State of Telecom Industry in Pakistan

This post take a look at the Mobile Telecom Value Added Services (VAS) Market in Pakistan and India. These services add value to the standard voice service and usually drive up the revenue per user. SMS, ring tones, picture/video messaging such as greetings, games and accessing Internet or other data services (such as Telenor Edge) are common examples of value-added services for mobile phones.

All the mobile phone companies in Pakistanoffer many value added services in forms of various forms of messaging, information, ring tones, music and every imaginable entertainment one can think of. There are too many of these services around to link them here but if you visit the mobile company websites you will find these services clearly advertised. Messaging and ring tones are the biggest revenue producers though I do not have numbers for the market size. I covered the messaging in an earlier post. Ring tones may evoke strong opinions from people for various (social and cultural?) reasons but if you look beyond that ring tones market has done surprisingly well all over the world. It is unclear whether 3G and Mobile web 2.0 will have a significant impact on South Asian market in the coming years.

Related to this is the recent surge of interest in Mobile Virtual Network Operators(MVNOs) which according to some media headlines means that now “Everybody Can Be a Cellphone Company”. In Pakistan PTA introduced the first MVNO framework a few days ago. As TM wrote: ”MVNO will allow a formal way to these cellular operators to sell of their network capacities to newer marketing outfits that better understand their own customer niches and can probably provider some extra value added services to their crowds.”

PixSenseis one of the few Pakistan based startups which offers an innovative product which is closely related to global VAS providers. Green and White has covered it here.

In India there are a number of upcoming startups which are tapping into this market. An article in Business Standard reports: The over Rs 4,500-crore telecom value added services (VAS) market is hotting up and players are working overtime to offer India’s 170 million strong mobile subscribers a feast of innovative services — all with an eye on increasing their market share and bottom line.

Some of the upcoming value added services mentioned in the article:

Here’s more from the Business Standard article. 

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Many GSM industry supporters have looked at WiMAX as a competitor - though others disagree and call attention to its complementary uses as I’ve covered before in the post Why WiMAX?. In Pakistan Wateen is an interesting case because it wants to have a two prong strategy and cover all its bases. However in India there’s some resistance to WiMAX which gives an idea of the uphill battle WiMAX is facing.

Here’s a (story) which tells about the internal struggles in India about WiMAX standards. However the Cellular Operators Association of India (COAI), the body representing all GSM operators, has cited compatibility / interference issues and wants more time before agreeing to the proposed standards.

The global WiMax Forum has sought the Indian government’s support in its endeavour towards getting the International Telecommunication Union (ITU) to include WiMax as part of International Mobile Communications - 2000 (IMT-2000) standards.

The forum has asked the Department of Telecom (DoT) and the Wireless and Planning Wing to support its cause in the upcoming ITU meet in Kyoto, Japan. Indian cellular operators have, however, opposed the move and said that the DoT must not support the forum’s proposal until further details such as compatibility and interference issues with regard to WiMax are available.

IMT-2000 is the global standard for third generation (3G) wireless communications as defined by the International Telecommunication Union. It has defined five standards which are followed globally for 3G services. In January 2007, a proposed sixth standard (WiMax) was submitted into ITU by the Institute of Electrical and Electronics Engineers (IEEE) and supported by the WiMax Forum.

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Cellular News has reported that Pakistan gained 10 Million new cell phone customers in first 4 months of 2007. Not much of a news but it shows that the rate of growth is still in high gear, as TelecomPk has mentioned in previous posts, here and here.

Some points worth mentioning:

The comparative chart is courtsey of The Mobile World Briefing, the weekly newsletter from The Mobile World.

Vodafone may not be a well-known brand in Pakistan but it could change soon - here’s why: Vodafone, the top cell phone companies in Europe, have announced that they will sellreally cheap phones targeted to developing countries. How about a mobile phone for Rs 1500 with a Vodafone brand on it? As you can guess it will be manufactured in China but it will have the brand name of a top carrier. Should be much better than the low quality phones coming to Pakistan from unknown manufacturers in China!

In April Vodafone bought 52% of Hutchison Essar in India thus making their arrival in emerging markets formal. Now they are the very first big carrier who is about to compete with the handset makers such as LG and Nokia. This week, Vodafone unveiled two very low-cost handsets (US$25-45, PK Rs 1500-2700) aimed primarily at customers in emerging markets such as South Asia and Africa.

