Although the Polit ical environment of Pakist an is stable in the current situat ion, the country is not progressing in terms of economic growth that was expected. However looking at its past trend, Pakistan Political environment has not been very stable which poses as a major threat for the industry since no one knows at what instant the government will change and with this change the government policies are bound to adjust as well. Mobile telecom service providers do not have 100% freedom in pricing issues since there is givernment intervention to a certain degree. Due to the sensitive nature of the operations within the industry, governments would generally not allow 100% share holding by foreign investors in the local mobiletelecommunications industry. This could pose as a detriment in FDI inflow with respect to the telecom industry. PTA authorities tend to work transparently. Their policies are operator friendly and are focused on the spread of information and communication technologies in the country. Even the think-tank, LIRNEasia reported that the process of license renewal is transparent in Pakistan due to which no uncertainties exist for telecom operators. As a result, the telecom operators are generating enormous revenues for the treasury of the government. As far as licenses are concerned it is essential to obtain a license from the regulatory authority inorder to commence business in the telecom industry. Due to this the number of players is quite restricted.
b) Economic Factors Marketers should consider long term and short term state of a trading market in this regard.
Inflation is being controlled by state bank and under strict eyes but unemployment rate is on a constant increase with a simultaneous increase in the level of poverty. Inflation rate is still in
double digits loaming around 11%. Such pressure can be felt by the telecom industry in terms of creeping costs.
Economic instabilit y is worsening day by day as liquidit y crunch is prevailing in the world. However despite the global crisis the telecom sector continues to grow positively in terms of subscription and revenues received. In 2008-09 operators total US $1.6 billion worth of investment has been made by all operators in Pakistan.
Pakistan provide profitable environment for investment for foreign investors to invest in telecom sector of Pakistan, this can be seen through the positive statistics as telecom sector has managed to attract US $815 million in 2008-09 which was a big investment during the financial crisis period. In the last 6 months of 2009, telecom sector received over US $143 million, which was 18% of total Foreign Direct investment in Pakistan. Telecom revenue showed 19.8% growth during 2008-09 while in 2007-08 it showed 18.2%. Cellular mobile sector continued to be the leader in telecom revenue, whose share came out to be 64% in total revenue of telecom sector of Pakistan. Telecom sector contribute to National exchequer112 billion in 2008-09 but in 2007-08 it was 111 billion. c) Socio-Cultural Factors As Pakistan is an Islamic country and people are very strict in case of Islam any subjects in conflict with the philosophy of Islam on either print or electronic media are treated as againstPakistan. Per se, most of the people dislike anyt hing extra-ordinary or so mething which sabotage their culture or subculture. Co mpanies who are targeting upper-end of the market mostly publish and air their advertisement in the English language, however airing advertisments in the local language i.e urdu has proived very fruitful since the lower end of the population comprise a significant number in the market share. In metropolitan cities women are working along with other responsibilities butother than metropolitan cit ies it is difficult for women to convince t heir parent¶s andspouses for work. As such female customers are mostly those that belong to the metropolitan cities who frequently make use of such technology.
d) Technological Factors
C o m p a n i e s are constant ly invest ing in t heir infrastructure to not only expand but also to upgrade their existing structure due to the intensity of competition in this sector. All these companies want to be known as the innovators in the market. Currently all companies except Zong & Instaphone are providing Multi-media MessagingServices (MMS), General Packet Radio Service (GPRS), Virtual Private Network (VPN),Pocket Stocks, Conference Calling, Wallpapers Animated pictures Polyphonic ring tones(WAP), and Voice Mail at low price and telenor is proving an addition feature that onecan see TV channels on their cell. Mobilink shift ed its whole network from 900 MHz to 1800 MHz offer ValueAddedServices like General Packet Radio Service (GPRS), Mult i-media Messaging Services (MMS) and Virtual Private Network (VPN) etc. So we can clearly see that technology is fast changing with the demise of wimax clearly visible.
PORTERS 5 FORCES
Bargaining power of customers: The bargaining power of customers in this case is very high because of the low switching cost in the industry. There are attractive substitutes available to the buyer even in the form of keeping the same cell phone number but changing the service provider. It makes very difficult for the market players to retain their customers. I think the brand loyalty can only be created through superior marketing campaigns and service.
