State of Telecom Industry in Pakistan

In the November issue of Global Telecom News:

• Korea’s SK Telecom acquires Hanarotelecom
• Rise of HTC in Taiwan and how it is playing dual game with windows and linux
• 3G pushes demand for chip industry

As we have been discussing, SK Telecom, Korea’s top wireless service provider, had plans to expand its business. But SKT has not yet made a move outside Korea. It has been announced that SK Telecom will take over the country’s second-largest telephone and broadband line provider, Hanarotelecom. SK Telecom’s acquisition is expected to trigger a flurry of mergers and takeovers in and outside the telecommunications industry, according to Korea Herald. The stocks of SKT have soared on this news.

Taiwan’s High Tech Computer (HTC) is the largest maker of mobile phones running on Microsoft Corp’s system. Now it is hedging its bets by going with Google’s android and it joined on the open handset alliance. HTC also expanded a distribution agreement with U.S-listed Brightpoint to improve the global reach of its entire range of products and services.

The business opportunities of the third generation (3G) mobile telecommunications chips booms in China. Chinese government has officially announced to support TD-SCDMA and GSM (GPRS) as the mobile telecommunications standards in China. Taiwan Business News reports that this means that a few companies will benefit from this.

ZTE Corporation, in charge of the TD-SCDMA network establishment in Beijing, Qin Huang Dao, Xiamen and so forth, says that the network establishment in most areas and Olympic game stadiums in Beijing will be completed by the year’s end. The network coverage rates in Liaonin, Tienjin and Shenzhen will top 90 percent. The TD-SCDMA mobile telecommunications network will be able to come into use in the top ten cities late this year or early next year.

Read more »

In this issue:

1. China - Opens Handset Manufacturing Market To Outsiders; SK Telecom Attempts To Break Into Chinese Telecom Market
2. India Working On 3G Policy, New Players Expected
3. Cell Phones To Solve Africa’s Problems?

China will allow foreign handset manufacturers to compete for their huge market, reports Shanghai Daily. China now has more than 500 million mobile-phone subscribers and is adding an average of about 6.8 million subscribers per month, according to the Ministry of Information Industry. 

China announced that it would relax license regulations for handset manufacturing. China’s State Council has abolished some 186 administrative examination and approval items covering mobile communication systems and terminals. Now is the time to let the market rule and see qualified new players replace the market positions held by established companies which depended heavily on the income from renting licenses to other companies, according to United Securities. The new players such as Tianyu, largely unknown by established industry players, have challenged and even surpassed leading domestic firms like Ningbo Bird and TCL Communications.

At PT/EXPO COMM China 2007, a telecom tech fair held in Beijing, SK Telecom offered tech-savvy Chinese consumers a taste of their mobile future. Using a Chinese-developed mobile telecommunication technology called TD-SCDMA, Korea’s largest mobile phone operator showcased international video telephony and high-speed mobile multimedia functions such as video on demand and real-time TV. SK Telecom is expected to accelerate a foray into the Chinese telecom market after becoming the second largest shareholder of China Unicom.

Read more »

Of the many multinational companies doing business in Pakistan, the Chinese telecom equipment makers Huawei and ZTE are among the best known in Pakistan because of their mega deals with Pakistani telecom companies. In recent years these Chinese telecom gear firms have become a major force to reckon with on the global scale. See our previous coverage of Chinese telecom equipment companies here and here. 

As Herald Tribuneputs it: “The Chinese equipment companies have grown by cutting prices and winning contracts in developing countries outside of China, then reinvesting the profits in new technologies. ZTE’s development spending increased 45 percent in 2006. Huawei said this month that it plans to double the number of engineers at a center in Shanghai.”

A recent Business Week reporttalks about how Huawei and ZTE continue their global expansion and in particular their inroads to the US market, directly competing with the likes of Cisco and Nortel. An excerpt:

For China’s high-flying manufacturers of telecom equipment, the U.S. market has always been a no-go zone. The Chinese government wants its companies to go global, but for Huawei Technologies and ZTE, that has meant heading to the developing world.

