AURORA: Within the Pakistan context, where is Wateen positioned in terms of connectivity?

NAEEM ZAMINDAR: Wateen’s vision is to enable every man, woman and child in Pakistan with the power of the internet by primarily focusing on broadband technologies. Technology is going to be the game changer in Pakistan. This is a country that has great challenges in every sphere; education, healthcare, commerce.

A: To what extent is internet access in Pakistan limited by pressures of affordability?

NZ: The technology will become affordable for the masses in the near future. It is still expensive and it is still a tool for the upper and middle classes. The low cost handset changed everything for mobile phones and made them a mass market phenomenon. Once the cost of the device went below Rs 3,000 there was explosive growth and suddenly from a penetration of a few percent, it grew to 50% in three to four years. The tablet will have a similar impact. In India, I have seen initial devices for $50, which is about Rs 5,000, and this starts to become affordable for the masses. These initial devices are not very good; they don’t have much battery life, etc., but this will change in the next couple of years. Even Google has come up with a device that is going to become a mass market product. Markets in India and China will drive that growth and nearly everybody will be able to afford and use one. You don’t have to be literate to use a smartphone or tablet as there are voice interfaces. All this technology is starting to mature; it may take a few years, but it will happen. And with this tool set, will come the ability to educate, to improve healthcare, to trade; so many things that were never possible before. How these tools affect and transform society may be a 10-20 year journey, but they will change everything as we know it. And companies like Wateen are very well positioned to play an important role in this change.

A: When you joined the company about 18 months ago you initiated a fairly aggressive restructuring programme; in actual fact, it was a relaunch. Why was this necessary?

NZ: The company was in trouble at the time; we were losing a couple of million dollars a month.

A: Why?

NZ: Because they built the infrastructure for a much larger scale up. The hope was that Pakistan would see explosive growth. So it was built with a much larger vision; they wanted to get into TV, content development, make it a new media company. The vision was very big and they were spending a lot of money to achieve this. They tried to do too many things at the same time.

A: What measures have you taken to restructure the company?

NZ: Over the last one and a half years I have scaled down the company and it is now about half its original size. We have reduced costs to ensure we could break even, which we did in July this year, and we are cash flow positive now.

A: What structural changes did you make to achieve this result?

NZ: We developed three business divisions focusing on three different markets. Consumers, providing connectivity to large enterprises and LDI services. In consumer, we offer wireless, broadband, cable TV and Wi-Fi hotspots.

In enterprise we have stabilised the business; we haven’t grown it much but we have built a profitable customer base with large banks and corporations. We are the one company which can provide complete end to end IP management – set up the network, optimise it, connect it, manage the data centres and even provide cloud computing services. We are moving towards becoming a cloud company, and although this is a long journey, we have started it. The biggest contract we signed last year was with the Higher Education Commission (HEC) to connect all of Pakistan’s universities via a fibre optic network. This is revolutionary; Pakistani universities will be able to connect to universities abroad and work on collaborations and joint classrooms. This will be completed in six months. At the moment HEC is not very profitable, but we took this project on because we thought it was important and once people start using it, there will be a lot of opportunities for us in the future. We are also working with the Universal Service Fund (USF), which was set up by the Government of Pakistan to connect un-served areas in Sindh and Balochistan. In Balochistan we are building a massive fibre optic network all the way to Taftan (on the Iranian border) and Chaman in the north. This will make a difference to Balochistan. Again it is not profitable; there are not a lot of users and it will take time to achieve the volume of traffic required. But we have the infrastructure which is critical for any business going forward. The third division is LDI. We are now the number two player in the market, a year and a half ago we were number eight. We carry about 10% of Mobilink’s business; we also service Telenor and China Mobile. For Warid we have 100% of the business. We have a very lean operating model which helps us deliver on prices.

A: How large is your fibre optic network?

NZ: We have 14,000 kilometres of fibre throughout Pakistan, which is not that much given that Pakistan is a massive country. However, it is on the main transit routes and goes all the way to (the borders of) India, Iran and Afghanistan. So the long haul circuits are there.

We have fibre optic networks in 22 cities but we haven’t been able to connect with homes and offices yet. Warid and China Mobile use the network as their backbone and we have provided connectivity to banks and large organisations. However, because we could not provide connectivity everywhere, we made two decisions. To become a satellite provider and provide connectivity to bank branches and mobile operators in far flung areas where there is little fibre coverage. The other thing we did was to set up a wireless broadband network. Wireless is a cheaper way of connecting (rather than having to dig underground); customers need to only buy a small device and connect it to their computer.

We have a wireless broadband network in 24 cities providing both residential and business connectivity. But the future lies with fibre; all the big advanced cities of the world are moving towards fibre and fibre is our forte.

A: The Pakistan Telecommunications Authority (PTA) estimates total broadband coverage to be about two million. Given that there are approximately 20 million internet users in Pakistan, why is the rate of adoption for broadband so slow?

