Pakistan: Major Mobile Network Deployment

2005-11-29    

Summary: Extremely rapid network growth in a major but immature market uses a turnkey vendor relationship to maximise time to market and cost control considerations.

The Challenge: Pakistan is a key growth market in Asia. Mobile takeup is on a substantial growth curve currently with over 10 million subscribers served by six players of which Paktel is one of the most recent entrants. Paktel is the Pakistan subsidiary of the Millicom International Cellular, a group that has 16 mobile operations in 15 countries in Asia and Africa. The company launched GSM services in 2004, and has migrated from an existing AMPS TDMA analogue service. There is a major push to increase network expansion by all the major players for competitive and market reasons. Paktel sources its entire GSM network infrastructure from ZTE.

The Business: Six mobile operators in the country means the competition is extremely intense, requiring operator differentiation and addressing a market characterised by extremely low tariffs. Xavier Rocoplan, Paktel CEO, says that Paktel´s strategy is to come to market with offer that is seen as best value for money, but which is not necessarily the cheapest. "We want to be seen as the ´smart´ choice, and to be the innovator," he says. Observers suggest that a key strength of Paktel so far has been rapid network deployment and aggressive marketing and brand building strategies it has employed. Now, in third place and closing after longer-established operators Mobilink and Ufone, Paktel currently has around 1 million subscribers and a market share of around 9%, with subscriber count increasing at a rate of 100,000 per month. "The rates are already very low, so now it is clearly coverage and quality that matter," Mr Rocoplan comments, and predicts the fight will move to ´customer services and what you can do for customers in 2006´. But he contends: "It is a long race, and the one thing that matters is the shape of [the service provider] cost structure. We must shape it to remain competitive."

The Network. "The quality of existing networks is not very good, and there is only one real player with [national] coverage," says Mr. Rocoplan. So, the push is on for the serious players to achieve national coverage and this will mean ever more investment announced from the top three players, he predicts. Whilst all operators have announced expansion, national coverage means big targets for network deployment. "We actually had the biggest rollout so far with launches in 31 cities, and more than 100 cities are now covered," he says. "It is the usual telecom cycle and it is very capital intensive and we are all going through that phase now." And the costs are many and various. "Much of the capex is linked to towers and civil engineering work. Local approvals and permits are, in practice, not cheap and licence costs are significant, with various annual licence fees and USO obligations," he says.

To achieve predictability in planning and cost control of network capex, Paktel has built a long-term strategic relationship with ZTE, the Chinese telecom vendor in a multi-phase network rollout. In each case, ZTE has provided the complete GSM infrastructure on a turnkey basis. Mr. Rocoplan says Paktel is now "in a third phase of that expansion", meaning effectively doubling the site count to 1000 by the end of this year. "We are trying to improve the indoor coverage in the network as well," he says. Brand building is also important in the network rollout: "We would like to be seen as an innovative brand. We are rolling out GPRS and NGN infrastructures to help us achieve our cost structure."

Previous project phases have concerned building up overall network expansion including GSM core, GSM radio, IN, SMS, microwave link and power supply systems. In the third phase capacity expansion, ZTE provides core and radio networks to Paktel including shelter BTS and micro-BTS installations. ZTE is also providing additional facilities, including CRBT, and an all-in-one O&M facility. In sub-phases GPRS, and softswitch CN architectures may also be implemented. Paktel subscribers enjoy features such as missed call and welcome messages. ZTE also provides support through its own Pakistan subsidiary that employs 600 people to provide project implementation, research and development, as well as manufacturing and software development for both the local and export markets.

The Result: What rating would Paktel give ZTE as a partner? "ZTE has been a positive experience [for us], and has been very flexible," says Mr. Rocoplan. "ZTE can meet all our creative requirements including innovative marketing features that rebate subscribers for making phone calls. This is mediated through the mobile intelligent network (IN) system."

What are the lessons to make a long term partnership between vendor and operator work effectively? "The trick as a mobile operator is to manage the vendor relationship effectively, says Rocoplan. "ZTE is definitely a ´different´ vendor ... in comparison with the major vendors in the West who tend to place emphasis on technology feature sets," he comments. "ZTE has been very good in terms of logistics, and has been very flexible. There have been "a lot of good things such as the IN implementation, post-sales services and ability to meet our specific requirements" that has enabled differentiation for Paktel in the market. ZTE products "are good, he says, and will continue to mature over time" and considers that ZTE are also "extremely flexible as an organization". And Paktel clearly sees the partnership as a valuable learning experience for both sides: "Overall I would rate it as positive," he says, and adds that "ZTE is flexible enough to learn a lot from service providers like Paktel."

The Future: The market has plenty of opportunity in advanced services as well says Mr. Rocoplan: "I don´t think anyone has sold GPRS properly because there are capacity and quality issues. We started work on GPRS four months ago and it should be enabled by October." Mr. Rocoplan adds that Paktel will again work creatively to use GPRS but possibly not as an explicitly branded service in the retail market.

Meanwhile network expansion continues, with some observers suggesting that Paktel could reach No 2 position in the market alongside Ufone in three years. "We are now entering Phase 4 project that could see another doubling of sites next year," he comments. A smooth evolution in the rollout could in turn see both capex and opex savings involving reduction in O&M costs. The urgency to expand permeates the operator focus, says Rocoplan: "We will have a dedicated project team for the next two or three years, and the idea is to keep expanding every week, with activities being continually pushed through to support the business."

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