Access to the Internet means that people will get better and more affordable services. So that their business can be easier. But in Bangladesh the authority collects 70 percent tax from mobile operators in various ways.
They pay for spectrum pricing, minimum tax, excise tax, VAT, corporate income tax and they also pay social obligation funds. Veon Telecom Group CEO Kaan Terzioglou thinks these systems are actually negatively affecting investment decisions of foreign investors & companies. Kaan Terzioglou spoke to Ittefaq about these issues.
He was interviewed during the World Mobile Congress held in Barcelona, Spain, from March 2 to 6. Banglalink, a subsidiary of Veon, operates in Bangladesh. The interview was conducted by senior reporter Samir Kumar Dey of Daily ITTEFAQ.
Ittefaq : Do you have any plans to invest in Bangladesh in the near future?
Kaan: You know, there are some differences between how our industry is operating in many emerging markets and Bangladesh. And one of the key differences is, in Bangladesh we have too much fragmentation in the value chain of the telecommunication industry in terms of licensing requirements. You know, there are so many limitations that you can do that, but you cannot do this. Even a simple call from a mobile operator to another mobile operator, somebody in between. Or you cannot have fiber connectivity and you should only focus on this. And by the way, if you're a mobile operator, you cannot own towers. And if you're a mobile operator, you cannot provide financial services. There are so many things you cannot do that it is hard to find what we can do. And what we can do often is practically mostly pay taxes. We can pay taxes, we understand that. We can invest. That's also okay, but not much more than that. And what's very interesting, it doesn't matter if you are profitable or not. And we are not profitable currently. I'm not proud to say this, but the reality is we are not profitable, but you still pay taxes because minimum tax kicks in. So, you know, 98% of profits in the industry is done by one player, but we all pay practically the same taxation. I don't think this is a fair environment. And I think there is an opportunity now, a unique opportunity for Bangladesh to change this. We don't need to have this fragmentation. We are the cheapest channel to provide services to the public, to people. Let me give you an opportunity, a real one that I have experienced recently in another country, with similar demographics and, a large population underserved, Pakistan. In Pakistan, we have the biggest mobile financial service business. It's a brand called JazzCash, and we have 44 million bank accounts active in the system. We have 20 million customers. We are the largest, actually, financial services operation in the country. There was a flood. About 10 million people were impacted by the floods. And the government decided to help these people by sending money. How do you send money to a country like Pakistan? These 10 million people are not the type of people who have a bank account. You put trucks. You put cash. Cash goes to these villages. They pay. Some of that money is already stolen on the way. And the money that they pay, you know, they pay to one person. The other guy mocks the money from him, or they give the money to the woman, and the husband comes and takes the money. Total inefficiency. So this year, they decided to do it through the cards. How do you get a card? You need to have a bank account. I was in a meeting literally, and people were talking, and the banks, they said, we cannot make money from these 10 million people. It will cost us too much money, and too much effort to open a bank account. They called those people the bottom of the pyramid. What they call the bottom of the pyramid is our valuable customers. And we know how to operate and service people with very little income. You know, our average revenue per person (ARPU) on a monthly basis is maybe less than 2 cups of coffee, $1.3. But with that, we can still reach out to millions of people, we can put the money on the cards in a bank account, deliver the card maybe to the mother and make sure that the money is spent in the right places. But, we need to be allowed to have a mobile banking license. We need to be allowed to have a merchant acquisition network so our cards are accepted at small stores. And, I think even this will accelerate the digital economic development of Bangladesh. Can we do it today? No, we cannot. And, who does it? Interestingly, there is also no alternative. There was one company, I think, Nagad. bKash is doing a good job, by the way, but it's not enough. Why do we have one? Nagad has, I think, run into troubles during this process. I think, urgently, we need support from the regulatory bodies that operators like us, we should be able to have mobile financial services, digital banking licenses, so that not only the lucky 3% of the population has a bank account, but everybody has that capability. Of course, issues around licenses to lay fiber. Why should we depend on somebody else? Why should we be exposed to higher prices than we should pay? We should have chances to operate our own towers. We should have cut these unnecessary cost elements like interconnect for local calls. I don't know how many other ones, if you have any other ideas that we should be simplifying, I think we should really talk about these things. I can tell you that this will accelerate the investments in the country. It will increase the quality of services, people who have access to financial capabilities. Those are the things I'm hoping that the interim government will drive. This is a unique opportunity because nobody has a vested interest. I'm very impressed with the quality of your interim government. Every single person, every single minister is really somebody who knows his subject and who is really committed to the country. But of course, making decisions is important. If the mood will be, let's wait for the elections and the next incoming government will make the decisions, I think we will miss an opportunity.
Ittefaq: You say MFS (Mobile Financial Service), is very important with mobile operators. Like you said, Nagad. Nagad, one of the mobile financial services in Bangladesh, it's facing challenges in its time. If you have permission, are you interested in buying Nagad?
