Another Telco in the market!?

The mobile telephony market in Pakistan is hyper-competitive, as the price wars have driven down the tariffs to bare minimum. Mobile network operators must either innovate or look at merger/acquisition scenarios to remain competitive, yet profitable. In the absence of the two, perhaps it wouldn be a good idea to invite another MNO to the market. But recent policy announcements indicate just that! The background is that just last month the Prime Minister gave a go-ahead for auctioning the mobile telephony license of now-defunct Instaphone. It was decided that new international players as well as existing mobile network operators would be invited for this auction. At that time, it was communicated that "the decision has been taken in principle and the cabinet will give its approval in a few days". Now that the month-long media frenzy, on issues like NATO attacks, the controversial memo, and Presidents health, has peaked out; the said auction may capture the attention of the policymakers again. If indeed this auction goes through and if none of the current active MNOs wins this license, then some new entity would enter the fray. That would mean six active MNOs operating in the country. Before dwelling into the reasons as to why this auction is being proposed before the planned auction of the much awaited 3G license, it is important to analyse whether Pakistani market can absorb another MNO. First, many in the telecom sector doubt that any international telecom firm would be interested, given the local markets competitive environment and the countrys turbulent political economy. Finding a new USP for new entrant will be a big challenge as the market is more sensitive towards price competition and prices have already hit rock bottom. Sources say that the existing operators are already covering more than 90 percent of the geographical area of Pakistan, which means it would be difficult for a new operator to expand the subscription pie. This means that the new entrant will be battling it out with existing operators for existing customers, which will be a disadvantage for the sponsor considering the kind of investments involved. With nothing much left to fight over tariffs, more focus would be placed on bundle offerings, though prices may still reduce slightly further. The new entrant will naturally want to go for making use of existing infrastructure deployed by other MNOs, though it is a bit premature proposition as it would depend upon a number of factors, including how the existing MNOs respond, noted a telecom expert. Following the deregulation in telecom sector in 2003-04, the nature of competition has been evolved since then. Initially, the MNOs competed on coverage and footprint. Later, after the entry of China Mobile, the market became more tariff-oriented, with cheap calling rates and SMS bundles on offer. The content-driven and service-oriented mobile telephony services are yet to hit the market. Yet some telecom observers feel that the market is in for some serious readjustment after the 3G license auction. "The cellular market should expect some changes soon, including mergers as well as more focus towards value addition. Right now, there is a bubble-growth which should settle down, introducing more demand from one chunk of high-end customers for quality services. Similarly, a chunk of low-end customers will settle with basic voice and data services. This will eventually define the niche for 3G market", noted a telecom professional. Indeed, some among the current operators risk becoming the Instaphone and Paktel in the post-3G milieu. That is why telecom industry leaders assert that its just not sustainable to have five MNOs in the Pakistani market. Some believe the optimum number of operators is four, some feel its three, and some think its two! But, certainly not five!! And here is the government indicating to open up the market to a potentially sixth operator, right before the 3G auction. One wonders, if this indication is for real or just a benign pressure tactic to ensure maximum participation from MNOs in the 3G auction.