Foreign investment will flood Bangladesh if doing business is made easier

In an exclusive interview with Prothom Alo on 13 January, he spoke on various aspects of the country’s telecommunications sector. The ease of doing business in Bangladesh was also discussed.

Prothom Alo: It’s been 21 years since GrameenPhone started out in 1997. How far has the reach of its service spread since then?

Michael Foley: Since the time we came to Bangladesh, we have grown from essentially zero and an initial business plan that said maybe 100,000 or 200,000 mobile phones. We are now well over 72 million customers in the country, covering every corner of the country. And of those 72 million, 36 million are actually internet users. This has been a fundamental journey where tens of millions of people have had their first experience with modern telecommunication services, through the efforts of what has essentially be a partnership of a small country in northern Europe and local business people and entrepreneurs that started 22 years ago. It’s a remarkable story. This will be our 22nd year and we hope for a long future.

Prothom Alo: How far would you say GrameenPhone has contributed to the socio-economic changes in Bangladesh?

Michael Foley: It’s an incontrovertible fact that Bangladesh’s GDP growth and changes in its society over the last 10 years or so have been monumental. The literacy rates among the 15 to 24-year-olds is in the 90 per cent range. That’s going to come through and fundamentally change the country.

Poverty rates have been reduced, although there are still a lot of challenges in that area. The millennium development goals have been largely met, with residual balances remaining as well.

So the society has changed fundamentally. There are not many technologies that have more impact on society than mobile telephony, telecommunication services. This, along with electrification, fundamentally changes the opportunity that is made available to people in even the most rural areas of the country.

Mobile phone gives people agency, the ability for them to be participants in society in a broader sense than the village that they had lived in previously.
With a mobile phone comes access to information, education, trade and commerce, health care, financial services, security, and a measure of democracy as well. So you can’t underestimate the impacts that telecoms have had and, in the case of Bangladesh, mobile telephony has had.

In a little over a decade, we have gone from almost zero to over 140 million people with SIM cards in the country. There is still a lot to be done. But it is one of those fundamental things that have made a massive difference in society over the last decade and a half or so.

Prothom Alo: Bangladesh stands among the top countries where Telenor operates, when it comes to profits. What are the main reasons behind this high profit rate in Bangladesh?

Michael Foley: First you have to understand the size of the market that we cover. Overall, Telenor Group has 173 million subscribers as of the last reports that have been published. There are 72 million of those here in Bangladesh. So the scale is high.

There are a number of very specific reasons why we are profitable in Bangladesh. We’ve invested significantly and consistently over the last 15 to 20 years or so to build the best network in the country. So we have a lot of high-value customers that use the service a lot.

The second thing is that Bangladesh is an extremely densely populated country, which means the 15,000 sites we have are more densely used and so are more profitable.

The other thing that is important about our profitability is that we have been obsessed with becoming more and more efficient in the way we do business. Our advertising has moved from print to electronic almost a hundred per cent now. We almost do no billboards outside. We are very efficient in the way we do our distribution.

So the combination of a large number of customers, a very obsessively efficient organisation, and the overall geography of the country, have all gotten us to the point where our scale, our efficiency, and the fact that our customers use our services quite a bit, have helped us become a sustainable agent of development. Wherever we go, we create development, but at the same time we are sustainable because we are profitable.

Prothom Alo: How much have you invested since 1997?

Michael Foley: About 4 billion US dollars. With the commitment we made to 4G licences to spectrum neutrality, to spectrum itself, and the expenses we had in building up the first part of the 4G network, we committed 400 million dollars to Bangladesh last year. We mostly fund that through our own operations. So while we are profitable, we reinvest massively in the market for the future because we think we are at the very beginning of growth here, especially in the data side.

Prothom Alo: After 2G, 3G and 4G, now there is 5G on the way, all in quick succession. Does this rapid change create any business challenges for you? Are the subscribers really benefitting?