WSJ made an interesting comment on this:

Cereal and cellphones may have little in common. But wireless-service provider Vodafone Group PLC has been cruising the supermarket aisle for inspiration. The world’s largest cellphone-service provider by revenue is rolling out lines of Vodafone-branded handsets, akin to supermarkets stocking their own store-brand products alongside established brands.

Behind the move is Vodafone’s desire to drive more people to use its services, both high-speed data services in established markets as well as more basic calling and text-messaging services in emerging regions. In some cases, the handsets may be packaged with Vodafone’s or a partner’s service.

Naturally Vodafone will want to sell its new phones to Pakistani market. Look out for some interesting deals in the near future as Vodafone settles down in India and contemplates its next move. Just speculating, how does a vodafone-ufone deal sound? At least it rhymes!

BusinessWeek also covered this story - Read Vodafone’s Low-Cost Cell Phone Gambit at BusinessWeek or read the excerpts below.

Vodafone executives announced in London that the company is rolling out its own line of ultra-low-cost handsets. To be built by a Chinese partner, the GSM-standard phones will carry the Vodafone brand name and sell for $25 to $45, depending on locale.

With its unexpected move, Vodafone (VOD) becomes the first carrier to introduce its own phones intended specifically for customers in developing countries. Until now most so-called “private-label” devices resold by operators have been aimed at the high end of the market. “[These] will be the lowest priced GSM products ever,” crowed Jens Schulte-Bockum, Vodafone’s global director of terminals, at the event.

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A very good coverage of Pakistan telecom is given by a Russian site called COMMNEWS in its Emerging Telcom Markets section. I’d seen the headline on a telecom news feed but after TM recommended it and KO posted it on WiredPakistan forum I paid more attention to it. Here’s what the Pakistan overview page on COMMNEWS says:

In liberalization of its telecom market Pakistan is ahead of many other world countries, let alone their regional neighbors. However, the lack of full and objective information about this country led to cautious behavior by foreign investors, who appeared only recently on the local telecom market, and rather in single cases.

Here’s the first recommended article:

The Last Train: Foreign investors still can jump on Pakistan’s telecommunication market

This article has lots of useful information and talks about the alliances, mergers and financing activities going on in Pakistan. A key point it makes about low valuations in Pakistan must be an eye-opener for investors:

It can be expected that in a year or year and a half the value of telecom assets in Pakistan will grow significantly, equaling the prices that are set by international investors in neighboring India. Therefore, the winner will be that company which gets to Pakistan’s telecom market within 2007, right before the market overheats.

I believe that the political situation remains the biggest barrire to Pakistan’s economic progress.

Here are the other interesting stories on the site.

Success Story: DIALLOG with Pakistan

Interview with Tore Johnsen, Telenor Pakistan (Pvt) Limited, Chief Executive Officer

Opinion: Igor Khulak, Head of the Business Development Department at Sitronics Telecom Solutions

Thanks to Ehti, a Wired Pakistan Forum contributor, I saw this video of Wateen’s WiMAX on Motorola’s site. It is about 2 minutes long. Even thought it is a marketing blurb for Motorola yet it gives a quick tour of Wateen’s work in Pakistan and its well worth the click.

I saw this news at a local paper that ISPs have lashed out strongly against PCL. The ISPs lodged complaint against PTCL for anti-competitive practices by offering lower rates to consumers than the rates it offers to ISP. I also saw this statement by the PM that 75% of house-holds in the country are to be covered with high speed Internet by 2015.

I am not sure what to make of these contradictory statements from the Telecommunication day on May 17.

The last time I checked PTA and PTCL were still in court about the bandwidth tariffs. If one was to look at the low bandwidth penetration rate and all the issues such as the ISP complaint described below, we are still in a poor shape. So HOW in the world are we going to go from say 2% to 75% in 7 years?

As you can note from the statements by Prime Minister, it does not specify an action plan or a policy change - just empty political statements. Does it give us any confidence about bandwidth proliferation in Pakistan?

Shaukat Aziz has said that we are moving forward with great speed to bridge the digital divide in the country by improving the access of information and communication technology to low-income groups and a target of 1.6 million broadband connections has been set for the next three years and infrastructure would be developed to cover 75% of house-holds in the country with high speed Internet by 2015.

