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Interesting study about the telecommunication trends in Asia reveals that there’s still a lot of unmet demand in the low-income population. Read the rest of the story here.
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.
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
This post and the latest one on Warid’s potential sale of 30% stake to SingTel can be found at the new site here.
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 downComments 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
This post examines the challenges faced by PTCL and its future prospects. As we know the Etisalat owned PTCL has been engaged in battles with new competitors and regulatory body (PTA) on one hand and faces internal organizational issues on the other. Its profits have been sliding. Notwithstanding the grand claims by its executives, Will PTCL be able to reverse the trend and prove to be a good investment?
I have written about Business Monitor International’s coverage of Pakistan Telecom before here. In the past BMI has made interesting projections about growth of Pakistan’s telecom industry. This time they have extended their forecast to 3G services in Pakistan. A subscription is required to view the detailed reports but here’s a summary as reported by Business Recorder. I think their forecast of 6% handsets by 2010 is a bit high.
According to BMI’s 3G forecasts for Pakistan, a difficult exercise given that no licences have yet been awarded to other operators. The PTA is eager to kick-start the process in 2007, which would mean that there are unlikely to be any active paying 3G subscribers until well into 2008.
With GSM the main mobile technology in use in Pakistan, as accessed by Mobilink, Ufone, Warid Telecom, Telenor, and local group Paktel (since its emigration from AMPS in 2004), the preferred 3G technology would be UMTS.
It is likely that the PTA will stage an auction in mid of 2007. It is even possible that licences could be awarded later still. It is improbable, therefore, that any commercial 3G launch would happen before H1 2008.
The introduction of EDGE services (such as the one by Telenor) and popularity of WLL may hinder the development of 3G, but BMI forecasts that by the end of 2010, about 6 percent of all mobile subscribers in Pakistan will have a 3G handset. This, however, remains very much in the hands of the PTA, the operators themselves and, of course, Pakistan’s consumers.
As reported by The News, the import of mobile phones in Pakistan has increased almost six times over the last three years. This is alarming because it causes huge drain on foreign reserves and deprives Pakistan of the economic benefits of telecom growth. One wonders why have we not come up with any alternatives yet? I find it completely unacceptable and a failure on the part of Pakistan government. A quote from the report:
A senior PTA official said that it was need of time to promote and facilitate local manufacturing of telecom equipment, he said and added that the government should attract foreign companies to invest in this area as there was continuous demand for telecom equipments in the country which would decrease the burden on foreign exchange and create further employment.
Here is the rest of the report, courtsey of The News.
During July-November 2006 of last year, mobile phones worth $294.7 million were imported in the country as compared to $51.3 million during the same period in 2003.
The import of advanced technology and sophisticated sets with camera and music facility are on top while Pakistan Telecommunication Authority (PTA) says that this trend looks to grow in the next one year as these features have become standard.
Mobile phone companies have reduced the rates of sets boosting the trend of replacing old mobiles with new ones. Retailers believe that the number of handsets imported currently in the country has crossed the figure of one million per month.
According to an estimate, there are more than 1,50,000 mobile phone shops across Pakistan generating employment for over 6,00,000 people. Mobile phone shops include high end franchise show rooms to small kiosks in markets and shopping malls.
The total value of handsets imported in Pakistan during the last fiscal year crossed $1 billion and expected growth in imports is 25 per cent.The import of other telecom equipment has also increased due to the expansion of telecom network and services.
There’s an interesting story about Bangladesh’s Grameen Bank in Financial Express. The story is inspired from a book called “You Can Hear Me Now” by Nicholas Sullivan, in which he writes how microloans and cell phones are connecting the world’s poor to the global economy.
I’ll share the story of Grameen phone from Financial Express first. You can read a presentation (pdf) about Grameen by its founder here. For more about Iqbal Quadir’s current work at MIT Entrepreneurship Center follow this link.
The idea of GrameenPhone was conceived by 36-year-old Manhattan-based venture capitalist Iqbal Quadir in 1993. It was trigg
ered when his computer network crashed, leaving him unproductive. Concluding that connectivity is productivity, the Wharton business graduate returned soon after to Bangladesh to launch a phone service.
At that moment the country had one of the lowest teledensities in the world with one phone for every 500 people. What followed were years of struggle, frustration and failures. Anything that could go wrong went wrong. The government, funding agencies and investors were not easy to convince. He himself worked out of his home and car without any salary for years. The Grameen Bank, too, took its own time to get on board. Why cannot a cellular phone be like a cow? A business plan built on this argument managed to convince Yunus finally.
