There has been an exciting buzz in Pakistan’s telecom sector. Not only has Telenor Pakistan acquired Tameer Microfinance Bank, it also welcomed its new CEO Jon Eddy Abdullah. In the past few years, Pakistan’s telecom and banking sectors have been doing exceptionally well. Telenor Pakistan’s acquisition of Tameer Microfinance Bank is an encouraging sign that there is still much growth to aspire to, especially on the microfinance side.
Telenor was launched in 2005 in Pakistan by its parent company, Telenor ASA, which has 12 mobile operations across Europe and Asia. Having over 18 million subscribers, Telenor is now the second largest operator in Pakistan and has been the fastest growing mobile operator in 2008 in the local telecom sector, managing to attract millions of subscribers because of its unparalleled quality of service, unique and innovative Value Added Services (VAS) and an outstanding local team that has made its parent company proud. Earlier this year, President & CEO of Telenor Group Jon Fredrik Baksaas acknowledged Telenor Pakistan’s excellent performance, with Telenor Pakistan’s contribution to the Group’s net additions being 23%.
Telenor came in with the largest European Direct Investment at $2 billion, and has continued to invest heavily this year by expanding its network and services. The incoming CEO of Telenor Pakistan Jon Eddy Abdullah shares his experiences and opinions of the local telecom sector with Blue Chip, and elucidates his strategies to help Telenor Pakistan gain the top slot in this intensely competitive environment.
When did you get involved with Telenor and how has your experience in Pakistan been so far?
Jon Eddy Abdullah: “I joined Telenor Pakistan in August this year as the CEO of the company. Earlier I was Chief Operating Officer in Maxis Telecommunications in Malaysia. Before Maxis, I held the position of the Chief Technology Officer in DiGi. DiGi is a Telenor company in Malaysia, so joining Telenor Pakistan is a little nostalgic for me. I have found the same great spirit of camaraderie and openness at Telenor Pakistan as in my earlier company.
Pakistan is an interesting place and the market is so full of challenges. It is an exciting time to be associated with a leading operator in Pakistan.”
There has been a lot of talk about Telenor Pakistan acquiring a majority of shares in Tameer Microfinance Bank Pakistan. Can you please elaborate on this?
JEA: “On Friday, November 21, 2008 Telenor Pakistan entered into an agreement to acquire 51 percent of the shares in Tameer Microfinance Bank for a foreign direct investment (FDI) of $12.5 million (Rs. 1 billion approximately) through a direct rights issue. The proceeds from the rights issue will be used to finance the further development of the bank. The acquisition of Tameer Microfinance Bank is part of our strategy to offer financial services in Pakistan. Tameer and Telenor Pakistan have a common vision of how a bank and a telecom company can work together to provide services for the benefit of the customers.”
Given that Telenor has a significant subscriber base in Pakistan now, do you find it a bigger challenge to maintain this position in such a competitive market?
JEA: “Everyone knows that competition in Pakistan is very stiff. Maintaining any position in such a competitive environment is a challenge. That said, we have been successful in creating a strong customer association to the Telenor brand through our marketing efforts. We continue to attract usage through our Value Added Services (VAS) and mobile internet connectivity. At the same time, we focus on solid and sustainable price moves and competitive strategies. All of this means that we maintain a healthy share of subscriber growth, but at the same time keep growing our revenues in the market.”
How do you feel about Pakistan’s present telecom environment?
JEA: “This year has been rough on the telecom industry in Pakistan. The industry has lost its steam because of a number of factors including the high rate of inflation and the highest taxation on any industry in Pakistan. Considering the right of access to communication for everyone, it is very important that telecommunication services are not only available throughout Pakistan, but are also affordable to those struggling in these trying times. In this context, it is detrimental for the taxation regime to be rationalised. Activation tax needs to be abolished and GST brought down at par with other products and services.”
What is your opinion on the regulatory authorities? Do you think they are doing a satisfactory job, and if not, what measures can they take to make the environment more conducive for cellular operators to maintain a certain level of success?
JEA: “From the onset, we have been working closely with the regulator. I think the way in which Pakistan telecom market was opened up and a level playing field was provided, went a long way towards the boom in the industry that we have witnessed during the past few years.
Having said that, it is very important for favourable regulatory framework to continue and for a rationalised taxation regime to be implemented for the continued development of the telecom industry in Pakistan.”
What is your take on bringing in 3G? What has your experience been with 3G in other countries?
JEA: “Telenor Pakistan believes that 3G can be the catalyst for change. The industry is going through a tough phase at present, with all stakeholders facing serious challenges. 3G offers opportunities to tackle these challenges. Let me explain:
Now, more than ever, operators need assurance of better returns. 3G offers operators business continuity as the associated spectrum allows additional voice capacity to address urban capacity constraints; more efficient spectrum usage to drive down operator costs; and provides for enriching VAS to enhance ARPUs. Given the synergy with current GSM networks, operators can maximise current investments, which is a big advantage in these financially trying times.
