Examination Committee:Professor Ilkka Kauranen (Chairperson)

Dr. Mikko Kovalainen Dr. Donyaprueth Krairit

NEW BUSINESS OPPORTUNITIES IN THE MOBILE TELECOMMUNICATION MARKET OF BANGLADESH

Agenda

• Overview - Background

- Objective- Methodology

• Literature review• Country analysis• Market analysis• Players analysis• Evaluation• Conclusion• Recommendation

Background of the study

• This study was carried out under a University-Industry project between AIT and Qvantel Corporation

• Qvantel Corporation provides Business Support Solutions and Services for mobile phone operators

• The company has current customer base in Finland, Sweden, Spain, and Denmark

• Qvantel Corporation is planning to enter into three countries in Asia in the near future

• Bangladesh, India and Pakistan have been selected as the target countries

Objective of the study

The objective of this present study:

“To examine potential opportunities and suitable strategies for Qvantel Corporation in the mobile phone market of Bangladesh.”

Methodology of the study

Literature ReviewGlobal telecommunication industryBangladeshi telecommunication industryOutsourcing as a business strategy

12 issues by Qvantel CorporationQuestionnaires development

Primary data collection

Data analysis

Conclusions and Recommendations

Facts finding trip to Finland(Orientation and training)

Secondary data collection

Writing the report

Literature review

World Bank (2008)

“The number of mobile phone subscribers exceeded the number of fixed phone subscriber in 2002.”

Lane et al. (2006)

“A quarter of a million Bangladeshi people depend, directly or indirectly, on the mobile phone industry. This industry sector added an amount of US$650 million to the economy per year.”

Literature review

Bayes et al. (1999)

“The poor make more phone calls for land transactions (17%) whereas the non-poor use the phone for their business related matters (25%).”

Laila (2008)

“A most noteworthy benefit of the (mobile) telecommunication industry is making the Internet available to the masses.”

Literature review

Gewald & Dibbern (2005)

“Outsourcing is a strategy to improve the quality of goods or services in situations where existing staff, technology, or systems are under performing.”

IBM Corporation (2006)

“Companies who are engaged in information technology (IT) outsourcing have experienced 12% higher growth in earnings, 10% lower expenses and 9% higher return on assets, when compared to sector medians.”

Country analysis : Bangladesh

Topic CharacteristicsDemography • 7th most populous country with 150 million people

• Literacy rate 45%• 98% speaks Bangla as mother tongue• 75% live in rural areas

Economy • Per capita GDP (2008) - $1,500• GDP growth rate - 6.5% • Sector-wise GDP (2008): agriculture 19%, industry 29% and services 52%. • Ease of doing business ranking – 110 (of 181)

Cultural orientation • High inequality of power and wealth• Collective society• Values of men and women differ deeply

Government and politics • Dysfunctional political system• Weak governance in the institutions

Telecommunication market: Major milestones

Mobile telecommunication market

0

10

20

30

40

50

2004 2005 2006 2007 2008

Year

Sub

scrib

ers(

Mn)

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n)

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10%

20%

30%

40%

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Pen

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•Total subscribers (2008) - 45 million• Penetration: 2% (2004) and 31% (2008)

• High growth rate• Growth rate follows decreasing trend

Mobile telecommunication market

• Grameenphone is market leader (46%)• 3-companies have 89% market share

• Subscribers growth for most companies are becoming flat

Players analysis

Players analysis

GrameenphoneGrameenphone

3rd largest operator GSM advantages 8.6 million subscribers Innovative pricing Fully foreign company owned by Telecom Malaysia and NTT,

Japan Incurring loss

AKTEL has recently followed aggressive price promotions

2nd largest operator GSM advantages 10.7 million subscribers High-end quality with low price US$ 650 million Fully foreign company owned by

Orascom Telecom, Egypt Incurring loss

Banglalink is making a difference via pricing and innovation

Market leader GSM advantages 20.9 million subscribers High-end quality but high price Best network coverage International partnership between Telenor AS, Norway (62%) and

Grameen Telecom (38%) Making profit

Grameenphone profit based on revenues generated from post-paidusers

Networkcoverage Leader Price leader Creation of branding

BanglalinkBanglalink AKTELAKTEL

Players analysis

WaridWarid

Poor performerGSM advantages 0.9 million subscribers Very low quality and very low

price Govt. owned operator Incurring loss

Teletalk tries to ensure fair competition between public & private sectors

1st entrant CDMA advantages 1.9 million subscribers Low quality and low priceFully foreign company owned by

SingTel, Singapore Incurring loss

Citycell is making a difference via high quality mobile Internet services

New entrant GSM advantages 2.2 million subscribersHigh quality at most affordable price US$ 750 million Fully foreign company owned by Abu Dhabi Group, UAE Incurring loss

