Telenor

TELENOR PAKISTAN

Business Scope

Business Scope Telenor’s Corporate DNA At Telenor Pakistan, our lives are made up of our Corporate DNA i.e. our Vision and Values. We believe that competencies influences a person what he or she is. Vision “We exist to help our customers get the full benefit of communications services in their daily lives” The key to achieving this vision is a mindset where every one of us works together. Making it easy to buy and use our services. Delivering on our promises; being respectful of differences; inspiring people to find new ways. Telenor will be a driving force in modern communications and customer satisfaction.

Function/Application: • Mobile services is one of the most convenient and popular modes of communication in the world today. It connects millions around the globe. It provides services like talk airtime, sms(text), mms and various internet facilities. Users: • Telenor is truly customer centric. They believe in understanding their customer’s needs which have changed and are changing constantly therefore continuously driving them to innovate in terms of products and services. The users of Telenor comprise Prepaid customers; youth/ Students, Women, Financially Constraint and Postpaid customers; Corporate/ SME

Business they are in: • Telenor is the provider of mobile communications services worldwide. Provides entertainment as a support if its main product. Telenor is also the largest provider of TV services in the Nordic region. Business they are not in: • Telenor is not in the transportation services or fast moving consumer goods business.

Added Value: Telenor provides value added services in the form of: • Bubble messages • MMS/ SMS • GPRS • WAP portal • International Sms • Edge • International direct dialing

Five Product Levels:

• • • •

Core Product: Communication Basic Product: Telecommunication Service Expected Product: Consumer expects good network coverage and faster connectivity. Augmented Product: Value addition includes mms, EDGE, bubble messages, WAP portal Potential Product: Potential service includes bill payment & easy load facility on its websites.

Telenor’s Future Consideration: • Telenor is proud to build mobile communication infrastructure in Pakistan and looks forward to combining its experience in mobile technology with the local Pakistani high level of competence. Telenor's primary aim is to offer top quality mobile services and promote healthy competition in the mobile market.

Overview of The Telecom Sector of Pakistan  Telecom Act 1996, laid the foundations for de-regulation  Fixed line de regulation was announced in 2003  Mobile Cellular policy was implemented in 2004  Deregulation led to healthy competition, investment friendly environment and created greater employment  The overall teledensity in the country has reached 23.1 percent at the end of April 2006, as compared to mere 2.3 percent in 1999-2000

 Similarly, foreign investment in the telecom sector has crossed US $ 1 billion during first three quarters of 2005-06  When compared to Other South Asian countries Pakistan’s telecom sector is on the second position in terms of growth. Countries

2003

2004

2005

2006 (March)

Pakistan

4.3

6.3

11.9

23.1

India

7.1

8.9

11.5

12.8

Sri Lanka

12.7

16.6

23.4

27

Bangladesh

1.6

2

4.5

9

Nepal

1.8

2

3

3

Telecom Share in GDP

•Telecom comes under the services sector and its share in the services sector has increased from 3.1% in 2000-01 to 3.8% in 2005-06 •In the overall GDP, the share of the Telecom has reached 2% in 2005-06, having increased from 1.6% in 2001-02

Foreign Direct Investment in the Telecom sector

During 2005-06, telecom sector received over US $ 1.9 billion FDI and emerged as the only sector of the economy to attract such a huge investment Privatization proceeds of PTCL (US $ 1,184 million) and network expansion of other telecom companies led to these large FDI flows in telecom Telenor, and Warid were the major companies to make FDI in the telecom infrastructure.

Market Structure of the Telecommunication Sector:

Fixed line 17%

Wireless local loop 4%

Mobile 79%

Distribution Structure of the Cellular Sector: End Users Distribution Channel

Prepaid Youth/ students, Women, Financially constraint Direct Sales

Post Paid Corporate/ SME

Franchsie,Sales and Service Centers

Third Party Chains

Retail Network

Company

Influential Factors Regulatory Stability: • Telecom Act 1996, laid the foundations for de-regulation • Fixed line de regulation was announced in 2003 • Mobile Cellular policy was implemented in 2004 • Activation tax for new cellular connections was reduced by 50% to Rs 500 in June 2005 compared to Rs 2000 in the year 2002 • Mobile sector alone contributed 65% of the total tax contribution by telecom sector

 Mobile handset theft: the government has implemented central equipment identification register based on international equipment identity system (imei).  Investment friendly environment, telecom sector attracted US $ 1.9 billion as FDI  Implementation of mobile number portability in 2006.  Decreasing inter connections rates in the market.  Pakistan Telecommunication Authority regulates the telecom operators. High entry barriers are there because of the licensing approved by the PTA of Pakistan

• The government decided to deregulate the telecom sector in AJ& K and this task was assigned to PTA and 4 leading mobile operators were licensed for provision of services in this territory. Before this Special Communication Organization (SCO) has been exclusively been providing Telecom services in AJ & K areas. • Balochistan was declared as a priority area for telecom development and number of regulatory measures were taken to enhance telecom facilities in the province.