Michael Foley: That’s a very good question. We are going to go from 3G to 5G in roughly 8 years in Bangladesh. I expect that we are going to start seeing 5G applications in 2020-2021.

5G is not a big revolution. It is specific application of technologies towards smart cities, security, intelligent metering or so on. It is not the hugest revolution, but it is quite expensive. The other parts of the world have taken more than 20 years to do this. For us in Bangladesh, as an industry, we have to continue to reinvest in this market at an extremely rapid pace.

For Bangladesh to be successful in the fourth industrial revolution, we have to compress the development, make it faster for us to catch up with the rest of the world. If we just continue at the regular pace, we will always be behind. So we have now launched 4G. 4G will be fully deployed across Bangladesh by sometimes mid next year for us, and 5G will come thereafter.

It is, in fact, quite stressful on businesses to continue to put this amount of capital in. We have an ability to absorb that because we are a profitable business, we have scale and we have efficiency. Others find it more difficult and it is stressing on balance sheets. So somehow we have to find a way to make sure all the industry can be successful in this area. That may require some adaptations in the way we do things, from the government to some of the operators.

As for whether the consumers benefit from it, of our 72 million customers, we have 45 million who still use the basic simple candy bar handsets, 2G. They want better sets, but those are 7 to 8 euro each. A large number of the sets are smuggled across the border without paying taxes. Sometimes these are not set up to be the most secure phones either.

At the other end of the pyramid, there are 8 million people in the group who have adopted a digital lifestyle, a lifestyle that you would recognise as being the one in the West or in Korea, or Malaysia or Thailand. Not all of them are on 4G by the way. Some of them are still on 3G. So we see an evolution of people moving towards a digital lifestyle. It is good for the industry because people who have adopted the digital lifestyle are actually more profitable, they actually consume our services. So there is an evolution towards this lifestyle. It is happening very fast.

But we still have a group of people who can’t access the digital lifestyle because the handsets are too expensive. So this is something we will have to address in time to make sure that the dream of digital Bangladesh which is not being realised, is a dream that can now be extended to the whole population of the country and not just those who can afford a 3G or 4G handset.

We launched 4G it in February-March here and by the end of the year we had 7 million 4G users. So it is happening faster here than in any other place in the world. And that is testament to a close partnership, not always an easy partnership, but a close partnership between government and regulator and industry. That’s almost like a marriage. Marriages are sometimes difficult and there are arguments, but it’s still a marriage. We are stuck with each other so we have to make sure we get there. It is critically important for the growth of the country.

Prothom Alo: Do you have any advice to the government about reducing the price of handsets?

Michael Foley: I am very reluctant to give advice to elected officials, especially in a public forum. In a private forum, my mind is open to anything. The only thing I would like to say in this case is, there is a reasonable industrial policy that says we want to build handsets and in order to facilitate that we put up tariff barriers at the border. It is important that we assess those things dynamically and find the right solution. The tariff levels are so high at the border that a lot of handsets are being smuggled in but with the wrong technology on them. They are all having the same identifying numbers and they are not paying any tax. So when tariffs are high and you see a lot of clandestine imports, then that’s probably counterproductive.

The tariffs being high also makes the 4G handsets very expensive, and the people of Bangladesh that could actually benefit from a digital lifestyle, access to education and information that would come with 4G, certainly do not have access to it yet. It is a legitimate objective that the government has to want build handsets, build a technology, manufacturing business in Bangladesh. We have to adjust now and that is a discussion we will have with the regulators and the government. I think that they understand the challenge. The question is, how do you make that happen, by protecting the interests of the exchequer as well and bringing the benefits to as many customers as we can.

Prothom Alo: Is it possible for you all to sell smartphones by installments?

