A prominent telecom professional, Aamir Ibrahim, is currently serving as Vice-President and Chief Marketing Officer at Telenor Pakistan. He has 17 years of international management experience in blue chip companies, and has previously held senior sales and marketing positions in the UK and UAE with automakers like Ford, Jaguar, and Land Rover. Aamir has an MBA from IMD Lausanne, Switzerland.
Following are the excerpts from an insightful and elaborate discussion BR Research had with him recently.
PRICE COMPETITION
BR Research: Heightened price sensitivity in the Pakistani mobile telephony market has scuffled innovation, besides reducing the interpretation of VAS to a very basic narrative. The mobile network operators have also felt the heat in the wake of shrinking margins. How can the market break out of such competitive scenario?
Aamir Ibrahim: This is a hard question to answer. However, one, the good news is that prices have hit rock bottom and can't go much further below where they are. And two, operators have begun to create differentiation through innovative services and convergence, for example Easypaisa. The role of the regulator is very important as there are measures that it can help enforce, such as immediate introduction of SMS interconnect and increasing MTR, which can compensate for inflationary pressures and take the focus off just price competition.
BRR: But still, for how long can this hyper-price-sensitive market sustain five (or possibly six) active operators?
AI: Industry players have been saying this for some time now that at the moment there are too many operators than the market can support. With growth slowing down and the industry entering the maturity phase, I think the maximum number of mobile operators should not be more than four, three would be even better. And that is why opening the upcoming 3G auction for external players outside the industry is a concern for all existing industry players.
BRR: Has the growth in the voice segment petered out?
AI: Not exactly. The Voice telephony is still growing in double digits, although we cannot compare this to the growth of 2006 and 2007. Every month, the industry is adding about three-and-a-half to four million subscribers, and our research shows that ten to fifteen percent of these are first time users. Geographically, over 80 percent population has been covered. By continuing its focus on virgin territories, Telenor Pakistan grew by about 15-18 percent last year, both in terms of subscribers and in terms of revenue.
With people above sixty years of age and those below 18 years of age also using mobile services extensively, the size of addressable market is increasing, in addition to a population growth of 2 percent. So, Pakistan is still a growth market, and we foresee double digit growth for coming years, too.
BRR: How do you view the postpay segment? It appears that Telenor Pakistan has given up on penetrating this segment.
AI: Unlike competition, we don't consider post-paid or prepaid as types of customers: these are just modes of payment a customer may choose when purchasing telecom products and services. Based on customer needs we have Business, Youth and Mass as types of customers and we are offering products and services that are relevant to these customer types. We have aligned our marketing organisation around this customer centric approach as well.
By no means, have we given up post pay or customers who prefer postpay. The reason postpay remains less than five percent across the telecom industry, is because Pakistani operators considered it as type of customer instead of payment mode. With a more customer-centric approach, we aim to increase postpay subscribers significantly by offering this payment mode for products and services we currently offer to Youth and Mass customers.
DATA SERVICES
BRR: However, the future belongs to data. In the post-3G-auction milieu - where up to three operators would be offering high-speed data services and the rest would fall back to low-speed GPRS/EDGE-enabled data services, what are the chances for any mergers and/or acquisitions to occur?
AI: It's a bit difficult to tell. However, just because an operator does not get a 3G license does not mean that it would not be able to survive in the market. Instead, these operators would need to evolve their strategies and focus on giving more value on attributes other than high-speed data. This might be through moving to a no-frills model. Either way, the operator will need to decide what customers it wants to focus on and how it intends to do so.
BRR: A market for high speed "mobile broadband" would be established once 3G-enabled data services are rolled out. Considering market factors like appetite for data services, availability of Smartphones, customer literacy and VAS offerings, how do you foresee the future uptake of mobile broadband compared to the abysmally low penetration of conventional broadband?
AI: The current broadband penetration is very low due to a variety of factors such as limited coverage, high entry barriers (one needs a computer) and high data prices (for most of the broadband operators offer postpaid connections). Mobile operators will be able to pull down all of these barriers and offer wide urban and rural coverage, where all a user will need is a feature phone. In addition, the prepaid pricing options will mean that users will only be paying for what they use.
