The Economic and Social Benefits of Mobile Services in Bangladesh

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The Economic and Social Benefits of Mobile Services in Bangladesh A case study for the GSM Association

Barney Lane Susan Sweet David Lewin Josie Sephton Ioanna Petini

April 2006

LEGAL NOTICE: Neither the GSM Association nor their Members or Associate Members are responsible for the use that might be made of this publication. The views expressed in this publication are the sole responsibility of the author(s) and do not necessarily reflect the views of the GSM Association, their Members or Associate Members

The Economic and Social Benefits of Mobile Services in Bangladesh

1 Executive Summary
The GSM Association commissioned Ovum to conduct a study into the economic and social benefits of mobile services in Bangladesh. We were asked to examine whether there were any policy barriers that may prevent the full extent of any benefits of mobile services from being realised. In the event that policy and legislative barriers were found, we were asked to identify recommendations for change. In recent years, the mobile industry in Bangladesh has developed at an extraordinary rate. Today there are approximately ten million mobile customers and coverage extends to 90% of the population. With a population of 44 million (2005 figures), Bangladesh is the seventh most populous country in the world. Our key findings from the study are as follows: • • • • • • • • Almost a quarter of a million Bangladeshi depend on the mobile industry, directly and indirectly. Mobile services contribute US$650 million to the economy every year. Mobile services are good value for money when compared with other countries. Mobile communications allow businesses to operate with greater efficiency. For every additional 0 percentage points of mobile penetration, the annual GDP growth rate is increased by approximately 0.6%. Higher mobile penetration will assist Foreign Direct Investment (FDI). Increasing penetration by % increases FDI as a proportion of GDP by 0.5%. The poorest citizens benefit most from mobile services. Mobile services improve social cohesion, assist in reducing the digital divide, improve access to healthcare and can help improve users’ quality of life.

However the full realisation of these benefits is in jeopardy unless firm policy and legislative action is taken. The key concerns that need to be addressed are: • High taxes. Of particular concern is the very high burden of industry specific taxes (taxes levied on this industry only but not others). Considering all activities linked with the sector2, these comprise 35% of the total tax generated by the industry. This diverts resources away from the mobile communications sector and towards less productive sectors. The tax policy is likely to be counter-productive for the Government as it reduces total tax revenue. Ultimately, the consumer pays as the operators have no option but to pass the taxes through to their customers. Worse still, the tax regime makes mobile services much more expensive for those who need them most: the poor and those living in rural areas. The interconnection regime. The interconnection regime – the system that controls payments between operators for connecting calls – is fundamentally flawed and in need of reform. Currently, the interconnection system subsidises the less productive and more expensive fixed-line services, whilst harming the more productive and cheaper mobile industry. Industry specific taxes include revenue share charges, royalties on handsets, connections and supplementary duty and BTS licence fees. Generic taxes include VAT on usage charges, income tax, import duty on capital machinery and corporation tax. 2 This includes income tax (which in Bangladesh is not actually paid by employers). To allow the tax burden to be compared between different countries, we have included income tax in the denominator.







© Ovum April 2006 | GSM Association |



Like the tax regime, the interconnection regime increases the cost...
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