Section 1:

MACRO-ENVIRONMENTAL
ANALYSIS AND INDUSTRY
ATTRACTIVENESS
EXTERNAL ENVIRONMENT
Porter’s Five Forces
Applying Porter’s five forces to the Pakistani telecommunication industry allows us to garner a
retrospective view of the potential attractiveness in terms of profitability of the industry. We
first must analyze the industry through the five-force template, which will allow us to more
accurately gauge the industry in terms of its potential.

A YES ~ NO
THREAT OF NEW ENTRANTS (+) (–)
1. Do large firms have a cost or performance advantage in your
segment of the industry?

2. Are there any established brand identities in your industry?

3. Do your customers incur any significant costs in switching

suppliers?

4. Is a lot of capital needed to enter your industry?

5. Is serviceable used equipment expensive?

6. Does the newcomer to your industry face difficulty in accessing

distribution channels?

7. Does experience help you to continuously lower costs?

8. Does the newcomer have any problems in obtaining the necessary

skilled people, materials or supplies?

9. Are there any licenses, insurance or qualifications that are

difficult to obtain?
10. Can the newcomer expect strong retaliation on entering the
market?

1 2 10

In this industry, the threat of new entrants is very low or in other words, the entry barriers are
very high, as shown by the above template. It is very difficult and costly to acquire the needed
technologies and expertise to set up operations in this industry. Large amount of capital is
needed for a player to enter the market. Apart from that, to enter this industry, the new player
must obtain a license from the government which is usually a huge amount. Currently to
obtain this license it costs $300 million and this license needs to be renewed every 10 years. It
is a very big investment that a player needs to make in order to enter this industry. Also for the
new entrant, it would be very extremely difficult to come up with the capital to infiltrate the
established distribution network of the current well-established players.

It is also very difficult for a new comer to enter this market because there are already big
names like Mobilink, Ufone, Telenor, etc which are very well established in the market. It will
be very difficult to change the perception of millions of customers and to convince them to
leave their current service provider. This can be seen with the example of zong, a new entrant.
Even though it has done a lot of promotions to break through the competition, it has hardly
managed a reasonable share for itself. So new entrants will face very heavy resistance from
the already well established brands who not only have very high brand equity, but also with
their experience they can lower down their prices without considerable damage to their
brands, to force the new entrant out of business. Thus this low threat of new entrants makes it a
favorable point for the industry.

Vodafone and Orange5 are two international companies who have been trying to penetrate in
the Pakistani telecom industry, but have been unsuccessful so far. They still have not given up
and are still trying to obtain the license to operate here.
 B BARGAINING POWER OF BUYERS YE ~ N
S O
(+) (–)
1. Are there a large number of buyers relative to the number of
firms in the business?

2. Do you have a large number of customers, each with relatively

small purchases?

3. Does the customer face any significant costs in switching

suppliers?

4. Does the buyer need a lot of important information?

5. Is the buyer aware of the need for additional information?

6. Your customers are not highly sensitive to price.

7. Your product is unique to some degree or has accepted branding.

8. You provide incentives to the decision makers.

1 7
10

Judging by the template above, the buyer power is quite high for this industry. The main reason
for this are there are a lot of price sensitive customers who face no significant costs while
switching to another supplier. This gives buyers considerable power over the industry. All the
players in the market work to cater to the needs of the customers, trying to come up with better
and more attractive packages every now and then, to broaden their consumer base and to
maintain their existing one. A new SIM of any mobile service costs Rs.150 which is a quite
cheap. Plus, the product itself is not technical to understand so buyers can easily switch from
one service provider to another, without facing any difficulty in the process. However, there
are established brands in this industry and quite a few people are brand loyal customers who
would switch over to other brands that easily. But the portion of such customers is very small
and the majority is price sensitive. High buyer power proves to be unfavorable for cellular
service providers.
 C THREAT OF SUBSTITUTES
YE ~ N
S O
(+) (–)
1. Substitutes have performance limitations that do not completely
offset their lowest price. Or, their performance is not justified by
their higher price.
2. The customer will incur costs in switching to a substitute.

