TELENOR PAKISTAN

Business Scope

Business Scope

Telenor’s Corporate DNA

At Telenor Pakistan, our lives are made up of our Corporate DNA i.e. our Vision and Values. We believe that competencies influences a person what he or she is.

Vision “We exist to help our customers get the full benefit of communications services in their daily lives”

The key to achieving this vision is a mindset where every one of us works together. Making it easy to buy and use our services. Delivering on our promises; being respectful of differences; inspiring people to find new ways.

Telenor will be a driving force in modern communications and customer satisfaction.

Function/Application: • Mobile services is one of the most convenient and

popular modes of communication in the world today. It connects millions around the globe. It provides services like talk airtime, sms(text), mms and various internet facilities.

Users:• Telenor is truly customer centric. They believe in

understanding their customer’s needs which have changed and are changing constantly therefore continuously driving them to innovate in terms of products and services. The users of Telenor comprise Prepaid customers; youth/ Students, Women, Financially Constraint and Postpaid customers; Corporate/ SME

Business they are in:

• Telenor is the provider of mobile communications services worldwide. Provides entertainment as a support if its main product. Telenor is also the largest provider of TV services in the Nordic region.

Business they are not in:

• Telenor is not in the transportation services or fast moving consumer goods business.

Added Value:

Telenor provides value added services in the form of:• Bubble messages• MMS/ SMS• GPRS• WAP portal• International Sms• Edge• International direct dialing

Five Product Levels:

Core Product: Communication• Basic Product: Telecommunication Service• Expected Product: Consumer expects good network

coverage and faster connectivity.• Augmented Product: Value addition includes mms,

EDGE, bubble messages, WAP portal• Potential Product: Potential service includes bill

payment & easy load facility on its websites.

Telenor’s Future Consideration:

• Telenor is proud to build mobile communication infrastructure in Pakistan and looks forward to combining its experience in mobile technology with the local Pakistani high level of competence. Telenor's primary aim is to offer top quality mobile services and promote healthy competition in the mobile market.

Overview of The Telecom Sector of Pakistan Telecom Act 1996, laid the foundations for de-regulation

Fixed line de regulation was announced in 2003

Mobile Cellular policy was implemented in 2004

Deregulation led to healthy competition, investment friendly environment and created greater employment

The overall teledensity in the country has reached 23.1 percent at the end of April 2006, as compared to mere 2.3 percent in 1999-2000

Similarly, foreign investment in the telecom sector has crossed

US $ 1 billion during first three quarters of 2005-06 When compared to Other South Asian countries Pakistan’s

telecom sector is on the second position in terms of growth.

Countries 2003 2004 2005 2006 (March)

Pakistan 4.3 6.3 11.9 23.1

India 7.1 8.9 11.5 12.8

Sri Lanka 12.7 16.6 23.4 27

Bangladesh 1.6 2 4.5 9

Nepal 1.8 2 3 3

Telecom Share in GDP

•Telecom comes under the services sector and its share in the services sector has increased from 3.1% in 2000-01 to 3.8% in 2005-06•In the overall GDP, the share of the Telecom has reached 2% in 2005-06, having increased from 1.6% in 2001-02

Foreign Direct Investment in the Telecom sector

During 2005-06, telecom sector received over US $ 1.9 billion FDI and emerged as the only sector of the economy to attract such a huge investment

Privatization proceeds of PTCL (US $ 1,184 million) and network expansion of other telecom companies led to these large FDI flows in telecom

Telenor, and Warid were the major companies to make FDI in the telecom infrastructure.

Market Structure of the Telecommunication Sector:

Mobile79%

Wireless local loop

4%Fixed line17%

Distribution Structure of the Cellular Sector:

End UsersPost PaidCorporate/ SME

Distribution Channel

DirectSales

Franchsie,Sales and Service Centers

Third PartyChains

Retail Network

Company

PrepaidYouth/ students,Women, Financially constraint

Influential Factors

Regulatory Stability:• Telecom Act 1996, laid the foundations for de-regulation

• Fixed line de regulation was announced in 2003

• Mobile Cellular policy was implemented in 2004

• Activation tax for new cellular connections was reduced by 50% to Rs 500 in June 2005 compared to Rs 2000 in the year 2002

• Mobile sector alone contributed 65% of the total tax contribution by telecom sector

Mobile handset theft: the government has implemented central equipment identification register based on international equipment identity system (imei).