Bargaining power of suppliers: This is a type of industry where, at least in present times, the bargaining power of suppliers is at the low level because of the nature of inputs for the business. Moreover, with the deregulated and friendly environment given by the government of Pakistan, the industry has become more competitive and quality services driven.
Threat of substitute products: Although the cell phone subscribers are more than 95 million now, still the threat of substitute products is high for the industry. Buyer inclination to substitute and price-performance trade off are the most important to consider in determining the threat of substitutes. Actually, just the subscription of cell phone service is not enough for a company to get optimal profits but the real challenges is that how many existing customers are using the service regularly for incoming as well as outgoing calls. The quality of service is the parameter for a customer to be loyal with the subscription otherwise fixed line and wireless fixed lines are the better substitutes, as been experienced in festive times.
Threat of new entrants: It is not easy to enter in this capital intensive sector of the telecommunication industry. So, the threat of new entrants is low. Though the growth and potential of the sector look very attractive, still it is very difficult to take risk for a new investor because the penetration in the market would be very difficult.
Competitive rivalry: When the competition is fierce, obviously the competitive rivalry will be at the highest level. The very high level of competitive rivalry among the major players of the cell phone sector is clearly observable. Just look at the advertisement campaigns of the rivals and you can see how intense the competition is. It looks like a battle for supermacy going on between the rivals. All means of attracting new and potential switching customers are being used by all the competitors to gain as much market share as they can. Exit barriers, industry growth, product differences, brand identity, and diversity of rivals are the main reasons of very high competitive rivalry in this case. In Pakistan, the stiff competition between telecom operators has forced telecom operators to boost their businesses through cost-cutting strategies. Due to this reason, Pakistani telecom operators are not focusing on expansion of their networks which is resulting in a decrease of Pakistan¶s tele-density rate
The Pakistan telecom industry is in the mature stage where sales are leveling off and competitors have stopped entering the industry. Recent talks are going about of the merger of big telecom operators in the market such has warid and mobilink. In such a scenario it is quite evident that competitors have levelled out and the survivors are left operational.
a) Political In India, the government policies for telecom industry are full of compromises due to which, the two telecom operators of India, BSNL and MTNL are favored the most. Department of Telecommunication gave most of its collected funds to BSNL when the company was in its start. These days, when the licenses of telecom operators are to be renewed, no clearly stated principles are to be practiced, due to which many objections have been raised on the government policies on behalf of India¶s telecom operators. As India has a functional democracy, its policies are invariant for telecom operators due to which the Indian telecom operators are continuously focusing on the expansion of their networks. The Government however has taken many proactive initiatives to facilitate the rapid growth of the Indian telecom industry. The relaxation in FDI norms like the 74 percent FDI limit in the telecom services segment has attracted many foreign telecom majors to the sector. The government¶s liberalised FDI policies have resulted in several foreign companies entering into the Indian markets. The influx of foreign players in the Indian telecom industry has led to capacity creation, and better infrastructure, which in turn has bettered the network quality. The rise in FDI has also enabled technology transfer, market access and has improved organisational skills; going forward, FDI could be used for providing telecom services to rural areas, where teledensity is still very low. During 2004-05 and 2005-06, a period during which the FDI norms were relaxed, the FDI inflow grew by an astounding 300% to US$ 624 mn in 2005-06 from merely US$ 125 mn in 2004-05. The inflow of FDI has provided tremendous impetus to the sector in the past few years and the attractiveness of the sector has kept the FDI inflows growing steadily. Tariffs have also been relaxed where today, incoming calls are no longer charged and outgoing calls are charged at less than a rupee per minute. Thus, the tariff war has come a long way
indeed. Increased competition and the subsequent tariff war have acted as a major catalyst for attracting more subscribers.
