Competition in Telecom Industry of Pakistan

Competition In Telecom Industry Of Pakistan, A Battle For Supermacy

COMPETITION & STRATEGY

(Group Assignment 1)

Competition In Telecom Industry Of Pakistan,

A Battle For Supermacy

(Porter’s Five Forces Model Analysis for the Industry)

Presented To: Brig. Khalid

Prepared By: Muhammad Zia Aslam (973596)

Sabeen Khan ()

National College of Business Administration &

Economics

Prepared by: Muhammad Zia & Sabeen Khan

Competition in Telecom Industry of Pakistan, a Battle for Supermacy

Introduction / Background:

Telecom industry has contributed a great deal to Pakistan’s economy and has called for great

investments that lead to a new era of progress. Telecom sector is seeing extraordinary growth in

Pakistan. With increasing levels of mobile penetration Pakistan is fast evolving as one of the

telecom sector's key investment prospects. Continued market liberalization is reshaping the

regulatory environment, creating a more investment friendly climate in telecom sector of

Pakistan. The sector is said to be growing at a very fast pace on yearly basis. This growth rate of

telecom sector is mainly because of the mobile phone service providers’ entry in the industry for

the last few years. As of July 2009, the mobile phone subscribers are 95.54 million in Pakistan

and, in fact, still Pakistan has the highest mobile phone penetration rate in the South Asian

region. Hence, due to the huge potential in Pakistan’s mobile phone sector, the industry and

customers are experiencing an intense competition, a battle for supermacy in the mobile phone

industry, between all mobile phone service providers of Pakistan.

Pakistan telecommunication sector had remained a monopoly for a very long time. However, this

sector has been liberalized with the announcement of Deregulation Policy on 13th July 2003 and

exclusivity of PTCL in basic telephony has been abolished. With all this, telecom sector of

Pakistan is now open for competition. Impact of telecom liberalization has been tremendous.

Access to telecom facilities for common man has been increased dramatically, in addition to

improvement in quality of telecom services, prices of services has decreased tremendously. PTA

has always been ensuring that all the telecom operators should be provided with level playing

field. Number of incentives has been given by the government to further increase the investment.

In this regard the sector has been given the status of industry whereby subsidies and incentives

given to other industries are now available to telecom sector also. Taxes and duties have been

reduced to the minimum in order to make business viable for the operators for return on their

investments. PTA has reduced all the formalities for acquiring licenses for any services to its

minimum. In addition, PTA has also reduced royalties and fees of all the licensees and a simple

and liberal licensing regime has been adopted.

Prepared By: Muhammad Zia & Sabeen Khan 2


Cell Phone Sector of the Industry:

Pakistan’s telecommunication market is one of the hottest in the emerging economies. However,

this report will briefly review the mobile phone sector of the country, its growth and future

prospects. Pakistan is still an unsaturated market and with the falling cost of handsets there are

plenty of new subscribers to go for. But eventually as in saturated markets, if mobile operators

want to avoid simply competing on price, they will have to compete on superior service,

innovative features and ease of use.

The Pakistan market has 95 million subscribers as of June 2009.The growth slowed down in

2008 but has picked up again gradually. Now let’s review some recent history of the cellular

sector. In end year 2006 the total subscribers were 48.2 million. In June 2007 the total mobile

users reached over 63 million. Based on numbers published at PTA website for 2007, the total

number of subscribers was 76.6 million. In 2007 the average growth rate was about 2.5

million new subscribers each month. After second half of 2007 it seemed as if the growth had

slowed down but overall it was fine. One remarkable achievement was by Zong (formerly

Paketl) which launched very successful campaigns towards 2007 end completed re-brand launch

in April of 2008.

Given below is the graphical presentation of the remarkable growth in the cell phone usage

during the last few years:



Major competitors:

Here’s a brief description of the top mobile companies in Pakistan.

At the top is Mobilink, the Pakistani unit of Egypt-based telecom company Orascom. It has been

operating in Pakistan since 1994.

Ufone, a wholly owned subsidiary of Pakistan Telecommunication Co. Ltd (PTCL), is now

under the control of Etisalat group of UAE.

Warid, owned by the Abu Dhabi group of the United Arab Emirates and sister of Wateen group

is another cell phone service provider in the industry.

Norway’s Telenor, a recent entrant with about a billion US dollar investment in Pakistan has

been doing well, based on its recent earning report. Telenor stock is listed in the Oslo stock

market (TEL) and in US.

Zong, formerly Paktel, was the latest target of foreign acquisition. After it got acquired by China

Mobile it was rebranded as Zong and launched one of the most successful and aggressive

campaigns.

Given below is the market share of companies as of June 2009.


http://telecompk.net/wp-content/uploads/2009/08/pkmm-jun09.png


Battle for supermacy (market share):

One sign of the growth burst of the sector in Pakistan and its self-confidence are the media ads of

the various companies. As they fight for market share, that battle is being conducted over the

airwaves and newsprint. It is hard not to notice the mobile phone advertising campaigns in

Pakistan. The mobile phone and services advertisements are in the media, on billboards and

everywhere else imaginable. The quality and aggressiveness of the advertising campaigns

indicates the level of effort to gain market share. It shows a fierce battle for supermacy going on

between the players of the cell phone sector in Pakistan.

