State of Telecom Industry in Pakistan

Just a word of caution about this post - Research companies come up with plenty of trends and forecasts. Without knowing all the assumptions and studies behind their work, it is impossible to tell whether the trend is real, the analyst’s preferences or something else. Having said that, I was expecting more about the mobile advertising trend.

Here’s the news as reported here.

Pyramid Research, global telecommunications intelligence firm, presented 10 key trends that will take place in the Asia-Pacific telecom sector in 2008 at its second annual Asia-Pacific Telecom Summit. Senior Analyst Marc Einstein presented the following 10 critical developments in the Asia-Pacific region for 2008:

1. Subscriber growth
Indonesia’s broadband market will have the highest growth rate in Asia at 45 percent per year for the next five years, leading the region’s subscriber growth. China, India, Indonesia, and Pakistan will hold 80 percent of Asia’s mobile subscribers in 2012, when regional subscriptions total 2.2 billion. Expect higher churn, less revenue, and consolidation in 2008 in developed markets. Low ARPUs will facilitate a transition to IMS.

2. Mobile data
Asia-Pacific mobile data revenues will almost triple over the next five years to $110 billion, but increased broadband penetration and flat-rate plans will create significant threats to this growth. The mobile data market will grow, but the spending per user will start to decrease as broadband becomes more available in emerging markets.

3. Mobile advertising
Competition from free advertising models will serve as a litmus test for future business models in the region.

4. WiMAX
The scale of WiMAX deployment remains elusive in the region. Market activities in the US, Japan, and Korea will determine the ultimate role the technology will play in the pre-4G environment.

5. IPTV
Despite healthy take-up of IPTV in markets such as Hong Kong, Western Europe, and Korea, profitability with remain elusive. For established operators like PCCW and Telefonica, 2008 will be a crucial year.

6. Handset devices
China, India, and parts of Southeast Asia will be the few remaining markets driven by organic handset device growth in the Asia-Pacific region. Expect higher churn, less revenue, and consolidation in 2008 in developed markets.

7. Capital expenditures
Capex by the top 15 global mobile network operators will reach $71 billion in 2007 and gradually decrease by 2 percent per year. Like the number of mobile subscribers, Capex has peaked in most markets. Despite high profitability, emerging market operators must further reduce capex and opex spending as ARPUs dip below $5. Vendors will rely less on large legacy accounts and increasingly look to markets like India, Indonesia, and Bangladesh.

8. Mergers and acquisitions
M&A opportunities will be limited in the region, and multiple bidders will drive up prices quickly. While diversification is important, beware of overbidding and regulatory issues in emerging markets.

9. Convergence
Convergence will be a driver of merger and acquisition activities. The entrance of telecom operators into the convergence space, however, has driven up the price of content, and expensive content can quickly ruin margins.

10. Mobile virtual network operators
Despite some major failures in the MVNO space, Pyramid Research still sees a niche for the business model. Above all, consumers are price-sensitive, and handsets are crucial. Pyramid Research predicts global MVNO subscribers to reach 129 million by 2011.

The trend to store more and more digital info and entertainment  — such as video, music and digital photos – on the handsets is creating a demand for more memory storage. Apple’s iPhone, with 8GB memory available, has accelerated the race. Flash memory is the term for chips that can store data even if a device is off (also called non-volatile memory). Flash memory is commonly used in usb drives, digital cameras and mp3 players and has replaced bulky and expensive solid-state drives.

The demand for memory in Pakistan is also high. A common use of such memory is to swap content offline. The word from blogistan (Pakistani blogosphere) is that this is how most of the “entertainment” circulates, either from person-to-person or from the street vendors.

According to iSuppli, a market-analysis company, the amount of available memory in cellphones is expected to surge tenfold in the next two years. This puts handset manufacturers in a difficult situation as they struggle to keep the costs down and profitability up. This is less of an issue for high-end phones with better margins.

As recently reported by Wall Street Journal: 

Flash is a popular option for handset makers because its thin profile and low power consumption make it ideal for increasingly smaller phone designs. The demand for more memory, however, leaves handset makers a few unsavory options, such as eating the costs, raising the product’s price or making consumers buy their own removable flash cards.