To drive broadband penetration, a lot of focus needs to be put on the end benefit to the user rather than just the internet. For this, the industry would need to encourage the creation of local language content and applications that deliver benefits to the different needs of customers (such as social networking apps, navigation maps, watching news online, etc).
However, operators would be in a stronger position to increase penetration had the upfront cost / license fee of the 3G spectrum been kept low to allow operators to concentrate more on provision of high speed data services at competitive prices across the country.
BRR: Why do you think the 3G license fee is high?
AI: We have a simple argument that any pricing should make sure that the objectives are met for all the parties. Investor has to get the return on investment; the government has to earn revenue; and the customer has to be able to get the benefit from technology. All three things have to converge at a particular price point. If the government is too keen on milking the cow in the beginning, the operator may end up paying a higher price than what could be justified otherwise. This will ultimately translate into high prices to end customers, which can impact the penetration of data services. So, we have to find that right balance where everybody can get something out of this.
The government is selling frequency spectrum, yes, but what it is actually selling is a perception, a perception of how the outsiders, the foreign investors, view the business environment in Pakistan. Besides country risk, now there is an institutional risk involved as well. A foreign investor would want to invest to get return. So, besides market factors like GDP per capita, population, teledensity, etc, the investment equation also takes into account the strength of a country's institutions, stability, law and order, etc.
BRR: What is your view on this perception in the sector that the launch of 3G-enabled data services would usher in an era of higher ARPUs for the MNOs?
AI: Yes, the expectation for higher ARPUs from data services is very much there. We hope that the industry has learnt from the mistakes that were made on voice call / SMS charges. There has to be more focus on service quality and differentiation through product offerings than just focusing on low prices.
Also, as mentioned above, operators need to focus on differentiating on the benefit they deliver to the customer (through relevant applications, services and local language content) than just low prices. The broadband penetration is very low right now and the operator that can give a reason to customers for using data (through benefits relevant to their needs, and through ease of use) will succeed.
BRR: And, what pricing and subscription models should the market evolve to, eventually?
AI: The objective should be to tailor the products so that they meet the requirements of the different sets of customers. For some, this would mean unlimited data offers, for others it means charging by the KB or min. The offers need to address all these different need sets. Eventually, we would expect volume needs to grow and, consequently, longer validity and higher volume bundles to become more prevalent.
BRR: Would you be launching a new brand to target the 3G segment?
AI: Regarding launching a new data brand, I think we would first need to establish 3G benefits in customers' minds; see the growth in the data segment; and then evaluate any further options.
MOBILE FINANCIAL SERVICES
BRR: Research has shown that the adoption of mobile financial services has great potential to increase financial inclusion in Pakistan (BCG & Telenor: 2011). With the market still evolving, what are the issues that need to be worked on to be able to dent financial exclusion in a big way?
AI: First, customer education is the key, as awareness of MFS and trust is still very low. People have yet to understand how MFS can positively impact their lives. Then, the technology hesitancy also hinders the uptake. Secondly, the number of services available under MFS has to increase. With Bill Pay and Money Transfer being the dominant services, customers look to a whole lot more payment options in order to switch to MFS.
Thirdly, the cannibalisation of merchants must be discouraged, for real financial inclusion will be achieved by adding new merchants to the pool. If one MFS starts cannibalising on another MFS's agent network, this ends up dividing the merchant's investment and efforts also. And fourthly, the regulatory environment must cover the public sector, too. For instance, Nadra and Pakistan Post are major players in the MFS space but are not being regulated by SBP. This needs to change and fairer policies implemented.
BRR: How would Easypaisa manoeuver in the segment for the rest of 2012, given that some major players are waiting in the wings?
AI: Easypaisa is an example of innovation, which is addressing the needs of a market, doing something positive for Pakistan, and providing a business model. The evolution of services for this huge addressable market of un-banked and under-banked adults has taken us to the stage where we are offering Mobile Wallets and Mobile Accounts. We are looking at consolidating and maintaining our lead in the market in terms of number of merchants, customers and transactions.
During the year, we are going to launch Savings and Insurance products. In addition, we will be introducing more payment products on easypaisa. Moreover, there is going to be string focus on Corporate Services, eg, salary disbursements, incoming payments, etc. Overall, we need to develop an ecosystem where mobiles become de facto cash equivalents and more and more vendors provide payment options like Easypaisa. Once the critical mass is achieved, the momentum will sustain itself.