Michael Foley: We can do it by installments. We are doing small tests on this. We believe there is a lot of credit worthiness amongst our customers. There are a few technological things that we need to do. There are many financial institutions that are ready to back these and help people come on board. And Telenor’s experience globally with microfinance tells us that people are very good risks. There is a very good business case for lending people small amounts of money to be able to buy a handset so they can be more active participants in the economy and bring the benefits of digital Bangladesh to a wider group of people. I think you will see some of that happening this year.

Prothom Alo: Customers complain that the cost of mobile internet in this country is high. What would you say?

Michael Foley: Our prices are about the second lowest in the world. There is limited scope for going lower. We also have to understand that the taxes that the exchequer extracts from the telecommunications industry here cover over 45 per cent of the top line revenue. We would like to see less tax on internet. With scale may come better pricing, but the prices are already pretty aggressive in this market.

The telecom industry is the only industry in the world where everybody expects the prices to go down, whereas for everything else the prices go up – the price of labour, rents, taxes, the energy that we buy, the equipment, the border charges, and so on. So we have to be reasonable. There has to be a sustainable industry here. The pricing right now is fair. There needs to be a discussion amongst all the stakeholders on how we make the product more available to people.

Prothom Alo: Recently the government introduced VAT in the sector. What was the effect?

Michael Foley: That was an interesting pay because they took a 15 per cent rebatable VAT. So we pay 15 per cent and then we can adjust it against the VAT we collect, to a 5 per cent non-rebatable VAT which actually increased the costs of the mobile operators because this VAT was not rebatable. So while it looked positive on the outside, on the inside for the operators it was quite a burden, especially for a number of the smaller operators. It was a politically astute move, but it did not do anything to enhance things for the smaller operators.

If there is a strong commitment to digital Bangladesh, there can be a four-year or five-year period as we get into the market, that we find a way to put concessions to consumers on the payment of tax. I understand that very few people pay income tax in this country, therefore indirect tax in the form of levies are the way the government needs to operate. But we will have to find the right balance and we have an excellent dialogue with the government on these issues.

Prothom Alo: The government is coming up with a new law, SMP, regarding competition in the telecom sector. Do you think this will be damaging to GrameenPhone in any way?

Michael Foley: First of all, competition is fantastic and there is good competition in the market today. We have one operator with 72 million subscribers, one with 47 million subscribers, and one with 36 million subscribers. None of these are small businesses.

SMP regulations are important if a player is abusing a large position they have in the market, if they are blocking the access. SMP regulations are part of the system anywhere in the world. We have experience with that in almost every market. SMP framework is designed to remedy abuse and we have not been abusive. We are just a little more expensive than others. We are very careful to give air for our competitors to operate. So I am not worried about it. That is something normal to have and there should be a dialogue on how it can be implemented.

Prothom Alo: Customers are still not fully satisfied with the telecom sector service in the country, including that of Grameen. Why?

Michael Foley: Because it is very difficult to please all people all of the time. We operate, 2G, 3G, 4G in a country where it is difficult to operate. We have some of the lowest prices in the world, some of the highest taxation, yet we deliver our internet mobile service where you can get an uninterrupted call from the airport all the way to the city in Dhaka. I challenge you to do that from Reagan airport in Washington all the way to Virginia. It won’t work.

We are not perfect. We still have a lot of work to do. And it is so dense in this country that a 2 km gap means there are probably 6000 or 7000 people who do not have the best service. Last year we rolled out 5000 4G sites, about another 1500 basic 2G sites, 3G sites and this year 19,000 different installations in our network. There is a huge opportunity to continue growth and to be better, but nevertheless, last year, we added 7 million new subscribers. They came to us because we offered the best service in the country. And we pledge to continue to improve everyday because this is part of the competitiveness of the nation. If some people are upset, we try to deal with every one of those issues.

Prothom Alo: So what would you say about improving the overall quality of service?

Michael Foley: First of all, let’s talk about call drops. Our call drop rate in the country is well below what the BTRC mandates. BTRC mandates 2 per cent, our call drops are a low 1.2 of 1.3 per cent. So we are doing very well in this area. But the policy of the government has also fragmented the value chain.