In a country of 160 million, only 150,000 are lucky enough to be able to access/afford broadband internet. Broadband across the world is used for improving education, healthcare, business, enterprise, and other productivity indicators, but broadband growth in Pakistan is slow. Fixed line infrastructure is insufficient to drive broadband proliferation. At the same time, new fixed & wireless broadband operators are focusing only on the affluent population. In this situation, 3G offers broadband connectivity over mobile networks, which span the rural-urban divide, can stimulate internet penetration in Pakistan just like new 2G licenses boosted cellular penetration to record levels over just a few years. 3G can be a key mechanism for delivering broadband services as low-end 3G handset prices continue to decline, and the benefits of scale become more significant in the region.
Regional peers have already initiated the move to 3G as a natural evolution, while Pakistan is debating the issue. China, Indonesia, Malaysia, Sri Lanka and The Philippines have already adopted 3G, while India is issuing a license this year. 3G offers the government an opportunity to stay ahead in terms of regulatory development in the region. The fact that there are over 228 3G operators in more than 94 countries with 668 million subscriptions is strong evidence that regional governments fully realise facilitating the natural evolution of network for the benefit of the market.”
As Telenor has shown amazing results in the short time since its establishment in Pakistan, what would you say sets Telenor apart from the other operators and what really contributes to Telenor’s success?
JEA: “One distinction is our experience. Telenor brings with it a rich experience of more than 150 years in the international arena, focusing on the telecommunications, data and media communication needs of consumers. Today, the Telenor Group ranks as one of the largest provider of communication services in the world with a consumer base of approximately 159 million customers worldwide and experience of operations in a number of countries in both Europe and Asia.
The existence of Telenor in Pakistan itself is unique. The company is the first Greenfield mobile operation outside of Norway by Telenor ASA, the parent group. This has all been done on the back of a direct foreign investment of over $2 billion.
Another distinction is our innovation. The company has pioneered many products and services in the local market and has one of the most extensive range of offers for the customers.
Still another distinction is our culture. Telenor Pakistan focuses on a culture devoid of bureaucracy, proud of its values of integrity no matter what, and an incubator for real talent.”
Do you think there are already too many players in the cellular market, or there is still space for new entrants?
JEA: “We believe that the number of players in the Pakistani market are substantial, if not too many. Therefore, it is extremely important for the regulator to keep the scenario in focus while coming up with new technology licensing initiatives, such as 3G. For any industry to be able to flourish and for further investment to come in, the development of the sector must be sustainable. We believe given the current competition and arguably some of the lowest telecom tariffs in the world, further entrants into the market would have a serious impact on the sustainability of all players.”
What challenges does Telenor face and what is your strategy to deal with them? Please comment on the impact the country’s political and economic instability has had on Telenor, in particular, and the telecom sector in general.
JEA: “The challenges being faced by the industry nowadays include inflationary pressures and the taxation regime. Beside that, a number of issues related to power shortages, fuel prices and other inputs for the industry exist. Strict measures related to sale of SIMs and SIM verification are also affecting the business negatively. This scenario means that not only cost of doing business is going up but also, at the same time, the high tax structure and inflationary pressures force subscribers to cut down on their usage.
We are constantly engaging the government and other stakeholders to work on various issues. We hope the government would act soon to rationalise the tax regime and bring GST on par with other industries. There is also a need to tap into new revenue streams. VAS need to be focused upon to increase their share in overall revenues. Measures should also be taken to reduce spiraling costs. Infrastructure sharing and use of alternate energy are the areas which can result in increasing efficiency in the longer run.”
Please tell us a bit about your Corporate Social Responsibility programme.
JEA: “Being a socially responsible company, we are taking a number of initiatives to ensure sustainable growth. Recently, we have received two awards for Environmental Excellence and Corporate Social Responsibility in Pakistan which acknowledge Telenor Pakistan’s contribution towards society at large. A number of our programmes are focused towards using communication technology to help underprivileged sections of the society. Projects such as blood donation drive with PRCS, Helpline Service for Street Children in Karachi, socially inclusive services, and Higher National Diploma in Telecommunications in collaboration with Nokia Siemens Networks and TEVTA are just a few examples, where we focus on using our expertise to help.”
What is your vision for Telenor’s future?
JEA: “Our vision is that we are here to help our customers get the full benefit of communications services in their daily lives. To achieve this vision, I see provision of access to communication services for all. This will involve constant engagement and meaningful interaction with all stakeholders including the government and competitors.
Telenor Pakistan will be employing and retaining the best talent in Pakistan, arguably the only sustainable advantage in this business.
Telenor Pakistan will continue to be a leader in innovation by providing unique offerings and socially inclusive services. We will branch into new businesses that have clear synergy with mobility such as Financial Services. Telenor Pakistan will also continue to leverage its strong parent and increasing Asia presence to continue its growth but more importantly, will continue to help its customers continually benefit by mobile services.”
What predictions can you make for Pakistan’s telecom sector?
JEA: “It is difficult to predict considering constant changes in market conditions. However, it is very important that telecommunication services in Pakistan are available everywhere and are affordable to all. As mentioned before, the industry looks for support from the government and regulator to return to the earlier stimulating environment. In addition to that, the industry needs to consider alternative revenue streams and measures to reduce cost. VAS is one area which needs to be developed and made more relevant for the consumers. With increased maturity and lesser volatility in the market, operators need to concentrate more towards improved quality and value for money to ensure customer loyalty and increased ARPU. New technologies, such as 3G, can not only create new revenue streams, but in the longer run, will also contribute towards lowering the operating costs. All the factors mentioned above will be very important in shaping the future of the industry.”