We are ready for 3G; will be offering a full range of services, says Lars Christian, CEO, Telenor Pakistan

BR Research recently sat down with Lars Christian, the recently-appointed CEO of Telenor Pakistan, to discuss telecommunication-related issues in Pakistan. Prior to this, Lars was the head of Marketing at Telenor Group's Asia office in Bangkok. He has also worked as CMO of Telenor Pakistan between February 2008 and February 2011. Lars has diverse international work experience, both from different positions in Telenor and from Cell One in Namibia.
BR Research: How robust is the mobile telecommunication industry in Pakistan seven years after deregulation?
Lars Christian: Pretty robust. Pakistan's mobile telecommunications industry is frequently referred to as one of the outstanding success stories to emerge from this region. From just five million subscribers in 2004 to over 110 million today, the phenomenal growth can be attributed to Pakistan's conducive investment environment, sound regulatory policies, confident foreign investors and, of course, lots of hard work!
BRR: What would be the optimum number of mobile network operators for a market like Pakistan? Can this market sustain five MNOs in the long run?
LC: Industry players have been saying this for some time now that there are too many operators than the market can support at the moment. With growth slowing down and the industry entering the maturity phase, I think the maximum number of mobile operators should not exceed four, three would be even better.
BRR: MNOs seem to be locked in a perpetual battle of price competition, which impacts their ARPUs and margins. Is this situation sustainable for the market?
LC: As I've said earlier having too many operators means ARPUs are to take a lot of pressure and are reduced to a bare minimum. This in turn means that the operators are resource constrained, which prevents them from investing in customer-centric areas such as network quality improvements, better customer services, and innovative value added services. Ironically, it could be this pressure that might impact the long-term sustainability of some players, leading to some realignment.
BRR: It is widely believed that bottom-lines of many MNOs have been under pressure for some time now. How has Telenor Pakistan been faring on that front?
LC: Of course, Telenor Pakistan has also been impacted by the intense competition for subscribers and revenues. Despite this, we have performed above average as our latest financial results show. We added 642,000 subscriptions between July and September 2011, to end with 27.3 million subscribers. The number of subscribers grew by 15 percent over the same period last year, and our market share remained stable at 24 percent.
BRR: Do you think Pakistani market is ready for the third-generation (3G) network technology?
LC: We know that the government is interested in auctioning 3G licenses. For the government, auctioning is a way to quickly get a sizeable amount of money from MNOs. The MNOs, however, are hesitating for a number of reasons: high CAPEX; low penetration of 3G enabled handsets; operators still expanding and strengthening their 2G networks and ensuring access to telecommunication services to the masses; adequate spectrum availability, etc.
Though not impossible yet it would be challenging for MNOs to invest in 3G services for these reasons, and expect a quick ROI while catering to a market whose needs are being widely met with 2G/2.5G services.
BRR: What Telenor Pakistan's plans are regarding the 3G technology? Are you ready?
LC: Like other MNOs, we, too, are preparing our network for 3G services. We are confident that by the time 3G begins, we will be ready to offer a full range of services.
BRR: Some analysts say that introduction and adoption of 3G-enabled mobile services would lift the industry ARPUs significantly. What is your take on that?
LC: I think that would be a very welcome outcome of 3G services. However, the common understanding is that ARPUs are unlikely to get a major boost in the short term. This is because the Pakistan market is mostly voice/SMS oriented. While 3G services would offer higher voice quality, most other services would be data based. And although the Pakistan internet market is growing (2 million users), it would be unwise for MNOs to expect higher ARPU based on assumed high take-up of 3G by this segment,
BRR: Why is it that the telecommunication sector's interpretation of value-added services has been confined to cheap SMS bundles and inadequate internet buckets?
LC: It's just that the demand for such bundles is more. Telenor Pakistan offers many other value-added services besides just voice/SMS bundles. For example, through our "Telenor Social Services", Telenor customers can get access to professional advice wherever, whenever they might need, via one portal. Expert medical or legal advice, guidance on how to chart your career path or any other information can be obtained by dialling 1911 and talking to our professional agents.
Some other value-added services include anti-virus app, utility services, internet services, sports, music, entertainment, etc.
BRR: What impact could the adoption of 3G have on VAS offerings?
LC: The impact would be significant, as services like mobile TV, mobile video conferencing, faster internet access, etc., could be accessed. But at the same time, tariffs will need to be designed keeping in mind both CAPEX/OPEX and the take-up by customers.
BRR: Telecommunication is among the most-heavily taxed sectors in Pakistan. How does such an exorbitant taxation regime impact your business model?
LC: Obviously, it has a huge impact on the bottom line. Margins remain slim preventing MNOs from investing heavily in customer services, network upgradation, promoting value-added services and creating a demand for them by wider advertising.
The industry has discussed the matter with the authorities a number of times. This did lead to a decrease in "Activation Tax", but not a complete withdrawal as we had hoped for. At the moment, there has been no change in the tax collection regime as far as I know.
BRR: Do you see signs of any merger or acquisition happening in the local telecommunication scene?
LC: Certain realignments within the cellular industry are inevitable, but I cannot see any such move being made at the moment.
BRR: It appears that Easypaisa is doing well. However, its focus seems to be on urban areas rather than rural areas where the bulk of 84 percent unbanked Pakistanis live. Why is that so?
LC: Easypaisa is aimed at both urban and rural customers. However, most business models are designed so as to recoup their CAPEX in as short a time as possible in the first phase. This is the case not just with the mobile industry but with all industries. The second phase often involves expanding the user base and diversifying revenue streams.
With Easypaisa, the initial focus on urban areas is because that is where users are more concentrated. First, users are higher in number because it is easier to educate them about a new product or service as compared with users in rural areas. Secondly, urban users prefer to save time even if that means spending a little extra. Thirdly, with higher adoption by urban customers, rural customers are also educated, especially via word of mouth, about a particular product or service. Hence, they become less reluctant to use it once they hear about its benefits from their urban counterparts.
So, Easypaisa services are being made available all over Pakistan. At the moment we have over 14,000 Easypaisa outlets, many of them in rural areas.
BRR: Keeping in view the MNOs' financial contributions to the Universal Service Fund, how much has the mobile telephony sector benefited from USF-funded projects?
LC: Thanks to USF, MNOs have been able to set up their networks in areas that were previously unconnected, so that has added to their reach and ability to offer services in virtually all areas of Pakistan. The fund has been utilised well, but allocations for newer projects have slowed down. This needs to be reactivated and given a big boost if the government wants to utilise the funds the same way it has done in the past by allocating funds to projects that are in keeping with the true spirit of the USF.