Investment friendly environment, telecom sector attracted US $ 1.9 billion as FDI

Implementation of mobile number portability in 2006.

Decreasing inter connections rates in the market.

Pakistan Telecommunication Authority regulates the telecom operators. High entry barriers are there because of the licensing approved by the PTA of Pakistan

The government decided to deregulate the telecom sector in AJ& K and this task was assigned to PTA and 4 leading mobile operators were licensed for provision of services in this territory. Before this Special Communication Organization (SCO) has been exclusively been providing Telecom services in AJ & K areas.

Balochistan was declared as a priority area for telecom development and number of regulatory measures were taken to enhance telecom facilities in the province.

Economic Factors:

• A recent study found that, in a typical developing country, a rise of ten mobile phones per 100 people boosts GDP growth by 0.6 percentage points.

• GDP growth of 8.4% for 2004/05 and 6.6% in 2005/06

• The per capita income of Pakistan also reached US $ 847, registering a growth of 14% over the last year US $ 728.

• The telecom sector has generated employment opportunities During 2006 almost 183,063 additional direct

and indirect jobs were created in the telecom sector

• Penetration in Pakistan has increased by 8% in five years- translating into 0.5% GDP growth

Telecom share in GDP increased from 1.6% in 2001/02 to 2% in 2005/06

Foreign direct investment has increased to $1.5 billion, the highest ever in the country’s history. This year telecom sector received 54.1% of the total FDI which is even higher than last years 32.4%.

To promote infrastructure development PTA introduced separate infrastructure license for further growth of the

sector.

During 2005/06 investment grew by 13.5% in the overall telecom sector.

PTA is urging the tax authorities to lessen the burden of tax on the telecom sector which would help further growth of the sector.

It is expected that next year telecom companies would be able to achieve 2.5% share in gdp instead of 2% in the current year.

Thus higher economic growth coupled with substantial FDI in the telecom sector and declining unemployment will result in increasing the use of telephone network in Pakistan

• Market Size and Growth of the Telecommunication Sector as a Whole

• Market Size and Growth of the Cellular Sector for the past for years and Future 4 years Forecast

Market Size and Growth of the Telecom Sector by Teledensity:

2002 2003 2004 2005 2006

Cellular 1.16% 1.62% 3.31% 8.29% 19.19%

Fixed Line

2.5% 2.69% 2.94% 3.43% 3.43%

Wireless local loop

- - - .17% .5%

Analysis: The overall teledensity has crossed 26.19% in June

2006 showing a growth of 120% over the last year.

This increase has come from a high growth in mobile penetration. Mobile penetration increased tremendously in 2006 and jumped from 8.3% in 2005 to 22.2% in 2006.

The fixed line sector growth in the fixed line sector remained stagnant during the year at 3.4% from 2004-05 to the same 3.4% in April 2006.

The slow growth in the fixed line is mostly attributed to its substitution with the competitive mobile services because of their low prices, inherent mobility, bundled offers and value Added services

• WLL phones are also seen to be expanding in the country .This service was started in Pakistan in 2004 as a new segment of the Telecom sector after deregulation

• 17 countries were awarded WLL licenses to operate in 14 regions of Pakistan.

• Out of these 14 companies 4 are operational and are providing services in all four provinces of Pakistan; namely Telecard, WorldCall, GreatBear and PTCL

• Presently 36% of the total population of Pakistan is covered by WLL services. The WLL teledensity stood at .16% in 2004-05 and rose to 0.66% in 2005-06.