Customers in Southeast Asia, the Middle East, sub-Saharan Africa, and Latin America have all been receptive to Chinese-made equipment that performs almost as well and costs far less than comparable gear from Cisco (CSCO), Nortel (NT), and Alcatel-Lucent (ALU). And while the Chinese made some forays into Western Europe they stayed clear of the U.S. after an embarrassing legal challenge by Cisco in 2002 cast an unflattering light on Huawei for alleged copying.

That timidity is now starting to fade. Both Huawei and ZTE have been boosting their sales and marketing teams in the U.S. and becoming more aggressive in trying to land deals with American carriers. Huawei last month inked a deal with Cricket Communications, a subsidiary of Nasdaq-listed Leap Wireless International (LEAP), to supply its latest-generation CDMA multiplexing technology to the San Diego wireless carrier.

The full article is available here - the coverage includes:

• A Flurry of Deals for ZTE
• Drop in Domestic Demand
• Quality Essential for U.S. Acceptance
• No Exploding Cell Phones
• ZTE Discounts Backlash Factor

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.

Read more »

As we cross the midyear mark, CMPak Limited remains one of the most interesting mobile companies in Pakistan (see my past story from last year). Yes, they are late in the game of foreign acquisitions in emerging markets. Yes, Paktel has below 2% market share in Pakistan. But CMPak has huge amounts of cash. Some people have even questioned: why are they here? Well, they had to start somewhere and even if they don’t make big bucks in Pakistan it provides a great learning opportunity. Besides, who does not want to play in a growth market?

Re-branding, investments and price war seems to be a dominating theme for CMPak formerly known as Paktel. I am not sure when will they start phasing out the Paktel name and logo as many of their campaigns still show Paktel. Can someone shed more light on this?

The big news in the initial months were the announcements of capital investments deals with combined worth over $1 billion with Alcatel and Ericsson, discussed by TM here and here. Then came the first promotional Power Package- 50 paisas, which I consider a good start … Let the paisa wars begin! My only complaint is that the strings attached with such packages - and this applies to ALL mobile companies - can be too complicated for consumers to grasp - see if you can make sense of this tariff summary page from PTA. As TM points out:

the prices have come down to a point where the marketeers of the services can bring in the 50 paisa mention in their sales pitches with fine prints telling us that this is for 30 seconds, on-net and/or for a (predefined) user groups of friends and families.

Now lets talk about the overall strategy of CMPak, rebranding work and what about jobs?

To start with, China Mobile is the largest wireless carrier in the world in terms of subscribers and second largest in the world in terms of market value ($185 billion) so it can potentially benefit from its scale. It has experience of dealing with falling ARPU from China and has the capacity to compete on rock-bottom prices. However it is unclear on what are its plans for 3G. Its history as a government run monopoly till recently makes some people believe that it is not as business savvy as other global run telecom companies. According to an article in Flare:

China Mobile, a hardly-reconstructed former government department, falls into the category of a government run enterprise. The record of incumbent telecom companies abroad is an unimpressive one. Not least among the reasons for failure were the inability to adapt to the role of challenger and the unfamiliar regulatory and cultural environment.

No senior Mobile executive has experience of any market outside China. Few speak English to any extent. The strength that CM will bring to Pakistan, where 70% of the population lives in the countryside, is its rural experience. It has won business in western China by deploying low-cost networks, and selling handsets for as little as $38 with low-denomination prepaid top-up. This year CM has put itself on a learning curve, but to succeed abroad it will have to defy history as well as its own legacy culture.

With the acquisition of Paktel and injection of cash there was hope in the market that many jobs will be created. However the job situation is still uncertain. I’ve heard that technical jobs for locals have not been announced yet and Chinese engineers have been brought in. Even the website says: No jobs opening available right now!

Talking about websites, I was a bit disappointed by the quality of CMPak’s website . Anything beyond the home page is mediocre at best. I found plenty of stale content and inconsistent design which leads to poor usability. Telenor sets the bar when it comes to online experience. For Paktel, a fresh site with upated content should have been an important part of their rebranding. For now I’ll give them the benefit of the doubt and hope that CMPak will soon fix their website.

Picture from Paktel site shows Mr. Guo Yonghong, CEO, CMPak and other executives at Chamber of Commerce in Karachi.

