Draft for Discussion only
Bangladesh's Information and Communications Technology Infrastructure: First
Thoughts on a Road-map
N. Chowdhury
Senior Fellow
Grameen Communications
Grameen Bank Group
Presented to a brain-storming session organized under the auspices of
Expatriate Bangladeshis 2000 (www.eb2000.org), at Washington, D.C., November 8,
1999
The author is deeply in the debt of Professor Muhammad Yunus, Founder,
Grameen Bank and Mr. Arild Klokkerhaug, Telenor, for sustained help, including
in matters of information and viewpoints. All errors are mine.
Table of Contents
This paper has the following main objectives.
- I talk about the setting in which we must best examine the issues
in such a road-map.
- I talk about the stakes involved.
- I talk about the menu of technology options if Bangladesh has to
appropriate a tidy share of these stakes over a decent planning horizon.
- I touch especially upon the role that telecommunications regulators
in Bangladesh have to play, if Bangladesh has to keep pace with the practice
elsewhere in the Asian region of which she is a part.
This is a road-map without any optimal overtones, as limited time and huge
data problems have precluded any rigorously causal analyses of the
interrelationships between telecommunications input(s) and, say, per capita GDP
for Bangladesh. Such a production functions approach to the determination of an
optimal "mix" of telecommunications technology would be tenable, if
one believes that such services have become, to an important degree, a
production input, (as well as remaining a consumption service, as always).
This road-map can nevertheless claim some normative implications, in that I
repeatedly harp on what other countries in the South Asia region have done or
are in the process of doing. I accept that there is no one "right"
national information infrastructure, that fits tidily for each countries. At the
same time, it would be self-servicing to say that our country is so unique that
the best road-map for it can only be charted only in completely opaque isolation
from its competition.
The fall in the cost of computing and communicating and the diffusion of the
access to the Internet have simultaneously ushered an increasingly distanceless
world and fueled a powerful ascendancy of ICT as a production input especially
relevant to the pursuit of cost leadership by firms, especially in the West. Of
firms' three drivers of competitive advantage, namely, input price differences,
productivity differences and the power of the brand in markets, all are amenable
to ICT capability (for details, see Appendix-I).
Thanks to the arrival of fiber optics, powerful microprocessors, smart
networks and web-enabled applications, the unit cost of transmitting information
fell by a factor of 100 during the last five years of this decade (WDR, 1999).
Over the same period, the proportion of US households wired to the Internet
rocketed from merely 3% to more than a quarter, while radio took 25 years and TV
13 years to cross the corresponding access milestones. Web-traffic is doubling
every 100 days. A whole raft of customer-service applications that have
traditionally depended on telephone-centric call centers have been integrated
with web-harnessing capabilities on the cheap and have given them an
unprecedented global reach. As will be seen in the following, this globalizing
impact of the integration of the Web technology makes for a convergence of
information and communications technology---hence the coupling in the title of
this paper.
The latest chapter of the centricity of ICT in the US economy revolves around
the primacy of the Internet as a commercial medium par excellence. Internet is
easily the greatest technological innovation to have hit the world of
communications--- connecting businesses and people together amid intimacy,
privacy, even secrecy, without risks to money or assets to match--- since the
advent of electricity or telephone. It has been said, capitalism thrives on
reductions to frictions, and internet is the greatest reducer of friction since
the advent of assembly line. Business-to-business electronic commerce is
expected to increase from less than $1.3 billion in 1996 to $ 767 billion by
2003 (IDC, 1999).
The epochal nature of the Internet technology has been reflected in wholesale
paradigm shifts in the West, involving, among other things, (a) the place of IT
in business processes, (b) the content of government policy versus poverty
alleviation, and (c) how market processes are being reengineered due to the
availability of software that drastically lower the cost of connecting buyers
and sellers in virtual markets as compared with brick-and-mortar market
processes (For elaboration of this argument, see Chowdhury (1999)).
In the words of the CEO of Computer Associates Inc., one of America's largest
software companies, "A lot of companies are realizing that IT is the only
competitive differentiation we have" (quoted in InformationWeek, June 21,
p. 24, emphasis added). If IT makes a patent difference to competitive
differentiation of firms, there is a prima facie case that the same applies to
comparative advantage of nations. It is not that competitive advantages for
goods production rooted in location, or human skills, or in natural resource
endowment have suddenly faded due to ICT. However, all goods production is
subject to almost an universal law that says about 20 cents in the dollar pay
for services. This 20-percent of services is clearly open to the
cost-efficiencies brought about by ICT. In this sense, ICT will increasingly
matter even to competitiveness in goods production. A fortiori, competitiveness
in services, as I shall argue shortly, will be amenable to ICT with a vengeance.
Technological change has made competition keener and nimbler, putting a
premium on making firms as lean as possible, within the limitations of quality
assurance. This has created a compelling momentum towards taking outsourcing
through yet another round. Because outsourcing of parts and components is
already well advanced, typically this has meant outsourcing information
processing services, including going for selected offshore sources. Whereas
globalization previously had consisted mainly of offshore outsourcing of the
manufacture of parts and components, a new wave is in the making this time
related to globalization of supply chains of information-related services. This
trend will piggyback on rapidly declining cost of data transmission, significant
advances in networking technology (smart and high-speed networks with voracious
storage capacities), and relatively cheap trainability of the labor offshore.
Globalization of services may put even a greater accent within US companies
on lean and mean production and distribution methods. The Networked Economy,
where distance has been pronounced dead (Cairncross, 1999), has a massive
potential for spurring the globalization of the world's informational services
industry. In the words of John Chambers, the CEO of Cisco Systems, the world's
largest maker of networking gear: "The Internet will change everything..