b) Economic Factors Lack of telecom infrastructure in semi-rural and rural areas could be one of the major hindrances in tapping the huge rural potential market, going forward. The service providers have to incur a huge initial fixed cost to enter rural service areas. Further, as many rural areas in India lack basic infrastructure such as road and power, developing telecom infrastructure in these areas involve greater logistical risks and also extend the time taken to roll out telecom services. The lack of trained personnel in the rural area to operate and maintain the cellular infrastructure, especially passive infrastructure such as towers, is also seen as a hurdle for extending telecom services to the under penetrated rural areas. According to the UNCTAD, there is a direct correlation between the growth in mobile teledensity and the growth in GDP per capita in developing countries, which tend to have a high percentage of rural population. The share of the telecom services industry in the total GDP has been rising over the past few years (the telecom sector contribution in GDP went up from 2.52% in FY05 to 2.83% in FY07). A rural teledensity of merely 15% point towards the fact that a majority of Indian population still do not have access to telecom services. The rural India seems to have remained untouched by the telecom revolution witnessed in the last few years. A huge 'digital divide', which is reflected by the enormous difference of 74% between the urban and rural teledensity, reiterates this fact. However, with the urban markets reaching a saturation point, the telecom service providers are penetrating rural areas for driving future growth. Thus, the service providers entering new rural markets might witness substantial increase in subscriber base. Inflation rate of India is in single digits roaming around 9%. This is lower than that of Pakistan¶s. Interest rates are low and attractive as compared to Pakistan¶s double digits in terms of borrowing. c) Socio-Cultural Factors The changing demographic profile of India has also played an important role in subscriber growth. The changed profile is characterised by a large young population, a burgeoning middle class with growing disposable income, urbanisation, increasing literacy levels and higher adaptability to technology. These new features have multiplied the need to be connected always and to own a wireless phone and therefore, in present times mobiles are perceived as a utility rather than a luxury.
There are not many cultural hinderances where it comes to the promotion incurred by the telecom industry. d) Technological Factors The phenomenal growth in the Indian telecom industry was predominantly aided by the meteoric rise in wireless subscribers, which encouraged mobile handset manufacturers to enter the market and to cater to the growing demand. Further, the manufacturers introduced lower-priced handsets with add-on facilities to cater to the increasing number of subscribers from different strata of the society. Now even entry-level handsets come with features like coloured display and FM radio. Thus, the falling handset prices and the add-on features have triggered growth of the Indian telecom industry. Apart from these major growth drivers, an improved network coverage, entry of CDMA players, growth of value-added services (VAS), advancement in technology, and growing data services have also driven the growth of the industry. Currently the 3G deployment in India is at a very nascent stage. In fact, 3G services have been launched very recently (February 2009) in India. The 3G services will be instrumental in stimulating future growth of the telecom industry. The 3G services will not only facilitate business through provision of high-speed data and content rich services but also will play a pivotal role in bridging the urban-rural divide by facilitating faster mobile deployment in rural areas. Introduction of 3G will be beneficial to the Indian BPO industry by increasing their competitiveness.
PORTER ANALYSIS OF INDUSTRY
Rivalry among Competing Firms The telecom industry in India has experienced exponential growth over the past few years and has been an important contributor to economic growth; however, the cut-throat competition and intense tariff wars have had a negative impact on the revenue of players. Despite the challenges, the Indian telecom industry will thrive because of the immense potential in terms of new users. India is one of the most-attractive telecom markets because it is still one of the lowest penetrated markets. The heightened competitive intensity in the industry has correspondingly fuelled the price war between industry players. The Indian wireless market is one of the world¶s most competitive markets, with 12 operators across 23 wireless µcircles¶ and 6 to 8 competing operators in each circle. The auction of new 3G licences and the introduction of mobile number portability (MNP) are likely to heat up competition in the industry, going forward.