Then there was no looking back.The next crucial step was negotiating a partnership between nonprofit Grameen Bank and Norway-based for-profit Telenor and the service was up and running in 1997. Today GrameenPhone has 10 million subscribers, connects 100 million people through 2,50,000 phone ladies, who buy phones on microloans from the Grameen Bank and lease air time to villagers to make a living after paying off their loans. Today a phone lady earns on an average $750 a year, which is double the average annual income of a Bangladeshi. GrameenPhone has revenues of $1 billion and annual profits of $200 million. In 1999, Quadir left GrameenPhone and Bangladesh for the US to teach what he had succeeded in doing at the grassroots back home. He has also come up with the concept of invisible leg to explain how technological innovations influence economies.
GrameenPhone’s success in bridging digital divide and generating profits is not an exception, though. It has been demonstrated earlier also that connectivity increases GDP in poor countries and eradicates poverty. While econometric research by the London School of Business has shown that 10 phones per 100 people add 0.6% to the GDP of a country, the United Nations estimates that 0.6% growth cuts poverty by 1.2%.
More about the author and the book:
Author Nicholas P Sullivan embellishes the unusual Bangladeshi success story with such facts and figures in You Can Hear Me Now, which pans out not only vertically, but also horizontally to capture the big story with its smaller sub-plots.The GrameenPhone story is located on the larger global telecom map dotted by other profitable digital divide bridging initiatives like Celtel in Africa, MTN and Vodacon in South Africa, Orascom in the Middle East and South Asia, and Smart Communications and Globe Telecom in the Philippines. Last year’s Nobel Peace Prize winner Muhammad Yunus, India’s telecom ambassador Sam Pitroda, Celtel chairman Mohamed Ibrahim Mo and social venture capitalist Joshua Mailman also keep on walking in and out of the story, offering their insight on the initiative.
Concluding that an external combustion engine can catalyse bottom-up development to fuel economic growth, the author elaborates, “The engine comprises three forces: information technology, imported by native entrepreneurs trained in the west, (and) backed by foreign investors.” Emphasising that information technology and private investment are better than ineffective foreign aid to corrupt regimes, the author makes a case for out-of-the box thinking by the private sector to tap business opportunities in developing countries, provided by four billion people living on less than $2 at the bottom of the pyramid.
The 26th meeting of the Asia Pacific GSM Association (GSMAP) was held in Pakistan, The Nation reported. Pakistan had won the GSMA Government Award for 2006. Pakistan Warid Telecom sponsored and hosted the event for this international body. CEO Warid Telecom Hamid Farooq said that the holding of conference in Pakistan was yet another landmark achievement for the telecom sector in Pakistan.
Chairman GSMAP, Mehboob Chowdhry said that GSM operators were present in 217 territories and countries. He said that the GSM Association was taking a close look at the numerous telecom indicators of these countries to process their analyses on the status of a country’s telecom sector, regulatory framework and quality in the GSM framework.
CEO Warid said that the primary goals of the GSMA was to ensure mobile phones and wireless services work globally and are easily accessible, enhancing their value to individual customers and national economies, while creating new business opportunities for operators and their suppliers. The Association’s members serve more than 2 billion customers - over 82% of the world’s mobile phone users.
Speaking in the conference the PTA chairman admitted the quality surveys conducted by the PTA could not serve the purpose and MNP was there to serve the purpose.
He said that the telecom industry in Pakistan had attracted $9 billion foreign investment in the last three years, and another $ 4 billion are expected during the next 3 to 4 years. He said that 1.5 million new subscribers are being added each month.
CEO of Warid said that special sessions have been reserved to converse on Roll out of 3G, Regulations in IP world, Interconnection in IP world and the proposed direction for the operators and GSMA Public Policy update. The Warid CEO said that an exclusive case study ‘Inherent complications in emerging markets’ would also be shared with the participants.
If anyone has access to this study please share or let me know.
The GSM Association, a trade assoication of GSM mobile operators worldwide, has released the preliminary results of a study prepared by Deloitte, which estimates that the mobile industry has created 220,000 high-paying jobs in Pakistan and accounts for 5% of its Gross Domestic Product (GDP) and approximately 6% of the total taxes collected by the Central Board of Revenue, as reported here. The study also found that Pakistan’s economy and society is benefiting from rising mobile phone usage and low tariffs, which lowers the cost of doing business and improves productivity, while helping families and friends to connect to each other at home and abroad.
Deloitte estimates that over a period of 10 years the elimination of the activation tax would generate an additional 132 billion Rupees (US$2.17 billion) in total tax revenues through the positive impact on the mobile industry and its spill over into the broader economy, above what the government would obtain maintaining the tax. The study shows that tax collections from the mobile industry would grow consistently year on year in the period 2007-2017 due to increased penetration and higher revenues. 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.