To keep costs down, handset makers have gone with the third option of making consumers buy their own removable flash cards. The companies argue the external memory is more flexible because users can swap out cards with different data.

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As I mentioned earlier, FLARE is one of the few (perhaps the only one?) media publication about Telecom in Pakistan which promotes free download of its digital version. It is particularly useful for expat Pakistanis. I have started reading the online version regularly now. For those interested in latest phones it has tons of ads plus a section devoted to phones and prices. Here’s the July issue (about 28 MB) - download here, click on the image below or from the Flare site.

Read on to see the Telecom topics covered in this issue of Flare.
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The debate on 3G vs WiMAX goes on (see my past posts on WiMAX). Here’s an 18-minute long video from Telecom TV which presents views from different industry stakeholders. This is interesting discussion.  WiMAX is seen by many as an alternative to 3G-based cellular alternatives such as HSPA, but is it already too late – has 3G got a stranglehold on the market?

Participants: Tony Cullen - Alcatel Lucent, Mithila Mendis - Airspan, Udi Shaked - Alvarion, Patrick Buthmann - Redline. Recording Location: CommunicAsia 2007, Singapore

Sharing some text from an interesting article about China Mobile (CHL) which appeared at Fortune Asia Edition. Interesting commentary about their many masters, marketing efforts and the CEO’s management style and preferences of the CEO. Also note how investors are concerned about expansion abroad. As its first major acquisition abroad, CMPak has strategic significance for China Mobile.

China Mobile, the world’s largest wireless company, has 330 million subscribers, thousands of shareholders, and one Communist Party to please. That’s not an easy job for CEO Wang Jianzhou.

It has a network of more than 230,000 base stations and is spending furiously to put up more. When you run the biggest mobile-phone network in the world’s most populous country, you operate on a different scale.

In China’s largest cities, where mobile penetration rates match those in the U.S. and Europe, China Mobile offers a dizzying array of non-voice services including Internet search, ringtones, and music downloads. It has struck content deals with domestic and foreign providers, including News Corp., MTV Networks, Yahoo, and the National Basketball Association, and transmits 1.2 billion text messages every day.

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Good news for Mobilink’s Jazzy customers: Jazz Advance, a new product feature has been introduced by Mobilink. Mobilink’s website describes it as:  Jazz Advance enables customers to obtain advance balance by simply calling 123. So you can complete your conversation and keep talking.

Jazz Advance adds value to the brand’s personality while assuring brand loyalty within its customers and offering another attraction for prospects.

The thing that kept me laughing and enjoying TV was Mobilink’s commercial regarding introduction of Jazz Advance. The story board, characters (especially Aslam Bhai ) and message was very clear and well knitted around the brand’s strategy and target segment. Have a look:

Now coming back to the service, on reaching minimal balance i.e. Rs 3.50, one can avail an advance balance of Rs 5.00. The advance amount will be deducted from next recharge. Here, the amount is not big but the help being provided by this feature is important because there could be many situations where one already has felt need for such convenience consciously or unconsciously.

The effect of cut-throat competition is much visible here. Almost all GSM companies in general and Mobilink & Telenor specifically are continuously adding value to their prepaid and postpaid brands to create favorable positioning and to aggressively penetrate for higher market share.

The Customer Relationship Management (CRM) approach adopted by Mobilink is very well integrated with product development & brand management to maximize value for end user . This creates relationship barriers so that customer does not feel being left alone, lowering the chance to switch brand.

Related Items:
See this Discussion at Telecom Grid Pakistan.

Rumors started to surface back in May that Warid Telecom, Pakistan’s third largest mobile operator is in talks with several foreign firms, including Singapore Telecommunications (Singtel), to sell a minority stake. This week, Abu Dhabi-based Warid Telecom Group International has confirmed the sale of a 30% stake in its Pakistani operations to SingTel, in a deal worth USD758 million. Warid, started operations in 2005 and as of end June has around 10 million customers in Pakistan; a market share of roughly 17 percent.  