Spectrum is the most important resource that is required for providing mobile services. Given that spectrum is a finite resource, the availability of the same would be inversely proportional to the number of operators. Thus, larger the number of service providers smaller will be the amount of spectrum available to each of them. Scarcity of spectrum leads to higher capex on deployment of mobile networks for the operators as they need more cell sites to improve service quality. Further the growing usage of spectrum and the resultant scarcity may lead to re-use of spectrum and increase chances of congestion in networks leading to constraints on service quality. Evidently, the competition in the industry is expected to intensify further with the entry of new players, both domestic as well as foreign players. With the competitive intensity of the industry already at such high levels new operators might find it difficult to gather significant share in Indian telecom market. While the new players may benefit from a faster network rollout through tower sharing, they will face challenges in terms of high subscriber acquisition costs and lower ARPU customers. Competition in Indian Telecom Industry Major Players There are three types of players in telecom services: State owned companies (BSNL and MTNL). Private Indian owned companies (Reliance Infocomm, TataTeleservices. Foreign invested companies (Vodafone, Bharti Tele-Ventures, Idea Cellular, Spice Communications). BSNL: On October 1, 2000 the Department of Telecom Operations, Government of India became a corporation and was renamed Bharat Sanchar Nigam Limited (BSNL). BSNL is now India¶s leading Telecommunications Company and the largest public sector undertaking. It has a network of over 45 million lines covering 5000 towns with over 35 million telephone connections. The state-controlled BSNL operates basic, cellular (GSM and CDMA) mobile, Internet and long distance services throughout India (except Delhi and Mumbai). BSNL will be expanding the network in line with the Tenth Five-Year Plan (1992-97). The aim is to provide a telephone density of 13.6 per hundred by March 2008. BSNL, which became the third operator of GSM mobile services in most circles, is now planning to overtake Bharti to become the largest GSM operator in the country. BSNL is also the largest operator in the Internet market, with a share of 21 per cent of the entire subscriber base BHARTI: Established in 1985, Bharti has been a pioneering force in the telecom sector with many firsts and innovations to its credit, ranging from being the first mobile service in Delhi, first private basic telephone service provider in the country, first Indian company to provide comprehensive telecom services outside India in Seychelles and first private sector service provider to launch National Long Distance Services in India. Bharti Tele-Ventures Limited was incorporated on
July 7, 1995 for promoting investments in telecommunications services. Its subsidiaries operate telecom services across India. Bharti¶s operations are broadly handled by two companies: the Mobility group, which handles the mobile services in 16 circles out of a total 23 circles across the country; and the Infotel group, which handles the NLD, ILD, fixed line, broadband, data, and satellite-based services. Together they have so far deployed around 23,000 km of optical fiber cables across the country, coupled with approximately 1,500 nodes, and presence in around 200 locations. The group has a total customer base of 110.51 million, of which 95.86 million are mobile and 14.65 fixed line customers, as of September 30, 2009. In mobile, Bharti¶s footprint extends across 15 circles. Bharti Tele-Ventures' strategic objective is ³to capitalize on the growth opportunities the company believes are available in the Indian telecommunications market and consolidate its position to be the leading integrated telecommunications services provider in key markets in India, with a focus on providing mobile services´. MTNL : MTNL was set up on 1st April 1986 by the Government of India to upgrade the quality of telecom services, expand the telecom network, and introduce new services and to raise revenue for telecom development needs of India¶s key metros ± Delhi, the political capital, and Mumbai, the business capital. In the past 17 years, the company has taken rapid strides to emerge as India¶s leading and one of Asia¶s largest telecom operating companies. The company has also been in the forefront of technology induction by converting 100% of its telephone exchange network into the state-of-the-art digital mode. The Govt. of India currently holds 56.25% stake in the company. In the year 2003-04, the company's focus would be not only consolidating the gains but also to focus on new areas of enterprise such as joint ventures for projects outside India, entering into national long distance operation, widening the cellular and CDMA-based WLL customer base, setting up internet and allied services on an all India basis. MTNL has over 5 million subscribers and 329,374 mobile subscribers. While the market for fixed wireline phones is stagnating, MTNL faces intense competition from the private players²Bharti, Hutchison and Idea Cellular, Reliance Infocomm²in mobile services. MTNL recorded sales of Rs. 60.2 billion ($1.38 billion) in the year 2002-03, a decline of 5.8 per cent over the previous year¶s annual turnover of Rs. 63.92 billion.
