21462 Viewp oint Note No. 205 March ;T'MlI Bringing Cellular Phone Service to Rural Areas Grameen Telecom and village pay phones in Bangladesh Cina Lawison One of the world's ten poorest and most in Bangladesh could not afford a phone individ- andz 1N atalie densely populated countries, Bangiadesh has ually. they could afford one collectively. Alleyenn one of the least developed telecommunications systems, with a penetration rate of less than four Rolling out the phones lines per 1,000 people. To extend telecommu- nications to rural villages, Grameen Telecom In the 'Grameen villages" the Grameen Bank provides cellular pay phone serv-ice at an supports business opportunities for entrepre- affordable price. This is made possible by neurial women who can become the village pay reselling airtime from GrameenPhone, a cellu- phone operators. The bank also provides ser- lar operator with a national license that is build- vices to Grameen Telecom, collecting hills and ing and operating a rural phone network. handling day-to-day problems relating to the GrameenPhone is a joint venture of Grameen operation of the phones and bill collection. For Telecom (35 percent) and Telenor (51 percent), these services the bank receives 65 percent of the Norw7ay's telephone company.' service fee charged by Grameen Telecom. Because of Grameen Bank's institutional infra- Grameen Telecom is a not-for-profit company. Its structure. Grameen Telecom needs very few efforts to extend telecommunications services in employees in rural areas. rural Bangladesh are supported by its parent, Grameen Bank, a highly successful, for-profit Grameen Telecom's program targets women microcredit bank with an extensive presence entrepreneurs who are literate, have a sound throughout rural Bangladesh.2 Grameen Bank's credit history, and have a viable business close primarv line of business is to make microloans, to the village centcr. These factors havc comn- typically under US$200, to women entrepreneurs bined to ensure an excellent repayment record in villages. financing installation and working cap- (98 percent). ital for their stores, cottage industries, and other businesses. It also provides these women with Once it has been confirmed that a phone sig- credit to buy cell phones from Grameen Telecom. nal reaches a village. Grameen Telecom buys a The women then provide mobile pay phone ser- subscription from GrameenPhone. As there are vice in their shops, the local market, and else- no retailers in the villages, Grameen Telecom w7here, charging a marktup agreed on with also supplies the phone operators with the Grameen Telecom. handsets, a price list for calling different loca- tions, and training to operate the phone. Advances in telecommunications are reducing costs and creating possibilities for bringing access The village pay phone entrepreneurs provide to services to previously isolated communities. service to customers for both incoming and out- Grameen Telecom entered rural telecommunica- going calls. Their income consists of the differ- tions in the belief that these advances should be ence between the charges paid by customers and accessible to all-and that even if rural villagers the billed amnount the operators must pay. ___u - The World Bank Group * Finance, Private Sector, and Infrastructure Network Bringing Cellular Phone Service to Rural Areas TABLE 1 VILLAGE PAY PHONE BILLING STRUCTURE FOR ONE-MINUTE LOCAL CALL, JANUARY 2000 U.S. cents I ; ;i pay off their debt and make a living. Operators net income averages about t,S$52 a month after BTTB rate per call 3.54 n.a. covering all their costs, good earnings in a coun- GrameenPhone rate try in which per capita GDP in 1997 was per minute 4.17 4.17 USS262.9 Value added tax (15 percent) 1.15 0.62 Service fee 15 percent) 1.33 0.73 GrameenPhone produces a monthly bill at the Total paid by retailer to hulk village phone rate for the total airtime usedl Grameen Telecom 10.19 5.52 bv all the village pay phones. The bill is sent to Retailer charges to client 12.50 10.42 Grameen Telecom's head office for payment by Margin made by retailer 2.31 4.90 the end of the month. Gramneen Telecom makes out the individual hills and sends them to the cor- Service fee allocation 65 percent to Grameen Bank 0.85 0.48 responding branch of Grameen Bank along with a summarv hill, vvhich the branch pays within six 35 percent to Grameen Telecom 0.48 0.25 weeks. The branches then collect the bills from the village pay phone operators. n.a. Not applicable. Source: Grameen Telecom data. GrameenPlhone charges USSO.04 a mintute for local calls cduring peak hours, hialf the tJSS0.08 that urban subscribers have to pay. For long- On average, each village pay phone covers distance and international calls, GrameenPhone about 2,500 people. When people want to make charges the rate set by the state-ownied monop- a phone call, they go to the home or