Everything will be connected.. Education will be changed forever. There will be
a globalization of businesses and people. There is not a single industry or
country that won't be affected in a major way by the Internet.. [The US] has
already gone through a good part of this [second industrial] revolution."
The US is not only the largest but also the most cosmopolitan economy in the
world. Its brain-power draws on a kaleidoscope of myriad ethnicities. Its
citizens can connect back to heir roots in order to tap cheap labor. Markets
have already spawned the basis of a globally distributed IT environment, in
which offshore and onshore facilities and human resources, located in divergent
time zones and of sharply varying unit costs are harnessed as though to create
the commercial equivalent of a relay race. That is, relatively low-wage workers
in developing country teams pick up work pieces half a world away where much
more expensive workers in developed country teams had left off a short few hours
before in real time.
The process of globalization in procurement of services is already underway:
at the end of 1996, ie, after toiling mightily for some eight years, Indian
software industry only chalked up market share of 0.05% in worldwide technology
services and sales. However, growth rates over the 1997-1998 period were
stratospherically high: in that period, India has captured over 1% of global
software services. This 20-fold increase in market share is to be set against a
much higher total size of the world's software services trade during the second
period (1997-1998).
Service outsourcing will hardly be limited to software. Recently, a new class
of opportunities is beckoning offshore: those that use IT communications
know-how. The global revolution in communications, which has made the transport
of text, voice and data by satellites and fiber optics cheap and efficient, now
permits firms located anywhere on the globe to provide cash-saving services to
customers anywhere else. These have been called "IT-enabled services."
McKinsey & Co. believes that 11 white-collar services---from human resources
to translation---can readily be outsourced, including to offshore bases. The
firm estimates that global demand for these offshore services will reach $ 180
billion by 2010, up from $ 10 billion in 1998. US majors who have already
spawned an offshore services supply chain include America Online, GE Capital
Services, American Express, Arthur Andersen, Lucent (GIS), and IBM (software).
Other notable companies that have already played their offshore card include
British Airways and Swissair (remote ticketing and back-processes).
In the US, call centers for customer service or tracking, medical
transcription (where low-wage secretarial staff take dictation from highly paid
doctors to maintain medical and insurance files), management of legal files,
creation of Internet content, Web development and entertainment, animation and
publishing, insurance claims processing, and ticketing all are likely to be
delivered increasingly on an outsourced basis. Down the road, experts cite human
resource management, financial accounting, engineering design, patent filing,
billing, and product development as likely to feel the competitive heat as well.
It is in this context that this presentation examines a coherent road-map for
Bangladesh's information and communications technology (ICT). The following are
the essential building blocks of a possible discussion of the national
information infrastructure:
- What should be the critically important imperatives of the formulation of
information infrastructure policy for Bangladesh? (Discussions of these will
follow).
- What are the elements of "international" or "regional"
best-practice that Bangladesh's policy makers may with benefit actively
consult, even consider.
- What kind of government failures are likely to drag performance on the
ground, and what role(s) not-for-profit or micro-credit organizations can
usefully play in signalling, in investing, in mobilizing, in forming
critical mass of infrastructural and human resources to leverage off the
growing globalization opportunities.
Section III in the following is addressed to the first of these
considerations, namely, the critical imperatives before Bangladesh. Section IV
combines brief discussion of "best-practice" and "ICT policy with
an interface to micro-credit led poverty alleviation". Section V takes up
the ingredients of a road-map, as I see them. It also touches upon the changed
role of regulation in the midst of technological convergence.
Because ICT has become a critically important competitive differentiation for
nations, one crucial imperative for national information infrastructure is
competitive edge for the country's producers. This, coupled with trade in
services becoming everyone's mecca (Appendix-II), implies that the connectivity
costs be lowered for service producers as rapidly as possible. For success, this
requires a knowledgeable and well-thought-through roll-out of an infrastructure
that is available and responsive to demand, upgradable and competitively priced.
To anticipate the discussion to follow, this is to ask for a lot, even in
well-run telecommunications systems. This also requires that the government
appropriately reform, even increasingly privatize under the right circumstances,
the entire telecommunications and data-communications sector in the interest of
(a) providing world-class services for businesses; (b) ensuring a rapid
transition to inexpensive but high-volume usage; (c) improving network
utilization, quality of service, the reliability and fairness of the
interconnection between incumbents' and attackers' networks; and (d) keeping a
space for stakeholders of poverty alleviation in the infrastructure roll-out,
all the time keeping in view "best-practice" in the developing world.
This recommendation is based on at least four compulsions:
- Information infrastructure rollout is very capital intensive, and state
sectors every where have been hurting for money. Experience even in the
developed world has shown that privatization takes up the tab, on the cheap.
- The convergence between competing digital technologies (voice, video,
image, data) has provided an underpinning for the integration of markets
that has caught even better-prepared regulatory bodies in developing
countries by surprise, forcing upon legislators in many countries the
politically difficult duty of unifying what previously were separate
institutions. Privatization can help, when the highly specialized resources
that regulation in these changed circumstances are not going to be available
to state monopolies unable to attract and/or retain talented employees.
- Technology is changing fast, and this change is nuanced. Technological
obsolescence is high, and this suggests the importance for periodical
upgrades, migration and scalability, under the expert eyes of commissioners
of an independent regulatory body.
- Poverty in Bangladesh, while certainly falling, is still very
considerable, and therefore its alleviation merits a conscious factoring
into any discussion of the configuration of information infrastructure to be
rolled out, financing to be raised for it in a demand-driven way,
geographies to be tapped by it. Modernization of the ICT infrastructure, it
is maintained, does not have to be inconsistent with vigorous liberation of
the working poor, especially young but poor workers, from the ranks of
absolute poverty. Given will, organization and execution, technology and
social mobility on a reasonably broad scale need no longer be poor relations
in Bangladesh---whose best micro-credit organizations are the exemplars of
the world (Khandker, 1998, Pitt and Khandker, 1998, World Bank, 1998).