3. Your customer has no real substitute.

4. Your customer is not likely to substitute.

10
1

The threat of substitutes in this industry is extremely low. It can be said to be almost negligible
hence it does not affect the profitability of the industry. One thing is that the customers if want
to switch to a substitute, they will then have to incur a considerably high cost to do so. Plus no
real substitute exists for cell phones. The closest thing to a substitute is the CDMA phones and
the wireless phones. A few years ago, the demand for CDMA technology was high, but that was
attributed to poor service of PTCL connections. So the shift to CDMA was the action of
eliminating landlines from homes and keeping CDMA phones instead. The use of cell phones
was hardly affected by it. Hence no real substitutes for mobiles, and therefore mobile service
providers, exist. This is an extremely favorable aspect of the industry.
 D BARGAINING POWER OF SUPPLIERS
YE ~ N
S O
(+) (–)
1. My inputs (materials, labor, supplies, services, etc.) are standard
rather than unique or differentiated

2. I can switch between suppliers quickly and cheaply.

3. My suppliers would find it difficult to enter my business or my

customers would find it difficult to perform my function in-
house.
4. I can substitute inputs readily.

5. I have many potential suppliers.

6. My business is important to my suppliers.

7. My cost of purchases has no significant influence on my overall

costs.

1 3 10

The main suppliers for the telecommunication industry comprise of the SIM card
manufacturers and the scratch card manufacturers. Apart from them, there are suppliers who
handle the labeling, packaging and printing of the packet in which the SIM card is sold.

The industry has a lot of such suppliers to choose from which gives the industry an edge over
the suppliers. The SIM card manufacturers are vast in number and the companies also have the
option of choosing a foreign company or a local company. The players in the industry do not
have to deal with the same suppliers and they can easily switch to other suppliers, depending
on their prices. For suppliers, their clients are very important to them as they buy a major
portion of their production and also because there is not a large clientele for them. Packaging
and printing do not require any special expertise as well and for this companies can go to any
supplier. There are again a large number of suppliers for this. Hence the bargaining power of
the suppliers is considerably low which is favorable for the telecommunication industry.

E DETERMINANTS OF RIVALRY AMONG EXISTING COMPETITION

YE ~ N
S O
(+) (–)
1. The industry is growing rapidly.

2. The fixed costs of the business are a relatively low portion of

total costs.

3. There are significant product differences and brand identities

between the competitors.

4. The competitors are diversified rather than specialized.

5. It would not be hard to get out of this business because there are
no specialized skills and facilities or long-term contract
commitments, etc.
6. My customers would incur significant costs in switching to a
competitor.

7. My product is complex and requires a detailed understanding on

the part of my customer.

8. My competitors are all of approximately the same size as I am.

1 8
10
The telecommunication industry has one of the most competitive rivalries in any industry.
There are a large number of buyers and there are only few players in the industry to cater to
this vast market. The price to enter the market is really high and similarly to exit is also very
high. Therefore, the players in the market are there to stay. The market is extremely price
sensitive and even if one service provider reduces prices, then the others will have to follow
suit otherwise they will lose out on their piece of the pie and their negative churn will increase.
There are significant brand differences which have created brand loyal customers, but looking
at the total market, the portion of loyal customers is very small.

Another interesting technology has evolved which has served to increase rivalry within the
industry. This technology, popularly referred to as MNP6 (Mobile Number Portability), provides
mobile users with the opportunity of keeping their original numbers while switching over to
other networks. This has further made it easy for mobile users to switch from one network to
another, whenever a good deal is offered.

Currently the market leader in the industry is Mobilink with a market share of 31%. Just 2
years ago, this figure was approximately 45% which just shows that the rivalry has increased a
lot in the past couple of years. The major competition that Mobilink faces is from Telenor with
a market share of 22% and Ufone with a market share of 20%. After that Warid telecom comes
in with 18% of the market.