RELIANCE INFOCOMM : Reliance is a $16 billion integrated oil exploration to refinery to power and textiles conglomerate. It is also an integrated telecom service provider withlicenses for mobile, fixed, domestic long distance and international services. Reliance Infocomm offers a complete range of telecom services, covering mobile and fixed line telephony including broadband, national and international long distance services, data services and a wide range of value added services and
applications. Reliance IndiaMobile, the first of Infocomm's initiatives was launched on December 28, 2002. This marked the beginning of Reliance's vision of ushering in a digital revolution in India by becoming a major catalyst in improving quality of life and changing the face of India. Reliance Infocomm plans to extend its efforts beyond the traditional value chain to develop and deploy telecom solutions for India's farmers, businesses, hospitals, government and public sector organizations. Until recently, Reliance was permitted to provide only ³limited mobility´ services through its basic services license. However, it has now acquired a unified access license for 18 circles that permits it to provide the full range of mobile services. It has rolled out its CDMA mobile network and enrolled more than 6 million subscribers in one year to become the country¶s largest mobile operator. It now wants to increase its market share and has recentlylaunched pre-paid services. Having captured the voice market, it intends to attack the broadband market. TATA TELESERVICES: Tata Teleservices is a part of the $12 billion Tata Group, which has 93 companies, over 200,000 employees and more than 2.3 million shareholders. Tata Teleservices provides basic (fixed line services), using CDMA technology in six circles: Maharashtra (including Mumbai), New Delhi, Andhra Pradesh, Tamil Nadu, Gujarat, and Karnataka. It has over 800,000 subscribers. It has now migrated to unified access licenses, by paying a Rs. 5.45 billion ($120 million) fee, which enables it to provide fully mobile services as well. The company is also expanding its footprint, and has paid Rs. 4.17 billion ($90 million) to DoT for 11 new licenses under the IUC (interconnect usage charges) regime. The new licenses, coupled with the six circles in which it already operates, virtually gives the CDMA mobile operator a national footprint that is almost on par with BSNL and Reliance Infocomm.. The circles include Bihar, Haryana, Himachal Pradesh, Kerala, Kolkata, Orissa, Punjab, Rajasthan, Uttar Pradesh (East) & West and West Bengal. VSNL: On April 1, 1986, the Videsh Sanchar Nigam Limited (VSNL) - a wholly Government owned corporation - was born as successor to OCS. The company operates a network of earth stations, switches, submarine cable systems, and value added service nodes to provide a range of basic and value added services and has a dedicated work force of about 2000 employees. VSNL's main gateway centers are located at Mumbai, New Delhi, Kolkata and Chennai. The international telecommunication circuits are derived via Intelsat and Inmarsat satellites and wide band submarine cable systems e.g. FLAG, SEA-ME-WE-2 and SEA-ME-WE-3. The company's ADRs are listed on the New York Stock Exchange and its shares are listed on major Stock Exchanges in India. The Indian Government owns approximately 26 per cent equity, M/s Pantone Finvest Limited as investing vehicle of Tata Group owns 45 per cent equity and the overseas holding (inclusive of FIIs, ADRs, Foreign Banks) is approximately 13 per cent and the rest is owned by Indian institutions and the public. The company provides international and Internet services as well as a host of value-added services. Its revenues have declined from Rs.
70.89 billion ($1.62 billion) in 2001-02 to Rs. 48.12 billion ($1.1 billion) in 2002-03, with voice revenues being the mainstay. To reverse the falling revenue trend, VSNL has also started offering domestic long distance services and is launching broadband services. For this, the company is investing in Tata Teleservices and is likely to acquire Tata Broadband. HUTCH (Vodafone): Hutch¶s presence in India dates back to late 1992, when they worked with local partners to establish a company licensed to provide mobile telecommunications services in Mumbai. Commercial operations began in November 1995. Between 2000 and March 2004, Hutch acquired further operator equity interests or operating licenses. With the completion of the acquisition of BPL Mobile Cellular Limited in January 2006, it now provides mobile services in 16 of the 23 defined license areas across the country. Hutch India has benefited from rapid and profitable growth in recent years. It had over 27.8 million customers by the end of June 2008. IDEA: Indian regional operator IDEA Cellular Ltd. has a new ownership structure and grand designs to become a national player, but in doing so is likely to become a thorn in the side of Reliance Communications Ltd. IDEA operates in eight telecom ³circles,´ or regions, in Western India, and has received additional GSM licenses to expand its network into three circles in Eastern India -- the first phase of a major expansion plan that it intends to fund through an IPO, according to parent company Aditya Birla Group Potential