Each of these imperatives is worth pursuing a little further.
Amid convergence, a national information infrastructure rollout has to debate
determining:
- the size of the circuit-switched network for local and long-distance voice
telephony;
- the number of satellite earth stations that need launching;
- the reach and scope of fiber optics network;
- the number of gateway digital switches in public and private sectors
- whether auctioning off (including auctioning subsidies) radio spectrum
through open bidding has any merit, in the interest of promoting especially
rural access to digital technology;
- putting in place appropriate pricing, including using rate-rebalancing
Let me say a few words about each of these issues, seriatim.
Voice telephony network operated by Bangladesh Board of Telephones and
Telegraph (BTTB) has a total carrier size of 62.5 Mbps (megabits per second).
This is based on 2000 circuits (note 1).
BTTB is the only operator with its own gateway. Besides, BTTB plays the dual
role of regulator and operator of telecommunications services, unlike, for
instance, in India. Mobile operators have to pay 90% of their commercial
International Subscriber Dialling Number (ISDN) charges to BTTB. These private
operators only add local call charges to mobile subscribers. ISD is a much
requested service: however, BTTB allots PCMs (packet circuit monitors) to mobile
operators with an iron-fist. Case in point: Grameen Phones (GP) has been
allotted only 2 PCMs with BTTB gateway. GP operates only 29 outgoing channels
and 30 incoming channels. The supply of bandwidth is woefully constricted: GP
has to restrict ISD facility to about 50% of its subscribers. ISD congestion is
more than 80% (private communication). GP would like to have its number of
outgoing channels tripled even given the highly unsatisfactory pricing formula
in place, but, despite repeated representations, has not had its (reasonable)
way.
BTTB has plans to double its voice-telephony circuit capacity over the next five
years, to 4000 circuits.
Data transmission is done using 60 VSAT, of which carrier size ranges from 64
Kbps to 256 Kbps, that are leased to private Internet Service Provider (ISP)s
and businesses. BTTB began to sell Internet access to retail customers since
March 1999, using a backbone speed of 128 Kbps and equipment supplied by
Teleglobe Inc, a Canadian company. Plans are afoot to increase the backbone
speed to 264 Kbps. The demand for data transmission is increasing very rapidly
in Bangladesh. BTTB has chalked out a plan to establish 8 data circuits, with
bandwidth of 2 Mbps each. However, at the moment, Bangladesh's charge for use of
VSAT, at the rate of $ 8000 per month per 64 Kbps (within the footprint of Asia
SAT-2 satellite) is comparatively high. This applies only if the download of the
data is supposed to take place within the coverage of this particular satellite.
For download to locations in North America---the world's largest
telecommunications market---the price is about a 100% higher. This is crippling
Bangladesh's data services industry, albeit it is much smaller than in India (note
2). Meantime, neighboring India's VSNL is selling access to
IP-enabled 64 Kbps leased lines for a one-time price of Rs. 500,000 (the
equivalent of some $ 11,000) to corporate buyers. One such connection is
sufficient to meet all the combined demands by way of intranet and internet
connectivity (fax, email, hosting, and all other enterprise computing demands).
Such an access is an essential prerequisite to any enterprise that wishes to
land offshore outsourcing contract by way of forms processing, data entry,
claims processing, HCFA-1500 processing, UB92 processing.
What are the prospects of the government of Bangladesh being able to fund the
costs involved in the rollout of the infrastructure: the costs by the way are
very high indeed. Bangladesh would probably have to go it solo, as the
multilateral lending institutions currently lack a locus standi. World
Bank had to suspend the last telecommunications credit because of Bangladesh's
drag on liberalization and reform. BTTB is not rated by any of the credit rating
agencies in the West, but the suspension of the telecom credit is itself does
not help. Foreign Direct Investment (FDI) would be unlikely to step in the
absence of a credible sector-wide framework befitting contemporary realities.
The question arises at this juncture: what are Bangladesh's neighbors in the
SAARC doing in this respect? For want of time, I shall confine myself to India.
In specific context of bandwidth expansion, India is building/buying with a
vigor. She bought 45 Mbps of bandwidth from FLAG cable network. On current
projections by the Acting CMD of VSNL, most internet traffic will go through
this capacity. India is also buying into fiber optic cable network at a frenetic
pace: just in this fiscal year, India is buying 310 Mbps of bandwidth, not
counting satellite bandwidth of another 70 Mbps by way of a full transponder of
36 MHz. Indian bandwidth is likely to jump from 116 Mbps to 471 Mbps during this
fiscal year alone (July 1999-June 2000). Total bandwidth at the end of the
fiscal year would be 541, and would thus rise by a factor of 500% plus.
(Bandwidth expansion is only one element of an information infrastructure that
is upto the snuff: competition, pricing, interconnection transparency,
regulation, technological anticipation and migration in networks are some of the
others).
Bangladesh should accelerate infrastructure rollout for data transport using
Internet Protocol, and create incentives for private investments in data
networks. Currently, what the Ministry in charge of telecommunications policy is
doing with regard to expansion of the capacity of fiber optics network leased by
Grameen Phones is obstructionist and anti-competitive. This will almost
certainly create disincentives for private investments in data networks.
Bangladesh does have four earth stations using the Intelsat system in the
Indian Ocean. All data communications with overseas are routed through
satellites, using one or the other earth stations.