These findings were released when GSMA CEO Rob Conway visited Pakistan in last week of March. “It is very important that the government of Pakistan sends a clear signal to the mobile industry and its investors that it will continue to help operators to connect the unconnected by eliminating the activation tax of 500 Rupees in the next budget,” said Mr. Conway, citing the Deloitte report.
Rob Conway, Chief Executive Officer of the GSMA, met in Islamabad with President and Prime Minister Shaukat Aziz. He also met with CEO’s from Ufone (Mubashir Naqvi), Mobilink (Zouhair Khaliq), Paktel (Guo Yonghong), Telenor Pakistan (Tore Johnsen), and Warid (Hamid Farooq), as well as the Minister of Telecommunications & IT, Awais Leghari, and Chairman of the Pakistan Telecommunications Authority (PTA), Shahzada Malik.
“By lowering barriers to connectivity, the mobile industry can connect the unconnected in Pakistan. The activation tax is a significant barrier for people looking to own a mobile phone and represents a constraint for operators seeking to expand into rural areas,” said Mr. Conway. “With 50 million mobile users and 30% penetration, Pakistan is now a leader in mobile usage in south Asia. The next step is to build on that achievement by eliminating the activation tax and securing further economic and social benefits for the Pakistani people.”
Universal Service Fund, commonly known as USF, is a tax on telecommunication service which is used to fund and subsidise telecommunication infrastructure for remote and rural areas. USF is a controversial regulatory tool. It has been around since 1997 in USA. The goals of Universal Service, as mandated by the Telecommunications Act of 1996, are:
1. To promote the availability of quality services at just, reasonable, and affordable rates
2. To increase access to advanced telecommunications services throughout the Nation
3. To advance the availability of such services to all consumers, including those in low income, rural, insular, and high cost areas at rates that are reasonably comparable to those charged in urban areas
In Pakistan USF was also setup with similar intentions of reducing the digital divide and to advance ICT. Minister for Information Technology, Awais Ahmad Khan Leghari recently said that the government is firmly poised to spend millions of dollars from Universal Service Fund (USF) to add up about 1000 new Basic Transmission Stations (BTSs) and cell sites in remote areas which were not commercially attractive for the existing players. Part of the conditions for licence approvals for new companies such as Telenor and Warid included that these providers will invest in rural areas in addition to the more lucrative urban cities.
Awais Leghari said Ministry of IT had already engaged consultants which would lay down within the next couple of months a proper framework for the USF roll-out through a transparent bidding process to be conducted and overseen by the regulators. He said the number of cell sites in Pakistan had crossed the 10,000 mark and in a couple of years 90 per cent of the country’s population would have access to phone coverage. Also see my related post about network expansion in Pakistan.
As reported by The Economist in an article “At your service - Telecoms in the developing world“, the idea of “universal service” is being extended from voice to broadband.
In India, the government created an auction of the rights to create and run telecommunication networks in remote rural areas. Around the world, such networks are often subsidised by a “universal service fund” (USF) paid for by taxes on existing telecoms services. Auctions are held, and the network operators that demand the smallest subsidies win. They must then provide a certain number of public payphones, as well as signing up subscribers.
Economist notes that something rather odd happened in India: in 38 of the 81 regions on offer, many mobile operators bid zero. In other words, they asked for no subsidies at all. In 15 regions, India’s biggest operator, Bharti Airtel, even offered to pay. As a result, barely one-quarter of the 40 billion rupees ($920m) available in subsidies is likely to be allocated. If operators think there is money to be made running mobile networks even in some of the poorest parts of the world, is USF needed anymore?
In another sign of positive expansion for Pakistan’s telecom industry, Telenor has signed deals worth $750 Million with Nokia and Siemens, as reported here and here. However this rapid expansion is also causing issues especially with regard to how foreign companies execute and transfer knowledge to Pakistan. In a related statement the telecom minister said that Pakistan’s telecom sector had received about Rs 550 billion investment so far while Rs 300 billion were likely to be added to the sector in the coming two to three years.
The minister said that while the pace of growth in the telecom sector had been impressive, it had also raised few issues of concern for the government, with the lack of good implementation service-based companies in Pakistan being a real concern.
He said big vendors such as Nokia and Siemens were merely relying on sub-contracting equipment installations to small local players whereas the sector had grown to a point where they needed to come to Pakistan in a big way by raising companies of scale whose human resource, products and services could also be exported outside Pakistan.
Nokia and Telenor Pakistan have announced that they will be extending their existing frame agreement on GSM radio network equipment and services until 2009. Over this new three-year period, Nokia will deliver +2000 base stations, while continuing to plan, build and manage the radio network in close association with Telenor Pakistan.
