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Case 2 Rural Connectivity: Grameen Village Pay Phones77

In Bangladesh, 97 percent of homes and virtually all rural villages lack a telephone, making the country one of the least wired in the world. This lack of connectivity has contributed to the underdevelopment of the country and the impoverishment of individual Bangladeshis. To address this problem, Grameen Bank, a micro-finance institution, formed two entities: 1) Grameen Telecommunications, a wholly-owned non-profit organization to provide phone services in rural areas as an income-generating activity for members of Grameen Bank, and 2) Grameen Phone Ltd., a for-profit entity that in 1996 bid on and won a national GSM cellular license. Grameen Phone has since become the country's dominant mobile carrier,78 providing services in urban areas and along the major railway routes via a network of cellular towers linked by fiber-optic cable.

Business Model. Grameen Telecommunications has the explicit goal of helping Grameen Bank's members shift from relatively low-yield traditional ventures, like animal husbandry, into the technology sector by creating micro-enterprises that can both generate individual income and provide whole villages with connectivity. Grameen Telecommunications uses Grameen Phone's advanced GSM technology in stationary village phones owned and operated by local entrepreneurs. These entrepreneurs purchase the phones with money borrowed from Grameen Bank,79 and sell phone services to customers by the call. Rates are generally twice the wholesale rate charged by Grameen Phone plus taxes and airtime fees. An average of 70 customers a month uses each phone. This shared-access business model concentrates demand and creates relatively high cash flow, even in poor villages, enabling operators to make regular loan payments and still turn a profit. Repayment rates to Grameen Bank are 90-95 percent.

Rural telephones are also very profitable for Grameen Phone, bringing in revenues per phone of US$93 a month in March 2001, twice as much as Grameen Phone's urban mobile phones. However, rural phones represent less than 2 percent of the phones used on Grameen Phone's network and bring in only 8 percent of the company's total revenue, the company's profitability still depending on its urban business.

Infrastructure. Grameen Telecom's original goal was to have a phone in every one of Bangladesh's 65,000 villages by 2000, but only 4,543 village phones were in service as of March 2001. The primary constraint has been a distorted telecommunications market controlled by a monopolistic government provider, BTTB. Because BTTB has been unwilling to increase its interconnect capacity, despite Grameen Phone's offer to pay for the upgrading, Grameen Phone and other mobile companies have been unable to connect additional phones to the national switched network and instead have had to offer primarily mobile-to-mobile phone services.80 This infrastructure barrier has also limited expansion of the rural phone network.

A second constraint is Grameen Phone's use of cellular technology for fixed phone centers, a choice that is neither efficient nor probably competitive over the long term. GSM, used throughout much of Europe and Asia, is far more expensive than fixed wireless local loop (WLL) systems used by Grameen Telecom's competitors, Sheba and BRTA. While GSM towers can provide service within 5 kilometers, WLL towers provide coverage within 50 kilometers. Moreover, WLL provides better bandwidth for data transmission at a lower cost.

Human Capacity. The development of a cadre of entrepreneurs, nurtured by Grameen Bank, has been key to the success of the village phone. After the Bank approves financing of a phone, Grameen Telecommunications buys a cellular phone subscription on behalf of the entrepreneur and provides the connection, necessary hardware, and training to operate it. Grameen Telecommunications also tracks trends in phone use and identifies operators who are having difficulty marketing or collecting payments for the service.

The village phone network also yields important secondary benefits to the women who live in the villages that they serve. Because 95 percent of operators are female and the phones are in their homes, women who might otherwise have had very limited access to a phone feel comfortable using one. There is also some evidence that, because the phones are so important for whole villages, having female operators has helped to enhance the status of women in the communities where they work.

Policy. Bangladesh's telecommunications regulatory regime is both antiquated and anti-competitive. One consequence has been BTTB's ability to maintain control over the switched network without expanding its capacity, even in the face of high demand. Scarcity forces Bangladeshis to pay large sums to BTTB officials in order to obtain phone service. BTTB's control of the network is likely to become an even more significant market disadvantage to Grameen Phone and other mobile operators when BTTB launches its own GSM mobile network this year.

Enterprise. Grameen Telecom's village phone venture, as structured in Bangladesh, would not be feasible without access to the credit and bill collection services provided by Grameen Bank and the infrastructure and urban network provided by Grameen Phone. Village phones would be far less successful if Grameen Phone were not able to discount by 50 percent the rate charged to Grameen Telecommunications for a phone call, an underlying subsidy made possible by a transfer of profits from the more profitable urban part of the business to the rural sector. This is a significant advantage unavailable to rural-only competitors BRTA and Sheba.

Content and Applications. Demand for telephone services in rural Bangladesh remains high despite relatively limited marketing and no overt content development by Grameen Telecommunications or Grameen Phone. In large measure, this is because the village phones offer tremendous economic value to the users, who would otherwise have to spend hours or days traveling to other towns to make a phone call. According to one study, the average consumer savings for a phone call from a village to Dhaka ranges from 2.6 percent to 9.8 percent of the user's mean monthly household income.

Bangladesh is also a labor-exporting country with many rural people working overseas. As a result, one of the most important functions of the village phone is to facilitate remittances from relatives.81 Local business people and farmers also use the phone to reduce costs, get better prices for their products, and plan shipments to reduce spoilage of perishable products.

Key Lessons. Were it not for policy and infrastructure barriers, Grameen Telecom's village phones might already serve all of Bangladesh's 65,000 rural villages. The high revenues generated by the shared-access business model suggest the effectiveness of market drivers for such approaches. And as a development-centered ICT strategy, the village phone program promises broad benefits, including enhanced productivity and social welfare, and new sources of rural income.

Nonetheless, the Grameen Telecommunications business model relies on subsidies from urban cellular users, on financing and other support from Grameen Bank, and on GSM cellular technology that is less than optimal for sparsely-populated rural areas, fixed phone centers, and data transmission. The wireless local loop technologies used by Grameen Telecom's rural competitors or wireless multi-point distribution technologies—already being deployed by the TeNeT group and their partners in rural India—promise lower costs and higher data bandwidths. Under favorable policy environments, such rural networks, combined with shared access strategies that concentrate demand and generate efficient usage, may well enable profitable, market-driven approaches to providing connectivity and infrastructure in rural areas.

 

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© 2001 Accenture, Markle Foundation, United Nations Development Programme.
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