Bangladesh is not part of the under-water fiber optics network that was laid
in the Bay in Bengal in the mid-1990s: despite repeated communications from the
consortium laying the network, the government of Bangladesh did not join, while
neighboring India, Pakistan, even relatively small Sri Lanka, joined that
international optical fiber backbone. India picked Bombay for siting the gateway
to the backbone. The reasons why Bangladesh did not join this backbone belong in
the history, and won't detain us here: that would require a historical research
of no small proportions. Was the decision not to join at the time damaging to
Bangladesh's economic prospects? Certainly. Suffice it to say, however, that
this has dealt a body blow to Bangladesh's prospects of ever measuring up well
as a promising offshore source for informational processing: as is well-known
now, the market for such services is becoming hotter by the quarter. While
neighboring countries (India in particular) have chalked up quite impressive
gains as a service exporter riding the crest, among other things, of this
backbone and thus have acquired the "first-mover advantage",
Bangladesh has chosen the status of an relative cyber isolation.
Recently, Bangladesh has been asked by perhaps the FLAG consortium to join,
together with Mianmar, the fiber optics backbone running through the Bay of
Bengal, for a price of $ 40 million. Apparently, Chittagong is the proposed
venue of the gateway to the backbone, with Mianmar being asked to lay overland
cables through Chittagong Hills Tracts and Chittagong. Many details of this
offer are not known at the moment. For instance, how many links or how much
bandwidth is one talking about? Has the government of Bangladesh considered this
option as yet? How much of this price would Bangladesh would have to pay? Is
such a price very high, high, or reasonable?
As against this, is joining the Indian gateway in Mumbai at least an
alternative solution, too? What would be the price in that case? India is buying
155 Mbps on the US-Japan fiber optics cable network at the rate of $ 2.8 million
per link---although my information didn't specify how many links India was
buying at the time. Are there notional minimum in terms of the number of links
that buyers must buy on deals like these? There was another condition in the
case of India---buyer would have to lock-in to the arrangement for 20 years (for
companies who want to buy gateway capacities).
Bangladesh Railways (BR) owns the only fiber optics capacity in Bangladesh,
which was laid in the late eighties to establish a network that supported 1200
digital phones within the BR, Train Control System, Station to Station Phone and
Block Control System. The Fiber Optic Network, 1600 km long connecting cities
like Chittagong, Sylhet, Khulna, Rajshahi, Saidpur, Sirajganj, Mymensingh,
Comilla etc to Dhaka. The FO Network was established with financial assistance
of NORAD. In 1997, in an act resonant with bravura market prescience, Grameen
Phones (GP) leased the whole system for 20 years, by bidding a price of $ 8
million. GP is a company limited by guarantee, in which Marubeni (of Japan),
Telenor (of Norway) and Grameen Phones, a company headquartered in the US, have
stakes. GP owns and operates Bangladesh's first-ever Global Systems Mobile (GSM)
900 cellular phone network. (Three other mobile phone companies have been
established in Bangladesh, namely, Pacific-Bangladesh Telecom Ltd (PBTL),
Telekom Malaysia International (TMI)- A. K. Khan Group, and Sheva Telekom).
In anticipation of growing business and residential demand, the fiber optics
(FO) cable has been upgraded to Secondary Digital Hierarchy (SDH) equipment
between Dhaka-Chittagong, Dhaka-Khulna and Dhaka-Sylhet. The capacity of the FO
Network where upgraded, is now 7680 channels, but GP's operating licence with
the government limits the use of channels to 1920 channels. The speed of data
transmission through optical fiber network can be increased from 9.6 Kbps to 2
Mbps. Broadband capacity is usually defined as equivalent to 2 Mbps.
GP has applied for permission to increase the present data capacity from
1920 channels to the maximum of 7680 channels. The case for such an increase
flows from the business model of GP, which requires leveraging off the capacity
to lease transmission capacity to corporate clients and even government
organizations, for example, the Navy and Army. The full capacity between
Bangladesh's larger cities, if brought into being, would also increase the
number of mobile phones that can be supported in cities other than Dhaka. The
permission to expand the capacity was requested by GP when the tender to upgrade
was submitted, in 1998. GP is still waiting for the permission from the Ministry
of Posts and Telephones. (see note 3)
Bangladesh does not have any international gateway except the one owned by
BTTB. All cellular phone operators have to avail of BTTB switching services.
According to Mr. Amitabh Kumar, the Acting CMD of VSNL, the current price of a
"good national" gateway under Indian conditions is Rs. 2-2.5 billion
($ 45-57 million), although sub-national gateways are being offered to Indian
companies for $ 4-5 million. However, opening a gateway necessitates buying up
transport capacity on one or the other cable network. Some of these agreements
have a lock-in provision, stipulated for as long as 20-25 years. These
investments are thus tremendously long-term. They are crucially predicated on
country competition and liberalization policies. According to GP, "getting
our own International Gateway is a very high priority". However, as already
discussed, the investment optimism is very subdued, given the heavy-handed and
despotic manner in which regulation of telecommunications in Bangladesh has
taken place so far.
This class of issues is inherently more long term in nature. Digital Radio
Networks (DRNs) have become essential parts of the communications infrastructure
in many developing countries with large rural population living in isolation
(Sudan, Madagascar, the Phillipines). Such networks can provide the bedrock of
promoting access for the isolated, for transfering valuable information related
to health education and prevention, and more effective early warning systems.
Elsewhere in the developing world, there is a revolution in wireless access
to digital technology. This revolution is reflected in the rapid growth of
cellular telephony, the increasing significance of wireless local loop systems,
and the planned deployment of several new-generation global personal mobile
satellite systems. This has forced on the regulators the need for managing radio
spectrums. Such management is often sought in terms of auctioning off the radio
spectrum. This kind of market action often presupposes the existence of advanced
capabilities of privatization.
