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DOI: 10.1177/097282011000800103

2011 8: 7Asian Journal of Management CasesFarid Ahmad and Ehsan ul Haque

Pricing under Competition−−Mobilink

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ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: VII–VIII

MOBILINK—PRICING UNDER COMPETITION

Farid AhmadEhsan ul Haque

Mobilink management needs to come up with a response to the entry of Telenor in the Pakistani cellular phone market. Contrary to Mobilink’s expectations and hopes, Telenor entered the market with a lower, and much simpler, pricing strategy. Mobilink being the dominant player (63 per cent market share) needs to think through its options. As a large player, responding too aggressively to this lower price (by a multinational with deep pockets) could lead to a long-term price war in which Mobilink stands to lose the most. On the other hand, a weak response might send the wrong signals not only to Telenor but also to other entrants in the wing. The managers have a variety of pricing options to choose from. Each of them entails different costs based on expected customer response.Keywords: Pricing, price competition, cellular pricing, pricing services, price bundles, telecom marketing, service industry

‘I need your fi nal recommendations in an hour’s time folks’, said Zouhair A. Khaliq, President and CEO of Pakistan Mobile Communications Limited, typically known as Mobilink. He continued, ‘We cannot keep Cairo waiting for too long. In any case, we have to meet the deadline for tomorrow’s newspapers regarding whatever an-nouncement we decide. Our ad agency people need their own ad fi nalization time.’ Zouhair was talking to his strategy team assembled in the video conferencing room on 14 March 2005 in Islamabad, Pakistan.

The team had been engaged in lengthy discussions among themselves and with senior managers in Egypt, via videoconference since morning. The debate was on how to respond to Telenor’s launch of cellular services in Pakistan that morning.

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 7–28SAGE PUBLICATIONS LOS ANGELES/LONDON/NEW DELHI/SINGAPORE/WASHINGTON DCDOI: 10.1177/097282011000800103

This case was prepared by Farid Ahmad, Head of Business Analysis & Planning, Pakistan Mobile Communications Limited, and Ehsan ul Haque, Associate Professor at Lahore University of Management Sciences, to serve as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.



ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 7–28

8 FARID AHMAD AND EHSAN UL HAQUE

Telenor had used aggressive pricing as an entry strategy much to the dismay of the industry leader, Mobilink. Now, Mobilink’s strategy team, led by Rashid Khan, Chief Commercial Offi cer, and Bilal Munir Sheikh, Vice President–Marketing, was debating which of the six pricing options to choose in order to give a strong response to Telenor. Participants were divided over the cost–benefi ts of various options. However, they had a deadline to meet.

COMPANY BACKGROUND

Mobilink started operations in Pakistan in 1994. They were the fi rst cellular provider to offer 100 per cent GSM technology in the country when earlier entrants were using older technologies. Modern technology, wide network and focused marketing helped Mobilink capture 40 per cent market share by 2001 despite being a late entrant. In April 2001, Mobilink’s ownership changed hands when Egyptian telecom giant Orascom obtained 89 per cent share of the company and also management control. The backing of the Orascom Group brought an aggressive and ambitious culture in Mobilink. Orascom had developed a reputation for investing in Greenfi eld markets and growing them aggressively (see Exhibit 1). It also had the reputation of being a tough and aggressive competitor that played to win.

After studying the market for a while, Mobilink initiated a massive growth pro-gramme in 2003. Frequent meetings with the board were held to ready the company for a much larger scale of operations and hundreds of millions of dollars were invested in the state-of-the-art network expansion. A business process re-engineering unit was added to facilitate, according to Zouhair A. Khaliq, ‘this aircraft carrier to become as nimble as a speed boat’.1 Mobilink was betting on aggressive expansion of the market where mobile phones will be used by the masses. Hence, management talent from leading universities and well-known fast moving consumer goods companies were hired and provided a culture of excellence. All of these efforts resulted in Mobilink taking the lion’s share of market expansion in the coming years and by early 2005, it had obtained a commanding 63 per cent market share. Mobilink’s brands, Indigo in the post-paid segment and Jazz in the prepaid segment, dominated the market in their respective segments. Its network covered 275 cities which represented about 85 per cent of the urban Pakistani population.