Economic Factors: • A recent study found that, in a typical developing country, a rise of ten mobile phones per 100 people boosts GDP growth by 0.6 percentage points. • GDP growth of 8.4% for 2004/05 and 6.6% in 2005/06 • The per capita income of Pakistan also reached US $ 847, registering a growth of 14% over the last year US $ 728. • The telecom sector has generated employment opportunities During 2006 almost 183,063 additional direct and indirect jobs were created in the telecom sector

• Penetration in Pakistan has increased by 8% in five yearstranslating into 0.5% GDP growth  Telecom share in GDP increased from 1.6% in 2001/02 to 2% in 2005/06  Foreign direct investment has increased to $1.5 billion, the highest ever in the country’s history. This year telecom sector received 54.1% of the total FDI which is even higher than last years 32.4%.  To promote infrastructure development PTA introduced separate infrastructure license for further growth of the sector.

 During 2005/06 investment grew by 13.5% in the overall telecom sector.  PTA is urging the tax authorities to lessen the burden of tax on the telecom sector which would help further growth of the sector.  It is expected that next year telecom companies would be able to achieve 2.5% share in gdp instead of 2% in the current year.  Thus higher economic growth coupled with substantial FDI in the telecom sector and declining unemployment will result in increasing the use of telephone network in Pakistan

• Market Size and Growth of the Telecommunication Sector as a Whole • Market Size and Growth of the Cellular Sector for the past for years and Future 4 years Forecast

Market Size and Growth of the Telecom Sector by Teledensity:

2002

2003

2004

2005

2006

Cellular

1.16%

1.62%

3.31%

8.29%

19.19%

Fixed Line

2.5%

2.69%

2.94%

3.43%

3.43%

Wireless local loop

-

-

-

.17%

.5%

Analysis:  The overall teledensity has crossed 26.19% in June 2006 showing a growth of 120% over the last year.  This increase has come from a high growth in mobile penetration. Mobile penetration increased tremendously in 2006 and jumped from 8.3% in 2005 to 22.2% in 2006.  The fixed line sector growth in the fixed line sector remained stagnant during the year at 3.4% from 2004-05 to the same 3.4% in April 2006.  The slow growth in the fixed line is mostly attributed to its substitution with the competitive mobile services because of their low prices, inherent mobility, bundled offers and value Added services

• WLL phones are also seen to be expanding in the country .This service was started in Pakistan in 2004 as a new segment of the Telecom sector after deregulation • 17 countries were awarded WLL licenses to operate in 14 regions of Pakistan. •

Out of these 14 companies 4 are operational and are providing services in all four provinces of Pakistan; namely Telecard, WorldCall, GreatBear and PTCL

• Presently 36% of the total population of Pakistan is covered by WLL services. The WLL teledensity stood at . 16% in 2004-05 and rose to 0.66% in 2005-06.

Market Size and Growth for the past 4 years and future trends – Number of Subscribers

Cellular

2003

2004

2005

2006

Prepaid

2,239,062

4,797,829

12,424,783

33,410,928

Postpaid

165,338

225,079

346,420

1,095,738

Total

2,404,400

5,022,908

12,771,203

36,778,462

Analysis

 The subscribers’ growth rate was 109% in 2003-04, 154% in 2004-05 and has crossed 170% in 2005-06. This explosive growth in the subscriber base is mainly due to the deregulation.  The growth in the mobile sector is mainly attributed to prepaid customers as in the trend in comparable economies.  The stable increase in prepaid customer base is due to the fact that operators now focusing on:    

retaining customers, improving the quality of service, enhanced customer service, packages that concentrate on brand loyalty.

 For example: They are offering family and friend packages in the range of Rs 0.5 to Rs 2 per minute, fractional minute billing, international roaming, gprs, prepaid roaming, low cost, sms etc.