Market Size and Growth for the past 4 years and future trends – Number of Subscribers

Cellular 2003 2004 2005 2006

Prepaid 2,239,062 4,797,829 12,424,783 33,410,928

Postpaid 165,338 225,079 346,420 1,095,738

Total 2,404,400 5,022,908 12,771,203 36,778,462

Analysis

The subscribers’ growth rate was 109% in 2003-04, 154% in 2004-05 and has crossed 170% in 2005-06. This explosive growth in the subscriber base is mainly due to the deregulation.

The growth in the mobile sector is mainly attributed to prepaid customers as in the trend in comparable economies.

The stable increase in prepaid customer base is due to the fact that operators now focusing on:

retaining customers, improving the quality of service, enhanced customer service, packages that concentrate on brand loyalty.

For example: They are offering family and friend packages in the range of Rs 0.5 to Rs 2 per minute, fractional minute billing, international roaming, gprs, prepaid roaming, low cost, sms etc.

Price erosion in the mobile sector e.g. Reduction in inter connect charges and reduction in activation tax to rupees 500 per connection led to high market penetration. In 2002 it stood at Rs. 2000.

The maximum on net Tariff were Rs 5.75 in 2005 and have come down to Rs 3.0 in 2006 which in % terms is 48% reduction

you can purchase a prepaid package at Rs. 200 to Rs. 150. Initially a prepaid connection was priced at more than Rs. 1000.

Sudden high growth in 2005-06 in both Postpaid and Prepaid customers was due to the entry of two new mobile operators Warid and Telenor

Mobile players are segmenting their customers and announcing packages accordingly to meet their needs.

Recently examples include Jazz Octane and Dejuice focused on the youth segment, talkshawk for financially constraint and students, Ladies First by Mobilink for the female segment.

• Due to telecom deregulation in Balochistan, the teledensity increased by 5.6% to 10.47% in 2006 showing growth of 87%.

• Market expansion to AJ&K AND NAs where mobile operators have just been awarded license for provision

of services.

• Moreover, operators also extensively invested in erecting their cell sites in new as well as already covered areas to increase coverage.

• The number of franchises increased from 984 in 2004/05 to 1202 in 2005/06

• The mobile handset market has become very exciting. Market segmentation in high end, middle end and low end handsets is resulting in choice and affordability to all types of customers.

• Increase in the number of subscribers for postpaid packages is mainly because operators have launched services like gprs/edge, mms, blackberry corporate mobile email solution, mobile banking, ringback tones and several other content based options.

  2007 2008 2009 2010

Prepaid 59,130,000 68,208,000 73,950,000 78,370,000

Postpaid 6,570,000 10,192,000 13,050,000 13,830,000

Total 65,700,000 78,400,000 87,000,000 92,200,000

Currently the population of Pakistan is over 155million. If we exclude 20% of the poor population and 30% children (below the age of 10 years). We get a potential target market of about 87 million

So far cellular mobile companies have grabbed 34.5 million subscribers which is only 39% of the potential target market.

About 59% of the potential population is living in rural areas. Mobile operators will focus on grabbing the inaccessible areas and increasing their penetration by expanding their networks

In future, it is expected that post paid segment will grow at a faster pace than prepaid segment converting a portion of the prepaid segment to postpaid. For e.g. Post paid packages aimed at the youth and students

Market Size and Growth for the past 4 years and future trends- Revenue

2002-032003-

042004-

052005-

06 2007 2008 2009 2010

19,758 27,849 48,880 90,057 316,411 377,574 364,182 385,949

• Revenues of the mobile sector have increased at an average growth rate of 80% per year for the past two years.

• Mobile ARPU has shown a declining trend resulting from intense competition for acquisition of new subscribers

and retaining existing customers

• The ARPU dropped from 8% in 2004/05 to 5.7% in 2005/06. However drop in ARPU leads to greater market penetration since it leads to affordability of the service

• The increase in revenues is attributed mainly to sharp rise in number of mobile subscribers and reduction in tariff. By lowering if Tariff the affordability of lower income groups increases which leads to increased revenue.