Under the agreement, Nokia will provide Telenor Pakistan with its state-of-the art radio and transmission network, including microwave radios. A wide range of services will support the radio network roll-out and operation, including turnkey maintenance services, hardware support services, and services for the deployment of the GSM network, including network planning, site acquisition, civil works and telecom implementation.
The cooperation aims at increasing Telenor Pakistan’s network coverage and capacity in most of Punjab, North-West Frontier Province, Pakistan- Administered Kashmir and northern regions of Pakistan, including the capital city of Islamabad.
According to reports, Multinet Pakistan Ltd, a subsidiary of Telekom Malaysia, has signed capacity supply and service contracts worth 40 Million USD with Telenor Pakistan. Telekom Malaysia controls 78% stake in Multinet Pakistan, which is a broadband company (ISP). Multinet is also licensed to provide Long Distance/International (LDI) services.
The capacity contract will allow Telenor to use fibre-optic cable pairs and associated co-location facilities along Multinet Pakistan’s national long haul transmission network, known locally as Project Ittehad. The service contract entails maintenance and associated services from Multinet for the duration of 20 years. Project Ittehad is a 4,100 km fibre-optic backbone connecting 107 cities across Pakistan, the first backbone project to be launched after the state-owned carrier Pakistan Telecommunication Co Ltd’s long haul network was completed in 1996. More on this here.
Telekom Malaysia has faced sluggish growth in its domestic market due to fixed-mobile substitution and VoIP offerings. However Telekom has finally become successful at the international front. In 2006 its Asian investments brought solid revenue and earnings contributions to its financials.
Telekom Malaysia had spent much of the late 1990s saddled with unprofitable investments in Africa but by 2004, it decided to switch its focus to Asia by acquiring a stake in Indonesian mobile operator, Excelcom. Having acquired a 49% stake in Spice, Telekom re-established itself in the Indian market at an opportune moment. It is doing business in many additional Asian countries: Indonesia (Excel), Bangladesh (Aktel), Cambodia (Casacom), SriLanka (Dialog), Singoapore (MobileOne). Telekom had announced creation of a separate group management team to overseas business development projects.
It is one of the companies to watch for as its current projects can position it for long-term success.
A front-page article in the Wall Street Journal (12/1 
reports that some of the world’s biggest telecom companies are racing to tap China and other rapidly growing Asian markets by building faster pipelines for the surging volume of Internet and phone traffic produced by multinational corporations and the region’s consumers. The article mentions that Verizon is set to sign a $500 million agreement with five major Asian telecom carriers to build the first high-speed trans-Pacific undersea cable system, to be called “Trans-Pacific Express”, directly linking the U.S. and China.
Verizon Business and partners China Telecom, China Netcom, China Unicom, Korea Telecom and Taiwan’s Chunghwa Telecom will start building the cable in the first quarter with completion expected in the third quarter of 2008. Meanwhile, according to the article, people familiar with the matter say AT&T is in talks with Telekom Malaysia and Singaporean carrier Starhub to build a cable line linking Southeast Asia and the U.S.
These are interesting developments. Recently Trasnworld Associates, Pakistan’s first private submarine fiber optic cable operator, have provided a new undersea cable system known as TW1, with a capacity of up to 1.28 terabits per second (Tbps). This will increase Pakistan’s bandwidth capacity and provide much-needed resilience against failures. Till this came along Pakistan had only one pipeline connecting it to the gloabl internet. For a good overview of Pakistan’s internet connections see KO’s blog post. The Trasnworld wesbite shows a glimpse of their work, as shown below.
Hopefully these projects will provided the much needed additional capacity needed for Asia’s growth and will speed up the work to reduce the deep digital divide.
The Indian telecom market is again the topic of a political discussion about security and foreign telecommunication and technology firms. Recently the Chinese telecom equipment firms ZTE and Huawei were the issue but now Orascom has joined the list. Pakistan is a common link for all these companies.
As reported in Indian press here, the Egyptian telecom giant Orascom wants to pick up direct stake in Indian telecom companies. Currently, the company holds an indirect 10% stake in Hutch-Essar.
Orascom was being scrutinised by Indian Intelligence agencies since it was a key mobile player in Pakistan. CEO Naguib Sawaris says he needs more clarity on the government’s FDI policy. “The security issue surprises me, just because we operate in Pakistan does not mean our company becomes a threat to any nation’s security,” Sawaris added.
Orascom had sparked off the debate on the security issue of FDI from countries, percieved to be a threat to India. The debate within the government continues.
For a review of ZTE and Huawei with India see this Business Week blog. Excerpts below:
Indian telecom operator BSNL disqualified the Chinese company from bidding for contract worth $4 billion for GSM equipment. The Indian government, through the Foreign Investment Promotion Board, had also prevented Huawei and ZTE from expanding their small presence in India.
