Arab Mobile Communication Studies

Iqbal Quadir's inspirational essay

Early in 1993, I was working at an investment firm in New York where my colleagues and I worked together on the same reports requiring cumbersome and frequent exchanges of floppy disks. When a simple link installed among our computers eliminated the need for physical exchanges of disks, we produced reports faster and worked more comfortably and creatively. One day, when the link failed, I could not help but think of the contribution the link had made to our productivity while it was functional.

This thought reminded me of my experiences in a village in rural Bangladesh during the country�s war of independence in 1971. The war started in urban areas forcing my family to take refuge in a relatively remote village. The region had no modern infrastructure, except for two motorized boats that carried passengers and cargo between two towns and touched near this village as one of their stops in between. For several months, the war forced these boats to suspend their services. When they started running again, there was an immediate positive effect on village life, leading me to note how communication mattered. Farmers and fishermen received a better price for their produce, and more things became available for purchase. The improvement was so dramatic that even at the age of 13 I observed it clearly.

In addition, one day during this period, I spent a whole day walking between two villages. My parents had sent me to a village 10 kilometers away to collect some medicine from a village-pharmacist. After walking for most of the morning, I arrived at my destination only to learn that the pharmacist had left for the city to replenish his supplies. It took me all afternoon to walk back home.

Thus, when the computer link in my office snapped in 1993, I saw the wasted day in 1971 in a new light. Connectivity is productivity, be it in a modern office or an underdeveloped village; connection enables, disconnection disables.

Poverty of Initiatives

If connectivity meant productivity, then it must be a weapon against poverty. But how was my native Bangladesh doing in 1993 on this battlefront against poverty? Research made me rediscover that Bangladesh chugged along mostly without phones, causing me to wonder how much human energy was wasted in an unconnected nation of 120 million. There were 2 phones per 1,000 people (as opposed to 10 per 1,000 people in India) and virtually none in rural areas where over 100 million of the population resided. This was particularly disturbing because it was a time when new forms of connectivity such as the Internet and email were beginning to transform even matured economies such as that of the United States.

About this time, in 1993, I learned that the Government of Bangladesh would initiate a process to issue cellular licenses in 1994. This was very relevant, as I believed that convincing existing telephone operations to provide services in areas where there was none would be virtually impossible. To achieve rural connectivity, one would need to think in a new way and establish and operate a new telephone company - in this case, a cellular one - for which a license would be needed from the Government. I had to organize quickly as this legal window of opportunity, if it did open, was unlikely to stay open very long.

To be sure that my thinking was in the right direction, I looked for any existing evidence of a link between telecommunications and economic progress. I was surprised, not because I found the evidence, but because of how compelling it was. It appeared that telecommunications investment made a bigger contribution to economic growth than almost anything else. According to research and analyses, including those by the International Telecommunication Union, an arm of the United Nations, a poor economy like Bangladesh would grow by $5,000 annually in GNP due to one additional phone that, as it turns out, would only cost $1,300. An additional economic output of $5,000 per year - equivalent to 20 times the country�s per-capita income - from a one-time investment of $1,300! It was clearly an opportunity not to be ignored by a poor country.

This $1,300 reflects the cost of adding one additional line to an existing network of telephones. It could be further broken down to three constituent parts: (a) the cost of laying a cable from an individual house to an exchange which directs a call from an origin to a destination; (b) marginal cost attributable to one telephone line for transmission among exchanges; and (c) the cost of exchanges attributable to one line. These three costs do not include the price of a telephone receiver set (or the handset in the case of a cellular system), they only represent the costs of the background system that enables a telephone set to connect to other sets. As an example, the state-run operation in Bangladesh was planning in 1993, and later completed in 1996, a project that added 150,000 new telephone lines in the urban areas at a cost of approximately $200 million. Although this state-run project was only for a few urban areas where it is cheaper to lay cable due to a larger concentration of customers in smaller place, I calculated that the per-line cost of a cellular system would not exceed this figure even if it included the rural areas. While certain parts of a cellular system are more expensive than a fixed one, the cellular approach has an advantage of having no cost of laying cables to individual homes. Instead, a cellular system has radio transmission points, with each point providing "coverage" over a patch of land within which people can operate their telephone handsets. The system extends its coverage by building these patches or cells one after another. The beauty of the system, I realized, also lied in justifying a rural coverage, above and beyond the purchasing power of the rural market. The highways and rivers, that would need to be covered to serve mobile urban customers, necessarily go through rural areas to connect distant urban centers. To serve the mobility of the urban customers, at least some parts of the rural areas would need to be covered anyway. Another beauty of the cellular system was its flexibility in adjusting the size of patch of land served by a particular radio transmission point. If a patch is sparsely populated by callers, it can be enlarged to include more potential customers to make that particular radio transmission point more economically viable.