• Reduction in activation tax to rupees 500 resulted in manifold increases in mobile penetration

• Increase per capita income to US $ 847 registering a growth of 14% over the last year. It is expected to grow further by 16% in 2007

Mobile operators were awarded licenses to start their services in Balochistan in 2005

The population of Balochistan is 7.7 million and telecom coverage is only 4.4 million.In future, large revenues will be generated from Balochistan as mobile penetration increases.

Product Life Cycle (Telecommunication

Industry) SERVICES INTRODUCTION GROWTH MATURITY DECLINE

Cellular        

Fixed Line        

WLL        

Cellular INTRODUCTION GROWTH MATURITY DECLINE

Prepaid          

Postpaid          

Distribution structure:Distribution by Franchises and service centers (combined)

.Total franchises by all operators grew by 60% in 2005 whereas it grew by only 22% in 2006

Operators including Paktel and Instaphone negatively affected this growth since Instaphone started closing its franchises whereas Paktel stopped giving official status to franchises and changed its policy with freelance franchises concept

Internal Analysis

Strengths

• Network quality & design• Superior customer care • Financial Strength• Excellent Coverage & Distribution.• Commercial Launch of LDI & mobile

services• Contract with Siemens & Nokia• Brand image of Quality

Weaknesses

• Relatively low market share

• Low profit margins

• Negative cash flows in the initial years

Opportunities

• Favorable Macroeconomic indicators• low cellular market penetration• Inefficiency & poor performance of other mobile

networks• Co branding e.g Ufone with ABN AMRO• Strategic Alliances & Infrastructure Sharing Facilities• PTA initiatives• E-commerce usage.• Mobile Number Portability• International Mobile Equipment Identity System

Threats

• Rolling Customers• Privatizations & deregulations- increased

competitions.• Grey Traffic• MNP mobile number portability• Wireless technology at boom• Public pay phones & calling cards usage where

network is not available• Propagandas attacking brand image

Value chain for prepaid

Value Chain for Prepaid

SIM DECODING

DATABASE ENTRY

DISTRIBUTORS

TELENOR PAKISTAN HEAD OFFICE

REGIONALSALE

MANAGER

CUSTOMERS

RETAILERS

MARKETING DEPARTMENT

After Sales

PRINTING

Value chain for Postpaid

Value Chain for Postpaid

Customer’s activation charges

Customer Service Center(Customer payment)

Bills

Calls

Siemens

Finance & Accounts

Department

TELENOR

Online Payment Payment thru SMS

Authorized dealers (Security

Code)

Key process Indicators

KPIS Industry Benchmark

Where are we

Improvement Plan 1

Improvement Plan 2

Network Quality

40 % 55% Increase Cell sites

Sharing infrastructure

Relative Cost/ low price

50 % 55% Cut down on unnecessary costs in the value chain

Collaborating with your forward channel allies to reduce their costs

Customer Care

10% 15% Increase the number of Customer Sales Centers. Enable Complaint registry through sms

Highly efficient Helpline responses. Feedback given within one hour guarantee.

New Product Activity

15% 17% Design packages to cater the needs of different segments e.g. women

Brand Loyalty 40% 45% Improve quality standards and provide superior Network Quality

Increase marketing campaigns and get your product on the shelf

Distribution 40% 50% Increase the number of franchises and increase coverage to towns and cities where no cellular services are available

Strategic cost Management

In a changing and competitive environment such as the deregulated telecommunications market, a provider’s competitiveness and attractiveness heavily depend on lean cost structures.

• Telenor’s management continuously analyzes each business and cost center to determine potential efficiency improvements.

• In order to reduce dependency on the availability of a single subcontractor, Telenor has selected TIBCO’s business process management software. After the successful implementation, Telenor was able to describe its experience and provide information on the real business values achieved with the TIBCO solution.