 Price erosion in the mobile sector e.g. Reduction in inter connect charges and reduction in activation tax to rupees 500 per connection led to high market penetration. In 2002 it stood at Rs. 2000.  The maximum on net Tariff were Rs 5.75 in 2005 and have come down to Rs 3.0 in 2006 which in % terms is 48% reduction

 you can purchase a prepaid package at Rs. 200 to Rs. 150. Initially a prepaid connection was priced at more than Rs. 1000.  Sudden high growth in 2005-06 in both Postpaid and Prepaid customers was due to the entry of two new mobile operators Warid and Telenor  Mobile players are segmenting their customers and announcing packages accordingly to meet their needs.  Recently examples include Jazz Octane and Dejuice focused on the youth segment, talkshawk for financially constraint and students, Ladies First by Mobilink for the female segment.

• Due to telecom deregulation in Balochistan, the teledensity increased by 5.6% to 10.47% in 2006 showing growth of 87%. • Market expansion to AJ&K AND NAs where mobile operators have just been awarded license for provision of services. • Moreover, operators also extensively invested in erecting their cell sites in new as well as already covered areas to increase coverage. • The number of franchises increased from 984 in 2004/05 to 1202 in 2005/06

• The mobile handset market has become very exciting. Market segmentation in high end, middle end and low end handsets is resulting in choice and affordability to all types of customers. • Increase in the number of subscribers for postpaid packages is mainly because operators have launched services like gprs/edge, mms, blackberry corporate mobile email solution, mobile banking, ringback tones and several other content based options.

2007

2008

2009

2010

Prepaid

59,130,000

68,208,000

73,950,000

78,370,000

Postpaid

6,570,000

10,192,000

13,050,000

13,830,000

Total

65,700,000

78,400,000

87,000,000

92,200,000

 Currently the population of Pakistan is over 155million. If we exclude 20% of the poor population and 30% children (below the age of 10 years). We get a potential target market of about 87 million  So far cellular mobile companies have grabbed 34.5 million subscribers which is only 39% of the potential target market.  About 59% of the potential population is living in rural areas. Mobile operators will focus on grabbing the inaccessible areas and increasing their penetration by expanding their networks  In future, it is expected that post paid segment will grow at a faster pace than prepaid segment converting a portion of the prepaid segment to postpaid. For e.g. Post paid packages aimed at the youth and students

Market Size and Growth for the past 4 years and future trends- Revenue

2002-03 19,758

2003-04 2004-05 2005-06 27,849

48,880

90,057

2007

2008

2009

2010

316,411 377,574 364,182 385,949

• Revenues of the mobile sector have increased at an average growth rate of 80% per year for the past two years. • Mobile ARPU has shown a declining trend resulting from intense competition for acquisition of new subscribers and retaining existing customers • The ARPU dropped from 8% in 2004/05 to 5.7% in 2005/06. However drop in ARPU leads to greater market penetration since it leads to affordability of the service

• The increase in revenues is attributed mainly to sharp rise in number of mobile subscribers and reduction in tariff. By lowering if Tariff the affordability of lower income groups increases which leads to increased revenue. • Reduction in activation tax to rupees 500 resulted in manifold increases in mobile penetration • Increase per capita income to US $ 847 registering a growth of 14% over the last year. It is expected to grow further by 16% in 2007

 Mobile operators were awarded licenses to start their services in Balochistan in 2005  The population of Balochistan is 7.7 million and telecom coverage is only 4.4 million.In future, large revenues will be generated from Balochistan as mobile penetration increases.

Product Life Cycle (Telecommunication Industry) SERVICES

INTRODUCTION

GROWTH

MATURITY

DECLINE

Cellular

 

 

 

 

Fixed Line

 

 

 

 

WLL

 

 

 

 

Cellular

INTRODUCTION

GROWTH MATURITY

DECLINE

Prepaid

 

  

 

 

Postpaid

 

  

 

 

Distribution structure: Distribution by Franchises and service centers (combined)

.Total franchises by all operators grew by 60% in 2005 whereas it

grew by only 22% in 2006  Operators including Paktel and Instaphone negatively affected this growth since Instaphone started closing its franchises whereas Paktel stopped giving official status to franchises and changed its policy with freelance franchises concept

Internal Analysis

Strengths • • • • • • •

Network quality & design Superior customer care Financial Strength Excellent Coverage & Distribution. Commercial Launch of LDI & mobile services Contract with Siemens & Nokia Brand image of Quality

