WHAT WORKS: GRAMEEN TELECOM'S VILLAGE PHONES


EXECUTIVE SUMMARY


IN BANGLADESH, 97% 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 Telecom, a wholly-owned non-profit organization to provide phone service in rural areas as an income-generating activity for members of Grameen Bank, and 2) GrameenPhone Ltd. (in partnership with U.S., Norwegian, and Japanese companies), a for-profit entity that bid on and in 1996 won a national GSM cellular license. GrameenPhone (GP) has since become the country's dominant mobile carrier (1), providing service in urban areas and along the major railway routes via a network of cellular towers linked by fiber optic cable.

BUSINESS MODEL
Grameen Telecom (GT) 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. GT uses GrameenPhone'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 (2), and sell phone service to customers by the call. Rates are generally twice the wholesale rate charged by GP 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%.

Rural telephones are also very profitable for GrameenPhone, bringing in revenues per phone of $93 a month in March 2001, twice as much as GP's urban mobile phones. However, rural phones represent less than 2% of the phones used on GP's network and bring in only 8 % of the company's total revenue, so that the company's profitability depends primarily 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 GP's offer to pay for the upgrading, GP 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 (3). This infrastructure barrier has also limited expansion of the rural phone network.

A second constraint is GP's use of cellular technology for fixed phone centers, a choice that is neither efficient nor probably competitive over the long run. 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 and at a lower cost.

HUMAN CAPACITY
Key to the success of the village phone has been the development of a cadre of entrepreneurs nurtured by Grameen Bank. After the Bank approves financing of a phone, GT buys a cellular phone subscription on behalf of the entrepreneur and provides the connection, necessary hardware, and training to operate it. GT 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% 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 telecom 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 (allegedly both legal and illegal) 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 GP 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 GrameenPhone. Village phones would be far less successful if GP were not able to discount by 50% the rate charged to GT 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-and a significant advantage unavailable to rural-only competitors BRTA and Sheba.

CONTENT
Demand for telephone service in rural Bangladesh remains high despite relatively limited marketing and no overt content development by GT or GP. 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% to 9.8% 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 (4). Local business people and farmers 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 how powerful market drivers for such approaches can be. And as a development-centered IT strategy, the village phone program promises broad development benefits, including enhanced productivity and social welfare and new sources of rural income.

Nonetheless, the Grameen Telecom business model relies on subsidies from urban cellular users, on financing and other support from Grameen Bank, and on GSM cellular technology that is unsuited (or at least very high cost) for sparsely-populated rural areas, for fixed phone centers, and for data transmission. The wireless local loop technologies used by GT'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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End Notes:


1. As of September, 2000, GP had 57% of the mobile telecom market in Bangladesh.

2. Grameen Bank chooses the entrepreneurs, 95% of whom are women; phone loans are approximately US $420, more than average annual income.

3. Roughly 88% of GP's 243,000 urban phone subscriptions (as of March 2001) are for plans that restrict customers to calling other mobile phones.

4. Calls to initiate or track remittances account for 42% of all calls.