In Part 2  I am presenting additional news and views about growth and competition in the mobile industry of China, India and Pakistan. As you will read below, India and China are directly competing to dominate the handset markets of the world. Pakistan is not in the picture as it does not manufacture mobile phones and rakes up big import bills.

First, an analysis by Brough Turner, Comparing Telecom growth in India and China in which he compares the teledensity and growth rates for the two countries from 2006. This is one of the few direct analysis using data available from different sources. He also touches upon the blurry line between mobile and wireless local loop about which I wrote as well.

 
Top 10 Emerging Mobile Markets - Source: Unstrung.com

Second, I am sharing an article titled Tale of two cell phone markets: India and China by Mike Clendenin, published at Electronic Engineering Times. The focus of the article is on mobile handset and electronics industry. Here’s some selected  text, with my comments in italics:

The buzz these days is that India is the “new China” of the cellular world. All the big multinationals have piled onto the subcontinent, chasing trendsetters in Mumbai as well as first-time buyers in remote villages. “They are the key drivers for the marketplace,” said David Taylor, India-based director of strategic operations in Motorola’s High Growth Markets unit.

Expansion in India now rivals China, the world’s largest cellular market. At least 5 million to 6 million Indians are signing up each month and about 7 million in a hot month. China? close to 5 million (6 by some estimates).  The number for Pakistan is 2.5 million based on 2007 data. Overall, China still trumps India for subscribers, at more than 480 million. India is on fire, though. Subscribers nearly doubled last year, to 149.5 million, and should hit 484 million by 2011, according to market researcher iSuppli Corp.

India is adding fuel to an already hot global trend. Since 2002, handset sales in developing countries have jumped threefold, compared with 62 percent in developed countries, according to Strategy Analytics Inc. It forecasts that 65 percent of handsets sold this year will be bought in emerging markets.

Yet the rapid ascension of India shows that not all emerging markets are alike. Beijing and Bombay may both be supersized cities in gigantic markets, but there are probably more differences than similarities in the way these places are growing, especially in the supply chain.

China has a relatively large chip industry, targeting local growth in communications; India does not. Pakistan’s chip industry is relatively insignifcant. China has more than 75 companies making handsets; India has only a few. China develops globally competitive telecom gear; India does not. The list goes on.

This is a relief to multinationals, although they may not publicly admit it. As things stand, global chip and handset makers won’t see a new crop of margin-destroying competitors rise as quickly in India as they did in China.

Read more »

In this story I’ll review and compare the emerging telecom markets of China, India and Pakistan. Combined together these 3 neighboring countries present one of the fastest growing region for the telecom industry, making them especially attractive for investors and companies. Although the business, technical and political environments of China, India and Pakistan vary significantly, there are many common characteristics as well. Naturally the telecom and service companies are on the look for winning ideas, products and services which can be taken from one country and applied to the other. In general, China is the undisputed leader in manufacturing and India has the edge on services. Pakistan enjoys a better regulatory environment for telecom, with fewer complications such as spectrum shortage and competing standards, as in India.

The deals and cooperation among the telecom sector of 3 countries is growing rapidly as can be seen from the frequent announcements in the media. CMPak is a prime example (and one of the most interesting to watch) which has announced investments of over 1 billion US$ in Pakistan. In Research and education, for instance, Huawei provides equipment and training to University of Eng. & Tech., Lahore. Equipment, R&D and service deals between China and India are on the scale of multi-billion dollars. All of this has a political angle as well which surfaces at times  - but this aspect is beyond the scope of this post.

In this part I’ll present market characteristics, projections and the growth areas in China, Pakistan and India.  In Part 2 of this series I will discuss about the electronics and manufacturing subsectors of the industry. You may also want to see some of my past posts related to this:

• Telecom Growth in China
• Telecom Growth in India
• Low-cost Phones Launched by Nokia and Vodafone
• Challenges of High Growth Mobile Telecom Markets
• China Mobile in Pakistan: Updates (April ‘07)
• Success of Huawei in Pakistan and Beyond

Key Points:

1- The numbers: industry analysts estimate that by 2010 the mobile subscribers will be: 

  * China: from 487 to 900 million
  * India: from 160 to 400-500 million
  * Pakistan: from 58 to 100+ million

2- Rural markets are the focus as urban areas get saturated with phne service. Outside China’s major cities, less than 30% of the population has mobile phones, and in India, where 72% of the people live in rural villages that mainly lack a mobile network, less than 15% of the population owns a mobile phone. The recent introduction of cheaper phones in India by Nokia, Vodafone etc is an example.