Warid’s success depends on max. network coverage & clear connectivity

Quality services leader Mobile data service leader Safeguard of public interest

CitycellCitycell TeletalkTeletalk

Product positioning map

Networkcoverage leader

Creation of branding

Price leader

Quality services leader

Safeguard of public interest

Mobile data service leader

Mobile services industry value chain (2005) in US$

Terminal designers & manufactures 73 m

Network equipment suppliers 62 m

Fixed network

operators

Dealers 57 m

Payments for mobile servicesFixed to mobile calls Payments for terminal213m

Interconnect payments

Government revenues

256 m

Recent developments

MNP (Mobile number portability) law:

• Currently there is no MNP law in Bangladeshi market. • Just recently the regulatory commission has started working in this regard.

3G (Third generation) technologies:

• Bangladesh is now on the edge of introducing modern 3G mobile technologies.

• The guideline preparation for 3G technologies is at drafting stage. • The regulatory commission are hopping to issue the guideline by the end of 2009.

Network sharing:

• On September 2008, regulatory commission issued infrastructure sharing guidelines.

• This has been reducing the capital expenditure of network deployment.

Company analysis: SWOT Strength

• Complete billing process• Flexible products• Product integration is simple• Adequate resources • Efficient work culture

Opportunities

• Other markets can be explored like utilities billing• Firm has good knowhow of other telecom processes• ‘The country of origin effect’

Weaknesses

• Efficiency in a small range of products• Post-paid mobile service oriented• Scalable up to five million subscribers• Revenue stream is not diversified

Threats

• ‘Relationship leader’ may be an obstacle • Depending largely on single customer may be fatal for the firm• Critical software knowledge is with a few of the employees

SWOT AnalysisSWOT

Analysis

• 150 million people. 70% under the age of 25 with high mobile affinity

• High GDP growth (6.5% in 2007)

• Investment friendly environment (incentives, tax holidays, 100% sole venture, full repatriation of profit)

• English is widely used in business

• 45 million subscribers, penetration 31%, growth rate 30% in 2008• 6 operators (5 GSM, 1 CDMA)• 3 companies hold 89% share• Pre-paid subscribers (97%), but 3% means 1.5 million post-paid users• Regulatory body acts as a facilitator

• Mostly foreign firms including China, India, UK, Russia, UAE etc

• Less products differentiation

• Low switching cost

• International presence

• Flexible and reliable products

• Performs as a ‘Relationship Leader’

• Motto: “We grow as you grow”

• Earning: one million Euros (2008)

• Business model: ‘Service bureau’

Market analysisCountry analysis

Competitor analysisCompany analysis

Opportunities Opportunities for Qvantel for Qvantel

Corporation?Corporation?

Opportunities Opportunities for Qvantel for Qvantel

Corporation?Corporation?

Evaluation

Issues to be taken care of properly

• Downward trend of the growth rate - Indicates a possibility of stagnant market in the future.

• Pre-paid concentration - Post-paid services are not popular to the mass people, corporate houses mostly use post-paid services.

• Market structure (Oligopoly market) - 3 major operators hold 89% of market share. Bargaining power in negotiation lies with these companies.

• Mismatch between Revenues and Expenses - ARPU is $2, but acquisition cost for an additional customer is more than $80.

• Political risks - Some sorts of political instability

Conclusion

• The telecommunication market of Bangladesh is a feasible choice for a foreign mobile service provider. This is because, the forecast shows that by year 2011, another 20 million subscribers will be added.

• An appropriate change in the strategies would give Qvantel Corporation a better competitive edge to start and expand its business in Bangladesh.

Recommendations

• Qvantel Corporation could enter into the mobile telecommunication market of Bangladesh as factors show good potential. • To minimize the effect of potential country risks, the Qvantel Corporation should form a joint venture with a firm which is currently in operation. A sole venture could also be possible by utilizing the good reputation and the proven track record of Qvantel Corporation.

• Qvantel Corporation’s current products should be redesigned so that they are better capable to serve the pre-paid users segment.

• The scalability of the existing business solution systems of Qvantel Corporation should be further enhanced so that Qvantel Corporation’s systems are able to serve the large operators in the Bangladeshi market.

Recommendations

• Before entering into Bangladesh, Qvantel Corporation should have an integrated package of services covering Billing, Mediation, Activation, Rating, Charging, and Customer relation management.

• Qvantel Corporation should reconsider its leadership strategy. More emphasize should be given towards being a ‘cost leader’ as Bangladeshi mobile telecommunication market is a price sensitive market.

• Qvantel Corporation should consider the ‘Licensing’ model for Bangladeshi mobile phone market rather than its existing ‘Service Bureau’ model. In some cases, ‘Managed service’ agreement could be a feasible option.