Data is the future of Mobile Telephony. Being the market leader, what are Mobilink's plans on that? Is there any room for growth left in the Voice segment?
At Mobilink we see potential in 'voice', though not at the same rate at which the industry and Mobilink were growing in the past years. So, the 'voice' market is not saturated and the mobile telephony industry has not covered the entire territory of Pakistan thus far, leaving aside the troubled areas in Balochistan and KP provinces. Wherever we go into rural areas, we are able to get good penetration. So, we will not give up on those segments, although the Average Revenue Per User (ARPU) of those customers is very low.
As far as the growth of ARPU is concerned, data has obvious potential. We have seen this with GPRS and EDGE, which we call 2.5G technology. The demand for data services is overwhelming, also in rural areas, as witnessed when we launched GPRS services there. The uptake is quite good, despite low literacy levels and language barriers.
Technology uptake and adoption are high in all segments. But its potential will be realised when the overall broadband penetration improves, which is currently just over a million customers, both on the fixed and wireless broadband sides.
When the government launches the 3G spectrum, which I expect to be shortly as the Prime Minister has given his approval, we are ready and we would like to participate so as to move forward as an industry. That will bring another level of consumer engagement, which will help ARPU, and we will be able to provide more services.
There was a perception in recent times that MNOs were not ready or willing to adopt 3G technology. How has that been changed?
Mobilink's perspective is a different one: When I took over Mobilink in December 2008, the world economy was in bad shape and financial capital was not available. At that time, there were discussions going on in Pakistan regarding introduction of 3G technology. Mobilink shared industry's sentiment, prevalent at that time, that it was not the right time for the industry to embark on 3G regime. Even from the government's perspective, they would not have fetched the right price from the spectrum's auction. The fact was that the MNOs wanted some breathing room.
But, following that, Mobilink has been willing all along that's why we did like to adopt 3G. We are now operating on 3G-compatible network infrastructure. As and when the government announces 3G licences' auction, we would participate and avail the opportunity.
How many licences should be issued to develop an optimum 3G markets?
We have recommended that three licences for 3G auction would be a good number. The spectrum is around 30 MHz, so 10 MHz for each of the three operators.
The introduction of 3G technology, in itself, won't change things in a massive way. In terms of data, yes, many new services would come up. But in terms of voice, for us, everything would still be the same. We would be upgrading the same infrastructure. In fact, 3G spectrum would also be used for voice segment. 3G is like a pipeline through which you develop and supply mobile applications. So those of us, who indeed get 3G licences, would also increase their voice spectrum which is already getting saturated.
How many customers would shift to 3G-enabled mobile telephony networks?
That is a function of many things, eg, value-added services offerings, availability of compatible handsets and rate of penetration. It is possible that some of the low-ARPU subscribers may not use 3G-enabled data services a lot. But one could use 3G services for any amount of money, as low as 50 paisa. So, once a customer has a 3G-enabled handset, s/he would be charged according to consumption of service. 3G would remove the deficiencies of fixed broadband and mobile broadband will take over.
Mobile application development is another promising area. I have worked in the Silicon Valley for 15 years, and I am pleasantly surprised at the high-end, creative work coming out of small local IT entities. Many mobile applications developed by Pakistani software developers have made it to the top on Blackberry AppWorld and Apple store. Mobilink also encourages application developers and we launched 'Jazz Bananas' as Pakistan's first telecom power app store, catering to customer segments using multiple operating systems and handsets. Further, the Bananas Factory module will enable local developers and programming hobbyists to upload their applications and earn revenue.
Where do you see ARPU two to three years after the 3G auction?
I think revenue from 3G services will be initially around 10 percent of the total. After that, it is a function of the number of services provided. Having three 3G operators is an optimum number from Mobilink's perspective. The market composition would drive the spectrum charges, terms and conditions. At the end of the day, it is a function of total investment in 3G technology, in the spectrum, the equipment and the VAS.
Typically, the regulator comes up with a memorandum of understanding, which outlines as to how the process is going to unfold. I hope it happens in the case of 3G licence auction as well.
Critics argue that the state of competition among telcos is unsustainable and the market is ripe for mergers. What is your point of view?
I had had the same feeling three years back, as the market dynamics were not stable back then and we had a new player coming in. As the valuations dropped following the 2008 financial crisis, shareholders opted to wait and hold. I still feel that there will be consolidation in the industry. Three is the optimum number of market players, perhaps even four. Price stability is bound to happen in the industry.
Being the market leader, are you interested in shopping for one?
I would repeat what our Group CEO said in our second quarter conference call, that we would be looking at in-market consolidations in different markets, including Pakistan as and when opportunities come around.
Why is Mobilink enjoying a high ARPU compared to other operators?
First, we have the first-mover advantage; secondly, we have also had a great number of subscribers shifting to our network through the MNP service; thirdly, we have a fairly large coverage and footprint and finally, our quality of service is excellent, both in the network and customer care domains.
We have invested a lot in improving our service. Last year, we invested $250 million and in first six months this year, close to $100 million in QoS, most of which went to network infrastructure improvements. We have also invested about $35 to $40 million in our Customer Relationship Management system. The overall investment in Mobilink by the investors has been $3.7 billion.
But, more than anything else, it is the dedicated, well-trained and motivated Mobilink team which makes it possible.
How do you see the bank-led branchless banking model in Pakistan?
We see a lot of potential in the market, as the banking penetration is way less than the cellular penetration. In the past, we have worked with MCB and Pakistan Post. Our plans are based on current regulations, with the State Bank of Pakistan having approved the microfinance banking licence for our associated concern, Waseela, which brings us one step closer towards moving into the area of branchless banking. Our brand equity and distribution network would facilitate our entry into this market. We will be particularly focusing on the rural areas.
How do you see the price wars among the MNOs? So many ads!!
When there are five players in the market, with each one trying to make room and create space for itself and among them is a relatively new player, price wars become inevitable. McKinsey, who worked with us for a while, rated Pakistan's as one of the most competitive cellular markets in the world.
MNOs have been investing heavily into TVCs and ad spots because they want to hold on to current subscribers as the market is saturated already. If one wants to survive in a particular environment, then one has to participate in that environment too. And the MNOs may not be getting 100 percent on these advertising activities, as there may be some wastage.
Is high taxation regime hurting the MNOs' growth?
FED is 19.5 percent, and on top of that, there is a 10 percent WHT. That's taxing some 100 million subscribers who normally do not reclaim the WHT. On the taxation issue in particular, we are working with the concerned authorities like the MoIT and Telecom, PTA and FBR. I think that growth would be triggered if taxes are lowered. It would help, in terms of more investment going into the industry and creating more jobs as well.
What kind of operational collaboration can the MNOs have among themselves?
It is the need of the hour, as you see the opex are getting very high. All the operators, including Mobilink, are moving more towards infrastructure sharing. Mobilink has signed agreements with all the other operators and we have tower sharing sites with them. It is also good for the environment-less number of towers, lower carbon footprints, etc. Infrastructure sharing is being pursued at an increasing rate.
Why is it that MNOs are showing little participation in projects initiated by the Universal Services Fund?
If the project makes sense and if it is financially viable (because these are not commercial projects), then there is no such issue. In some of the projects, the investment side was not the issue, but the security aspect was. Our recommendations are that at the board level, business should be pursued regularly. It is a matter of execution and nothing else, to be honest. If there are enough opportunities to invest, then money should be invested.
Closer to my heart is the broadband segment, which can create a lot of economic activities across the country. The internet can do so, and Pakistan has excellent human resource. Broadband penetration would create an enabling environment. USF is investing in various broadband regions and that is a good step in that direction.
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