One in Three Pakistanis is Mobile

The latest figures from the Pakistan Telecommunications Authority show that March 2007 was the best month for proportionate growth in the mobile market in Pakistan since the sudden change of gear in November 2006. The monthly growth rate in the first ten months of last year averaged almost 7.5% but dropped to below 5% in the final two months, a trend which continued into January and February 2007. Whilst growth in March did not reach the heights seen last year, the rate was back over 5% - 5.2% to be precise - as customer numbers climbed to 55.6m.

It is testament to how fast the market has grown over the last year that the 2.73m net additions recorded in the month of March were the second highest ever in the history of the market. Overall, customer growth amounted to 104% between March 2006 and March 2007, down from 124% in the 2006 calendar year.

The trends in operator market share seen in Pakistan in 2006 continued in Q1 2007. Market leader Mobilink, owned by Egypt-based Orascom Telecom, lost another 2.1pp of market share in the first three months of this year, as its customer base swelled to almost 25m and its monthly average growth rate declined to 3.1%. The principal beneficiaries were the two newest operators, Telenor and Warid Telecom, which both entered the market in 2005.

Despite a three month head-start, Telenor fell behind Warid in market share terms in Q3 2005 after only three months of operation and remained behind for the next year and a half - until last month, when it finally overtook Warid for third place in the market. With just 0.2pp of market share and 114k customers separating them, however, the battle will undoubtedly remain closely fought. Both operators will have second placed Ufone, with 20.9% of the market, in their sights, although Pakistan Telecom's mobile unit did gain market share for the first time in five quarters in Q1 2007.

China Mobile acquisition Paktel remained in a distant fifth place with just over 1m customers at the end of March, having lost almost 0.3m connections in the quarter. China Mobile this week promised another US$400m of investment for its fledgling overseas mobile business, to add to the US$460m it claims it has already spent. US$400m is almost exactly the amount of money which Telenor spent on its Pakistani mobile network last year, adding to the US$600m the Norwegian giant had already injected in the previous two years, bringing its total investment in the market to date to well over US$1bn. The level of investment at least shows that China Mobile is serious about turning round Paktel's fortunes, and injecting the necessary capital - of which there is clearly no shortage - in order to make the operator competitive.

However, three concerns remain for China Mobile. Firstly is the amount of time it will take to achieve the coverage and network quality necessary to compete effectively. The Pakistani mobile market stood at 33% penetration at the end of March 2007 - one connection for every three heads of population - and we forecast the rate to climb to close to 50% by the end of the year. In such an environment, if a piece of the action is to be had, it is best had sooner rather than later.

The second concern is that even with a world class network, China Mobile still has to compete against at least three very well funded and well run competitors, in the form of Orascom, Telenor and Warid who will all have comparable if not superior network assets of their own. As well as throwing the necessary funds at the problem it must also throw good management and marketing in order to succeed.

Thirdly, with capital intensity for the years 2004-2006 at over 400% at Telenor Pakistan, how long will the road be to profitability, even assuming competitiveness?

Whilst these are undoubtedly issues which China Mobile's management must at least give thought to, they are perhaps not concerns which have the same gravity as they might if we were talking about almost any other international investor. The China Mobile chairman was reported this week as saying that the company hopes to gain valuable "experience" from the Pakistani market which it could use to its benefit in other overseas ventures. We can't think of many developing markets in the world where it could gain better experience, but whether the experience will ultimately be a postive one is far from certain. Then again, one could argue that in China Mobile's position, and with the ambition it must undoubtedly have, all experience is good experience. With the kind of resources at its disposal which many international players can only dream of, China Mobile as a multi-national operator is likely to prove a law unto itself. Whilst it is certainly not a sustainable strategy, in the case of Pakistan the potential for valuable experience may well prove much more important than the potential for profitability, or indeed any other conventional benchmark for success.

This article was extracted from The Mobile World Briefing, the weekly newsletter from The Mobile World. To download a sample issue of the Briefing in PDF format, please click here. For more information including full subscription pricing, please visit The Mobile World"