Pakistan telecom market 

With a large population in excess of 160 million growing at over 2 percent per annum, and a young median age of 20 years, Pakistan represents the sixth largest population base in the world. Its mobile phone sector has been growing at a rapid pace, with the number of subscribers reaching 58.4 million at the end of April (around 35 percent of the population) from only 12.8 million in 2005. In the presence of a freeze on new licences, the only way for international telecoms companies to get a foot hold in this lucrative mobile sector is by picking up stakes in existing players. Last year, mobile operators invested US$2 billion in Pakistan, 54% of the total foreign direct investment in the country, according to the Pakistan Telecommunications Authority (PTA). Pakistan telecom market is still a bargain compared to some other markets with less customer bases. There is a strong potential for growth in subscriber base; evidence of which is repeat attempts by foreign operators to get a slice of this pie.  

First Try:

Previously Etisalat of UAE acquired a controlling stake in PTCL beating China Mobile and SingTel with a purchase price of US$2.5 billion. The price offered by China Mobile was US$1.409 billion and SingTel US$1.167 billion. Other ‘firsts’ by Gulf shoppers include Omantel’s purchase of World Call and Qtel’s purchase of Burraq Telecom.

Second Try:

China Mobile, the world’s biggest mobile phone company, which had earlier failed to buy PTCL, bought 89 per cent of Paktel for $284m, its first acquisition outside its home market (even though Paktel was losing money at the time). This was a blessing in more than one way, since reports suggested that weeks before the takeover, Millicom was preparing to close Paktel down. It owed $29 million in licence fees to the Pakistan government at the end of 2006. China Mobile immediately announced plans to pump in $400 million to beef up the network; the lion’s share went to Ericsson and Alcatel-Lucent.

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This post is a brief overview of how Telenor did in Pakistan for second quarter of 2007 . I’ve included the extracts from the reports available at Telenor’s website. Most indicators are good: Revenues have soared, subscriber share is steadily increasing. The EBITDA (earnings before interest, tax, depreciation and amortisation) is positive for the first time, though the ebitda margin is only 7%. Another thing which needs to be noted that Telenor’s operating losses have reduced in 2007. Yes, they lose money. The losses are  due to leasing line costs and capital expenditure, among other factors. I still rate Telenor “buy” but at the time of this writing they are trading a bit on the high side.

The average revenue per user (ARPU) has stabilized around Rs 280 per month for Pakistan - its low but that’s the reality of the market. The bottom chart below shows the minutes of use and the average price per minute, which for Pakistan is around Rs 2/min. Interesting to compare the same for Bangladesh.

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Address books and keeping them current and accessible has been a problem for a long time. With the electronic revolution the paper address books have gradually went out of fashion, replaced by stand-alone PDAs, spreadsheets, online contact management services  and yes, mobile phone lists. But do people usually use their phone lists as THE primary address book? What are the various ways by which people keep the lists current and share that data with other applications and people?

The question is answered in part by a recent report. In a recent post, Ajit Jaokar of Open Gardens blog recommended a study: Mobile Life 2006 which looks at the social impacts of mobile phones in Europe. There are some interesting behavior studies there - and I believe that we need similar work in our part of the world. Going back to the topic of this post, on page 10, there is some interesting data:  

“Most people only regularly contact 10 people or less on their phone list”.
Allied to the texting revolution is another: the phone list revolution, namely the ability to store many phone numbers in a mobile phone. This has effectively become the modern address book. Overall, 36% of mobile phone users store at least 50 numbers on their phones; but, again, that overall figure disguises the significance of the impact of mobile phone technology on the young. 64% of under 25 have more than 50 numbers stored on their phones – compared with just 12% of the over-60s. 7% of men aged 18-24 store more than 200 numbers on their phones – compared to just 1% of women.

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As I reported earlier, Google gives cellphone users a mini version of its search engine which can be used via sms and speech. Now Google wants to become a gateway for finding and paying for mobile media content. It is also trying to come up with a service to broker ads for other mobile web sites, competing with Yahoo and start-ups in the lucrative mobile advertising space.