Therefore the rivalry in this industry is extremely high which proves to be an unfavorable for
the industry.
 F OVERALL INDUSTRY Un-
RATING Favorable Moderate favorable Implications
1. Threat of new entrants. 8

1 1 Threat of new entrants is

very low
2. Bargaining power of 3
buyers.
0 5 Bargaining power of buyers
is high
3. Threat of substitutes. 3

1 0 Threat of substitutes is very

low
4. Bargaining power of
suppliers. 5
Bargaining power of
1 1 suppliers is considerably
low
5. Intensity of rivalry 1
among competitors.
2 5 Intensity or rivalry is
extremely high

An over-all study of the 5 forces of porter’s model shows that the industry is fairly favorable.
The threat of new entrants is very low and the threat of substitutes barely exists. And the
bargaining power of the suppliers is also very low. However, the very high bargaining power of
buyers and the extremely high rivalry among the competitors does give an unfavorable
scenario for the industry.

By aggregating the results as well as the detailed analysis of each of porter’s 5 forces shows that
the telecommunication industry is a convincingly favorable and attractive industry.
 New Entrants
+++

Threat of New
Entrants

THE INDUSTRY Bargaining

Bargaining
Power of
Power of ––– Customers Buyers
Suppliers Suppliers

++ __

Rivalry among
Threat of Substitute
Products

or Services

Substitutes
+ ++
 PEST
Political Factors

De-regulation of telecommunication sector has made the sector investor friendly but due to the
present instability of the political environment in the country, Pakistan is suffering a lot at the
economic front. Former government provided great opportunities for foreign investors to bring
in their foreign direct investment (FDI), but due to the recent security issues in the country and
political major factors like Judicial issues, Pakistan’s role in war on terror, suicide attacks,
energy crises, money laundering cases, food crises and bilateral issues (with India), the cellular
service sector is becoming highly unattractive for the investors both; domestic as well as
foreign direct investment. All these factors greatly reduce threat of new entrants in the
industry.

Another important issue is of the Government Activation Tax (GAT) 7. As soon as a new
subscriber registers and a new SIM is registered and activated, cellular service providers must
make a onetime GAT payment per SIM to the government. Since the commencement of cellular
services in Pakistan in 1994, the GAT was Rs. 500 per SIM activation, which was lowered to Rs.
250 in 2001. However the current government of Pakistan is negotiating a change in their
policy, charging a GAT of Rs. 750 per SIM activation. Each new SIM that is activated costs Rs.
150 to the subscriber of the SIM. The cellular service providers constitute this charge in their
GAT payment, which means that based on the current GAT of Rs. 250, they pay Rs 100 from
their corporate operations. If the GAT is increased to Rs. 750 per SIM activation, this would
highly affect the profitability and cost of operations for the cellular service providers to a great
extent. This may make the industry attractive as due to low profitability, new entrants may be
discouraged to enter the industry.

The current government has enhanced the GST rate on the cellular sector from 15% to 16% in
the current fiscal year. According to the projections made by the Pakistan Telecom Authority
(PTA) and current analysis, this raise in GST has and will continue to have a negative impact on
cell phone usage. Again this policy of the government has provided an advantage to the
substitute companies (wireless phones and CDMA) as this increase in GST is an on-going
expense for mobile users and since there are low costs of switching to these substitute services,
this increases threat of substitutes.
The current policy of the Government has increased the licensing cost of operation in order to
start a business within the cellular service industry to US$ 300 million, with additional renewal
costs charged every year to the cellular service providers. This has increased the cost of
operations within the industry making it very costly for the new entrants to enter the market.

Economic Factors

The global economic slump and current economic instability and recession9 in the country has
drastically affected the state of cellular service industry in the Pakistan. High inflationary
pressures and other unfavorable factors have resulted in low real incomes for people. This has
made buyers more price-sensitive and willing to switch to any service that provides lower rates
and wider range of services. This is also because cost of switching for buyers is low. This has
increased rivalry within the industry as each competitor fights for a higher market share, while
the growth in the industry saturates.