Moreover, telecommunications equipment, being manufactured like computers using microchips and software, is declining in price every year, making the economic argument even more compelling. This truth is even more dramatic for the cellular system that does not involve wires and is more dependent on microchips and software. Interestingly, the telephone services were priced higher than what is economically necessary in underdeveloped countries like Bangladesh in order to curtail demand so that the limited supply - limited due to failures in investments - would not be overwhelmed by demand. Suppressed demand, of course, meant suppressed economic progress.

On the theoretical front, my understanding of economics, of course, was consistent with the idea that connectivity contributed to economic progress. From the time of Adam Smith, if not a time earlier than him, it is well known that specialization leads to higher productivity. Since the flip side of specialization is the need to rely on the skills and works of others, an increased ability to connect to others, I believed, would contribute to increased specialization and productivity. To give another example, it is also known since David Ricardo that if two nations traded on the basis of their comparative advantages, both nations gained. And since Ricardo�s logic could easily apply to other economic entities such as individuals, each of any two persons could gain through specialization and exchange. I found connectivity to be consistent with all ideas of economic progress.

It became clear to me that the problem in Bangladesh was a poverty of initiatives, not economic poverty. It officially cost $500 to start a fixed-line subscription in Bangladesh. This was one of the highest start-up costs in the world, ironically in a country with one of lowest per-capita incomes. Demand was clearly being suppressed artificially and did not reflect the number of phones the economy could sustain. Even India, a country with similar problems in telecommunications and similar economic conditions, had five times as many phones on a per-capita basis. There was a clear need for an initiative to be taken, and I volunteered.

Devising a solution

Although attracting commercial investments for a telecommunications service in rural Bangladesh was perceived to be extremely difficult, I felt that there had to be a way. If connectivity indeed meant productivity, there had to be a way to collect a part of that productivity gain to pay for the necessary investment. The key point, I kept in mind, is not how much money a village had to purchase telephone services, but how much money the village can make if the services were made available. The villagers would pay for the service from what they make from the services. This realization allowed me to delve into the problem without having the right solution at hand.

After a year of self-study, I concluded that the general lack of other infrastructure was the main impediment to bringing telephone connectivity to Bangladesh, especially to its rural areas. There were not enough roads to send repairmen, not enough records for credit checks on customers, not enough access points for potential subscribers, or enough banks to collect the bills.

One bright spot in this gloomy situation was a remarkable institution called Grameen Bank, which had rekindled hope throughout the rural areas and had some of the necessary infrastructure. The Bank operated in 35,000 villages through 1,100 branches and 12,000 workers. Bank workers obviously made good credit decisions as 97% of its two million borrowers paid back their loans. Typically, a woman would borrow $100-200 without collateral from Grameen Bank to purchase, say, a cow. The cow would then produce milk that she would sell to her neighbors, enabling her to make a living and pay off the loan. The process allowed the poorest of the poor to stand up on their feet.

To me, connectivity could play a similar role since both credit and connectivity empower individuals. Just as credit obviates a producer�s need to depend on middlemen, a telephone could connect producers with customers and suppliers without intermediaries. More importantly, following the Grameen Bank theme of promoting self-employment, I proposed that a cellular phone can be used as a means for income generation for the poor. That is, a telephone could serve as a cow as well, at least from the perspective of the Bank�s borrowers. A woman could borrow, say, $200 from the Bank, purchase a handset and sell telephone services to villagers, making a living and thus paying off her loan. It would create a self-employment opportunity in each village and provide access to telephones to all.

Although, at the time, modern telecommunications was far removed from the activities of the Bank or its borrowers, my proposal of income generation for the poor quickly caught the attention of Muhammad Yunus, the founder of Grameen Bank. Yunus, a man of extraordinary visions, appreciated all the arguments I made in favor of a connectivity program for rural Bangladesh. He permitted almost unlimited access to himself and to Khalid Shams, the second man at the Bank, who is an epitome of professionalism with an impeccable record of public service. The access to the two of them meant an access to the best reservoir of clear thinking in the country. And Yunus� endorsement of the idea provided the necessary credibility.