This rapid expansion had also brought with it a few weaknesses. As Mobilink had to constantly upgrade and expand its network, customers had sometimes faced quality

1 Personal interview with Mobilink managers.




MOBILINK—PRICING UNDER COMPETITION 9

and connectivity problems. This had built a perception of poor service quality among customers. Mobilink management was cognizant of this and expected that with the completion of the network expansion programme, both real and perceived service quality indicators would improve signifi cantly.

Zouhair Khaliq, a chartered accountant by profession, had a long experience of working in the telecom industry both in Pakistan and abroad. He had moved back to Pakistan in 2003 to head the organization. Similarly, both Rashid Khan and Bilal Munir Sheikh had signifi cant years of telecom experience in Paktel Limited in Pakistan. Both had spent time in the West prior to coming back to Pakistan.

OPPORTUNITIES IN THE CELLULAR MARKET

In early 2005, the Pakistani economy was showing signs of a strong recovery after some bad years. The stock market was up, GDP was growing at a healthy rate, the foreign exchange reserves were at a high level, foreign direct investment was growing rapidly and there was a general sense of optimism about the economy. The one weakness was political risk. The country had been repeatedly exposed to military coups and gov-ernment dismissals. But even as the governments changed hands between military and democratic governments, the handover had been largely peaceful. The economic policies of liberalization, privatization and deregulation, too, had remained consistent for more than a decade (see Exhibit 2 for economic forecasts).

With a population of about 150 million, of which around 30 per cent were living in the urban centres, and a fi xed landline penetration of approximately 4 per 100 in-habitants, the opportunity for growth of the cellular market in Pakistan was forecasted to be tremendous (see Exhibit 3). The market that had been slow to expand in the late 1990s seemed to have turned a corner since 2003. According to industry sources, several events, described later, had triggered this growth:

Calling Party Pays (CPP): Prior to the close of 2000, the tariff structure in place was not based on Calling Party Pays (CPP). This required the operators to charge both the caller and the called party in a call. People were reluctant to carry phones as they could be stuck with large bills for receiving calls which they did not control. Once this was changed and the entire call was charged from the calling party, it set the scene for a more affordable and manageable cellular connection.Ambitious Mobile Telephone Policy: Pakistan Telecommunications Authority spelled out a Telecommunication Deregulation Policy in 2003 followed by an am-bitious, investor friendly Mobile-Cellular Policy in 2004. As a consequence, many





licences for Wireless Local Loop (WLL), Long Distance International (LDI) and cellular operations were issued. The two cellular licences were auctioned off to Telenor Pakistan and Warid Telecom at prices that surprised all industry observers. The two companies paid $291 million each for the licences even though the con-ventional wisdom before the bidding had put the price at no more than $100 million. The licensees were mandated to initiate operations within one year.Increased Investments: Till 2003 the investment sentiment towards this industry had been cautious. Pioneering operators had shied away from moving to newer GSM (Global System for Mobile Communications) technology. Others had been sporadic in their investments in building capacity. Starting in 2004, the Orascom Group reversed this trend and bet heavily on market growth, bringing in massive amounts of investment in capacity enhancements.

Industry experts felt that the Pakistani cellular market might follow similar trends of high growth and penetration into lower income households as had happened in Europe or even in next door India (see Exhibit 4).

COMPETITION

In 2005, competition in the cellular industry was expected to heat up. The impend-ing arrival of two new licensees who had paid a huge amount as entry fee had lent a certain urgency to the growth plans of the existing players, as they wanted to grab the maximum market share before the new licensees started operations. In an underserved market, a ‘land-grab’ for connections was considered the most effective strategy. However, the strategic intent of each competitor was shaped by their own constraints and outlook. A brief overview of players in the mobile sector is provided in the later sections.