Both Huawei and ZTE early this month won some business from state-owned operators. And now comes news that ZTE is teaming up with an Indian partner. The Shenzhen-based company plans on working with MCorpGlobal, according to the Economic Times, “to set up a service-based company, which will import, distribute and sell telecom equipment and also offer other telecom-related services in India.”
Clearly this is a setback for ZTE, which no doubt would have much preferred to stick with its original plan of going it alone in India.
It would be good for all 3 countries - China, India and Pakistan - to clarify such matters of security and investment rules in detail so that foreign companies can invest with confidence. The rules of 21st century blur the geographical borders faced in the past by global businesses and telecommunication technology is at the forefront of this push. There’s not much to be gained by pushing back.
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 telecommunicatio
n 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:
From time to time I’ll write about telecom action in other emerging economies especially in Asia. The first in this series is an overview of mobile telecom market in India. In last few years the Indian mobile market has seen remarkable growth (average 5 million new subscribers per month during Q3 2006) and at this time India is the fastest growing mobile market in the World. With almost 100 million mobile users India is 4th in terms of total subscriber numbers.
This post will cover 3 topics: Overall business environment for mobile industry, Mobile Players and Growth Areas & trends - 3G’s future.
The business environment for India’s telecommunications industry is excellent . The government policies have encouraged the growth, increased competition and high levels of foreign direct investment (up to 74% foreign investment is now allowed) . The Indian government’s goal is to provide an environment where service companies, handset manufacturers and network companies will invest in India and use India for research and development work (R&D). The favorable business environment has attracted a number of foreign multinational firms such as Hutchison, Vodafone, Nokia, Huawei, Maxis and Malaysia Telecom. In my opinion the real edge for India will be the R&D facilities being setup there which can provide innovation for next generation technologies - not only for India but for everywhere else as well. China is in the same race to position itself as an R&D hub (see my post on Huawei). Pakistan lags behind in this important area, perhaps due to a smaller pool of skilled resources and lower political stability.
Mobile Players
For list of GSM providers in India see this page from website of Cellular Operators’ Association of India operators (COAI).
Based on June 2006 data from Cellular Operators’ Association of India (COAI), Bharti Airtel is the country’s No 1 mobile operator with over 23 million customers on its GSM network and a 21.9% share of the market. Vodafone has 10% stake in Bharti and it is considering to increase that.
Reliance Infocomm is the second largest operator with 20 million customers on its CDMA network and about 2.5 million subscribe on its GSM network. Reliance is in the process to acquire GSM spectrum for additional 21 regional circles and with this it may overtake Bharti as India’s leading mobile operator. On the left is a snapshot of Reliance website showing its value add features such as ringtones, multimedia messaging and alerts.
State-owned BSNLis third in size. With all the issues of an inefficient state-run company, it faces stiff competition but it has potential in rural areas and with fixed wireless technology. Compared with PTCL of Pakistan which has was privatized this year, BSNL seems to be a step behind. Indian mobile unit of Hong Kong-based Hutchison Telecommunications International Ltd is India’s fourth-largest mobile services provider. Interestingly Orascom has about 20% share in Hutchison.
All the major equipment makers of the world are in India. Nokia is the major handset maker (it earned $1 billion from India alone). LG of Korea is a major new player - it signed a USD 100 million contract to provide sets to Reliance.
See this blog post about quality of services of the operators by TRAI, the telecom regulatory agency in India. And if you want to read about the emerging Asian giants which have invested in India see this.
Growth Areas and Trends: Rural demand, 3G?
The ARPU rates fell on average by 11% in early 2006 causing some conern for the mobile operators. This is a typical situation faced in new markets where mobile phones are mainly used for voice communications. As the growth in urban areas slows down and the rural areas become the growth focus, the rural region will be the next stage of competition. The demand for voice will continue with rural growth but the trend of low revenue per user is also likely to continue.
The 3G technology has not hit the Indian market yet.
Currently the Indian telecom regulatory agency (TRAI) is in consultations over its licensing strategy after which it will present pricing recommendations. COAI is pushing for 3G services and policies so that average revenues per user can be increased. The commercial deployments expected in 2007. All the major operators have expressed interest in rolling out next-generation services and BSNL in particular is betting that 3G will boost its subscriber base. Meanwhile Bharti has signed a USD 400 million deal with Nokia to expand its GSM/GPRS/EDGE networks in eight regions. Others are also planning similar expansions. 3G rollout and adoption will be an important test for Indian mobile operators.
Here are some excerpts from an article about 3G at Wireless Forum.
Swedish telecom equipment maker Ericsson believes that the rollout of 3G telecom networks in India will help operators reduce costs, offer an array of services to users, and connect millions in rural areas who have never used a phone.
