjoying profitability.
The government imposed a Tk 900 SIM tax in the budget for fiscal 2008-09.
To avoid the huge cost burdens, operators take on retention-marketing models for some periods, under which, they stop subsidising the SIM tax.
But at most times, the model does not facilitate profitability because the operators have to add subscribers to compete.
The retention marketing strategy has had a negative impact on the market. Market growth has slowed mainly due to the strategy.
Banglalink is not the only victim of such a cost model. Almost every operator in the market has to bear the cost burden of subscriber acquisition.
As the urban market is almost covered, the government should have a different outlook for the rural market, the Banglalink director said. "Mobile communication should be considered a human right."
Bangladesh's mobile penetration rate is only 34 percent, while the internet penetration rate is only 4 percent.
Ahmad said the government should find ways to reduce the tax burden on mobile operators.
Ahmad suggests two mechanisms that can help the industry grow -- withdrawal of SIM tax and raising a 'Universal Service Fund'.
He said the government could build the Universal Service Fund with money that operators pay as revenue each year. Later, the government can contribute to rolling networks out into the rural areas.
Bangladesh's total mobile subscriber base is 54.7 million as of March 2010, which could be 90 million in the next three years if the SIM tax is removed, in line with the operators' prediction.