Paktel Limited

Paktel initiated its operations in Pakistan in November 1990 as the pioneer of cellular telephony in the country. It started as a Cable and Wireless Company but changed hands in 2000 when Millicom International Cellular acquired 98 per cent ownership. Paktel started operations using an Advanced Mobile Phone Service (AMPS) system and was relatively slow in upgrading the technology. It converted to Time Division Multi-ple Access (TDMA) technology in 2003 and launched operations on GSM technology only in October 2004. One reason for this delay was Paktel’s long-running dispute





with PTA over the correct amount of payments for a GSM licence. This dispute was resolved by late 2004.

Paktel Limited offered two brands to the market—Paktel for postpaid customers (20 per cent) and Tango for prepaid ones (80 per cent). While at one point in time Paktel was synonymous with cellular phones, their brand name had diluted over the years on account of an old technology image. AMPS/TDMA handsets were expen-sive and variety was limited which hampered growth. Consequently, Paktel had steadily lost market share in the recent years maintaining only an 8 per cent share in early 2005. While Paktel had comprehensive nationwide dealer network and long experience of operating in Pakistan, their limited coverage of the GSM network posed serious challenges for the future.

Pakcom Limited

Pakcom was also one of the pioneers of the cellular industry in Pakistan starting operations in 1991. Millicom International Cellular owned around 62 per cent of Pakcom. Just like Paktel, Pakcom had also started with AMPS technology which was upgraded to TDMA technology in recent years. However, their plans to convert to GSM technology were unknown.

Instaphone was the brand name of Pakcom’s postpaid service. The prepaid service was branded as Insta-one, which was later changed to Insta-Xcite with the change in technology. Prepaid customers were almost 90 per cent of the subscribers. Just like Paktel, Instaphone had also diluted its brand image and lost share steadily on account of old technology, and in early 2005, their market share was only 6 per cent.

Pak Telecom Mobile Limited (PTML)

A wholly owned subsidiary of government-owned Pakistan Telecommunication Company Limited (PTCL), PTML launched its GSM operations in January 2001. It was the fi rst operator to offer General Packet Radio Services (GPRS) and Multimedia Messaging Services (MMS) to customers. Its brand, Ufone, was the fi rst to target the middle- and lower-income segments with an aggressive marketing campaign and the lowest prices in the industry. This marketing strategy, coupled with massive invest-ments in expanding network capacity and coverage, led Ufone to overtake pioneers in the industry and become the second-largest operator with a market share of 23 per cent. Almost 95 per cent of Ufone subscribers were prepaid customers. Ufone also had an extensive dealer network to service its clients.





While Ufone had a lot going for it, by early 2005 it seemed to be losing steam. The primary reason was the strong expectation for its privatization, along with its parent PTCL, within a year or so. This uncertainty seemed to have led to low morale among top managers and consequent inconsistent strategy implementation.

Telenor, Pakistan

Telenor, Pakistan, was wholly-owned by the Telenor Group of Norway, which was founded in 1855 to provide telegraph services in the region. The Telenor Group had extensive experience of the cellular industry both in Europe and Asia. In Bangladesh, they had partnered with the Grameen Bank (world famous microfi nance lender) to launch Grameen Phone and had emerged as the market leaders.

Industry experts felt that Telenor, with its strengths of long telecom experience, reputed operational excellence, European image, and technological capabilities, would soon become a leading player in Pakistan. On the other hand, its weaknesses included lack of experience in Pakistan and initial low coverage. It was rumoured that initially Telenor would launch its operations by offering coverage to only three major cities in Pakistan.