“3G as a technology is more advanced and more efficient. One base station in a 3G network can take 80 calls as against 17 calls per base station in 2G,” says Sudhin Mathur, Manager, Sony-Ericsson.
Other equipment vendors such as Nokia and Motorola are also gearing up to meet the demands of the Indian market. Nokia, for instance, is developing a High Speed Downlink Packet Access (HSDPA), a natural evolution to 3G that will bring even higher data speeds with a simple software upgrade.
In conclusion Indian mobile market is set to grow remarkably well with the current business climate and if it can go beyond voice and make 3G a success then it will be an exceptional success story.
Continuing the series of posts on Pakistan’s mobile companies, this one will present a snapshot of Norway based Telenor ASA. Telenor has international operations in the areas of mobile telephony and satellite operations in more than 12 countries. Its global footrpint includes Nordic region (Denmark, Sweden and Norway), Eastern and Central Europe (Hungary, Serbia and more) and Asia (Malaysia, Bangladesh, Pakistan, Thailand).
Asia is a major contributor to Telenor’s Success. According to a recent article in Telecom Insight, Norway’s Telenor is becoming an increasingly significant global mobile player. The article states that “Whereas two years ago, approximately 40% of its customers were from Scandinavia, this figure has fallen to about 10% as of September 2006. In contrast, Asia, where it only had operations in Malaysia (DiGi) and Bangladesh(Grameen Phone) at the beginning of 2004, now accounts for over half of Telenor’s entire wireless subscriber base.”
Telenor’s wholly owned subsidiary Telenor Pakistan launched GSM mobile services on 15 March 2005. Telenor acquired the license to build and operate a mobile network in Pakistan in at a price of USD 291 million. Currently total investment is around USD 1 billion with a market share of 11%.
According to telecom analysts entrance of Telenor and Warid intensified competition in Pakistan mobile market significantly. Both Mobilink and Ufone were slow to respond with the result that Warid and Telenor made substantial gains in market share. This shows the growth potential of Pakistan’s mobile market.
An example of increased competition in Pakistan is SMS. When Mobilink introduced Octane, Telenor reciprocated with Djuice with even lower rates for text. Telenor also introduced 30 second billing which in my opinion ended up confusing many consumers. Telenor has also introduced EDGE data services which should contribute to better revenues and it may lead the way to 3G services in Pakistan.
In conclusion, Telenor has shown stellar growth and I believe it is a great investment choice. Read on to understand the basis of my opinion.
Latest Earnings
In the third quarter of 2006, Telenor’s overall revenues amounted to NOK 23.9 billion, which was an increase of 35% compared to the third quarter of 2005. Profit before taxes was NOK 6.1 billion.
One year net profit margins were about 16%, better than the industry average of 11%.
Highlights from Telenor Pakistan 3Q Earnings Report
• Telenor – Pakistan experienced a significant growth in the number
of subscriptions with net additions of 1.4 million during this quarter
alone.
• Telenor – Pakistan’s estimated market share increased further by
1 percentage point to 11% from the previous quarter.
• ARPU in local currency decreased by 9% compared to the second
quarter of 2006 primarily due to a reduction of interconnect charges
from 1 July 2006.
• Compared to the second quarter of 2006, total revenues in local
currency increased by 25% mainly due to subscription growth
partially offset by reduction in ARPU.
• Compared to the second quarter of 2006 there was a positive
development in EBITDA, mainly due to higher revenues.
• The increase in capital expenditure was related to the roll-out of
the mobile network.
• 1 July 2006, following a decision made by the regulator, the interconnection
charges of mobile operators were reduced from PKR 1.6
to PKR 1.25 per minute. At the same time the charging principle was
changed from per minute to per second charging.
How to invest
Telenor is traded on NASDAQ as ‘TELN’ and also in Oslo stock market. See these websites for more info:
o Stock snapshot
0 Telenor on JP Morgans website*
For another view point and details about Telenor’s subscriber numbers & market share visit this site.
*About ADR:
An American depositary receipt (ADR) is a stock that trades in the United States but represents a specified number of shares in a foreign corporation. ADRs are bought and sold on American markets just like regular stocks, and are issued/sponsored in the U.S. by a bank or brokerage.
Recent news about decline in profit of PTCL has concerned many investors and shareholders. Will Ufone, mobile phone arm of PTCL, be able to fight back and reverse this trend? In this post I present a snapshot of Ufone. I’ll discuss its strengths, weaknesses, threats to its current position and its future prospects.
Conclusion:Lots of potential if Ufone and its parent get its act together and execute well on their expansion and competitive plan. Read on to understand the basis for this conclusion.
