Examination Committee: Professor Ilkka Kauranen (Chairperson) Dr. Mikko Kovalainen Dr. Donyaprueth Krairit Examination Committee: Professor Ilkka Kauranen (Chairperson) Dr. Mikko Kovalainen Dr. Donyaprueth Krairit NEW BUSINESS OPPORTUNITIES IN THE MOBILE TELECOMMUNICATION MARKET OF BANGLADESH 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 Review Global telecommunication industry Bangladeshi telecommunication industry Outsourcing as a business strategy 12 issues by Qvantel Corporation Questionnaires 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 TopicCharacteristics Demography 7 th 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 Until 1993: One Govt. owned fixed phone operator In 1993: Citycell, 1 st mobile phone operator In 1997: Grameenphone, AKTEL and Sheba telecom In 2004: Banglalink acquired Sheba telecom In 2005: Warid and Teletalk

Mobile telecommunication market 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

Grameenphone  3 rd 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  2 nd 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-paid users Network coverage Leader Price leaderCreation of branding Banglalink AKTEL

Players analysis Warid  Poor performer  GSM 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  1 st entrant  CDMA advantages  1.9 million subscribers  Low quality and low price  Fully 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 subscribers  High 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 leaderMobile data service leaderSafeguard of public interest Citycell Teletalk

Product positioning map Network coverage 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$ Suppliers of support services 33 m Terminal component suppliers 155 m Platform & component suppliers 144 m Other suppliers of capital items 28 m Fixed network operation 35 m Terminal designers & manufactures 73 m Network equipment suppliers 62 m Fixed network operators Dealers 57 m Payments for mobile services Fixed to mobile calls Payments for terminal 213m 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 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 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 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 analysis Country analysis Competitor analysisCompany analysis Opportunities for Qvantel 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.

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