Warid Telecom

Warid Telecom was the other licensee who was expected to launch operations in mid- to late-2005. Warid Telecom was backed by the Abu Dhabi group, which was one of the largest and most well-diversifi ed groups in the Middle East. They had operations in oil and gas, fi nancial services, automobile industry and property development among others. They were one of the largest foreign investor groups in Pakistan and had taken licences for other telecom ventures as well. Warid’s weakness seemed to be their lack of experience in the cellular industry. However, given the investments made in Pakistan, Warid was expected to be a long-haul player in the industry.

CELLULAR CUSTOMERS

Cellular customers in Pakistan had changed in much the same way as the market had evolved in the developed world. In fact, since the density of landlines in Pakistan was pretty low; cellular phones were the only hope of electronic communication for a large majority of the people. Initially, on account of the high cost of the equipment and service, only the more sophisticated corporate clients and affl uent persons were





subscribing to the services. This trend continued till early 2000. By 2005, however, the mobile phone industry had started to penetrate the middle classes rapidly. Falling equipment and service charges as well as specifi c targeting by brands like Ufone had fuelled this growth. The market was predominantly a prepaid one with an estimated 95 per cent market share of subscribers. The post-paid segment was restricted mostly to corporate customers. Most of the growth was expected to come from individual customers as more intense competition and consequent lowered prices would allow affordability to lower socio-economic classes as well.

Mobilink conducted regular customer surveys to monitor their attitudes and opinions. Each month, interviews with 350 Mobilink customers, randomly selected from the Mobilink subscriber database, were conducted by an independent research agency. In 2005, Mobilink customers seemed a bit unhappy with poor connectivity. This was primarily because the ongoing physical infrastructure expansion could not keep pace with the rapid expansion of customer base. Exhibit 5 presents other key fi ndings from these surveys.

PRICING IN THE CELLULAR MARKET

Pricing in the cellular industry worldwide was fairly complex and witnessed many price wars. One reason for this was the relatively high cost of customer acquisition coupled with high churn rates experienced by most players. In Europe and the US, customer acquisition costs varied from US$ 250 to US$ 500 and churn rates ranged from 20 to 40 per cent per annum. This led most companies to closely monitor the life-time value (see Exhibit 6) of acquired customers. The other key reason for pricing turmoil in the industry was the nature of costs. The cellular industry resembled sev-eral other services industries—like airlines and hotels—in that it coupled a high initial fi xed investment with a relatively small running cost of a perishable commodity, that is, time. This created tremendous pressure on operators to use all of the available airtime as well as opportunities to benefi t from economies of scale. A large network with many subscribers and heavy usage yielded dramatically higher returns than a medium network with few subscribers. The opportunity cost of an empty network was very high. Consequently, it was possible to see earnings before interest, taxes, depre-ciation and amortization (EBITDA) margins of as high as 50 per cent in this industry. Once the depreciation and interest payments were taken care of, the business could generate very high positive cash fl ows. This favoured larger and older players, who had crossed this barrier and therefore, could initiate or sustain price pressures better than any newcomers.





In Pakistan, a large majority of subscribers were prepaid customers and hence churn rates were expected to be high. Mobilink, however, estimated its churn rate to be around 12 per cent per annum in 2005. Similarly, Mobilink’s customer acquisition cost was low as prepaid customers were not provided any handset subsidy. The acquisition cost in 2005 was estimated at approximately PKR 1,400, of which PKR 1,000 went to the government as tax, PKR 250 was paid to the distributor as commission and the remaining was for any allocated advertising and/or Subscriber Identity Module (SIM) costs.