The total revenue of the cellular service industry is stated in terms of U.S. Dollars. Recent
economic crisis in the country have devalued the foreign exchange rate of Pak Rupees against
U.S. Dollars over the last year. Pak Rupee depreciated from approximately Rs.60/$ to Rs. 83/$ in
20098. The depreciation of Pakistani currency has reduced the total revenue of the sector in
terms of the U.S Dollars and therefore, real earnings are declining. This makes the industry
unfavorable for the new competitors to enter and make investments in the industry.

Social Factors

Due to the price sensitive nature, customers always look out for the connection that provide the
best priced packages and focus on network coverage. And usually an attractive package by one
firm can influence the purchase of many customers because of the multiplier effect. For
instance, if one package is in demand, people would start switching over to that mobile
connection in groups of families, friends and colleagues. These packages are designed in a way
that users of the same mobile connections can stay in touch for a very low amount. So a switch
to competing brand by one consumer may actually result in a lot of people switching over to
that brand. This increases the buyer power by a large margin.
Recent trends have shown that more and more people in the society are becoming concerned
about their lifestyle and how others perceive them within the society. In the upper-middle and
higher income brackets majority of the people want to be perceived as sophisticated and want
to use exclusive services in order to feel as being part of the higher class and status. For such
customers there is more focus on high value added service and exclusive packages. This slightly
reduces rivalry in the industry, making it more attractive.

The demand for cell phones has increased in the rural areas overtime. This is due to the fact
that cell phone service is a more reliable, yet affordable means of staying in touch with family
members, compared to landlines, which are inoperative most part of the year because of
weather problems and other related issues. With this new trend, there is demand for cell phone
services in rural areas1 which is not properly catered to.

Technological Factors

The pace of technological advancements is so high in the industry that it makes the provision of
services more and more complex. The existing companies are finding it difficult to match the
current global technological competencies as it is very costly to provide these services.
Providing its users with the latest services through their mobile connections (like GPRS, WAP
and Edge services) and other facilities such easy load, credit sharing and convenient and faster
billing services is very important for survival. To keep pace with these new services is very
important to retain customers and target new ones as these technological services have a high
potential demand and require continuous updates. This again reflects rivalry as firms copy
each other’s latest innovation, even if it’s at a higher cost or loss. In other words, any update
made by any company within the industry must be immediately taken into affect by all other
companies in order to compete successfully with rivals. 3-Generation3 technologies in
communication which include WLL, WI-FI/wireless LAN, UMTS are not provided by any
telecom service providers but there is a high potential of such service requirement by the
customers. Another technology called Wi-Max4 is cheaper than 3G, but is restricted only to
internet service in cell phones.
Another technology prevalent in the western part of the world is of account recharging
services2 via the internet. This is for the convenience of users who can instantly load credit in
their mobile phones by going online.
 EXTERNAL FACTOR EVALUATION MATRIX