About Ufone
Ufone (official name: PTML) is a PTCL company and Etisalat of UAE owns 26% of PTCL. For more information about Etisalat I recommend reading this investment report from Shuaa. This report also includes details of how PTCL was privatised earlier this year in April. Please note: PTCL does not report detailed earnings results for Ufone. Therefore we need to look at PTCL results as a whole.
Highlights of Recent Earning Report
The annual 2005-2006 and first quarter 2006-2007 financial reports are available at ptcl website.
For the first quarter 2006-07 ending Ocotber 30, 2006 the profit before tax was Rs.7.7 billion with net Profit of Rs.5.1 billion, which is 7% lower than that of the corresponding quarter of last year. For the full year 2005-06 after tax profit was Rs 20.78 billion which was 22% less than previous year’s profit.
Dividend of Rs 3 per share was awarded which corresponds to an impressive dividend yield of 12.3% !
PTML (Ufone) - a wholly-owned subsidiary has improved its financial performance compared to the first quarter of last year. It added over 1.37 million new subscribers during July to September 2006 quarter, making its total subscriber base in excess of 7.52 million as of end September 2006. Ufone earned a net profit of Rs.666 million compared to Rs.389 million recorded for the same period last year.
Network and infrastructure expansion was carried out in 2006 progress and more is being planned to deploy WLL, Wimax etc. In the largest network expansion deal of Pakistan, PTCL signed up Huawei for a US$550 milliondeal which will allow Ufone to double its capacity. Financial reporting standards have also been improved. Details are in the directors report at PTCL website. Note that analysts expect Ufone to be an increasingly major contributor to PTCL earnings. This indicates the growth in wireless sector and the competition in fixed-line and other sectors.
Weaknesses and Threats
* Increased Competition from new investors (Mobile firms such as Telenor, WLL operators)
* Poor service (see more on service quality and PTA interjections below)
* Network capacity and quality
* Management Style and approach
How to Invest
Through Pakistan mutual fund companies such as Abamco who offer funds with PTCL as holdings. For example: UTP-ISF fund has about 10% PTCL stock. You can buy stock directly as well but the Pakistan stock market is not without its risk. In 2005 the Pakistan stock market crashed amid rumours of scandals which are now under investigation (see this article from DAWN, read more here and take a look at the website of Securities and Exchange Commission of Pakistan).
Here is a professional report (by Imtiaz Gadar - Merril Lynch, see the full pdf here which is from Sep 2006) about Ufone and PTCL (refrerred to as PakTel):
“Having traded down materially during 1H06, PakTel now offers an attractive yield and substantial upside to our DCF valuation of Rs60. PakTel is marked down for its low earnings growth outlook from increasing wage costs and fixed line deregulation.
High yield may not be sustainable if new strategic shareholder (Etisalat) decides to invest more heavily in wireless. Earnings transparency is below average as mobile earnings are not disclosed to the market. Main positives are potential for long term cost cutting, and good secular growth prospects in
Wireless and internet given low teledensity (3.5%) and high GDP growth (7%).
Clear direction from new owners, management stability and dividend payout certainty are needed to reignite positive momentum. Valuation score have improved with the continued slide in share price and we now rate the stock a Buy.”
For more about Quality Of Service Issues at Ufone Read the rest of this entry »
Business Monitor International (BMI) has ranked Pakistan as a key destination for telecom growth.
The BMI ranking study states that as a result of foreign investments, growth potential and good deregulation policies by PTA, the telecom industry in Pakistan has grown tremendously. A few months ago Pakistan was lagging behind Thailand but due to the political fallout of the coup in Thailand, Pakistan has move ahead in rankings.
The BMI rankings take into account a number of factors including industry situation, growth potential,competitive landscape and economy and political risks etc. Therefore this ranking implies that the investment environment in Pakistan has improved to the point where it is better than many other countries in the region. This is a big first for Pakistan.
The rankings change with time but this finding is consistent with the opinion of most researchers. The overall consensus of the analysts is that Pakistan is one of the countries with huge untapped potential for telcom growth and an attractive investment environment. Other Asian countries with good telecommunication potential include Vietnam, Indonesia and Thailand.
For more information visit the latest issue of BMI “Telecom Insight” here.
In my next post I’ll discuss the profile and outlook of PTCL and Ufone.
Here is all you wanted to know about Orascom, parent of Mobilink (official name: Pakistan Mobile Communications Ltd or PMCL) , in a nutshell. This snapshot will give you some insights into Mobilink’s parent group and is intended to educate potential investors. You may find its strategy and management approach interesting as well.