The pricing of cellular services was broken down to various elements depending on whether the call was on-net or off-net, during peak time or otherwise, local or long distance, nature of service package purchased, etc. Exhibit 7 provides the prevailing price structure of competitors in early 2005. A brief description of each element is as follows:

On-net/off-net prices: On-net calls were those calls where the calling party and the receiving party were on the same network. Off-net calls were those when the two parties were on different networks. On-net prices were lower than the off-net prices. In addition to strategic reasons, this was also due to the interconnection fee of PKR 2 per call that was paid by the network initiating a call to that terminating it. This interconnection price was determined by the Pakistan Telecommunication Authority.Peak/off-peak time: Various operators had categorized certain time periods as peak times for their networks. The price of a call made during this time was higher than that made during the off-peak time. This was primarily to reduce traffi c con-gestion, and consequent poor connectivity, during the busy business hours. Deep discounts during off-peak times were also expected to generate signifi cant demand at a more opportune time.Local/nationwide call: Following in the footsteps of landline tariffs, cellular tariffs also charged lower rates for local calls as compared to long-distance calls within Pakistan. In recent years, some operators had reduced this premium in order to reward on-net callers. Prepaid card validity: Given the predominance of prepaid customers, one important aspect of pricing was the duration of the validity of prepaid cards. Keeping unlimited validities for these cards meant that many unprofi table customers could stay on the network for a long time without making any calls. Consequently, the operator would continue to incur some costs per customer while not earning any revenue. Most operators in 2005 limited the validity to 180 days.





WAR-GAMING AT MOBILINK

Ever since the announcement of the two new cellular licensees and the price that they had paid, Mobilink management had started preparing for possible future scenarios. The strategy team, comprising senior managers from Mobilink and Orascom, felt that they knew the capabilities of existing players well as they had already been compet-ing with them for years. They expected the two new players to emerge as major com-petitors. While Warid was an unknown entity, senior managers were sent to countries where Telenor was operating to assess Telenor’s strengths and weaknesses. Mobilink management felt that Telenor would be a formidable competitor given its experience both in Europe and Asia. The big question was what will be Telenor’s entry strategy. Opinions were divided on whether Telenor would try to hit Mobilink on its current weakness of service quality or go for a low-price strategy. They had the fi nancial muscle to fi ght a long price war but some managers felt that their European experience would dissuade them from using price as an entry strategy and thus destroying value for everyone. The Pakistani market, in any case, was growing suffi ciently rapidly for all competitors to obtain decent market shares. Mobilink hired a reputed international consultancy fi rm to assist in future strategy formulation. The consultants also suggested that Telenor would not go for a low-price strategy.

The strategy team at Mobilink, however, constructed a variety of scenarios and chalked out possible counter-moves by Mobilink. Managers spent time debating and calculating strategic and fi nancial implications of various moves and counter moves. War room meetings were held with senior management fl own in from Egypt to fi nalize broad options. The objective was to be ready with all possible options ahead of the coming launch. While several scenarios were considered, the most likely scenario was considered to be a ‘bloodbath’ in which the market would head into a tough price war.

TELENOR’S LAUNCH AND THE VIDEO CONFERENCE

Telenor worked towards its launch with a huge media campaign covering radio, television and print. The ads, almost teaser type, informed Pakistanis of the impending arrival of high quality European telecom service to Pakistan and asked them to ‘Expect More’. The objective seemed to build hype towards the launch. Telenor SIMs became available for purchase in the market late evening, 13 March 2005, and the next morning’s newspapers carried full page launch ads (see Exhibit 8). The launch





was limited to one city, Islamabad, with a couple of more cities expected to join the network within the next few weeks.

It quickly became apparent to the Mobilink team that Telenor meant business. Using the slogan of ‘honest pricing’, Telenor had offered a fl at rate of PKR 3.99 per minute for all on-net, off-net, local or nationwide calls. In addition, it offered unlimited validities to its prepaid scratch cards and facilitated loading of accounts with amounts from PKR 10 to PKR 1,000 electronically.

Mobilink’s strategy group assembled in the video conference room in the morning of 14 March 2005. Members from Egypt appeared on the screen and intense discus-sions on Mobilink’s response started. The competition had played its cards and the fears of a ‘bloodbath’ were starting to look real. Everyone was aware of the enormity of the decision. The stakes were clearly high. Given Mobilink’s 5.6 million customers, an aggressive price-cut could potentially wipe-off millions of dollars from the revenue stream. At the same time, a timid response could give the newcomer the all important strong start.

