China is Pakistan’s second biggest economic partner and trade between the two countries is expected to surge to $18 billion in the next five years. Pakistan’s telecom industry has been one of the biggest beneficiaries of this relationship, reaching $10.6 billion in 2011, equivalent to a record growth of 22%.
To date, the single largest investment made by a Chinese company in Pakistan is by China Mobile, the largest telecom operator in China, which by virtue of its huge subscriber base is also the largest telecom company in the world.
China leads the telecom stats in terms of both network scale and customer base, and since 2002 the country has been the world’s single largest telecom market. Chinese manufacturing, led by two giant multinational networking, telecom equipment and service providers, Huawei Technologies and ZTE Corporation, are now turning to Africa, South America and Southeast Asia for business opportunities and are increasingly growing their market share. Huawei Technologies has overtaken the Nokia-Seimens network and is second only to Ericsson in the global core and access network telecom market. The same trend was observed in Pakistan, where the two companies outperformed their European counterparts and are now enjoying market supremacy as 360 telecom solution providers.
Pakistan’s telecom industry is heavily dependent on these manufacturers for the following reasons:
1 Telecom core network
Considered the ‘brain’ of a telecom set-up, this vital side of the business received a major boost thanks to the R&D of Chinese manufacturers. Today, in Pakistan, three of the five operators are (or are planning to) running their core network on Chinese technology. The biggest adoption reason behind this is the ease with which Chinese manufacturers are able to use the IN (Intelligent Network) to customise and develop new features and offer them as part of the vanilla offering; the more features embedded in the telecom brain (IN), the higher the chances of successfully introducing differentiated pricing offers to customers.
2 Telecom access network
The is the visible part of telecom network, seen by customers in the shape of telco sites. These sites have seen mushroom growth since the adoption of Chinese technology. For context, of the five operators, four are using Chinese core technology and by end of 2012, 75% of the over 35,000 sites in Pakistan will run on Chinese technology. This achievement is all the more impressive given that the market share was snatched away from European network providers
#### Khurram Mahboob on why China’s telecom technology is proving to be an unbeatable success.
in spite of the fact that telecom operators in Pakistan had invested in European technology for a number of years and yet they still felt the need to replace it. This was a major CAPEX decision (close to a billion dollars’ worth).
In fact this was the sole reason why European network providers decided to pack up and go, as they had lost their client base.
3 Devices influx
There is a growing acceptance of Chinese handsets worldwide. In Pakistan too, Chinese mobile phones have been making inroads, primarily due to heavy feature-driven devices available at very low prices. Last year’s import bill increased to Rs 44.7 billion, with 85% of the handsets imported from China. From a telecom operator’s perspective, capitalising on the demand from the low end market is a sure way of gaining share. Pakistan’s low end mobile consumers buy
Rs 1.2 million worth of phones every month 70% of which are Chinese brands and grey channel inducted handsets. The biggest Chinese innovation was the introduction of the dual SIM feature for the low end market and this has turned into an exponentially growing segment in Pakistan, with between
25-30% of the 110 million connections estimated to be using multiple SIMs. The size of this segment is so significant that Chinese factories (over 2,000) in the Shenzen region did not take long to capitalise on the opportunity and have already flooded the market with dual SIM, feature-enriched handsets, priced as low as $15. The branded players have only lately realised the portfolio gap and have launched dual SIM handsets to regain share and have been extremely successful. (In fact, the introduction of the dual SIM handset has proved to be a game changer for the branded players.)
4 Customer lifecycle management, enterprise management platforms
Having successfully gained significant share on the network side, Chinese companies are now focusing on the VAS, enterprise and IT solutions aspect, aimed at providing 360 degree solutions (while continuing to leverage their status as backbone business partners). In doing so, they are increasing the range of services on offer, thereby ensuring that the telecom operators have less and less reason to consider moving to an alternative provider.
Achieving breakthroughs on so many fronts is not a question of luck; it is the result of certain advantages especially from the operators’ perspective.
Customisation pace and features development: The time it takes from generating an idea to actually turning it into a feature offering is amazingly in sync with what the telecom companies want. The time to configure new features is much shorter than what European companies were able to offer, and in a five-player industry, all backed by strong media and marketing muscle, offering a ‘unique product’ can turn into a big differentiator. Chinese providers have been extremely quick and flexible in responding to the introduction of any new feature, thereby enabling their customers to adapt to any competitive innovation within the shortest possible time span. This was a crucial area where the European companies could not compete with their Chinese counterparts and as a result had to give away their ‘network partner’ slot to much more efficient and robust Chinese network providers.
Payment flexibility and huge savings: Chinese network providers are flexible on all fronts and offer huge payment advantages through deferred timelines. Topping all this, it is the cost that makes the decision a one-sided affair in favor of the Chinese giants. Why would operators not go for such a menu of offerings which includes feature development capabilities almost on demand, flexibility in payment, value added freebees and at a cost that assures them 90% CAPEX savings compared to a European counterpart? You do not have to be a business grad to evaluate this equation.
Looking at the next 12 months, with the induction of 3G, one may see new horizons opening up; watch out for application software, the emergence of data centres, a scaling up of the cloud services portfolio and new devices, especially tablets and dongles.
Khurram Mahboob is a telecom professional in Pakistan.