We don’t do our own fibre optic cable. We don’t have the right to do that. Soon we will be doing that on towers. We don’t do international connectivity. When you break up the value chain like that, it makes it very difficult to provide an end-to-end quality of service. This is one of the only places in their world where that happens. So we struggle a little bit with that, but nevertheless I must say the quality of service in Bangladesh is actually extremely good value for money and objectively, if you look at some of the measurements, it is quite good at an international standard.

There is more to be done. Our international calling is terrible. Calling in is terrible into this country. Calling out is bad. We need now to get more spectrum because that will allow us now to offer faster speeds.

While we have the fastest network in Bangladesh, Telenor has the fastest network in the world. So we know how to build the fastest networks in the world. We can do that here as well. If spectrum is made plentifully available at reasonable prices, we can actually do that.

Prothom Alo: Previously a large percentage of the telecom companies’ revenue would come from voice calls, but things have changed. Where does most of the revenue come in from nowadays? Do you have plans to adjust your business according to the times?

Michael Foley: This change from voice to data is something that happened in some markets 15 years ago. In Norway, almost all the phone calls are now 4G phone calls. We are decommissioning 3G in Norway. So the revenue still broadly comes from voice, about low 70 per cent. Then about 20 to 25 per cent comes from data, the rest other stuff. That will change over time, more data, less voice. We have done this in almost every other developed market that we are in. We have seen this in Thailand, Malaysia, Denmark, Sweden, Norway, in all the countries. So it is not a threat. In fact, what happens is that it becomes a different kind of service that you are offering customers.

We also prepare new revenue streams for the future, like in Telenor Health, or in different projects that we have to find other revenue streams as we continue to grow. It is positive. The faster it happens, the better it is. It is an indicator of the progress of Bangladesh’s economy towards catching up on telecom services in the rest of the world.

Prothom Alo: In various countries of the world, the cell phone companies are involved in all sorts of financial services. Why is that not possible here in Bangladesh?

Michael Foley: Unfortunately, mobile operators have been literally banned from owning any equity whatsoever in mobile phone financial services. I think that is a mistake. That is a place where we have significant disagreement with the state. I think it is critically important that we rapidly expand the number of individuals that have access to basic financial services.

In the Millennium Development Goals, the first objective was to eradicate poverty and for which Bangladesh made a great progress. The first tool is to give people agency and access to financial services. So mobile financial services is the key to giving people access to financial services. It has benefit to the individual, their family, and to the economy and it had added benefit of formalising the economy and providing opportunity for widening the tax base.

We don’t want to run a bank or compete with the banking sector. Basic financial services cannot be serviced by banks today because they are so small. We want to create a fertile ground of people where so they can graduate to conventional banking over the next 5 to 20 years.

Barring mobile phone companies from this service is a tactical mistake. Again, we will have discussions about this and see what we can do. It is not the most profitable part of our business, but it is an important part of the contribution of mobile to the economy.

Prothom Alo: Does that impact your growth trajectory in the future?

Michael Foley: No. Mobile financial services can be very, very big for mobile operators. For Safaricom in Kenya for example, it’s a big part of their business. We see it as an adjunct to the business. It is a service that we wish to find a way to offer to our customers and we need to find a way to build that into the product portfolio in a way that we can control some of the risk in that. We don’t want to be a bank. We want to have a good sustainable role in providing mobile financial services to customers. That needs to be reviewed sometime this year as well.

Prothom Alo: GrameenPhone is the only telecom company registered with the share market. You have about 10 per cent shares with institutional and individual investors. Do you have any plans of floating more shares in the market?