According to Yankee Group, global sales of music, video, ring-tones and other content reached $27.4 billion last year, and they are expected to grow to $59.3 billion by 2011. With the new system by Google, users would search for a piece of content – such as a popular ring-tone — and get back a list of providers as well as links enabling them to easily purchase the material. Google can charge companies for high placement in the search results, much the way it offers “sponsored links” on computer Web searches.

WSJ reports on this:

Google has been working for months with content providers — including large entertainment companies and smaller mobile-media aggregators — to index their material and make it available via mobile search. But the project has been marred by a series of technical delays, people familiar with the matter say, illustrating that there’s a learning curve as Internet giants adjust to the peculiarities of the mobile world. It isn’t clear how soon Google plans to launch the service.

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FTTH (Fiber To The Home/Premise/Business) is the new emerging technology for voice, data and media to which home users or commercial institutions in Pakistan can now look forward to. The idea is to replace the existing copper media in order to remove maximum dependency from PTCL network in general and to meet the demand for higher bandwidth with minimal disconnections, latency and security issues in specific. A related benefit is providing “one window solution” for data, voice, media & entertainment at affordable prices.

Some players have taken initiatives in this regard. Key players who have started or laid Optical Fiber Cable (OFC) are Multinet, Wateen Telecom, Mobilink, TWA, Nayatel and Brain Tel. TWA is focused on international connectivity through IPLC (International Private Leased Circuit) over SMW-3 & SMW-4, however they have also laid backbone fiber for Mobilink for domestic connectivity. As a result consumers are and will be enjoying advantages of low LDI tariffs. Nayatel is also offering data, voice and media services over FTTH but they are geographically focused in Islamabad market till yet. Multinet is one major infrastructure player laying 4500Kms Optical Fiber Backbone across Pakistan and also enjoys international connectivity with massive 40% share in SMW-4 through its investment arm Telecom Malaysia. Besides this Multinet has also laid fiber optic redundant rings in Karachi and Lahore. These OFC rings are also called Metronet. Multinet is serving corporate segment on Metronet since last two years.

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I often wonder how the lay person in Pakistan feel about all the technical jargon thrown at them. By the way this is a global issue. There are plenty of confusing technical terms in today’s world and telecommunication industry, for one, is notorious for not doing a good job at explaining its products, services or bills in a user friendly way. On top of it, when all this jargon is exported, along with the technology, to other countries it can add to the confusion. Pakistan suffers from this imported problem too.

Here’s what got me started on this track. I was looking at the Urdu section of a bilingual service brochure from one of the mobile company in Pakistan (click image to see full resolution version). I found it odd to see the English terms written verbatim in Urdu. What good is an Urdu section if it is indiscriminately peppered with English terms? Of course each term needs to be handled on case by case basis because for some terms it makes sense to assimilate the term and for other cases the correct Urdu term (or both English and Urdu) should be used.

SIM card  is a good example where the term is better used as is. For other terms (for example menu, services, setting) can’t these phone companies get some good Urdu copy writers and translators? May be they can recruit from the Urdu TV channel staff :)

A related trend is the increasing use of Urdu in the cyberspace  in general and Blogistan(as Adil Najam calls it) in particular. And now there are quite a few phones - such as Nokia 6030 - available with Urdu menu and font support. I have also heard that authentic Urdu text messaging (not just roman text) is gaining popularity. Perhaps with all this surge of activity in Urdu (such as Urdu blogs and newspapers) there will be a return to Urdu phrases as well. While searching for Urdu keyboard software, I recently discovered many good Urdu sites, one of which is particularly interesting and I recommend visiting it: CRULP - Center for Research in Urdu language Processing.

Back to the brochure above - a few questions which came to mind after looking at the brochure:

• In the image above ‘Chatting’ is written in both Urdu and English in parenthesis. Using both languages helps to some extent. Is this something which should be used more often?
• Has anyone tried to translate other terms such as value-added services or SMS in Urdu? But I doubt that anything like will replace  from the vernacular!