Most telecommunications reform that have had a measure of success usually
began with what is technically known as rate-rebalancing. In plain terms, this
is a roll-back of cross-subsidies, whereby the price of long-distance telephony
is lowered and that of local telephony is raised on incumbent operator's
(usually the parastatal monopoly) network. Liberalization usually involves the
regulatory framework involving private, typically mobile-phone, networks
(usually through "fair" interconnection facilities for the
"attacker" networks, and transparent access to cost information
related to cross-subsidies between long-distance and local telephony). When
rate-rebalancing is coupled with liberalization this leads to gains in
telephonic density and in usage by the average subscriber, as mobile telephony
kicks in. Did such a rate-rebalancing ever take place in Bangladesh? Were the
interconnection policies of BTTB fair?
Interconnections and cost transparency for determining whether entrant
companies have to pay add-on money frequently become bones of contentions in
many countries with greater regulatory integrity and/or public transparency than
can be said for Bangladesh. Even so, on pricing, I have my conclusions based on
admittedly very sketchy data. A call from the mobile network to BTTB wireline
network will cost the former money, while the reverse is not true. This pricing
formula is discriminatory. BTTB may well argue that this apparently
discriminatory pricing results from Universal service obligations (USO)s---provisions
guaranteeing remote and unprofitable customers access. Such a case may have been
tenable, were this to be mandated by an independent regulatory body after
ascertaining that identifiable areas or customer groups genuinely exist that are
structurally loss-making and thus deserve a subsidy. Bangladesh has never had an
independent regulatory body, and that kind of examination of records has never
taken place. (note 4)
Again, the charge for use of BTTB for its gateway (90% of the commercial ISD
charges) appears to be of questionable merit. Bangladesh's international tariffs
are one of the highest in the region. That is itself due to inefficiencies in
network use (note 5). BTTB has only
recently started using these costly equipments (such as DCME). While this may
improve carrier utilization in future, the fact remains that Bangladesh's high
tariffs result in part from network inefficiencies. The practice of BTTB
appropriating 90% of the internationally high ISD charge on every overseas call
that the fast-growing mobile-phone networks are garnering is suggestive of a
kind of cross-subsidization diametrically opposite to the imperatives of
successful liberalization of the telecoms. Rather than a roll-back of
cross-subsidization arising from USO and structurally unprofitable local
telephony at the expense of high-margin long-distance and international
telephony, which is the characteristic of a successful
liberalization/privatization, here on sees cross-subsidization of inefficient
infrastructure owned by state-sector monopoly on the crest of rapid growth of
the mobile cellular network. Because the latter is typically driven by foreign
direct investment (FDI), this costs Bangladesh dearly in market reputation. This
is another example of a policy that creates, perhaps as an unintended
by-product, national isolation for Bangladesh in the eyes of international
investor, at a time when all South Asian neighbors are creatively attracting DFI
in the interest of the roll-out of modern telecom and information
infrastructure. This is already squeezing Bangladesh out as a country open for
business. Consider this quotation:
Cost-effective telecommunications is a major factor for companies deciding
where to establish customer service call centers, set up information processing
centers, site back branches, locate assembly plants requiring close supplier
linkages, configure distribution centers, or simply open new stores needing
rapid replenishment and sophisticated logistics systems. Companies and countries
that lack access to adequate services simply will not be competitive in the
increasingly global economy of the future (McKinsey & Co., 1995, p. 17).
Bangladesh's share of DFI during the 1990-1997 period is under one-thirtieth
the size of the flow to India, which is out of all proportions to her relativity
to India, either in terms of per capital incomes, or per capita production of
engineers/scientists (calculated from figures obtained from International
Finance Corporation). The question that arises is: is this policy of
"telecom isolation", for want of a better term, a conscious one, or is
it an instance of policy-making without the foresight that comes from having a
long- and medium-terms strategy based on expert knowledge tempered with either
public hearing or at any rate of public consultation with stakeholders?
Because "best practice" has already alluded to time and again while
I was discussing various elements of policy, we can afford to be brief this time
round. Clear and unassailable separation between regulation and provision of
infrastructure/service must remain the policy goal of paramount importance in
Bangladesh. This has already been achieved by both India and even Pakistan.
- Even the provision of infrastructure, and the provision of information
service of a kind that is subject to fundamentally different dynamics (than
infrastructure) should also be separated, as they are about to be done in
India. In that country, VSNL is spinning off its part that sells internet
access as a business as a separate listed company. This is because the
market capitalization of an internet service provider is likely to be higher
and have a different dynamics. This should also not be lost on policy makers
in Bangladesh.
- Regulatory independence is a supremely important goal. In India, the TRAI,
the regulatory watch-dog, has achieved considerable independence in matters
like pricing, numbering plans, interconnections or others things that
impinge on consumer welfare. (Licensing may however be another matter to an
important degree.) Similarly, Bangladesh should set up a genuinely
independent regulator without any loss of time.
- In all matters of regulatory importance, heavy reliance should be placed
on public consultation at least, if not also on public hearing. In India,
the TRAI uses public consultation frequently.
Bangladesh still has considerable poverty, even though the country, whose
best micro-credit organizations are the exemplars of the world in poverty
alleviation, has been witnessing declining absolute poverty. Existence of
massive poverty is indicative of market failure on a large scale, and
legitimizes some or the other form of government intervention, typically some
kind of development of infrastructure, which improves the "access" of
the poor to resources they need for raising their productivity. This has its own
extension in the increasingly "networked economy" of the future: the
roll-out of the information infrastructure, the arrangements of financing
modalities for it, the determination of the geographies that it will have, there
is an imperative need to consult the nation's poor. There is an imperative need
to consult Bangladesh's legendary micro-credit pioneers. There is also a need
for Bangladesh's micro-credit organizations to form coalitions of
"stakeholders" in the interest of improving the collective leverage,
say, in the market for bandwidth, or network access, or some such thing. Let me
give an example of this.