3- ARPU fall is higher in China spurring companies to provide value added services. Same trends will follow in India (where VAS will be 17% of market by 2010) and Pakistan - see the article belwo for more.

4- China will remain a testbed for newer technologies such as 3G, mobile advertising etc. Innovative products will be adopted quickly, regardless of the source. China’s fixed broadband access and IPTV market will add to growth.

The emerging markets of China and India get fair amount of media coverage. Sometimes a comparison is also made. Here’s one recent article titled ”Ericsson Aims Deeper Inside India, China” by Wall Street Journal. WSJ reports about how Sweden’s Ericsson is targeting more business in India and China and the challenges it faces. Recently Ericsson signed a $1 billion deal to supply GSM network equipment in China. Here’s a few points from the WSJ article:

In India, Ericsson — the world’s largest wireless-equipment maker by sales — looks set to pick up the majority of an estimated $4.5 billion contract with India’s third-largest mobile-phone company, Bharat Sanchar Nigam Ltd.

In the Pune, Maharashtra, region of India, Ericsson is working with mobile operator Idea Cellular Ltd. and the GSM Association, an industry body, to develop biofuels using local nonedible crops. By reducing the dependence on more expensive diesel power, Ericsson hopes to lower the cost of rolling out mobile-phone infrastructure to rural areas. Cleaner fuel will also reduce engineer site visits and prolong the life expectancy of generators, the company says.

In China, Ericsson faces two potential threats. While the majority of China’s mobile phones currently operate on GSM networks, the government and China Mobile are currently testing a homegrown version of third-generation, or 3G, technology known as TD-SCDMA, which differs from the common standard being adopted across Europe and North America. Ericsson only has an approximate 1.4% share of the total TD-SCDMA contract. ZTE Corp. and Huawei are among the local vendors that picked up a large part of the deal. Nomura says that there is a significant risk that TD-SCDMA can become the dominant technology in China, and if this happens, Ericsson won’t have the cost advantages it has in other mobile technologies.

Stay tuned for Part 2 of this series in which the electronics and manufacturing will be discussed.

Next door to Pakistan is the world’s largest telecommunication market: China. In part 2 of telecom growth in Pakistan’s neighbors I present an overview of the Chinese telecom industry. This post will cover the major service providers and top telecom equipment makers in China. I’ll also touch upon China-Pakistan collaboration in the telecom sector.

With a country the size of China one post cannot do justice. This post will not cover the role / influence of Chinese government in its telecom industry or the legal and regulatory situation in China. These will be taken up in a separate post.

According to data from the Ministry of Information Industry, China had 437 million mobile-phone subscribers, 368 million fixed-line users and 47 million broadband subscribers as of the end of August 2006.

Here are the major telecommunication service providers - follow links to their websites for details. 

1. China Telecom (NYSE: CHA) provides fixed/landline, fixed wireless and internet services. It has 60% of market share. There have been reports that China Telecom will sell a stake to a foreign strategic investor.

2. China Netcom (NYSE: CN)  is th fixed line competitor to China Telecom and has a market share of about 33%. China Netcom has two strategic partners in PCCW of Hong Kong and Spain’s Telefónica.

3. China Mobile  (NYSE: CHL) is the world’s largest mobile company with near to 300 million customers. It was spun off from former monopoly China Telecom in 2000. China Mobile provides GSM mobile service and is the dominant player with 65% market share. See its profile here and a recent article about its performance here. Vodafone has a 3.27% holding in China Mobile.  

4. China Unicom (NYSE: CHU)  provides mobile services on GSM (its core business) and CDMA networks. It has a market share around 32%.