Michael Foley: The quick answer to that is, no. We have about 30,000 individual shareholders in the company right now. It’s a massive responsibility. We are pleased with the operation of the stock market. We try to play a role now because analysts follow us as a proxy for investing in Bangladesh even if they don’t own our stock. We take great care in properly representing the opportunities of Bangladesh to the rest of the world. My colleagues and I get to meet with over 200 or 300 analysts every year, either one-on-one or in group sessions and we carry a very positive message about investing in Bangladesh and coming to the stock market of Bangladesh. That is a fundamental, sacred kind of responsibility that we have as a very large publicly traded company here.

I don’t think we are going to put more shares out there on the stock market. We are happy with the split that exists right now between the majority player in Oslo and the local large share holder. I don’t think that will change.

Prothom Alo: About your future business growth, in which sectors do you plan this? There’s been voice, internet and now we hear about IOT...

Michael Foley: Bangladesh still has 25 million or maybe 30 million people who don’t have access to their own basic phone yet. So in basic phone services, there is significant growth.

On the data side, we are at the very beginning. 4G is the real data experience. It is only 9 months old. So that is going to grow like crazy over the next 3 to 5 years in this country. And then comes all the adjunct and important technologies that come with the fourth industrial revolution and the threats and benefits that come with it. There’s AI, machine learning, IOT. All those tools are now coming here. And they depend fundamentally on wireless telecommunication services. That is the framework upon which the economy is built in the fourth industrial revolution. There is fibre optics, but it is dominantly the wireless technologies. We see fantastic growth, and in Bangladesh very high growth over the next number years. We are very enthusiastic about this market.

Prothom Alo: The onset of AI means replacing people. Does GrameenPhone plan to downsize on its employees?

Michael Foley: We have actually created more jobs. We have moved customer care to a contractor who does it better than we do.
Inside the organisation, yes, there are effects of automation. But in this market, we don’t do our own fibre, we don’t do our own towers now, we don’t do financial services. We would love to create more jobs even in those areas, but we can’t do that. What’s left to us now is part of the business which is becoming more and more automated. That puts some pressure, but on the other side, we create Telenor Health, we create Shopparoo and other kinds of businesses on the side which are actually creating different jobs.

Overall, the infrastructure that we create, creates opportunities for hundreds of thousands of jobs in the country. I feel quite at peace with that. But it is absolutely true that when you look at the fourth industrial revolution, and AI, and automation, and machine learning, we have to be very careful on what that means and also understand that it has the potential for social dislocation by the replacement of jobs by machinery. And there are perhaps concerns over the historical advantage that Bangladesh has had in labour arbitrage. If these low cost jobs are now replaced by machines, what does that mean?

We are not unique and we have to make sure that we continue to invest in jobs and technology, in technology manufacturing, and in technology innovation. So we have to make sure that we have the jobs that we require, the 2 million jobs every year to absorb young people into the workforce. It’s a big challenge. When we look at the future we see AI and think, that looks wonderful. But there is a side of this that we need to manage as well. And we are not different than any other company when that happens.

Prothom Alo: The World Bank doing business index ranks Bangladesh at 176 out of 189. Do you think Bangladesh is actually in such a bad position?

Michael Foley: Having been here for 22 years, institutionally we have developed the tools that allow us to operate quite effectively in this market. But when foreign investors look at investing in Asia for example, these indicators are very important. The boards are not going to come to travel here for this.

When you come to Bangladesh, you can bring investors here and they can go to a company like Square and see an FDA class, world-approved pharmaceutical manufacturing company. You go Elite Garments and see how employees are taken care of and how they build stuff. When you see the construction, the entrepreneurship, the culture, people want to invest here. But from the outside, these indicators are really important.

This is a country that is taming mighty rivers with mighty bridges. This is a country that is building nuclear power plants. It is a country that has built one of the best mobile networks in the world. It’s a country that has put a satellite in space. If we gave ourselves the objective of fixing our ease of doing business index and moving it from 176 to maybe where it was in 2008, at number 88 in the world, the flood of foreign direct investment into Bangladesh would be difficult to handle. It has to be a project of the government, of society, and of industry, to fix this problem. BIDA is dong excellent work in this area under the leadership of Kazi Aminul Islam, but he needs help. He needs more resources. They have to be able to say we are going to take 12 months to fix it, 12 months for the rest of the world to figure out that we fixed it. Then we can see more foreign investment coming in. But that 176 is real. It is seen from the outside as a major barrier.