About Orascom’s International Reach
Orascom Telecom Holding S.A.E. (’Orascom Telecom’ or ‘OTH’) is a leading international telecommunications company operating GSM networks in seven high growth markets in the Middle East, Africa and South Asia, having a total population under license of approximately 460 million with an average mobile telephony penetration of approximately 19% as at 30 June 2006. Orascom Telecom
operates GSM networks in Algeria (’OTA’), Pakistan (’Mobilink’), Egypt (’Mobinil’), Tunisia (’Tunisiana’), Iraq (’Iraqna’), Bangladesh (’Banglalink’), and Zimbabwe (’Telecel Zimbabwe’). Among other international ventures, Orascom Telecom also owns 19.3% of Hong Kong-based Hutchison Telecommunications International Limited operating in 8 countries.
Investment Information
Primary Symbol & Exchange: ORTE - Cairo & Alexandria
Other Symbols & Exchanges: OTLD – London
An example Mutual Funds in US with Orascom holding:
T. Rowe Price Emerging European & Mediterranean TREMX (has 5-star ratings from Morningstar)
Highlights of results from first half 2006
Orascom had 41 Million Subscribers and revenues of over US$ 2 Billion. It added 20 Million subscribers in last 12 months which is impressive. However the average revenue per user (ARPU) kept falling, though slower than before. Capital expenditures increased in Pakistan but overall fell 7%. Net income increased
12% from June 2005. Earningsper share increase 8% in that period.
Full details from the most recent earnings report:
http://www.otelecom.com/Investor_Relations/EarningRelease.aspx
Recent Headlines about Orascom and Mobilink
Though this post is about Orascom (and not specific to Mobilink) but a relevant news is that Pakistan Mobile Communications Ltd raised US$250 million funds from abroad this week.
It is the first international corporate bond issuance by a Pakistani corporate issuer in 12 years and the
first ever high yield bond offering by a Pakistani corporate issue.
Most of the proceeds will be used to fund capital expenditures and refinance its outstanding bridging facilities. European investors bought 40 percent of the deal, while Asian buyers and U.S. accounts each took 30 percent. On Oct. 23, 2006, Standard&Poor’s Ratings Services assigned its ‘B+’ long-term corporate credit rating to Pakistan Mobile Communications Ltd.
Media Articles of Note
Orascom: This Mobile Upstart Really Gets Around - BusinessWeek
Recommended reading - How Orascom leverages emerging markets.
Egyptian Mobile Phone Provider Treads Where Others Dare Not - NY Times
This New York Times article is about Orascom entering in Iraq - interesting notes on risk and reward.
A Telecom King Broadens His Horizons - BusinessWeek
How Orascom is increasing its global power by buying stakes in other companies.
Continue to read more about Mobilink’s performance in 2006 and its position in the global telecom space. Read the rest of this entry »
Pakistan’s telecommunication market is one of the hottest in the emerging economies. This post will briefly review the mobile phone players in Pakistan and discuss how to evaluate and invest in these companies.
This post and the blog has moved to a new site - please read the rest of the story here.
This is good news. INTEL Corporation has teamed up with Wateen Telecom and IT ministry of Pakistan to establish six tele-centres to provide low-cost connectivity for voice and data, ICT training and basic tele-medicine. This is part of INTEL’s “World Ahead Program”.
Intel would initially establish six tele-centres at Attock, Multan, DG Khan, Sukkur and Gwadar. Intel Corporation vice president, John Davies said that the telecentres would be a key step in bridging the digital divide and making technology more easily accessible to citizens in Pakistan.
ICT stands for Information and Communication Technology. ICT is seen as an enabler for the developing economies. It is part of the UN’s Millenium Development Goals (MDGs). The question that arises is if ICT is just a good to have or is it really cost-effective? The International Telecommunication Union (ITU) has performed studies on the impact of ICT and came out with promising conclusions. Included below is an excerpt from their 2006 ICT development report.
I am glad that INTEL has taken this initiative and from the news brief it seems to be a good plan. Of course, technology companies understand the need and advantages of spreading interest in technology to less privileged areas of the world. For Wateen it is a good opportunity to showcase their cutting-edge Wimax technology implementation. And for the citizens of the above-mentioned cities it is a great opportunity. To use a cliche, it is a win-win situation.
Here are some statements about this - taken from GovTech website:
The Intel World Ahead program does more than just provide affordable PCs,”VP Davies said, calling it “a holistic program to help build everything from the right systems tailored to local needs, and critical connectivity, to sustainable local capabilities through quality education that makes a meaningful difference in people’s lives.” Chief Executive Officer (CEO) of Wateen Telecom said, “We are proud to work with Intel and the Federal Ministry of Information Technology and Telecommunications to bring the first ever WiMAX broadband deployment to Pakistan.We also expect to make available cutting-edge wireless broadband connectivity in selected urban and rural areas,” he added.
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.
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