2. Entry of New Competitors Indian telecom sector offers unprecedented opportunities for foreign companies in various areas, such as 3G, virtual private network, international long distance calls, value added services, etc. The market is witnessing M&A activities that are leading to consolidations in the industry. This trend has assisted companies in expanding their reach in the Indian telecom market to offer better services to customers.The Indian telecom industry has always allured foreign investors. In fact, the cumulative FDI inflow, from August 1991 to March 2007, in the telecommunication sector amounted to US$ 3,892.19 million. This makes telecommunication the third-largest sector to attract FDI in India in the post liberalization eraIn India large numbers of players are emerging in the market on the national level from its state level existence such as: Aircel Virgin Spice
Potential Development of Substitute Products PRODUCT Telecom sectors offers a wide range of services in India, such as wireline, CDMA mobile, GSM mobile, internet, broadband, carrier, MPLS-VPN, VSAT, VoIP IN, etc. Internet telephone It is emerging as a best option in place of because it is cheaper and video as an added advantage. Internet service providers BSNL MTNL SIFY BHARTI AIRTEL RELIANCE Market share (%) 45.2 19 8.9 6.8 6.1
As we can see that use of internet in our country is on growing rate. As there are many tools which can be accessed through internet like video conferencing other important tool is talking through internet for eg. Google talk, rediff bol, yahoo messenger. Important thing is that internet is cheaper medium of communication and one can have many facilities if he/she is connected to the world through the internet. 4. Bargaining Power of Suppliers As far as telecom industry is concerned, it is service based industry which is intangible, so in this case there are less suppliers or we can say the role of suppliers are almost negligible in the case of telecom industry. We are trying to analyze that minor role 1. Mobile hand set suppliers: - There can be many suppliers for handset, some of them are Nokia, Sony Ericsson, Motorola, and Siemens etc. Many big telecom giants have their own handset manufacturing (back ward integration) like Reliance Classic, Tata Indicom or they have collaboration with some known companies like Reliance communication have tie ups with Samsung and LG for their CDMA services 2. Some other suppliers for this industry can be the Optical fiber suppliers, Aluminum suppliers (aluminum is required for the tower) but their bargaining power is limited. 3. Other important parameters can be the software assistance where suppliers can have the edge some of the main software solution provider are TCS, Infosys, Wipro, Satyam etc. Again one thing is noticeable that big giants like Reliance and Tata have their own units for software
solution and companies like Vodafone, Spice are taking services from above stated companies. So here software providers have bargaining power because suppose Vodafone can¶t go to Reliance info for their software solution so here suppliers can have edge over the companies 5. Bargaining Power of Consumers Recent Status: Indian Telecom industry is one of the fastest growing telecom markets in the world. In telecom industry, service providers are the main drivers; whereas equipment manufacturers are witnessing growth and decline in successive quarters as sales is dependent on order undertaken by the companies. Airtel, Reliance, Tata and Sterlite are some of the companies that are expected to spur the growth in 2008, as compared to AMJ07. According to Cygnus estimates, telecom industry was expected to grow by 25% in 2008 as compared to AMJ07, in terms of sales. EBDITA and PAT are expected to grow by 32% and 34% respectively in 2008 as cost expenses are being control by major companies like Airtel and Reliance. The major booster is the wireless mobile subscriber base; crossing over 261m in March 2008. Other services like Internet subscriber base has also provided significant impetus with its subscriber base reaching over 11m in March 2008. The total subscriber base of Wireline services stood at 39.42 million as on 31st March 2008. The incumbents BSNL and MTNL have 80.05% and 9.33% market share respectively in the subscriber base, while all the five private operators together have 10.62% share. Wireline subscriber base has been declining in the last few years. Subscriber base for some of the companies like Bharti, Tata (Tele & Communications), MTNL and Reliance increased marginally. On the other hand, BSNL, Shyam and Telelinks have lost marginal subscriber base in 3rd QUARTER OF 2008, as compared to the previous quarter.
Life Cycle The Telecom Industry in India is in its growth stage. Telecom is one area in India where significant improvements have happened. Now the private operators also are providing services which are giving rise to more choice. The Telecom sector in India is experiencing a stage of Mature Growth. The growth in sales is still above normal. Due to rapid growth of sales and profit margins, new players are getting attracted to the Industry giving rise to more and more competitors.This is leading to an increase in the level of supply and lower prices. Profit Margins will start declining over time. The new players in the industry are:
Datacomm S Tel Ltd Unitech Wireless Ltd ByCell Telecommunications Swan Telecom Pvt. Ltd Alcatel Lucent
ATC Tower Company of India Pvt. Ltd. Aster infrastructure Pvt. Limited Nokia Siemens Networks