business of oly operator-the B3angladesh Telegraph and the village pav phone operator (thus the require- Telephone Board (BTTB)-plus the village pay ment that operators be centrally located). Wlen phonc airtime charges. BecauLse BTTB chalrges a person receives a call, the pay phone operator local calls per call, not by the minute, people tells the caller to hang up while she gets the per- calling from standard, fixed line phones can and son called. Then the caller either calls again or do stay on the line longer without incurring is callecd by the person he or she was trying to adclitional costs. To address thlis problem, reach. GrameenPhone charges a flat per-minute rare for incoming calls originating from BTTB's public Financing and billing switched telephone network. It adds a 15 per- cent value addecd tax to call charges. To cover Telephone handsets are provided to operators Grameen Telecom's administrative costs and under a lease financing program of Grameen those of Grameen Bank, it also adds a 15 per- Bank. The local branch of Grameen Bank pays cent service charge to the total hill (table 1). the price of the phone and the connection fee- US$312.50-to Grameen Telecom. The pay Network access phone operator commits to reimbursing Grameen Bank in weekly installments of Grameen Telecom was established for the sole USS4.58 over two or three years. The pay phone purpose of developing the village pay phone operators also pay a minimum monthly usage program and encouraging entrepreneurslhip and charge of LtSS3.20) that includes the monthly line development in rural areas. To ensure that rent, a value added tax, service charges, and an GrameenPhone rolls out the network in riral annual government license and royalty fee of areas, Grameen Telecom invested in a 35 per- US$2.08. Airtime charges are added to the cent equity stake in GrameenPhone, financed monthly bill. Revenue from the telephone ser- from Grameen Telecom borrowings, inclucling a vices enables the women entrepreneurs to both concessional loan from a Soros Foundation. In exchange for this funding, GrameenPhone has ing further into rural areas, which account for committed to developing the network in rural only a small share of its revenues. This strategy areas. has meant slow expansion into rural areas by Grameen Telecom. Although GrameenPhone is developing a nation- * Interconnection problems between BTTB wide network, its expansion efforts so far have and GrameenPhone have made investment focused on cities and high-income areas. It was and expansion decisions difficult for awarded a license to operate a GSM cellular net- GrameenPhone. To try to address the prob- work in the 900-megahertz band in November lems, in April 1998 GrameenPhone entered 1996 and began operations in March 1997. It also into an operational agreement with BTTB has exclusive rights to lease and operate the relating to physical interconnection hetween nationwide optical fiber backbone that belongs the two networks. According to the agree- to Bangladesh Railways, which would give it a ment's revenue sharing terms for local, long- seamless nationwide netwvork. distance, and international calls generated from GrameenPhone's network and termi- Early results and sustainability nated in BTTB's, GrameenPhone has to pay BTTB access charges bascd on BTTB's pre- The village pay phone program is having a posi- vailing retail tariff rates. But BTTB retains tive impact in villages. Since the program began charges for all calls originated from BTTB's operation in March 1997, Grameen Telecom has network and terminated in GrameenPhone's. provided telephone access to nearly 2.8 million The agreenment also stipulates that for poor villagers (in 1,100 villages) out of reach of outgoing international calls generated from the main phone network. Early findings suggest GrameenPhone, on an experimental basis for that the program has had considerable develop- up to six months GrameenPhone would be ment benefits. It has reduced the cost of commu- entitled to 10 percent of the accrued revenue nications relative to other services such as after settlement with the foreign operator. transportation. It has boosted producers' returns The deal appears lopsided. It was supposed by enabling village pay phone users to compare to result in expansion of the circuits connect- rural prices w-ith city market prices, increasing ing BTTB an(d GrarnieenPhone. While there their bargaining power with the middlemen. has heen some improvement, it has not been Finally, the program has enabled the village pay enough to cause GrameenPhone to boost its phone entrepreneurs, poor by most standards but expansion plans. among the better-off in their villages, to turn a * GrameenPhone must charge a relatively high profit. price on long-distance and international calls. Under the terms of the revenue sharing Still, Grameen Telecom's rural development