Several options were available to Mobilink. They could simply wait and see how the market reacted to Telenor. Managers supporting this line of thinking pointed to the fairly limited network capabilities of Telenor and high satisfaction rates of Mobilink customers. They felt that not many Mobilink customers would switch and in any case Mobilink could always revise its prices if the market seemed to respond positively to Telenor.

Bilal Sheikh, on the other hand, was very clear about his position. ‘We need to respond quickly and decisively—this fi rst move will set the scene for all future moves not only for Telenor but also for Warid. We must send a signal that we are not going to let anyone play on our turf. We will maintain our market leadership at any cost’, he added emphatically.2

Rashid Khan, while agreeing with Bilal Sheikh to an extent, was also very concerned about the top line. Any price reduction would severely impact the average monthly rev-enue per user (ARPU), an indicator that he monitored passionately. He was already concerned at the falling ARPU trends of the industry. ‘What is the guarantee that all this ARPU loss would not be completely unnecessary?’ he asked, playing devil’s advocate. ‘Mind you, any reduction in ARPU will also increase the CCPU (cash cost per user per month) as a percentage of ARPU. Our CCPU is already hovering around 30% of ARPU’, he added.3

2 Personal interview with Mobilink managers.3 Ibid.





‘Our surveys suggest price is an important concern of customers’, Bilal Sheikh replied back. He added the following:

We do have a few unhappy customers who may want to switch. Some of them are even high ARPU ones. Why should we give them any reason to switch? Why not give them the reassurance that staying with Mobilink will always get them the best value on the market? We cannot give price leadership to Telenor.4

Managers who wanted to reduce prices were divided about the level of price reduc-tion and the structure of the offer. While any price reduction would eat into revenues, it could also increase usage rates of current customers offsetting the ARPU dilution. In 2005, an average Mobilink customer was using 50 minutes of local telephone time per month; out of which 75 per cent were for on-net calls. Different price reduction options under discussion, and their impact on incremental minutes of local usage, are provided in Exhibit 9.

In addition to on-net and off-net pricing, there was the issue of long distance call pricing. Mobilink charged a higher price for off-net long distance calls. Opinions were divided on continuing or reducing them. The ARPU impact of bringing them to the same level as local calls was estimated at PKR 5.4.

Finally there was the issue of validity limits of Mobilink’s prepaid scratch cards. One school of thought was to match Telenor’s unlimited validities. Managers in favour felt that after having seen Telenor’s offer, customers would not accept anything less. Those against worried that this will give licence to customers to delay recharging indefi nitely causing ARPU to decline dangerously. The connection recharging be-haviour of Mobilink prepaid customers showed that there were many who waited till the last day (see Exhibit 10).

After a long discussion, Zouhair Khaliq promised the Orascom management that Mobilink will get back to them with their fi nal recommendation within one hour. He asked the fi nance and marketing people to recheck the ARPU and lifetime value impacts of various options.5 On their part, the Orascom management committed to respond back immediately so that any decision could be implemented straightaway. Mobilink had planned to go to the newspapers with advertisements of their response within 36 hours of Telenor’s launch.

4 Personal interview with Mobilink managers.5 In 2005, the relevant interest rate for Mobilink was around 10 per cent per annum.





REFERENCE

The Economist. 2005. ‘The New Pharaohs’, The Economist, 10 March. Available at http://www.economist.com/node/3750606.

Exhibit 1Excerpts from Economist’s Article on Orascom

The New Pharaohs

As Middle Eastern economies start to boom, so do the Sawiris family’s fi rmsFROM the pyramids to the Citadel, Cairo’s skyline features some of the most famous silhouettes

in the world, refl ecting past periods of might and prosperity. More recently, a new monument to a contemporary power and success has sprung up along the Nile—the gleaming twin towers that house Orascom, a business group owned by the Sawiris family.