“We are moving forward with great speed to bridge the digital divide in the country by improving the access of information and communication technology to low-income groups”, he expressed these views while delivering a speech on the world telecommunications and information society day being observed on May 17.

And then there’s the view from Pakistan’s Internet Service Providers (ISPs), as reported in The News.

As the world marks Telecom Day on Thursday, small telecom operators in Pakistan see their business threatened, blaming the giant Pakistan Telecommunication Company Limited (PTCL) for anti-competitive practices, which has launched DSL service at much lower rates without the regulator’s approval.

The country’s Internet Service Providers (ISPs) have warned that if the Pakistan Telecommunication Authority (PTA) fails to stop the PTCL from offering such service, it would put the future of most of the operators at risk.

It was also reported that the ISPs Association of Pakistan (ISPAK) has formally complained to PTA asking to intervene and to play its role. According to ISPAK there should be a hearing on this. The ISPs offerDSL services of 256 kbps for home users at Rs1,00o-s1,200 per month out of which around 25 per cent is paid to PTCL for local loop sharing charges.

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A reader posted this question on one of my posts. There’s no official word from Warid but here’s what Reuters is reporting:

Warid Telecom, Pakistan’s third largest mobile phone operator, is in talks with several foreign firms, including Singapore Telecommunications (Singtel), Britain’s Vodafone Group and Kuwait’s Mobile Telecommunications Co. (MTC) and to sell a minority stake, industry sources said on Monday.

“Warid has been approached by several international telecom companies over the last six or eight months, including those from the Far East, the Middle East and Europe,” said a source close to the company.

“But no final decision has been taken as yet,” he said. “The picture will become clear by July or August.”

There was no word on how much the deal could be worth.

As one can see the details on this are still emerging. Warid is owned by the private Abu Dhabi Group, which also owns Bank Alfalah Ltd. and Wateen Telecom. The most likely scenairos include a minority (so that it can retain control) capital sale or issue of fresh equity. As reported on telecompk previously Warid made large capital investments and may want fresh infusion of cash. Unlike the public companies Mobilink, Telenor and Ufone, till now it has raised capital on its own.

Warid started operations in 2005 and has around 10 million customers in Pakistan — a market share of roughly 17 percent. More about Pakistan’s mobile service providers is here.

Read the rest from the Reuters.

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I thought this picture which appeared at BusinessWeek.com was interesting - advertising of mobile phones on wheels. As you can read here, this van is used for advertising Nokia phones in rural areas of India. I find this no different than the specially painted Hummers jeeps used for advertising at local gatherings in the US but somehow the picture above is more colorful than anything I have seen in US. According to the story:

Staffers park these advertisements-on-wheels in villages, often on market or festival days. There, with crowds clustering around, Nokia reps explain the basics of how the phones work and how to buy them. Nokia has extended the concept to minivans, which can reach even more remote places.

As the story mentions, Nokia offers special features for phones in rural areas such as dustproof cases (crucial in dry rural areas) and flashlights (helpful during the frequent power outages). The designs are one big reason Nokia now claims more than 70% of the Indian market for GSM handsets (India has CDMA as well). Obviously the rural areas in Pakistan can take advantage of these phone features as well.

Another interesting note refers to community buying - something which women commonly organize in Pakistan and refer to it as “committee”.

Through conversations with slum dwellers, Nokia learned that many people form buying clubs, pooling their money to buy handsets one at a time until every member has one. The members draw lots to see who gets phones in what order.

I am not sure though how easily do people in remote areas deal with the phone menus. My guess is that they learn the basic operations and are unable to take advantage of other features. Hopefully as mobile handset companies pay more attention to the next billion of users they will find some solutions.

Getting a branded communication network for your “social network” is one of the new trends. It is made possible by operators who do not own the infrastructure or spectrum but resell the services with packaged content and branding. The technical name for operators of such networks is Mobile Virtual Network Operators or MVNOs. Such resellers (Virgin Mobile, Disney) have been around for a while but the social networking boom has made this idea popular. Recently the entry of larger players such as Helio and Sonopia have also helped to generate additional media attention. In its own words Sonopia “democratize mobile services by making it possible for anyone to have their own network. “

For more information about MVNOs see this link which has a good summary of the business model and the operational issues. Also see Wikipedia which lists the different classifications of MVNOs. As you can see the MVNO idea is mostly about marketing and sales. As another example one such company called Saki sells it services as:

Saki is a new way share and access exclusive content such as photos, videos, music, movies, news, weather, sports, E-mail, IM and more - all in one place! Use Saki to manage your social network, find old friends, map favorite locations, create party invitations, express your opinions..