pro- agreement, GrameenPhone must charge its gram lags far behind the targets. Its initial target customers the full BTTB retail rates for long- was 40,000 village pay phones installed by 2002, distance and international calls on top of its an average of 8,000 a year. But by the end of own rates in order to recoup its costs, further January 2000 it had installed only about 1.700. increasing already high long-distance and The rollout has been slowed by several factors: international tariffs. BTTB charges some of the GrameenPhone's expansion has focused on the highest connection fees and long-distance and main cities and the railway network, limiting international rates in South Asia. The connec- Grameen Telecom's ability to access rural vil- tion fee for a telephone line is US$375, and the lages. As a for-profit company, GrameenPhone monthly subscription rate is US$3.12. Local call wants to concentrate on securing its position in charges are US$0.035. within the norm for the more profitable urban markets-where international competitive markets, but long- there is still much unmet demand-before mov- dlistance calls cost at least US$0.31 a minute and Bringing Cellular Phone Service to Rural Areas international calls up to US$2.08 a minute- the short to medium term. Expansion of three to five times current rates in competitive GrameenPhone's network into rural areas markets. Despite the high tariff, the demancd in remains key and needs to accelerate if Grameen rnral areas for the mobile services is high. The Telecom is to meet its targets. revenue trends indicate that demand remains strong and is groving: GrameenPhone's cur- Notes rent revenue per village phone at the encl of January 2000 was US$148, up from only lUSS6S I'lie otli 5 .ih drhoiders Lire i M.rlcni (Coipoi sitin of J.ipin (9 5 in Janua ry 1999. relte ct) .endc Gonophoni,. ., New York-l.isedl ciiopily (4.5 pie- * GrameenPhone mav be facing a prohlem in cen.t) In addition the Asian Developiiient Baink. Coilihinoriwcalt D)evelopmnticn(orporaio n, .ind Inter-nilional Fimisce corporationiif financing its rural expansion. In 1997, in addi- lied 3 cteft i red Itires of Gl;iiclilvinc tionI to its equity stake, Grameen Telecom 's5iealised in 197It, Gr.ieen Itank i.0 mlol-C tihil 2. 3 million crl- loaned GrameenPhone US$1.6 million for iowers. 9Vi percent of weiuioi are wosinen. Will 1.12S drenlices. it installing GSM networks. GrameenPhone may ipc 132ingsnleslic Th Iank5.i villhges.h nciece t(Li tilt 1 11 E ill Lldoen have already uscd part of its allocation for otei sphieres, iricIelilig risks tecinology venLlk-es ((Gr.iteer building rural networks. To address that risk. Fcindl). weaving (Glrelien eec I dcg), rUt.il prouclitis (Ga n Grameen Telecom is looking for grant funding vision (Gntici ncc PCeret). for GrameenPhone to set tip some new base ri GDP cliii it u -iiir Wno1drld Kink. iti/ (IuuI (ui/'ttu/iiuiuO.s stations in mLiral areas. 1999(W.ashingtion. I).C . 1999). Viewpoint is an open * Finally, GrameenPhone has had difficulty fornm intended to obtaining sufficient radio spectrum from the CinG Lawson (clauson@m'orldbankorgt encourage regulatorv agency. That has raised its netwxork Communications and Il/ormation dissemination of and debate on ideas, costs, slowing its expansion plans. lihchnologiesL)epartment, and AatalieMeje nn innovations, and best (zin&eet?nniunorlddbank.oerg), E`astAsia and practices for expanding The limited peaetration of village pay phones is PaGIcific Region the private sector The views published are unllkely to improve in the short term without those of the authors and some solution to the constraints on Grameen- should not be attributed Phone's expansion. to the World Bank or any of its affiliated organizations. Nor do Conclusion any of the conclusions represent official pol cy T of the World Bank orof The village pay phone initiative has benefited its Executive Directors trom a combiration of factors: the demand for or the countries they communications in rural areas; the use of the represent. Grameen brand name,. facilities, and financial To order additional and in-kind support; the large number of copies please call Bangladesbi working abroad and wanting to call 202 458 1111 or contact Suzanne Smith, editor, lotOte; and the country's very higlh popLulation Room FllK 208, dlensity. The World Bank, t8t8 H Street, NW,tlphn Washington, D.C. 20433 Grameen Telecomn has providec telephone or Internet address access to nearly 3 million poor villagers heyond ssmith70worldbank.org the reach of the main phone network. The vil- The series is also available on line lage pav phones have brought many benefits for (www.worldbank.org/ users, anct most entrepreneurs are making a html/fpd/notes/). healthy profit. But at the current expansion rate @ Printed on recycled andi under current regulatory conditions, paper Grameen Telecotn is unlikely to break even in