The market segments mobile companies are targeting include:

o Tech-savvy youth

o Business users (due to the their higher average revenue per user)

o First-time subscribers in remote and rural areas

o Previously ignored segments, for instance housewives and women

The ads are vibrant and colorful, conveying a sense of excitement and empowerment.

However, the pretty picture these ads paint is separated from the real world where poor cellular

service has led PTA to announce that punitive action will be taken if problems persist.

Industry Analysis:

Now we try to analyze and understand the cell phone sector of the telecommunication industry in

Pakistan by looking general industry conditions and applying Michael Porter’s five forces model.

Industry analysis requires to carefully examine four basic things i.e. Type of industry, nature of

the Technology, customer requirements and expectations, and product life cycle. The cell phone

sector of telecommunication industry is of high velocity, technology of the sector is rapidly

changing, customer expectations are high and fast evolving, and product life cycles are short in

terms of new packages and services.



Porter’s Five forces model:

Bargaining power of customers: The bargaining power of customers in this case is very high

because of the low switching cost in the industry. There are attractive substitutes available to the

buyer even in the form of keeping the same cell phone number but changing the service provider.

It makes very difficult for the market players to retain their customers. I think the brand loyalty

can only be created through superior marketing campaigns and service.

Bargaining power of suppliers: This is a type of industry where, at least in present times, the

bargaining power of suppliers is at the low level because of the nature of inputs for the business.

Moreover, with the deregulated and friendly environment given by the government of Pakistan,

the industry has become more competitive and quality services driven.

Threat of substitute products: Although the cell phone subscribers are more than 95 million

now, still the threat of substitute products is high for the industry. Buyer inclination to substitute

and price-performance trade off are the most important to consider in determining the threat of

substitutes. Actually, just the subscription of cell phone service is not enough for a company to

get optimal profits but the real challenges is that how many existing customers are using the

service regularly for incoming as well as outgoing calls. The quality of service is the parameter



for a customer to be loyal with the subscription otherwise fixed line and wireless fixed lines are

the better substitutes, as been experienced in festive times.

Threat of new entrants: It is not easy to enter in this capital intensive sector of the

telecommunication industry. So, the threat of new entrants is low. Though the growth and

potential of the sector look very attractive, still it is very difficult to take risk for a new investor

because the penetration in the market would be very difficult.

Competitive rivalry: When the competition is fierce, obviously the competitive rivalry will be

at the highest level. The very high level of competitive rivalry among the major players of the

cell phone sector is clearly observable. Just look at the advertisement campaigns of the rivals and

you can see how intense the competition is. It looks like a battle for supermacy going on between

the rivals. All means of attracting new and potential switching customers are being used by all

the competitors to gain as much market share as they can. Exit barriers, industry growth, product

differences, brand identity, and diversity of rivals are the main reasons of very high competitive

rivalry in this case.

Future of the industry and opportunities:

Keeping in view the above scenario, number of investment opportunities has been created in the

sector. The forward and backward linked businesses to telecom have become very lucrative from

investment point of view. Some of which are Call Centers, IT enabled services, outsourcing,

franchises by newly licensed operators, network solution providers to telecom operators etc. One

can expect more than these few pointed areas where investment opportunities have been created.

One can imagine that currently and in near future, opportunities from investment point of view in

the telecom sector are huge. However, it has put much responsibility on the regulator to keep

check on the sector to avoid the burst of bubble in telecom sector.

Let’s have a look, in general, on the factors in making choice If we decide to invest money in

one of the cell phone companies.



When we look at the performance and results of the mobile companies, here are some

useful industry indicators to look out for (in addition to the financial results):

I) Growth rate: how many net subscribers has it added in the quarter/year?

II) What is the churn rate (customers who leave)? Low churn indicates customer

loyalty.

III) What is the average revenue per user ARPU (what does average subscriber

spends) and what is the profit margin per subscriber?

IV) What is the percentage of pre-paid subscribers (considered less loyal than

postpaid)?

V) How much does it cost to acquire a new subscriber?

The overall consensus of industry analysts is that Pakistan is one of the countries with a huge

untapped potential for telecom growth and an attractive investment environment. Recently

Business Monitor International (BMI) ranked Pakistan as a key destination for telecom growth.

The BMI rankings take into account a number of factors including industry situation, growth

potential, competitive landscape and economy and political risks etc.

However, there is still a long way to go for Pakistan telecom industry. Pakistan needs to increase

telecom research and development work within the country. China and India are in the process of

becoming world’s major R&D centers for technology and telecommunication. The goal of the

policy makers should be to increase the rate of transfer of technology from abroad, broaden the

pool of local skilled workforce and accelerate the local production of telecom equipment and

handset parts etc.



References:

1. State of telecom industry in Pakistan (www.telecompk.net)

2. Wikipedia, the free encyclopedia (www.wikipedia.org)

3. Pakistan Telecommunication authority (www.pta.gov.pk)

4. www.pakistaniat.com


http://www.pakistaniat.com/

http://www.pta.gov.pk/

http://www.wikipedia.org/

http://www.telecompk.net/

Documents

Competition in Telecom Industry of Pakistan