Here’s an interesting writeup about Sonopia’s service from a site called Springwise which relies on users to spot and captures ideas from around the world.

Organizations that have already set up a Sonopia MVNO include the National Wildlife Fund, the American Medical Student Association and the Long Island Ducks (minor-league baseball). Someone also started a San Francisco Foodies group and the LonelyGirl15 Fan Club.

The obvious challenge when setting up your own MVNO is to create a strong enough hook to convince customers to switch from a major carrier to your service. Which could be exclusive content sent only to members/customers. Non-profit networks are helped by the feel-good factor of knowing that profits are being donated to the cause of one’s choice, as is the case with the National Wildlife Fund: “Help preserve our wildlife today… one call at a time.”

What kind of groups in Pakistan are likely to use this service? I can see some large organizations which would like to have control over the content. I hope political parties don’t use this as a propaganda tool.

I would like to share a new series of learning and networking opportunities for executives and entrepreneurs in Pakistan. In June, there are 2 seminars in Karachi, led by senior lecturers Ken Morse and William Aulet at MIT Entrepreneurship Center. First is “Pakistan CEO Summit” and the second is “Financing Your New Venture“. Organizers include OPEN, MDI, MIT Entrepreneurship Center and Computer Society of Pakistan.

 I had the opportunity to meet and talk with Ken Morse at a recent OPEN event at Cambridge, MIT. He is a wonderful and dynamic teacher with years of relevant experience. I would strongly recommend attending these seminar.

I realize that the CEO summit is limited to the top executives of large companies but the finance seminar has broader appeal and will be useful to all those who want to know about financing their next big idea. Also note that members of professional organizations such as PASHA get a discount.

More information and full brochures of programs are available at the website:
entrepreneurship-pakistan.com

Feel free to leave a comment or e-mail me if you have any question.

Pakistani business community, bloggers and consumers have been asking for a sensible VOIP policy for a long time. Finally we see a glimmer of hope - PTA has published a consultancy paper on VOIP which invites comments by all. The 58-page - written by a consultant, Naseem A. Vohra - is a good summary of VOIP technology and VOIP situation in Pakistan. You can download the paper in pdf format from PTA site or from telecompk blog.

The paper addresses legal issues, policy issues and issues related to licensing and regulation of the service. Even though comments are inivited on this paper I doubt that anyone at PTA is eagerly waiting for the comments.  But even if the fate of our input is unclear this is no reason to not participate in the process. This may be the best time to provide your input and feedback to VOIP policy. I suggest that all bloggers aggregate their reader comments on this topic and send to PTA - perhaps on paper, just in case PTA has difficulty using the complex technologies of e-mail or Internet.

Here are a few excerpts from the paper. The idea is to give you the flavor of what points are raised and options presented. One has to go through the paper to make sense of some of the points below.

There are four options to deal with the situation.
1. Liberalized option – all forms of IP Telephony service are legal with minimal regulation.
2. Incremental option – some forms of IP Telephony service are legal with significant conditions placed upon IP Telephony entrants.
3. Consultation (largely “wait and see”) – a public consultation is underway to seek opinions before definitive rules on IP Telephony are issued;
4. Prohibition – IP Telephony is illegal except for use in the core network i.e. long distance and international networks which almost all LDI operators have deployed but it does not touch the customer.

Comments are invited on
i) Conclusion that option3 and option 4 are not viable anymore
ii) Conclusion that VoB will catalyze the growth of Broadband.

Comments are invited on
i) Conclusion that telecom sector in Pakistan has already started migration from circuit switching to packet switching
ii) Conclusion that the boundary between VOIP and gray traffic is not clearly defined
iii) Conclusion that regulation of IP Telephony will not push the prices further down

Comments are invited on
i) Conclusion that Incremental Approach is the right way to go.
ii) Proposal that IP Telephony offerings are placed under three categories
iii) Proposal that category 2 offerings are split into two types i.e. “IP IN” and “IP OUT”.
iv) Proposed recommendations for IP Telephony authorization.
v) Proposed amendment in Broadband/Internet Licenses