NZ: It is an incremental process, like mobile phones. For example, when Mobilink started in Lahore, they had a total of four cell sites, now Mobilink alone has 800 cell sites in Lahore.

A: When Wateen launched in 2007 it was the only company to offer wireless broadband, yet it has lost its first mover advantage. Why?

NZ: We executed poorly, there were gaps in the service, there were outages and we didn’t do a great job; that is a fact of life. Added to this, suddenly in 2008 we were hit by power outages in the electricity network – and we were not the only ones to have been taken by surprise. We did not have the generators and we didn’t invest in them because we thought this was going tO be a short term occurrence. It wasn’t; it continued for five years although it has improved a bit now.

A: Other companies faced similar difficulties but seemed to have been able to provide a better service.

NZ: A lot of them, like Qubee and Wi-tribe, launched after 2008, so they were a little more prepared. They designed their services to deal with the situation. We launched in 2007 and at that time things were reasonably hunky dory and we didn’t plan for outages.

A: Given Wateen’s recent difficulties, what is the company doing to ensure it takes advantage of new growth opportunities?

NZ: We are waiting for the time and place, which is why you reduce costs in order to be self-sustaining and then wait for the big opportunity when another surge in growth happens. At the moment Pakistan has two million broadband connections, this is going to hit 40 or 50 million in the next five years; I would bet on that. And we will be there to take advantage of this. In the meantime you have to survive, so there have been a lot of cost reductions. The last six months have been very, very difficult, but we have recovered. We are focusing on good quality service and we will get more market share, but we are not going to do it aggressively. The consumer space is no longer very profitable, so we aren’t spending that much on advertising. We are focusing on direct marketing; on customer-to-customer programmes. As we move forward we will be doing a lot more internet marketing. The infrastructure is in place, now it is a matter of scaling it up. In the last few years, the challenge has been the economy. We are dependent on three factors. The other mobile operators, enterprises and consumer spending, and all three took a dip.

A: Why are consumer sales very profitable?

NZ: Because the prices have dropped. PTCL keeps pushing prices down. The big carriers like the PTCLs of the world can survive this because they have deep pockets. we are a smaller company and growth is not very profitable. We will wait for the market to explode again. The market has to drive growth.

A: Why did Wateen delink from Warid recently?

NZ: Because they have a different set of shareholders, even though the common shareholder is Sheikh Nahyan of Abu Dhabi. Warid being our customer there was nervousness about transfer pricing. So now there are different organisations with two different managements pursuing two different opportunity sets.

A: Has this had an impact on Wateen?

NZ: We used to get subsidised rates from them for our towers, now we have to pay market prices. But we have absorbed the shock, we are managing it and we are moving forward.

A: Why has Wateen outsourced its customer call centres?

NZ: It is the future. We are going to people who are specialistS at what they do and can do a much better job at a much better price. We are not the only ones to have done it. Telenor and Qubee have done it too. India’s biggest carrier Airtel has a very good model. They outsource everything – Call centres, billing, even their network – except for two things; product development and marketing. They are the most successful company in the world and I think this is a model we would like to push also.

A: Will there be a new entrant in the telecom arena?

NZ: Right now nobody is willing to come to Pakistan. Telecom is a long term investment and there is a lot of long term uncertainty about the economic environment in Pakistan. Most of the equipment is in dollars and with devaluation these are huge risks we are taking on. So I don’t think any new players will come to Pakistan for a while.

At the moment Mobilink is the market leader and is doing reasonably well, PTCL is doing well due to its size and therefore economies of scale. Telenor is doing well. The others are still challenged.

MAB: When do you think 3G will finally come to Pakistan?

NZ: After the elections I think. There is too much contention out there, investors are nervous about putting in money when they don’t know exactly how things are going to play out. But the Government has been very aggressively trying to make this happen.

A: To what extent will 3G be a game changer?

NZ: There will be massive growth. It may not hit 100 million yet, but it will definitely hit the 40-60 million mark and 3G is going to be a major growth driver and now with the proliferation of handsets, it will affect everybody.

A: What about affordability?

NZ: Devices have become so cheap and most of these handsets already have 3G functionalities built in. Rs 3,900 is a price point almost everyone can afford. Young people especially; they may invest an exorbitant amount of their resources to get one, because it will define who they are.

Rs 3,900 and people can take a video, talk to each other, access education… the capacity to do things on these devices will expand significantly. Once people start using it, the utility value will go up and up because it is a very powerful tool. When 3G happens there will be a major burst. No matter what happens, internet and telecommunications are going to account for a much larger piece of the GDP. Right now telecom’s stake in the GDP is three percent, in the next 10 years that stake will increase by five to 10% of the GDP. It will happen and it will transform the entire landscape.

Naeem Zamindar was in conversation with Mariam Ali Baig. For feedback, email aurora@dawn.com