How to provide connectivity for the world's billions of unphoned people amid
the high cost of infrastructure rollout has often been discussed. One of the
latest case in point is the online symposium that was arranged by World Bank's
InfoDev between September 10 - October 15, 1999. This was an important symposium
to have online, and shows the power of cyber-thinktanks that is
"open-source", highly committed, often knowledgeable and at times
downright wise. In my opinion, one of the most visionary offerings came on the
subject of how to connect the world's 4 billion unphoned people, of which 80%
live in rural areas. The flavor of the offering in an African context was this:
connect them bottom-up. I quote:
- Governments set measureable targets, as the African governments are
about to do;
- Local communities decide how best to organize themselves to have
affordable access and here it means saving some money or getting some
micro-credit from grameen type of banks in their countries or getting some
private enterprise sponsors..
- Once the local community has organized itself and obtained some means
to move toward actual acquisition, the World Bank could facilitate the
sending of some friendly expertise from NGOs, ITU, etc. to work up a simple
masterplan for the local community taking into consideration the actual
potential of the local community to acquire and exploit access.
- Once this master-plan is agreed with the local community, the local
community and the experts should go out to suppliers of both carriage and
hardware to obtain the desired solution offering suppliers a share of
locally generated revenues or some equite should the local community have
formed a cooperative. The costs of acquisition can then be kept down to the
most affordable.
- To gain maximum leverage on suppliers and to gain the benefits of
scale, all local masterplans should be aggregated by national, regional and
continental wide purchasers.. In short, connectivity should be developed
from bottom up and not left to governments, etc. There is no shortcuts
around mobilizing the people in their homes and local communities to put
some value on connectivity. The more it can be demonstrated how connectivity
can make a direct and positive contribution enhancing local health,
education and economic prospects, the greater will be the determination of
the local community to do what it can to escape the current communications
desert (Solomon, J., Oct. 10, 1999).
This agglomeration of the buying power of the poor, however individually
small, is the model I have in mind when talking about the need to think
nationally with respect to micro-credit organizations as participants in the
market for informational infrastructure services. The larger the quantity that
is bid, the lower is the unit price. As Professor Yunus has said:
"Together, the poor are powerful". To leverage off this potential
market power, the micro-credit institutions in Bangladesh have themselves to
form strategic partnerships. This appears to me to be one inescapable results of
the economics of the new technology in the Networked Economy.
The second relates to implications for government interventions but without
government failures. How to foster the market participation and productivity at
work of the working young but mentally alert poor in the production of
white-collar services for customers in the developed countries is one element of
public intervention of a kind that will help. In this vein, the online symposium
made one important offering, to quote:
As well as involving private sector in the bidding processes, NGOs must be
allowed to participate in the infrastructure building on an equal basis. Legal
barriers if any to this happening should be removed. In some cases, calls for
proposals might even be directed to NGOs exclusively.
The government of Bangladesh should actively consider doing the following, in
the interest of reviving the image of Bangladesh as a country open for business
in the on-rushing era where "e-business has brought information and
communications technology in the very epicenter of business strategy".
- Create in a transparent process an independent Telecommunications
Regulatory Board (TRB) at the earliest possible moment. The consultancy
report recently prepared by an Irish expert should be made available on the
web site of government of Bangladesh, for purposes of public consultation,
critique, feedback, and input. It is clear that independence of such a
regulatory body can only be ensured by emphasizing that it is not a
line-agency but is a specialized, meritocratic institution, whose head
reports to the President, not the head of the government. Such a body must
by constitution be able to act in a non-partisan manner, driven by
considerations of national interest, professional integrity with respect
to rapidly changing technology and market dynamics, and competitive fairness
in bidding and service provision.
- Pending the creation of the TRB, secure the separation, as early as
possible, between telecom regulation and infrastructure/service provision.
Currently, the two are jointly vested in BTTB in Bangladesh. In both
neighboring India and Pakistan, a separation between these two functions has
already been secured.
- After securing the separation of the regulatory body and infrastructure
provision, issue a white paper categorically stating a timetable for major
reforms of pricing and interconnections, for major roll-out milestones (for
example, related to the availability of eight 2 Mbps circuits using the
Mahakhali earth station and fast modems). Such a white paper had better be
produced after detailed consultations with the stakeholders. Perhaps, the
production of this white paper should well be the first task of the newly
formed TRB. Public consultation, including using the format of web-based
symposium or chat-groups should be used exhaustively.
- At this time, legislation should be enacted to spin off the
telecommunications assets of BTTB into a publicly-quoted company, of which a
certain percentage of shares could be divested to strategic investors. A
suite of appropriate guarantees (including some "competition-removing
exclusivities" could be given to the new listed company. There is
strong precedent for such a menu of actions in countries in South Asia
region in the recent past.
- Create a level playing field for new entrants. To take many months without
issuing any decision on a Grameen Phone's application for an expansion to
the number of channels on fiber optics cable is not only glacial but also
patently anti-competitive. This is because in competing countries in South
Asia region, decision-making in this field is ways faster. And regulatory
bodies are more independent, too. Consider the following quotation, which
relates to India:
When a minister attempted to block the regulator's tariff rebalancing
order in 1999, public outcry followed and the government supported the
regulator (Smith and Wellenius, 1999)
- Once regulatory independence and level playing field have been secured,
the government and the private sector should plan a international road show,
in the interest of marketing the liberalizing package to strategic
investors.