There are many other smaller operators which are attractive partners for foreign firms so it is expected that we will see many international deals in coming years.

On the global front China is also making its mark with its telecom equipment makers. The chinese telecom companies are taking on bigger rivals from around the world. Chinese government wants its telecom industry to become a leading force in research, innovation and standards.

o Huawei  is one of the world’s leading networking and telecommunications equipment supplier with R&D centers worldwide (China, US, Europe, India). See related post on telecompk for Huawei’s profile and its march towards global growth.

o ZTE - is another major Chinese telecom equipment maker. It started as a government company in 1985. Recently ZTE has been pursuing internationl telecoms markets and has been successfully working in Europe. ZTE is a major supplier for Pakistan’s service providers such as PTCL. You may have seen ZTE name on PTCL V wireless phone.

As I mentioned in a previous post the above mentioned Chinese telecom equipment firms are working in collaboration with Pakistan: Huawei is working with UET Lahore and ZTE is setting up a R&D center in Islamabad.

China and Next Generation Network Technologies

3G will be a huge factor in China and depending on how 3G works out in China, it will influence adoption in India, Pakistan and other Asian emerging telecom markets.

China is set to become the world’s largest 3G customer base in the next decade. As is the case in rapidly growing markets the real growth areas for Chinese operators lie no longer in their voice service business, but instead with non-voice and data services. China Mobile is aggressively going after next-generation technologies to boost profit levels. China Unicom is also looking for 3G to increase its market share. China Telecom has its eyes on IPTV service which is expected to be out in near future, though the market and regulatory framework for IPTV is not fully defined yet.

China is developing a home-grown 3G standard:TD-SCDMA, which is undergoing testing this year. It is believed that China will wait for TD-SCDMA technology to mature before opening up the 3G market to all 3G platforms. Critics argue that such moves will make it hard for foreign companies to compete in China.

I close with a few related Articles from Businessweek:

- China Mobile at Full Speed

- A China Telecom Play With A Quiet Ring

- On The Cutting Edge: 10 Chinese Innovators

Huawei is a Chinese telecommunication (wireless, networking) equipment maker with presence in 41 countries. Huawei defines itself as the leader in next generation telecommunication networks. Recently Huawei has signed two mega deals worth over a billion US$ with Pakistani telecommunication companies Worldcall and Ufone. The Ufone deal is worth US$ 550 Million and involves GSM expansion. The WorldCALL deal is estimated to be US$ 720 Million and its for setting up Wireless Local Loop service in South Pakistan.

In this post I’ll provide some background on Huawei and its standing in the world. Next posts will discuss the impact of the new deals on Pakistan’s economy and telecommunication sector.

The tremendous growth of Huawei in the last few years is impressive, given that it competes with established international giants such as Alcatel, Cisco and Lucent. As experts have noticed Huawei’s advantage goes beyond lower prices. Huawei is positioning itself as an innovator and leader of cutting edge technology products. See this Business Week article about Huawei’s R&D focus.

An important feature of the Chinese policy is the empahsis on developing its own technical standards. For instance Chinese are pushing for IPV6 in an effort to catch up with the US. Another example is the TDS-CDMA standard which was developed in China.

This company is respected, feared and criticized in the western world. See this MSNBC article on why some people think that Chinese government is too close behind Huawei’s success and the related security concerns raised. A few decades ago Japan’s trade ministry was also very active in promoting their electronics and auto industry. Now the focus is on China. I share a few lines from the article:

The combination of a strong work ethic and modern business practices is helping Huawei to alter customer perceptions of China Inc. in overseas markets. When Huawei salesmen first approached British data-services company Fibernet three years ago, the firm had been using merchandise built by Cisco, Ciena and Marconi, according to Fibernet marketing director Nigel Pitcher. When Pitcher visited Huawei headquarters, he expected “to be underwhelmed by a Third World sweatshop operation.” Instead, he says, he was “bowled over” by “the most modern manufacturing facility that I have ever seen.”

Huawei is certainly moving up on the technology and leadership chain. I think it has a bright future ahead.

Huawei’s official site huawei.com has good information about their products and services. By the way in US they are known as “Future Wei”. Find more at their US site.