Prothom Alo: There are three major operators in Bangladesh - GP, Robi and BanglaLink. Do you think there is scope for another operator?

Michael Foley: Probably. It depends on the appetite of the investor. This is a very challenging place to do business. I would very much like to see more growth in the other guys. They are all big businesses. These are not small businesses – 36 million subscribers is the population of Canada where I am from. They need to figure themselves out and start to make money for their shareholders.

But there is scope and so much opportunity. There is nothing wrong with another player coming into the marketplace. But it is an expensive market venture. While the geography is small, the number of people you have to service is large. It is intimidating. But yes, there could be another player in this market.

Prothom Alo: Is MNP (Mobile Number Portability) a challenge for you?

Michael Foley: No. It is a necessary step. Any regulatory environment has MNP. MNP allows people to change their network without changing their number. The total amount since its been launched has been in tens of thousands of customers moving around. We have only made it available. We have not advertised it. We have not gone after our competitors’ customers at all. We’ll just see how it evolves.

Prothom Alo: Would you say in any way that the government is hostile towards you?

Michael Foley: No. The government is not hostile to us. We are the biggest financial partner of the government, our company and the industry. Our company in particular is the largest individual corporate tax payer in the country, the second largest VAT payer. Do we have tax disputes with the government? Absolutely. Name me a company that doesn’t. We have them, we deal with them.

I don’t feel the government is hostile to us at all. On the contrary, we have been a big arrogant player in the market in the past, perhaps not spending enough attention to the realities of what is needed politically and what is needed for the government to deliver on its promises. My mandate had been to take a different approach to this and to find ways to work together with stakeholders in order to find the right solutions.

We are a big company that has been extremely successful here. And that attracts people sometimes who are a little jealous of what we can do. We are a big player and we play a role in the economy. So a little bit of humility is important. My team and I try to bring that to the table. We try to solve problems.

Prothom Alo: Is there anything else you would like to say or share?

Michael Foley: We are blessed to be in Bangladesh as a company. It has changed us fundamentally as a group. We export talent from Bangladesh. There are about 35 individuals who now work in different parts of Telenor Group from Bangladesh.

For me personally, the experience of being here or almost two years now, has changed me as a manager. It is a complex working environment and you have to spend a lot of time with stakeholders. But there are few places in the world where there is a population this size, but has had the economic growth that it’s had over the last 10 years, where so many people have been raised from poverty towards middle class living. There are still a lot of things to be done. That has created fantastic opportunities for our company, for our business, not only to provide telecommunications services which are almost a human right now, but also to provide opportunity for a telecom or IT infrastructure and eco-system to build in order to make the country more competitive internationally. That is a mission.

Finally, we try to run our businesses openly, transparently and honestly so that we can be an example to the rest of the world, that it can be done here and you can invest here. That is a mission that we are very happy to take on. We take this on with humility and we try to do better every day.

Prothom Alo: Lastly, what is your impression about Bangladesh and the Bangladeshi people?

Michael Foley: I have visited the whole country. This is the place where the poorest of the people will give you half of what they have. It’s a place where I see incredible industriousness, where entrepreneurship comes from the bottom up. People call the garment industry a miracle. It is not a miracle. Some people see the growth in the economy, the growth in the middle class as a miracle. It’s not a miracle. It is vision and policy and execution and hard work from the bottom up. So for me being here is a real education. Hopefully I can give something back while I am here. It is a real pleasure and a real privilege to be able to do this.

Prothom Alo: Thank you

Michael Foley: Thank you