Weaknesses • • •

Relatively low market share Low profit margins Negative cash flows in the initial years

Opportunities • • • • • • • • •

Favorable Macroeconomic indicators low cellular market penetration Inefficiency & poor performance of other mobile networks Co branding e.g Ufone with ABN AMRO Strategic Alliances & Infrastructure Sharing Facilities PTA initiatives E-commerce usage. Mobile Number Portability International Mobile Equipment Identity System

Threats • Rolling Customers • Privatizations & deregulations- increased competitions. • Grey Traffic • MNP mobile number portability • Wireless technology at boom • Public pay phones & calling cards usage where network is not available • Propagandas attacking brand image

Value chain for prepaid

Value Chain for Prepaid TELENOR PAKISTAN HEAD OFFICE SIM DECODING DATABASE ENTRY PRINTING MARKETING DEPARTMENT

DISTRIBUTORS RETAILERS After Sales CUSTOMERS

REGIONAL SALE MANAGER

Value chain for Postpaid

Value Chain for Postp Customer’s activation charges

Authorized dealers (Security Code) Calls Bills Siemens

Finance & Accounts Department

T E L E N O R

Customer Service Center (Customer payment)

Online Payment

Payment thru SMS

Key process Indicators

KPIS

Industry Benchmark

Where are we

Improvement Plan 1

Improvement Plan 2

Network Quality 40 %

55%

Increase Cell sites

Sharing infrastructure

Relative Cost/ low price

50 %

55%

Cut down on Collaborating unnecessary with your costs in the value forward channel chain allies to reduce their costs

Customer Care

10%

15%

Increase the number of Customer Sales Centers. Enable Complaint registry through sms

New Product Activity

15%

17%

Design packages to cater the needs of different segments e.g. women

Highly efficient Helpline responses. Feedback given within one hour guarantee.

Brand Loyalty

40%

45%

Improve quality standards and provide superior Network Quality

Distribution

40%

50%

Increase the number of franchises and increase coverage to towns and cities where no cellular services are available

Increase marketing campaigns and get your product on the shelf

Strategic cost Management

In a changing and competitive environment such as the deregulated telecommunications market, a provider’s competitiveness and attractiveness heavily depend on lean cost structures.

• Telenor’s management continuously analyzes each business and cost center to determine potential efficiency improvements. • In order to reduce dependency on the availability of a single subcontractor, Telenor has selected TIBCO’s business process management software. After the successful implementation, Telenor was able to describe its experience and provide information on the real business values achieved with the TIBCO solution.

TIBCO TIBCO Software Inc. (NASDAQ:TIBX) is the leading independent business integration software company in the world and a leading enabler of real time business, helping companies become more cost-effective, more agile and more efficient. TIBCO has delivered the value of real-time business, what TIBCO calls The Power of Now®, to over 2,000 customers around the world and in a wide variety of industries Besides TIBCO solution, Telenor emphasizes on reducing costs in a quality network by the following measures Site sharing Cost optimization features in the network, e.g. half rate Spectrum efficiency (Spectrum efficiency is the optimized use of spectrum or bandwidth so that the maximum amount of data can be transmitted with the fewest transmission errors. In a cellular telephone network, spectrum efficiency equates to the maximum number of users per cell that can be provided while maintaining an acceptable quality of service (QoS).) Ensuring sufficient quality based on market dynamics (different customer segments / demands) Exploring low cost rollout solutions for rural areas Partnering with various organizations to utilize their space and reduce CAPEX (CAPITAL EXPENDITURE)

Vision/Mission and Objectives

Vision Statement: Our Corporate DNA At Telenor Pakistan, our lives are made up of our Corporate DNA i.e. our Vision and Values. We believe that competencies influences a person what he or she is. Our vision is simple: we exist to help our customers get the full benefit of communications services in their daily lives.

Mission Statement :( proposed for Pakistan) Telenor Pakistan is a customer focused business mobile service operator/telecommunications Company that seeks competitive advantage in quality and valued added service in both prepaid and postpaid categories through state of the art technology. Telenor relies on building trusting relationships with customers, owners, employees and society in general.

CORE VALUES Telenor has three core values which are at the heart of and govern the conduct of their employees, both internal and external. These are Dynamic Being dynamic means having insight and active involvement, coupled with a capacity for implementation. Innovative Being innovative means continuously being on the lookout for new opportunities for development and growth. Responsible Being responsible means raising realistic expectations, deliver as promised and stay committed to the society which our group is part of.

