Country Report: Bangladesh
Bangladesh is, in many ways, a country ahead of its time in terms mobile access. Despite being ranked as a low income country, over 50% of the population subscribes to mobile services and the country has outpaced all its peers in terms of network coverage. The combination of limited disposable income and more mature mobile usage means the customers of Bangladesh are more discerning. Mobile network operators are looking to innovative value added services (VAS) to remain competitive and respond to the slowing growth in core mobile services. Services that add value to and improve on the livelihoods of the consumer are more likely to support these goals.
1. Bangladesh is one of the most populous and most densely populated countries in the world. Mobile penetration levels are relatively high, even in rural areas (something not seen in most other emerging markets). However, consumer spending levels are among the lowest in the world. Given the reality that there will be less reliance on growth from new subscribers over the next 4–5 years, mobile operators will need to develop new revenue streams beyond core mobile connectivity – services that support basic human needs around agriculture, education and employment provide a key opportunity.
Bangladesh has a myriad of social challenges, including low literacy rates, child malnutrition, poor access to electricity and a significant urban-rural divide. However, mobile penetration is higher than would be expected given its low-income status. Subscriber penetration reached 40% at the beginning of 2014 and it is expected to grow to 50% by 2020. Bangladesh has a unique pedigree given the transformative impact of the Grameenphone Village Phone programme — a pioneering initiative started in the 1990s to empower rural women through mobile services — and subsequent rapid roll-out of network infrastructure. Between 1997 and 2002 mobile coverage swiftly spread to the majority of the country, many years ahead of other emerging markets. While 3G auctions have only recently been conducted, the provision of basic 2G coverage is widespread. However, the prepaid nature of the market and low incomes of new subscribers means that ARPU levels are low (among the lowest in the world). This underlines the need to develop new revenue streams, we believe the key opportunities are in mobile data and VAS that have both a commercial and social impact.
2. Bangladesh is predominantly a prepaid and 2G market, as 3G has only recently been deployed following delays in the auction process (3G today makes up just 2% of connections). However, mobile internet penetration is over 20%, mostly from 2G feature phones. In other words, there is a latent desire for internet access that is growing. The only question is how fast this occurs, which will depend on affordability and tariff structures.
Bangladesh is a prepaid and 2G market; 97% of connections are prepaid and 98% are 2G. In the first half of 2013, smartphones accounted for only 6% of total handset shipments (a local brand, Symphony Mobile, is the largest vendor with a 37% handset market share of which 92% are feature phones and 8% smartphones). The low 3G penetration is due to the late release of 3G spectrum in 2013. However, mobile internet has reached 20% penetration (excluding youth under 16) by delivering mobile data services using 2G networks. The combination of 3G spectrum now in play, solid existing site coverage, and consumer appetite for internet use in urban and rural areas means this trend is accelerating (we expect 3G connections to surpass 2G by 2020). The only question is pace: this could very well occur faster than expected, if the number one challenge of affordable access (both airtime and handsets) can be overcome.
3. The use of mobile in driving socio-economic improvement is on the rise. From its pioneering roots in microfinance 30 years ago, the country now has a relatively solid mobile consumer base, much of which are underserved in core life needs. Mobile operators are demonstrating the potential for social VAS, and while we expect this to continue to grow, it will take time. There is still an opportunity for public and private investment in providing seed capital for the innovation that is not yet ‘market-led’, with a key role for government in facilitating this process.
While it is true that the majority of unconnected individuals reside in rural areas, this is due to the fact that the majority of population are in rural areas. The opportunity to address the underserved in urban settings is far from insignificant — we estimate six million city dwellers are yet to own a mobile. There are a host of sector opportunities that result from the widespread access to mobile phones yet the lack of access to basic services — including responding to natural disasters, driving gains in agricultural productivity, improving educational and employment outcomes, or increasing financial inclusion.
So, how should the various players in the Mobile for Development ecosystem respond to this opportunity?
Mobile operators are increasingly involved in leading commercial VAS that carry social impact and, although there are challenges, we expect this to continue over the next two to three years. This is, on its own, a positive story given the implicit commercial value of such services attributed through operator investment. However, in order to drive increases in ARPU, new approaches to marketing and pricing these services would help, particularly as personal incomes rise. For example, use of flexible credit scoring techniques; experimenting to include VAS as part of bundle packages alongside traditional access services (voice, SMS and data); or using VAS as a more defined tool for customer retention (e.g. brand loyalty).
Donors and NGOs have a growing presence providing seed capital for services that have not yet scaled and are not market-led (BRAC is a notable example). However, we believe there is still an important untapped opportunity for the venture capital (VC) and impact investor community. Dhaka is not yet an innovation hub on the scale of regional peers such as Bangalore, Colombo or (further afield) Nairobi. However, this is not due to a lack of entrepreneurs. There are clear challenges faced by private investors seeking to place capital in Bangladesh ICT, including the market operating environment and the lower likelihood of exit opportunities. To accelerate the process of these barriers being overcome, we believe it is important investors play a direct role by fostering an enabling environment of education and mentorship in addition to capital. This is not a short term game, but the long term rewards for early entrants are attractive.
Government also has an important role to play. Bangladesh has an opportune landscape for Mobile for Development services – high mobile penetration and a number of social challenges that can demonstrably be helped through mobile technology. The government set out laudable and ambitious goals around expanding digital empowerment to the mid and low income underserved population as part of its flagship “Digital Bangladesh” vision. In order to execute this successfully, public policy priorities should be focused on ensuring investment security (particularly for foreign capital), and liquidity in public markets, both of which would help would-be investors (and indeed mobile operators) with more reliable decision making.
This document was originally produced as part of the former Mobile for Development Impact programme.