Kaan: Look, for us, creating a new service is a matter of months. I mean, today, if somebody gives me the digital banking license, in three months today, we will do here the first fifth million customer acquisition. We don't need to buy another asset. But if there is a value from a public perspective that there is an asset that needs to be utilized for the goodness of the country, of course, we will be looking at it. But for us, we can easily bring the knowledge we have in other countries and celebrate our 10th million customers in six months.
Ittefaq: You have experience with mobile financial services. Okay, we have analysed some of the things and we drafted some questions informally. I can ask some questions at this time. First of all, a question. How do you see the impact on Bangladesh's fast-growing digital ecosystem and what opportunities AI creates for telecom operators? Please give a short brief on QazCode and its potential in Bangladesh.
Kaan: First of all, I would like to make one observation. In the previous environment we often had instructions to shut down the internet. When you shut down the internet, you are shutting down the future of the digital economy, right? Because how can you develop an ecosystem if the players are not sure that tomorrow that they will be able to transact online? I think now, again, it's a period of opportunity because now we can sustainably build businesses which rely on online capabilities. I think this is a new era that we have to take a fresh look at this from the capabilities of e-commerce, from the capabilities of having mobile payments, from the capabilities of having financing available to millions of people, I think now there is an opportunity to really focus on. In the meantime, of course, if I look at the vast landscape that needs to be covered, we should also think about how to make this sustainable by improving connectivity. How do we link terrestrial services to satellite services? I think all these things should be in our minds, and we should also help the entrepreneurs in the country with the right cloud services, and data center services, to build their infrastructure.
Ittefaq: Okay, SMP, fair competition. Yes, the SMP is crucial and very important in the Bangladesh market. The two or three operators, Grameenphone, Robi, Banglalink, and Teletalk. With Teletalk, the government operator, especially the private operators, Grameenphone is one of the operators with the largest portion captured in the total market. I want to say, how you feel in this situation, and how you are surviving in this telecom industry, where fair competition remains a key issue in the Bangladeshi telecom sector. What regulatory changes are needed to create a level playing field for all the operators? I want to add another question, the SMP declared by BTRC is not being properly implemented yet. What do you think the regulatory body should do?
Kaan: Look, all the other issues that we discussed in terms of fragmentation of the value chain, inability to deploy fiber, inability to have direct connectivity in between the mobile operators, not having towers, not having digital banking licenses, if I compare the handicaps, I would give priority to these handicaps because we want to compete on service, but we are not allowed to create these services. So it is actually not only the issue of there is one big player, but we are also, you know, kind of our hands are tied in terms of competing on the service level. I think Grameenphone, over the last three decades, has done a great service in the country. But of course, when you see a marketplace where one player has 55% market share, but 98% market share on profits, you understand that something is broken. I would rather solve this problem by creating a liberal environment for us to freely compete in everything that we do best, rather than trying to stop a good service company which has done a good service, open our opportunities so that we can compete better, rather than stopping something. That would be my answer. I think, you know, investing in Bangladesh in a country of 185 million, is something that needs respect. And we do respect all the competition in the country. If I look also at the dynamics in the industry, look, China, 1.2 billion population. There are three operators in the country. And there is only one infrastructure provider in the entire country. Look to India. In India, again, there is a 1.4 billion population. Actually, there are only two operators in the country, and there is one infrastructure. It is not rocket science. I think Bangladesh needs to consolidate, have a redundant but one national infrastructure company, and not necessarily three or four operators. I think two operators will be enough in this market. But again, it requires a liberal understanding that we should be able to discuss with our counterparties how to create this environment. By having, I think, more than one operator for more than 100 million people, okay, is a waste of resources for the country. We buy the same equipment twice, three times, four times. Why do we need to do this? You know, Bangladesh is not a country which can afford throwing money out of the window. We can buy the same equipment and easily service more. And this is also, I think, something that we should look at.
Ittefaq: Do you think SIM tax in Bangladesh is rational ?
Kaan: Look, you know, it's a concept called SIM tax. You know, it doesn't exist in other countries. Because, why should we make it more expensive and difficult to be connected to the internet? I mean, connecting to the internet means the person can get better, cheaper services from the government, can access financial capabilities, and can do trade. No, but we tax $2.5 to buy a SIM card. That's the money the government gets. How much do we get? Less than $1. This is unfair. And you know, when I look at the SMP regulations, I think the concept of being fair or unfair is not among the three players. It's among the government and the sectors. The government takes 70% of the revenues as taxes in one or other forms. We pay spectrum, we pay minimum tax, we pay excise tax, we pay VAT, and we pay corporate income tax. Even social obligation funds. And you know this is. Look, maybe this is in between us, but I want to share with you because when a government takes, for example, from investments, import tax, they actually benefit from the waste of investments, right? But the money is people's money at the end of the day. Because, you know, the government is very happy that I buy equipment, you know, Grameen buys equipment, Robi buys equipment, because they get 30% tax each time. If they allow us to share the networks, we will buy one piece of equipment. If they allow us to share spectrum, they cannot sell spectrum five times the price of the global benchmarks. So the system is actually negatively influencing the decisions. The government's role should be to take as little tax as possible and provide services despite that. Imagine we pay money to get a license to do our job, we pay money for Spectrum and then we are again paying money for the SIM tax. And you know, we actually saw that buying a new SIM actually is more preferred by the users, the customers, than topping up. this does not exist anywhere. This is unique. Nowhere there is a concept of SIM tax. It is an innovation.