CORE COMPETENCIES Coverage In just one year of operations in Pakistan, Telenor has expanded its coverage to over 250 cities in Pakistan. This has been possible due to heavy investment in infrastructure development and forgoing short term profits. Product Quality Through the superior network design Telenor is able to provide its customers with the highest quality cellular service in terms of reception, coverage and value added services. Large resource base Telenor Pakistan is a subsidiary of the Telenor Group of Norway. This gives the company a huge resource base in terms of financial and technological assets compared to the competitors. Distribution Network Telenor has a competitive advantage over its competitors in terms of its distribution network. The company has a very high level of retail penetration, aimed at maximizing profits.

Business objectives Objectives

2006-07

2015

ARPU

$4

$6- $8

Market Share in terms of Subscribers

10%

40%

Market Penetration

9%

30%

Market Share in terms of Revenue 7%

30%

EBITA Unprompted Brand Awareness

5% – 6%

10%

20%

90%

STRATEGIC INTENT: To be the leading customer oriented company providing top quality mobile services Profitable and sustainable growth Competitive edge on value added services Strong Brand Awareness Key Issues: Issue 1: Maintain network quality Issue 2: Low market penetration Issue 3: Rolling Customers Issue 4: Untapped market segments- Women Issue 5: Mobile number portability

Strategic Direction •

Building an organization with competency, capabilities and resource strengths

•

Learn @ Telenor

•

Developing Technical Know How in Employees

•

Developing budgets to steer ample resources into critical value chain activities

•

Creating strategy supportive policies and procedures

•

Instituting best practices and a commitment to continuous improvement

•

Installing support systems and Value added Services:

Segmentation and Positioning

Market Segmentation and Positioning Segmentation is the process of dividing the total market for a good or service into several smaller, internally homogenous groups. Since Telenor is a customer oriented and quality driven company, it segments its market on the basis of various different dimensions.

Market Segmentation & Product Positioning

Market Segment

Today

Future 4 years Estimate

Existing Products

Profitability %

Youth/ students

25%

27%

Djuice, Talkshawk

29%

Women

10%

20%

TalkShawk

21%

Financially Constraint

40%

23%

TalkShawk, Telenor Azadi

20%

Corporate/ SME

25%

30%

Post Paid Packages

30%

Companies positioning against competition Parameters

Mobilink

Telenor

Product Life Cycle

Maturity

Growth

Market share %

59%

7%

Coverage

900 cities

1100 cities

Product Portfolio

Jazz Octane, Mobilink Indigo, Ladies First,

TalkShawk, Telenor Azadi, DJuice

Customer Base

17.2 million

3.6 million

Marketing Operations

Excellent

Average

Proposed Action Plan

PRODUCT WHAT

Implementing Mobile Number Portability

HOW

WHO

WHEN

•By increasing investment. •By increasing budgetary allocation •Joint ventures .

Telenor’s CEO also chairman of MNP supervisory board

•By the end of 2007

Superior network •Investing heavily Telenor Quality and in cell sites •Sharing Coverage infrastructure and space with other mobile operators

•By 2008.

DISTRIBUTION WHAT

HOW

WHO

WHEN

To make distribution a competitive advantage to reach as many people and to cater to as many cities as possible •high channel loyalty

•increase the distribution channels •offer Fair profitability for channels

•Telenor marketing As soon as and distribution possible by heads. the end of 2009

WHAT

HOW

WHO

Telenor design specific packages to appeal to different growing segments -Women -Corporate/ SME

Offer discounts •Marketing and cards, creative heads of entertainment, telenor pakistan cooking tips, health tips through sms. Remarkably low call rates .

REPOSITIONING WHEN •mid 2007

PRICING WHAT

HOW

WHO

WHEN

Low cost leadership

Revamping the Marketing heads of By the end of value chain and Telenor 2007 outsourcing high cost producing activities

WHAT

HOW

Human resources Employees at management position

Hiring the Telenor Pakistan competent staff and firing the incompetent staff Tough screening criteria Multinational standard salary to be paid.

MANAGEMENT WHO

WHEN As soon as it can be done.

OPERATIONS

WHAT

HOW

WHO

WHEN

Infrastructure Sharing

Sharing infrastructure and space with other mobile operators

Telenor Pakistan, Mobilink, Warid, Ufone

Between 20072008