- Quicken the roll-out of expanded bandwidth for data communications. On
current plans, BTTB has set itself the task of increasing the availability
of data-communications bandwidth from very low levels to 16 Mbps. The
availability of this expanded bandwidth should be of top priority.
- For the medium-term (a horizon of 3-5 years), upstage the importance of
wireless communications technology, as opposed to fiber optics based access
technologies. It is important to remember that fiber optics technology dates
from 1970s and is not without its negatives, for example, high roll-out
costs, high costs of technological migration and a high probability of
technological ossification. In contrast, wireless technologies, especially
wireless local loops, are gradually emerging as cheap and increasingly value
adding options that offer fundamentally attractive leap-frogging advantages.
This should be obviously attractive options for developing countries such as
Bangladesh.
- For the near term (the next 2-3 years), go flat out to rationalize the
pricing on data communications access using satellite technology.
- Granting existing cellular operators the right to build their own
long-distance and international gateway facilities will be imperative. This
way, competitive pressures are built up on the price of inter-city leased
line circuits and on the price of long-distance and international
communications. GSM and CDMA operators should also be allowed to provide
fixed as well as mobile wireless services, to transmit data as well as
voice, and to develop private as well as public networks.
Times have changed, and nowhere is this cliché more telling than for ICT.
Change has not only been deep and wide, but also relentless, often creating a
syndrome called these days by the epithet of "change fatigue". The
chemistry of the job of telecom regulators has also changed with the times.
However, not all countries have absorbed this lesson equally studiously. To do
so will have been vitally important.
In contrast to such utilities as power and water, telecommunications is now
clearly a multiproduct sector with several alternative service delivery
mechanisms enabling competition in service provision. The transformation of
telecommunications markets has reduced the scope for discretionary decisions, at
the same time that it has made the job of the regulators more complex. Market
transformation has reduced the scope of cross-subsidization. The fundamental
factor here is about the convergence of services---increased choice between
mobile and wireline services, high-price international calls being cannibalized
by private networks, call back services, the introduction of global personal
mobile satellite services. All of this reduces the scope of differential
regulatory treatment and to push prices closer to costs. The regulatory agenda
has thus shifted from minimizing the subscription to local telephone service or
maintaining cross-subsidy on the one hand to managing multiple issues related to
competition, entry, pricing, and cross-subsidies, and technological migration
and upgrades, in the following terms:
- Creating market forces;
- License award processes;
- Dealing fairly with network interconnection issues;
- Managing numbering plans to foster the emergence of a multioperator
environment;
- Authorizing rate rebalancing (whereby prices are moved closer to costs by
reducing prices for international and long-distance services and raising
them for local and network access service) in order to reduce economic rents
and cross-subsidies;
- Trying new approaches to cross-subsidies, such as targetting of
beneficiaries, bidding for subsidies, and operator-neutral way of
administering subsidies.
1. For India, the number of
circuits at the moment is 15000, with a combined bandwidth of 116 Mbps.
2. BTTB has plans to provide 64 Kbps data circuits
using the Mahakhali Earth Station, and DSL on copper lines riding the crest of
high-speed modems.
3. In contrast, in neighboring India, Videsh Sanchar Nizam
Limited (VSNL), which is India’s counterpart of BTTB, is leasing transmission
capacity to for-profit companies. Internet Service Provider (ISP)s are leasing
off lines with 2 Mbps bandwidth for a price of Rs. 4 million (the equivalent of
$ 100,000). These latter companies are then selling connectivity to businesses,
as also on-selling capacity to smaller companies. India has privatized the
international gateways, too, and some companies have taken stakes in incipient
gateways. While Indian reforms have ways to go, privatization there has
certainly gone much further than in Bangladesh.
4. According to press reports,
an Irish consultant arranged under the auspices of the World Bank produced the
blueprint of instituting an independent regulatory body for Bangladesh. The
consultant did attempt to model this body on the model of the British telecom
regulatory body, Oftel, which has become the model for regulation in several
European countries. Independence, technical expertise, intimate familiarity to
changes in technology were three drivers in the work of this consultant. This
report was recently considered by the Government of Bangladesh. Many of the
crucial recommendations of the report were discarded, and essentially status
quo was opted for. According to press reports, the Minister of
Telecommunications, who had pressing political commitments to keep, could not
attend this important meeting. According to the press, the private industry
representatives, who made studied comments on the reports and made demands many
of which are becoming standard regulatory practice elsewhere in South Asia
region, were thoroughly bitter at what little impact all that effort by them had
on the status quo.
5. Bangladeshi utilization of carrier is inferior to India’s
for instance. This is evident as follows. As many as 2000 circuits, each 64
Kbps, uses a total carrier size of 62.5 Mbps. It needs a carrier utilization
factor of 31.25 Kbps per voice circuit, as against a much lower carrier
utilization factor for India. India achieves a better utilization of carrier by
using terminal compression equipment like Digital Circuit Multiplication
Equipment (DCME) and Low Rate Encoder (LRE). These equipments are expensive.
Usually, joint
How ICT makes a difference to National Competitiveness
Take productivity differences. Systematic incorporation of IT in business
processes by harnessing the power of information that was previously lost on
humans has all too often reduced errors, associated wastage and work-in-process
and cut back on order turn-around times(BusinessWeek, July 26, 1999, pp.
EB32-38). By seizing the power of information (for instance, about systematic
and freakish demand changes, demand seasonality, buyers' color and make
preferences, their demographic nuances , etc.) that is dispersed within a
sprawling corporation with operations in many locations, a more IT-intensive
firm can implement a "just-in-time" inventory policy, or a better
synchronization between the flow of orders and suppliers' input scheduling, thus
getting a higher productivity of capital. (Fortune, July 16, 1997, pp. 56-64). A
country intensively populated with IT-intensive firms would therefore likely
betray a higher capital productivity than its less IT-intensive trading rivals.
