Feeling the squeeze

The annual GSM-3G Middle East conference brings together the region’s stakeholders in an atmosphere of honest information exchange and strategic reflection. While this year’s event was somewhat muted by the ongoing financial crisis, insights were offered into broadband, branding and the requirement to know the needs of one’s customer better at this point than at any other time in the past

Etisalat’s chief corporate affairs officer Nasser Bin Obood believes it is time for the UAE’s telecoms regulator, TRA to allow the operator to exercise greater flexibility with respect to the setting of competitive tariffs. Given Etisalat’s incumbent position in the UAE, the telco is deemed to have significant market power and as such has its pricing plans and tariffs heavily regulated by the TRA.

“We cannot push into some of the price points that customers would like,” Bin Obood said at the GSM-3G Middle East conference in Dubai in the middle of December. “The time has come for the incumbent to have some relief (from the regulator),” he added.

Bin Obood referred to the fact that market competitor Du had recently announced the addition of its three millionth mobile subscriber, suggesting the second operator is now of sufficient size for there to be a move to a more competitive pricing regime in the UAE.

In November Du announced it had made a net profit of AED 31 million (US$8.45 million) for the three months to end-September, representing its first net profit since the company started trading in February 2007, and a year ahead of the financial plan announced during the IPO.

In response to a question posed by Comm., Bin Obood said that while Du had achieved a number of financial and operational milestones ahead of schedule, Etisalat continued to be secure in its dominance of the UAE market and this is evidenced by the rise in the telco’s subscriber numbers and profitability in the years that Du has been operational.

An obvious topic of conversation at the two day conference was just how badly the global economic credit crunch was set to affect operators in the Middle East region. Zain’s marketing executive Slim Saidi said he believed brand expansion is a must and not a choice, particularly in pursuit of further investment opportunities in Africa and Asia.

An interesting viewpoint held by Vodafone is that while the UK operator shall continue to look for investment opportunities as and when they are deemed to make sense, in-market consolidation may be the preferred investment strategy for the operator going forward.

“Value creation may be easier to achieve through inmarket consolidation rather than foreign acquisition,” commented Farid Lekhal, chief commercial officer of partner markets at Vodafone.

The broadband opportunity continues to loom large across many parts of the Middle East and Africa, and operators believe they are now in a better position to deliver what customers’ require in terms of both access as well as services.

“We learnt through mistakes in 2001 and 2002 with Vizzavi,” admitted Vodafone’s Lekhal. “Move five years to today with devices like the iPhone and BlackBerry, and one sees the time is right for the broadband experience on mobiles,” he added.

In order to remain close to customers, Vodafone has been acquiring small Web 2.0 type companies such as a web address book company and a location based services provider in order to remain relevant in the evolving non-voice applications space.

Ahsan Maykan, segment executive at Telenor Pakistan, shared the company’s segmentation and brand positioning strategy that has helped the operator become the second largest mobile provider in Pakistan, with a market share of 21 per cent.

Maykan said the growth in mobile connections in the country is slowing down considerably, reaching just 0.4 per cent growth per month. Between Telenor and its competitors – Warid Telecom, Mobilink, Ufone (PTCL), Paktel and Instaphone – there are more than 90 million active mobile connections.

“Although data and value added services are growing slightly, the growth rates have not been sufficient to compensate for the decline in voice ARPUs that we have been experiencing,” stated

Maykan. “Also there has been a growing tendency for subscribers to churn to new operators because a new SIM card is available for around US$2 with a balance of about US$1, so it’s easy to have multiple SIMs, especially in the context that on-net calls are cheaper than off-net ones.”

Telenor undertook psychographic profiling of the Pakistani market based on qualities consumers identified with or aspired to, in order to identify the main customer segments with similar needs and usage patterns. The operator came up with six customer segments, which were: dynamic, assertive, competent, caring, friendly and carefree. Telenor then launched two sub-brands under the parent brand: ‘Talkshawk’ – a mass market offering positioned in the dynamic and assertive segments; and djuice – focussed on the youth market and positioned in the carefree segment. It had been earlier identified that Mobilink’s Jazz brand was positioned in the dynamic segment, Ufone in the friendly category, and Warid was positioned under caring.

Maykan said the segmentation strategy was important in providing more focussed and targeted offerings and campaigns, to better meet the needs of the subscribers in each group. He added that at the time Telenor entered the Pakistani market in 2005, the incumbent operators were focussed heavily on the urban market because of the higher disposable income.

However, with rural areas accommodating approximately 50 per cent of the population, Telenor chose not to ignore this demographic, while at the same time to not alienate urban markets.

“What we could get from the rural areas was volume, so Telenor focussed heavily on rural areas. As an expansion strategy, all the remote areas were covered by Telenor’s network. Secondly, we had to educate the market on how to use a cellphone. We initiated village development programmes where sales and distribution personnel would go to the villages and show them the convenience of using a cellphone, and also that it was not too expensive to keep or maintain. It was a two-pronged strategy,” Maykan recalled.

Khaled Khorshid says ring back tones have been highly successful for Zain Sudan in raising ARPU and subscriber numbers, with 600,000 customers signing up within two months

However, for Khaled Khorshid, regional COO of Zain Sudan, there is a distinct lack of segmentation in Sudan and other low ARPU markets in Africa, due to limited access to vital statistics and market research based on user location, data usage and detailed demographics. This poses a challenge, despite the high growth potential in Sudan’s population of 45 million inhabitants and 10.5 million subscribers.

Zain commands 55 per cent of the Sudanese market with 5.1 million subscribers, and competes with fellow GSM operator MTN Sudan and CDMA operator Sudani. The two fixed-line operators Sudatel and Canar have 900,000 subscribers between them.

One segment that Zain Sudan has identified is university students. Given that approximately half the population is under the age of 25 years, Zain introduced ‘Lamatna’, which is the concept of community charging within the student community. When calling or messaging within the community discounts are available, as are bonus SMS and voice minutes. Khorshid said this campaign had garnered more than 100,000 customers within the first two months of introduction.

However, the service that has defied expectations and has been a real ARPU driver for Zain in Sudan is ring back tones.

“We thought ring back tones were going to give us 200,000 subscribers in six months. In fact, we acquired 600,000 subscribers in two months. More than half of our customers use our ring back tone service,” revealed Khorshid. “That’s because the market is so hungry for entertainment. We also reduced the cost of listening to the list of songs and increased the cost of buying one. Sudanese will really take their time to customise their ringtones, and we have introduced more options, such as karaoke,” he added.

According to Khorshid, the level of competition in the capital Khartoum is overheating with the three mobile operators approaching consumers with intensive acquisition strategies. Therefore, Zain’s main market strategies have been to increase acquisition in the Darfur region and southern Sudan, stimulate more usage through an increased value added services portfolio, and to focus on customer retention.

“At the time that we rebranded Mobitel to Zain (September 2007), we also did a revamp of our pricing. We reduced prices by six or seven per cent, but the customers’ perception was that it was more like 20 per cent, through introducing rewards and step charging. We also introduced ultra low-cost handsets to reduce the entry barrier and sold 45,000 of these within one quarter.”