Weigh Ratin Weighted

t g Score
Key Factors

Opportunities
1. Increasing number of users in rural areas1 0.15 3 0.45

2. Account recharging service via internet2 0.10 1 0.1

3. Demand for 3G services3 0.15 2 0.3

4. Wi-max for internet service4 0.05 2 0.1

Threats

1. Vodafone/Orange trying to enter the market5 0.15 1 0.15

2. Introduction of Mobile number portability6 0.1 3 0.3

3. Political instability (negotiations for tax rates)7 0.05 3 0.15

4. Inclement weather can be detrimental for the service 0.05 2 0.1

5. Rising dollar exchange rate8 0.1 2 0.2

6. Economic recession9 0.1 2 0.2

Total 1.00 2.05

 Section 2:
Company and Competitor Analysis
 COMPETITIVE PROFILE MATRIX

Critical Success Weighted Weighted Weighted Weighted

Weights Rating Rating Rating Rating
Factors Score Score Score Score

Advertising 0.1 3 0.3 4 0.4 2 0.2 3 0.3

Product quality 0.15 4 0.6 3 0.45 2 0.3 2 0.3

Distribution 0.05 3 0.15 2 0.1 2 0.1 2 0.1

Price
0.15 2 0.3 4 0.6 4 0.6 3 0.45
Competition

Management 0.05 3 0.15 2 0.1 2 0.1 4 0.2

Financial
0.1 3 0.3 3 0.3 3 0.3 2 0.2
Position

Customer
0.05 3 0.15 2 0.1 2 0.1 2 0.1
Loyalty

Market Share 0.2 4 0.8 3 0.6 2 0.4 2 0.4

Customer
0.15 3 0.45 2 0.3 2 0.3 2 0.3
Service

TOTAL 1.00 3.20 2.95 2.40 2.35

Mobilink received a score of 3.10 in the Competitive Profile Matrix. Mobilink has scored
reasonably well on mostly all critical success factors. It is the market leader having the highest
market share with a customer base of more than users.

Mobilink beats its competitors with a good difference in product quality. The product services
it provides are relatively better than what the rest provide. Mobilink provides instant
connectivity and remarkable voice clarity, with some value-added services.

Mobilink, being the oldest player in the industry, has a widespread distribution network which
is more efficient compared to the rest. It has been working on its customer service and has
managed to gain an edge over its competitors and has also established a separate Club Indigo
department that services premium customers who have become loyal to Mobilink.

The areas where Mobilink has taken a beating against Ufone are in financial position and
advertising. Ufone advertises extensively and more repeatedly, especially on television. The
financial position of Mobilink has always been strong because it generates revenues that are
approximately three-four times than what others earn, but since it has been the biggest player
and a highly leveraged company, it has been greatly hit by the recession. Also, Mobilink has not
been very price competitive as the rest of the cellular companies who have increased their
customer bases by offering cheaper packages.
 Section 3:
MICRO-ENVIRONMENTAL
ANALYSIS AND INTERNAL
COMPANY RESOURCES
Internal Resources

Core Competence

Mobilink was the first cellular service provider in Pakistan to operate on a hundred percent
digital GSM technology. Since its inception, it has maintained its position as the market leader
due to constant technological innovation over the time. The company focuses on providing its
customers with the latest technological developments worldwide, in the most cost-effective
manner possible. It is very obvious that Mobilink has to bear a high cost and risk in bringing
technology to this part of the world, because in Pakistan, demand for technologically advanced
products is usually not very high. Regardless, Mobilink has kept up to its promise of providing
its customers with more than they expect.

A recent technological advancement brought about by Mobilink in Pakistan was the

introduction of Blackberry services (EDGE). Blackberry is an advanced phone with features that
could not be used in Pakistan because no cellular service provider gave the option of activating
those features. Mobilink brought this phone to Pakistan and was the first one to introduce the
activation of the services the phone is meant to provide. Competition followed suit soon after.
This shows Mobilink’s commitment towards giving its customers what they desire.
’&
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Value Chain

MOBILINK INDIGO

(DIFFERENTIATION BUSINESS LEVEL STRATEGY):

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One of the features where Mobilink stands the strongest than any other cellular company in the
industry is the coverage, as an unmatchable number of areas and regions come under it. Others just
might need more time and expense to reach. Siebel has also added to the infrastructure efficiency of the
firm as it providing state of the art database service.

The sim pack of Indigo is provided with details of features in the form of booklets. Though the raw
material used in the manufacturing of the sim packs is overall standardized and same as that of Jazz but
it is designed in a noticeable manner and size so that it gets easy to differentiate against the packages of
both the sister division and to that of company’s. A new cost cutting activity related to inbound logistics
has be that of outsourcing the manufacturing of the sim packs to local manufacturers. Previously it was
imported at high rates, but still at this time, a fine margin of cost can be cut down if the complete order
of all products i.e. sim, package, handbook and sealing, is done by a single firm. But no firm in the
country is performing the activity as a complete whole.

Business services such as airline ticket booking and stocks watch are timely provided by the company to
the customers. All these related services are designed to match the needs of the target market.

The firm highly intensifies its focus on a number of elements in the value chain for the differentiation
strategy in Indigo’s case, the resultant of which is the core competency of Mobilink Indigo i.e. highly
efficient and personalized business class treatment of the customers through its customer service.