Again, a IT-intensive firm would likely achieve higher productivity of labour
too, as IT enables reorganization previously deemed impossible, eliminating of a
whole slew of middle-managers and office secretaries without taking a
productivity hit. Many examples abound of this type of reorganization benefits
of IT in the management literature.
As for input-price differences, software has been available for some time to
conduct business-to-business electronic commerce that has the trademark of
cutting out middlemen of the loop when buying inputs and has increasingly
enabled firms to improve the input-price driver of their cost advantage. Again,
the extent to which firms can take advantage of such technologies depends on
their IT-intensity. It therefore stands to reason to say that more recently IT
has been one of the more potent drivers of cost leadership among firms. More to
the point, because the rate of innovation in IT has by far surpassed that for
any other class of input in the decade just past, its significance as a driver
of cost advantage is also correspondingly greater.
White-collar services: the next wave of globalization
It is hardly news that services typically more than three-quarters of the
output of the developed countries of the world today. For this discussion, a
service is an economic activity that adds value either directly to another to
economic unit or to a good belonging to another economic unit. Consequently,
services have as a defining feature the requirement for direct interaction
between producers and consumers (firms or households) before the service can be
rendered. Besides the increase in cross-border trade, foreign direct investment,
cross-country mergers and international joint ventures have augments the number
of multinational service enterprises. These firms are especially prominent in
sectors such as retail trade, finance, telecommunications and civil aviation;
and are also growing in accounting, law, engineering, and health care. New
frontiers of privatization will open in areas such as electricity, gas, water,
road, port and airports operations, waste disposal, health care, and education.
In these areas, multinational service enterprises will seek to leverage their
competencies in newly opened foreign markets.
Services now account for over 50% of all new foreign direct investment.
Service firms have increased their share of the Fortune Global 500 over the
seven year period (1991-1998) in terms of the absolute number of firms.
Lets consider the basic economics of the service market. This basic economics
can be expressed by a simple inequality, as follows:
(1) (P + T + M ) > P
P represents the unit price for a service in the most competitive country ©.
The above relationship will determine the price of that service in a less
competitive country, called j. T represents the transport cost of carry/convey a
unit of service from c to j. In most cases, T represents the minimum unit cost
for firms in c to operate in j, given j's input cost structure such as wage
rate, rents, telecommunications charge etc (but without taking into account the
effect of market entry barriers, which is the subject of M in (1)).
M in (1) represents unit dollar "add-on" for market entry barriers
such as licensing barriers, investment restriction, quotas. M relates not only
to charges motivated to restrict the entry of foreign firms, but also can
encompass market entry barriers that keep potential domestic as well as foreign
competitors from establishing a domestic presence. Examples of the latter could
include a legislated telecommunications monopoly, which discriminates equally
against potential foreign and domestic competition.
Potential investment by c's firms in j will place a ceiling on the price in j.
Market forces or very low input costs in j may serve to keep the P price there
below the left-hand side of inequality (1). When T and M are both zero,
inequality (1) becomes an equality---the famous "law of one price".
The drivers of trade and investment in services
Spectacular growth in services trade and foreign investment indicates that
countries and firms are increasingly able to leverage their competitive position
and sell into foreign markets. In large measure, this has been possible by lower
costs of interacting across borders---the T in (1). For services that can be
performed remotely, dramatic advances in ICT have slashed the distance barriers.
Lower costs and increased capacity of telecommunications networks mean that
accounting, engineering, research, authorship, software development are now
routinely performed at locations distant from the purchaser. This is why
electric commerce both for goods and services, are thriving and will thrive.
Even some services that require some form of physical interaction are becoming
capable of remote delivery, due to the appearance of video conferencing, and
email. This has been saving millions of dollars of saving on business travel,
and squeezing out the revenue of airlines. In response in part---albeit greater
speeds and more flights have helped too---US airfares for instance have halved
over the past 30 years.
The ICT revolution has used T as the leading edge of a gradual transformation
of the trade in services, especially while collar services. It is now envisaged
that outsourcing of IT-enabled informational services ranging from medical
transcription and forms processing, to human resources back-office work and
customer relations management jobs will migrate in droves outward from the
enterprise. And a good chunk of these jobs are likely to migrate to
labor-surplus Asian countries---those that can create requisite infrastructure,
skills, and business ethos in good time. According to McKinsey & Co., a
major US consultancy, as much as $ 180 billion worth of white-collar services
will be outsourced by enterprises globally by 2010---up from $ 10 billion in
1998. The eleven services are customer relations, human-resource services,
finance and accounting services, data search and integration, data entry, forms
processing, computer animation, medical transcription, patent labeling and
filing. Countries like India, Brazil and the Philippines, three countries with
quality knowledge workers on the cheap, and the capacity to bulk up, will cash
in. For India, this, in spite of especially India's infrastructure being not up
to the snuff. Indeed, should India's infrastructure become world class, then
India's dominance of this market space would only be much greater.
In recognition to all these facts, innovation in services, which until
recently have been perennial innovation-laggards, have been rising faster than
in goods production. For instance, in 1980, services accounted for 4% of
business R & D in US. In 1996, the matched number is 20% (quoted in
Economist, Oct. 15, 1999). Of course it is true that R & D is only a part of
innovation. But non-R & D innovation spending in services too is rising
faster than in goods production. For instance, spending on innovation in
services in UK is 4% of business revenue in 1996, as against 3.2% for
manufacturing.
Services, especially those that are powered by ICT, are becoming everyone's
mecca.
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