At first glance, Bangladesh may appear a strange choice for a Western telco looking for long-term and sustainable growth in overseas markets. The impoverished East Asian nation suffers from rampant corruption, frequent strikes, underdeveloped infrastructure and one of the lowest telephone densities on earth. But despite its severe initial doubts, Norway's Telenor A/S saw a unique opportunity to pursue multiple bottom lines, "doing well by doing good".
Associate Professor of Marketing Prashant Malaviya and co-authors Arvind Singhal and Peer-Jacob Svenkerud examine the path chosen by Telenor in becoming a first mover in the Bangladesh telecommunications market. Through an association with the Grameen Bank, the firm succeeded in bringing telephony to the remote villages of Bangladesh, while capturing almost 70% share of the urban mobile telephone market.
The deal was only made possible by a close relationship between Telenor CEO Tormod Hermansen and Grameen Bank founder Muhammad Yunus. One of the world's most celebrated authorities on development economics, Yunus has been credited with improving the lives of millions of poor Bangladeshis, mainly through so-called "micro-loans" to poor women enabling them to establish private businesses.
Hermansen, formerly the chief economist at the Norwegian Ministry of Finance, was encouraged by the positive results of past joint initiatives supported by both governments, many of which had involved Grameen. In the mid 90s, Grameen initiated contacts with several international telcos in an effort to further its goal of placing at least one mobile phone in each of Bangladesh's approximately 68,000 villages (where over 80% of the country's population lives).
Hermansen called for a feasibility study. However, he recognized that typical benchmarking methods would probably not apply in a market that was geographically, behaviourally and culturally so far removed from the developed western markets Telenor had operated in. After conducting separate analyses of urban and rural subscribers, the best-case scenario for such an opportunity seemed quite attractive for Telenor. If only five percent of the country could afford a mobile phone, that would be a bigger subscriber-base than the population of Norway.
Worst-case estimates, however, were very daunting. The overall business climate was discouraging, with virtually no regulatory regime in place. Also, the rural market looked likely to be very expensive to serve because of a near-total lack of essential infrastructure.
Yunus was fully cognisant of the unfeasibility of concentrating solely on the rural aspect of any such deal, however, and proposed what Telenor considered a reasonable partnership solution. Moreover, any project in Bangladesh explicitly associated with Grameen would give an associate enormous legitimacy and name recognition, perhaps even beyond the country's borders. But could Telenor hope to profit in the long term by such efforts? How would such a venture affect the company's bottom line objectives?
The (B) case describes how the GrameenPhone joint venture exceeded everyone's expectations. Villagers were able to access one of the most modern cellular phone technologies in the world, while paying one of the cheapest rates in the world. What partnership arrangement did Telenor make with Grameen to be able to turn a profit in the overall national market?
The (C) case details how international financial analysts began to show GrameenPhone grudging respect, and what key challenges may lie ahead for GrameenPhone and Telenor in the still highly volatile Bangladesh market.
INSEAD Fontainebleau, 2004