Among the primary services Indigo has high priorities for its Operations and Marketing & Sales which act
as the primary drivers to attract customers. The HRM and Technology are the areas where the firm is
constantly upgrading. The management of Club Indigo is a job that demands untiring commitment and
rewards with lucrative returns to the office holders of the club. The users here are entertained with the
topnotch services at the call centers and at all other customer related services which are carved to meet
the expectations of the proposed idea of care for them.
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MOBILINK JAZZ
(COST LEADERSHIP BUSINESS LEVEL STRATEGY):
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Primarily, Jazz has focused on its Inbound and Outbound logistics. The processes under these two
logistics in the firm are the same for both Jazz and Indigo which effectively reduce the overall cost. The
focus here is to mobilize the value chain in accordance with the cost-leadership business strategy that is
targeted towards a huge audience. The trick here is to reduce costs of the operations and to
communicate the product to prospective customers. The induction of Siebel in the firm has remarkably
reduced the cost of database management.

Similar to other firms, Jazz also is making its marketing and sales revolve around advertising using
popular figures that attract the masses.

As for the support activities, Siebel as a part of infrastructure and technological advancement again
proves more cost effective, especially for Jazz as it is focused to follow a cost-differentiation strategy.
The procurement processes are led to reduced sizes of sim packs to curtail costs.
Strategic Cost Management

Financial Strengths
 INTERNAL FACTOR EVALUATION MATRIX

Weigh Ratin Weighted

t g Score
Key Factors

Strengths
1. Good financial performance 0.1 3 0.3

2. Siebel technology – centralized computer system 0.1 3 0.3

3. Strong Human Resource Management 0.05 4 0.2

4. A strong established brand image 0.1 3 0.3

5. Club Indigo department servicing premium customers 0.2 4 0.8

6. Extensive coverage nation-wide
0.15 4 0.6

Weaknesses
1. High cost of distribution
0.1 2 0.2

2. Lack of strategic relationship with suppliers 0.05 1 0.05

3. Unsatisfactory call centre services for prepaid users 0.1 2 0.2

4. Brand name associated with being expensive 0.05 3 0.15

Total 1.00 3.1

    Strengths Weaknesses
1 Good financial performance 1. High cost of distribution
    .
2 Siebel technology – centralized computer 2. Lack of strategic relationship with
    . system suppliers
3 Strong Human Resource Management 3. Unsatisfactory call centre services for
    . prepaid users
4 A strong established brand image 4. Brand name associated with being
    . expensive
5 Club Indigo department servicing  
    . premium customers
6 Extensive coverage nation-wide  
    .
Opportunities S-O Strategies W-O Strategies
1. Increasing number of users in rural 1 Efficient utilization of financial resources 1. Outsource distribution services in
areas . to cater increasing demand for 3G and rural areas to minimize distribution
Wi-Max services costs

2. Account recharging service via internet 2 Taking advantage of extensive coverage 2. Introducing recharging services via
. nationwide and familiarity to capture rural internet to reduce distribution costs
market (NIDA)
3. Demand for 3G services 3 Provision of 3G services for the Indigo  
. customers
4. Wi-max for internet service 4 Programming Siebel to introduce account  
. recharging service via internet
         
         

Threats S-T Strategies W-T Strategies

1. Vodafone/Orange trying to enter the 1 Capitalize on strong brand image to 1. Altering the perceived image of
market . decrease of new entrants Mobilink in the minds of the
(Vodafone/Orange/Hutch/O2) customers to reduce the number of
MNPs
2. Introduction of Mobile number 2 Using brand image to retain customers  
portability .
3. Political instability (negotiations for tax 3 Bearing the burden of recession and  
rates) . increasing tax rates by utilizing the sound
financial performance
4. Inclement weather can be detrimental      
for the service
Space matrix

1. Market Development - to enter rural areas (check from web)

2. Product development – Wi max is a faster version of internet in cell phones which has become a
necessity for users over time. This service is not provided by any telecom service providers. For
bothe pre-paid and post paid
3G is another service which offers various other features, including the internet service, but is
more expensive due to the broad range of services it provides. Video conferencing, data
transfer/ data sharing. For post paid