News From Telecom World

No more cheap SIM cards

Posted on: September 23, 2008

Mobile phone operators have reduced subsidy on SIM cards, putting their plan to connect people in rural areas at risk.

The top three operators Garmeenphone, Banglalink and AKTEL have hiked pre-paid SIM card prices to Tk 400 and post-paid SIM card prices to Tk 1,000 from the average sales price of Tk 150 two months ago.

The increased connection price reflects operators’ intention of not willing anymore to bear the burden of Tk 800 in tax on each SIM card, which they said customers should pay.

“The subsidy we have provided until now is primarily on the current Tk 800 SIM tax. We have reduced the subsidy on the SIM tax to ensure our affordability to continue to invest more in the market,” said Syed Yamin Bakht, director (public relations) of Grameenphone.

Since the imposition of Tk 900 tax on SIM connection in the 2005-06 budget, the mobile operators have been taking all the burden of this taxation as they anticipated that the government would eventually withdraw the tax. But the government never withdrew the tax. All it did was reduce the tax to Tk 800.

The SIM tax coupled with an aggressive customer acquisition placed the operators much short of the breakeven they expected.

According to market insiders, the mobile telephony industry’s monthly average revenue per user is only Tk 145. On the other hand, operators spend Tk 1,100 on each new connection, when they sell a SIM card for as low as Tk 100.

On average, the operators have to wait more than seven moths to recover the money they pay in tax on behalf of their customers.

Of the six operators, the top three enjoy around 90 percent market share with countrywide network coverage. However, the small operators are now concentrating on rural customer segment.

Mobile industry insiders consider the people of 15 and 65-plus years age groups as prospective customers, with most living in rural areas.

“Much of the future growth will come from the financially constrained segments and the SIM tax is a major barrier to this growth,” Yamin Bakht said.

“We are still providing a considerable amount of subsidy, but we hope the government will either reduce or withdraw the existing SIM tax,” he said.

The GP official said any government move for tax cuts would enable a much larger number of people to benefit from the modern communication and information technology and contribute to an increase in government revenue earnings.

Operators fear their plan to connect people living in the rural areas would be hit hard by the increase in the SIM prices.

The top officials of the six mobile operators who met several times after the final budget announcement expressed concern over a huge number of inactive connections. The officials also said availability of low-cost connections was also a reason for making losses even after having a good number customer base.

“We increased the connection price so that customers can feel they own a phone and they must bear the cost,” said Bidyut Kumar Basu, chief commercial officer of AKTEL.

Due to a stiff price war in the highly competitive Bangladesh’s mobile telecom market, the mobile phone operators used to bear customers’ whole tax burden.

This was done because of industry-wide anticipation that the government would significantly decrease the SIM taxes soon as the tax hurts operators in the industry financially, said Solaiman Alam, head of PR and communications of Banglalink.

Operators now feel that huge subsidy is a reason for incurring losses.

“The burden of high SIM taxes coupled with continuous negative earnings has led us to revise the acquisition costs,” Alam said.

“With the increased prices we will provide products that offer the best value, which will ensure the connections being used by the more serious users as opposed to multiple SIM users,” he said.

At present, except Grameenphone, all other operators fall short of profitability.

Source: Daily Star

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