Implementation

With Yunus� encouragement to explore the possibilities, I left my venture-capital profession in early 1994 and started making realistic plans and strategies for finding telecommunications operators who would be willing to invest in such an operation in Bangladesh. To raise the funds for research, consultants, travel, and other efforts, I convinced a socially conscious American investor named Joshua Mailman to form a company with me in New York. By giving Mailman a substantial ownership of this company with the idea that this company would own a part of a possible operation in Bangladesh, I was able to promise him a possible economic return for his risky investment, if I succeeded. We called our New York-based company Gonofone Development Corp. to play a developmental role in establishing a people-oriented company in Bangladesh, with the Bengali word "gonofone" meaning people�s phones. The seed capital in Gonofone allowed me to plunge into my effort full time, or more precisely, into a full-fledged obsession, with all the risks of having no "real" job.

As a practical matter, attracting foreign investment to Bangladesh still turned out to be difficult. After all, I was trying to attract investment not only to a poor country but also to the poor of the poor country. But, over time, I learned to show to potential investors the bright sides of the concerns they had about Bangladesh. For instance, a terrible telecommunications situation in Bangladesh meant that investors needed no anxiety about saturating the market. The negative image of the country meant a relief from competing with too many strong foreign operators. The country�s overall poverty meant that the Government could not ignore reform prescriptions from outsiders such as those from the World Bank. Low purchasing power of the population, particularly the rural population, was addressed through our economizing solution of one-phone-serving-many-people. In addition, the project was expected to enjoy the price declines for equipment and handsets in a late-stage of development of cellular telephony. Bangladesh�s slow bureaucratic process also, ironically, gave us enough time to organize, which was, of course, constrained by a lack of resources. In short, the bad things were not so bad.

There was another problem that involved reconciling my original goal of brining telephony to the rural area. This goal was perfectly consistent with Grameen Bank�s development agenda but it needed also to a foreign investor�s need for economic returns. These apparently conflicting agendas were reconciled by careful design of the project and by the fundamental point that good business is good development. For instance, the involvement of the rural poor is a good development strategy for promoting self-employment while, from a business perspective, it lowers the distribution costs of telecommunications services in the rural areas. The provision of connectivity to the rural areas meant development of those areas while, from a business perspective, it meant tapping into the neglected rural market constituting 80% of the population and at least 50% of the economy. Providing services all over the country meant connectivity for hitherto neglected areas with a profound impact on their development. Yet from a business perspective, a nationwide service meant tapping into a lucrative long-distance market, a market that had been sidestepped by having most telecom services confined to a few cities.

In the fall of 1995, several things came together. I was able to convince Telenor AS, the primary telephone company in Norway, to join the effort. In the meantime, Grameen Bank had established Grameen Telecom, a non-profit organization to manage the Bank�s interests in telecommunications. Among other things, Grameen Telecom was set up to administer Grameen Bank borrowers who choose to retail telephone services in the rural areas. Near the end of 1995, Telenor, Grameen Telecom and Gonofone together submitted a proposal to the Government in response to its invitation for bids for cellular licenses. At the end of 1996, nearly four years after I dreamt of bringing connectivity to rural Bangladesh, and after much effort by Grameen Bank management, including that of Yunus and Shams, a nationwide cellular license was issued by the Government of Bangladesh to GrameenPhone Limited, a company owned by these three bidders and Marubeni Corporation of Japan which joined the effort subsequently.

Results

Today GrameenPhone is a commercial operation providing cellular services in both urban and rural areas and already has 65,000 regular urban subscribers. GrameenPhone is proceeding with initial funding of $125 million, including a $60 million loan from the International Finance Corporation, Asian Development Bank, Commonwealth Development Corporation in Britain, and Norwegian Agency for Development and Cooperation. This initial investment of $125 million is expected to create a network that would comfortably serve 170,000 subscribers, or $735 per subscriber, in terms of erecting the background system (leaving out the costs of handsets to the customers). Further expansion would come from the company�s internally generated cash. The company�s 6-7 year goal is to serve 500,000 subscribers in the urban and rural areas, including 68,000 dedicated to serving the rural areas with one phone serving one village.

Although GrameenPhone aims to cover all of Bangladesh which contains 68,000 villages, 1,100 villages where phones have been already placed (by the end of 1999) confirm that the village phone concept is economically viable. Each of the village operators is making money at the rate of $700 per year, after covering all of her costs. This earning of more than twice the country�s annual per-capita income (quite meaningful for a family in rural Bangladesh) is proof that phones are being put to good use in these villages. Soon hundreds of villages will have the same facilities and eventually all 68,000 villages will.