Source: Thomson Datastream.





What began 50 years ago as a small construction fi rm, founded by Onsi Sawiris, is now a commercial empire worth over $12 billion, controlled by his three sons. Naguib, the eldest, runs Orascom Telecom Holdings (OTH). The strategies of the various Orascom businesses are said to refl ect the different per-sonalities of the Sawiris brothers. ‘Naguib is a racing car’ laughs Samih Sawiris.

OTH has ridden a rollercoaster. Starting in 1998 as a partner in Egypt’s fi rst mobile phone operator, MobiNil, OTH expanded rapidly, buying licences—often at absurd prices—across the Middle East and Africa. By 2002 it was operating in 22 countries, but it was also deep in debt and, amid global gloom about telecoms, its share price was plunging. So Naguib Sawiris sold off various operations, including its Jordanian business for $424m. OTH now operates in just nine countries—where it has 11m subscribers and, estimates Karim Khadr, a telecoms analyst at HSBC, made a profi t of around $370m last year.

Naguib now aspires to make OTH one of the world’s leading mobile phone operators, with a hugely ambitious target of 100m subscribers by 2010. He has no regrets about his earlier purchases, arguing that even the small ones gave OTH a ‘footprint’ and credibility in larger markets. Still, he claims to have come to appreciate the value of fi nancial restraint: as proof, he points to last year’s loss of licenses in Iran and Saudi Arabia to higher bidders. Nevertheless, that still leaves OTH in markets with a combined population of more than 500m, few fi xed-line telephones and only 5 per cent mobile-phone penetration. And, while OTH may expand further into Africa and south-east Asia, Naguib himself has an eye on Europe, where he is investing his own money in consortium bidding for Wind, an Italian mobile-phone fi rm valued at €12 billion ($16 billion).

Source: The Economist (print edition), 10 March 2005.

Exhibit 2Pakistan’s Macroeconomic Climate

2000 2001 2002 2003 2004f 2005f 2006f 2007f

Population (million) 137.5 140.4 143.2 146.0 148.7 152.0 155.3 158.7Nominal GDP (US$ billiion) 72.9 65.7 73.2 83.4 93.9 104.5 113.9 124.0GDP per capita (US$) 530.1 467.6 511.2 571.2 631.4 687.6 733.4 781.3Real GDP growth (%) 3.9 1.8 3.1 5.1 6.4 6.0 6.1 6.4Consumer price infl ation (average %)

3.6 4.4 3.5 3.1 4.6 7.8 5.0 5.0

Exports (fob, US$ billion) 8.57 9.20 9.13 11.16 12.27 13.87 14.84 16.18Imports (cif, US$ billion) 10.31 10.73 10.34 12.22 15.47 17.95 19.38 21.32Trade balance (customs, US$ billion)

–1.74 –1.53 –1.21 –1.06 –3.20 –4.08 –4.54 –5.15

Source: BMI research. Notes: f: BMI forecast. fob: Free on board. cif: Cost, insurance, freight.



ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: VII–VIII

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Exhibit 4Indian Cellular Market Growth

Source: Company documents.

Exhibit 5Customer Research

A. Mobilink Customer Satisfaction

Source: Company documents.(Exhibit 5 continued )





B. Reasons for Satisfaction


C. Reasons for Dissatisfaction (February 2005)


(Exhibit 5 continued )






D. Chance of Switching


E. Preferred Company for Switching








F. Main Reason for Switching (February 2005)


Exhibit 6Customer Lifetime Value (CLTV) Calculations

Companies in the cellular industry typically spend a signifi cant amount of money to acquire a customer. The hope is that future revenues from the customer will not only help to recover the original acquisition cost but also provide a continuous cash stream. However, this assumes that the customer will not switch service suppliers. Unfortunately, the cellular industry is notorious for high customer defection generally known as churn rate. If the customer leaves too soon, there is a danger that the initial investment in acquiring a customer will not be recovered. This has led cellular managers to use the discounted cash fl ow method to calculate the lifetime value of a customer. The typical formula for calculating CLTV:

CLTV =+

−−

=∑ ( )

( )

( )M ri

ACaa

aa

N 1

1 1,

where

N is the number of years over which the relationship is calculated;Ma is the margin the customer generates in year a; this is calculated from monthly margin which is ARPU – CCPU∗;r is the retention rate which is equal to (1 – churn rate);r (a – 1) is the survival rate for year a; i is the interest rate;AC is the acquisition cost.






If one assumes that

1. margin is relatively fi xed across periods and 2. infi nite economic life of customer (N → ∞),

the formula can be simplifi ed to the following approximation:

CLTV =− +

−Mr i

AC1

∗Average revenue per user – Cash cost per user

Source: This exhibit has been adapted from HBS Note 503-019 on ‘Customer Profi tability and Lifetime Value and HBS Case 504-028 Virgin Mobile USA: Pricing for the Very First Time’.

Exhibit 7Market Prices and Prepaid Scratch Card Validities

A. Market Prices on 1 March 2005

Company

Local NWD (Average Distance Band)

On-net Off-net On-net Off-net

Peak Off-peak Peak Off-peak Peak Off-peak Peak Off-peak

Mobilink 4.75 4.75 7.75 7.75 4.75 4.75 13.00 12.25(10 p.m. –

7 a.m.)Paktel–GSM 3.75 0.99

(12 p.m. – 7 a.m.)

5.75 2.99(12 p.m. –

7 a.m.)

3.75 3.75 5.75 5.75

Ufone 3.00 1.50 (10 p.m. –

7 a.m.)

6.75 6.75 3.00 1.50(10 p.m. –

7 a.m.)

11.00 9.5 (10 p.m. –

7 a.m.)

Note: Prices/minute.

B. Prepaid Scratch Card Validities

Mobilink Card Ufone Card

PKR 300 – 30 days PKR 625 – 180 days PKR 1,000 – 180 days PKR 1,500 – 180 days

PKR 200 – 45 days PKR 500 – 180 days PKR 1,000 – 180 days





Paktel Card %

PKR 300 – 45 days PKR 600 – 180 days PKR 1,500 – 180 days


Exhibit 8Telenor Launch Print Advertisements

Source: Company documents.(Exhibit 8 continued )











Exhibit 9Price Reduction Options

Options

Proposed On-net Rate ( PKR/min)

Estimated On-net Incremental Usage (min)

Proposed Off-net Rate ( PKR/min)

Estimated Off-net Incremental Usage (min)

Wait and see 4.75 0 7.75 0Match Telenor 1 3.99 6 3.99 10Match Telenor 2 3.99 6 5.99 4Match Telenor 3 3.99 6 7.75 0Beat Telenor 1 3.50 8 5.50 6Beat Telenor 2 3.50 8 7.75 0

Exhibit 10Mobilink Recharge Trends

A recharge card had two associated time periods that determined how often the customer had to recharge and what happened if he did not recharge.

Validity period: User could make and receive calls Grace period: User could only receive calls. This was 15 days for all of Mobilink’s cards. If a customer

entering grace period did not recharge within 15 days, his account would become inactive.

The recharging behaviour of a sample of Mobilink’s grace period customers is provided below:

Customers Entering Grace Period

Recharge within Grace Period

Daily Recharge Trend within Grace Period

DeactivatedDays 1–3 Days 4–6 Days 7–10 Days 11–15

4,493 2,307 901 511 414 481 2,186100% 51% 20% 11% 9% 11% 49%




Documents

Asian Journal of Management Cases 2011 Ahmad 7 28