Ittefaq: OK, about spectrum pricing, yes, we have for a long time been trying to say that the spectrum pricing is high in Bangladesh. The question is, spectrum price and taxation policies significantly impact long-term investment from mobile operators, what policy adjustment could encourage investment in Bangladesh in the digital future?
Kaan: Look, first of all, we are of course coming to a point where we're going to be using AI more, right? And AI will require lower latency networks. 5G will be essential. The government should distribute 5G spectrum free of charge. That's it. You know, there should be no taxation at all. And then keep the, you know, operators responsible for early rollout of the technology. Because if the technology is rolled out, then you have an opportunity to digitize the economy. If you digitize the economy, you will start seeing retail businesses where the money is made, where the profits are made, and then you can widen your tax base. You know, Bangladesh is one of the unique countries where very few people actually and businesses are paying taxes. We contribute five times more than the average tax contribution of every industry. You know, we are at 1% of GDP, but we pay 5% of taxes. So we are paying somebody else's taxes. Then at least allow us to digitize the economy so that you can tax it more evenly. And I think that's one thing that we have to think about. And we have discussed it now when I speak, last time we were in the country when we spoke with the regulators, authorities, they actually understand this. But there is this general feeling that “Oh, you know, we are temporary, so we should wait for elections.” I think the mindset should be, “We have a unique opportunity to make these changes because we can be brave. We are here because we came with brave Bangladeshi people's mandates.” They are the strongest today. When you move to the political times, that strength will move away slowly.
Ittefaq: VEON and Starlink are going to be a partnership?
Kaan: No, we already have a partnership with SpaceX and Starlink in Ukraine. And this is a new constellation of satellites which allows LTE signals directly emitted to the devices. And it is not the traditional Starlink service where you have a dish and the connectivity happens through data that is coming through the satellite to the dish. This is direct to the device, meaning that there is a capability. You will receive direct messages on your LTE-capable device. So this is the agreement we have made in Ukraine. And I would like to actually, if it is affordable, to bring this agreement to all our countries. However, this service to be activated requires five megahertz of spectrum. Now, five megahertz of spectrum in Ukraine is affordable. But I don't have that, you know, budget. So five megahertz will be $100 million, it will be $110 million. Now, this cost doesn't exist in Ukraine. That's why I can do the partnership with Starlink there. But in Bangladesh, unless the government gives us 5 megahertz to be used for emergency services – which, by the way, I think they should, because nobody will make money from emergency services. But the ability for somebody who got stuck up in a cyclone and sent a message to – a shelter center, or rescue, is essential. But under today's conditions, it's very, very expensive to do this. It's actually more expensive than satellite connectivity.
Ittefaq: Especially for this spectrum, they should be doing something. The regulatory framework is evolving to support digital transformation. What policy transformation is crucial for unlocking the potential of AI and digital services in Bangladesh's telecom industry?
Kaan: Look, I think AI is really critical and you know we are unfortunately, we are not in a country where everybody speaks English. OK, Bangladesh is blessed because many people speak English, but there is also a portion of the population which speaks, you know, Bengali. So we have to make sure that AI tools are also available for that. For example, this is what we did in Kazakhstan. So we have developed this Kaz-LLM so every Kazakh citizen who doesn't speak English can also utilize this AI capability. And our objective actually is to make sure that we have these tools available to people so that, for example, a young mother, in Dhaka, may not have the experience to take care of a newly born baby, but we can create an augmented intelligent agent which could augment her experience, skills and competences. Or we can do the same for a teacher so that the teacher is better prepared and maybe even equipped with new subject matters. Maybe the teacher of geography tomorrow can become a teacher of algebra. Because we can give her or him the capabilities to teach a new subject matter. So these are the things that we are working on, and Kazakhstan was the first country that we developed this technology. And QazCode is our technology company in Kazakhstan. About 1,000 people, software engineers, work there. And they developed the Kaz-LLM. And I look forward to building the same in Bangladesh. But I'm sure when we want to do it, they will say you need an AI license. It's happened already. You need to have a license.
Ittefaq: I have a question on Banglalink. What is the profitability roadmap for Banglalink? And how does it align with the company's long-term vision for digital transformation?
Kaan: So, you know, in order for Banglalink to become profitable, a couple of things should happen. On one hand, the interim government does a fantastic job of deregulation and reducing taxes, which could be a great way for us to get back to profitability. Or else, we will take the difficult path of increasing our prices, and not by 10-20%. We need to increase it twice because 60% of the revenues go to the government again. So this is, this is the only way and we should be allowed to share our networks with the competition, and effectively. All these changes could make Bangladesh's operation for us profitable, but more importantly, will allow us to invest and deploy the best 5G network in the country. But it requires these steps.
Ittefaq: Thank you very much!
Kaan: Thank you! Great to have you here! Ramadan Karim!
Samir Kumar Dey is a senior reporter at the Daily Ittefaq.