Grameen Telecom, Grameen Bank�s arm for administering the village phone operators, typically selects women by past borrowing records with the Bank. For instance, if a woman has demonstrated certain skills in learning new things, she is favored as a candidate for retailing phone services. Another factor is the location of her house; a central location in the village is preferred. Grameen Telecom also ensures that at least one member of the family of a village-phone operator knows English letters and numbers. Interestingly, women who choose to retail telephone services, it turns out, need only one-day of training from Grameen Telecom. Their success in rapid training and in their businesses is at least partly attributed to their general entrepreneurial skills and the confidence they have built through past income generating activities with the help of Grameen Bank.

Despite this success, GrameenPhone is pursuing its rural program in a small scale during the initial stage, although it should be remembered that 500 villages mean giving telephone access to one million people in Bangladesh. This small-scale experiment in the initial phase left room for fine tuning the service after a learning period. In addition, a commercial operation such as GrameenPhone must concentrate on securing its position in the competitive urban markets. GrameenPhone has no special concessions from the Government for its development agenda and can only serve the rural areas well after securing profitable urban businesses. Moreover, rural callers' real needs are to connect to cities, highlighting the need for a well-established urban network in order to serve the rural areas.

In terms of economic impact, it is probably too early to make scientific assertions, though a few independent research are on the way. The average daily earning of $2 by phone operators is, of course, one indication of the phones� utility. However, there is also plenty of anecdotal evidence of how people living in villages with phones are thinking and doing things differently after the phones arrived. For instance, one lady is thinking about raising a large number of chickens, a business she had not pursued earlier for fear of not being able to call a veterinarian on time if the chickens developed a disease. Another man wants to cultivate bananas on a large scale because he is now able to obtain market prices on time to make the correct shipping decisions. One woman contacted the doctor in time to save her child who was running a high fever. The migrant workers throughout the world with roots in Bangladeshi villages can now call home to know how their families are doing and if the money they are sending home is indeed reaching its destination. Thus, in villages where phones have arrived, life has changed for all that live there, not just for the women who retail telephone services.

There is also a great deal of positive social impact due to this new service. With some of the poorest women in the villages holding in their hands instruments of global communication, there are ripples in the highly stratified villages. Even a relatively rich person in the village is walking up to a poor woman�s home for a service he needs. That the phone service being retailed in these villages, almost exclusively by women, - largely due to the fact that 94% of borrowers of Grameen Bank are women - is turning out to have another positive impact. Since it is the men who tend to go to the cities for work or trade or even to foreign countries as migrant workers, it is the women left behind in the villages who need to contact their men travelling or residing outside. The women naturally feel more comfortable going to other women to make phone calls.

GrameenPhone also demonstrates microcredit�s larger role, which is even larger than helping the poor. Microcredit can directly uplift the economy which surrounds the poor. If the entrepreneurial energy of the poor that microcredit unleashes can be directed to making their neighbors more productive, microcredit can uplift a village and, with many villages, a country. Since poor countries, by definition, have large poor populations, they must rank the energy of the poor as one of the important strengths to move the poor countries forward. In other words, the phone may be a cow for the lady who operates it, but it acts as a horse for the village, pulling the whole village out of poverty.

Conclusion

My experience in establishing GrameenPhone led me to make five conclusions:

• An entrepreneur-friendly environment needs to be created in poor countries. Entrepreneurial energy, as distinct from Governmental efforts, has been the most potent force in uplifting countries that are known to be developed today. Microcredit helps poor people to be entrepreneurs and such programs should be expanded. Entrepreneurs who are establishing larger businesses should also be encouraged and helped.
• Economic development is not a separate field from establishing businesses. A genuine business only survives by meeting a genuine social need. Such a business is development.
• Connectivity helps people coordinate their activities and be more productive. All sorts of communication and legal infrastructures improve connectivity in this broader sense. The governments in poor countries should concentrate in improving connectivity, which I find the most important aspect of an enabling environment for people to raise their own productivity and well being.
• Digital technologies should unleash new thinking and create new business models that could be appropriate for poor countries. Just as machines automated mechanical work, digital technologies automate any process that could be put into a logical sequence and transform an economy in a profound way. The constant and radical reduction in their costs has a particular meaning to their applicability in poorer economies.
• Appropriateness of technology in the context of a poor economy is not an issue, the appropriateness of institutions is. Institutions need to be developed that can deliver the technology to the common people so that they themselves can harness its power. Just as aspirin lowers fevers in both adults and children but children need syrups while adults can handle tablets, special delivery mechanisms may need to be developed for poorer economies. GrameenPhone has not created any new technology, but it has established a new way, compatible with economic and social circumstances in rural Bangladesh, to provide access to telephones for the rural people in Bangladesh.