TIBCO

TIBCO Software Inc. (NASDAQ:TIBX) is the leading independent business integration software company in the world and a leading enabler of real time business, helping companies become more cost-effective, more agile and more efficient. TIBCO has delivered the value of real-time business, what TIBCO calls The Power of Now®, to over 2,000 customers around the world and in a wide variety of industriesBesides TIBCO solution, Telenor emphasizes on reducing costs in a quality network by the following measures

Site sharing Cost optimization features in the network, e.g. half rate Spectrum efficiency (Spectrum efficiency is the optimized use of spectrum or bandwidth so that the maximum amount of data can be transmitted with the fewest transmission errors. In a cellular telephone network, spectrum efficiency equates to the maximum number of users per cell that can be provided while maintaining an acceptable quality of service (QoS).)Ensuring sufficient quality based on market dynamics (different customer segments / demands) Exploring low cost rollout solutions for rural areas Partnering with various organizations to utilize their space and reduce CAPEX (CAPITAL EXPENDITURE)

Vision/Mission and Objectives

Vision Statement:Our Corporate DNA

At Telenor Pakistan, our lives are made up of our Corporate DNA i.e. our Vision and Values. We believe that competencies influences a person what he or she is.Our vision is simple: we exist to help our customers get the full benefit of communications services in their daily lives.

Mission Statement :( proposed for Pakistan)

Telenor Pakistan is a customer focused business mobile service operator/telecommunications Company that seeks competitive advantage in quality and valued added service in both prepaid and postpaid categories through state of the art technology. Telenor relies on building trusting relationships with customers, owners, employees and society in general.

CORE VALUES

Telenor has three core values which are at the heart of and govern the conduct of their employees, both internal and external. These are

DynamicBeing dynamic means having insight and active involvement, coupled with a capacity for implementation.

InnovativeBeing innovative means continuously being on the lookout for new opportunities for development and growth.

ResponsibleBeing responsible means raising realistic expectations, deliver as promised and stay committed to the society which our group is part of.

CORE COMPETENCIES

CoverageIn just one year of operations in Pakistan, Telenor has expanded its coverage to over 250 cities in Pakistan. This has been possible due to heavy investment in infrastructure development and forgoing short term profits.

Product Quality Through the superior network design Telenor is able to provide its customers with the highest quality cellular service in terms of reception, coverage and value added services.

Large resource baseTelenor Pakistan is a subsidiary of the Telenor Group of Norway. This gives the company a huge resource base in terms of financial and technological assets compared to the competitors.

Distribution NetworkTelenor has a competitive advantage over its competitors in terms of its distribution network. The company has a very high level of retail penetration, aimed at maximizing profits.

Business objectives

Objectives 2006-07 2015

ARPU  $4  $6- $8

Market Share in terms of Subscribers

10% 40%

Market Penetration 9% 30%

Market Share in terms of Revenue

7% 30%

EBITA 5% – 6% 10%

Unprompted Brand Awareness 20% 90%

STRATEGIC INTENT:

To be the leading customer oriented company providing top quality mobile servicesProfitable and sustainable growthCompetitive edge on value added servicesStrong Brand Awareness

Key Issues:

Issue 1:Maintain network quality

Issue 2:Low market penetration

Issue 3:Rolling Customers

Issue 4:Untapped market segments- Women

Issue 5:Mobile number portability

Strategic Direction• Building an organization with competency, capabilities and resource strengths

• Learn @ Telenor

• Developing Technical Know How in Employees

• Developing budgets to steer ample resources into critical value chain activities

• Creating strategy supportive policies and procedures

• Instituting best practices and a commitment to continuous improvement

• Installing support systems and Value added Services:

Segmentation and Positioning

Market Segmentation and Positioning

Segmentation is the process of dividing the total market for a good or service into several smaller, internally homogenous groups. Since Telenor is a customer oriented and quality driven company, it segments its market on the basis of various different dimensions.

Market Segmentation & Product Positioning

Market Segment Today Future 4 years Estimate

Existing Products

Profitability%

Youth/ students 25% 27% Djuice,Talkshawk

29%

Women 10% 20% TalkShawk 21%

Financially Constraint

40% 23% TalkShawk,Telenor Azadi

20%

Corporate/ SME 25% 30% Post PaidPackages

30%

Companies positioning against competition

Parameters Mobilink Telenor

Product Life Cycle Maturity Growth

Market share % 59% 7%

Coverage 900 cities 1100 cities

Product Portfolio Jazz Octane, MobilinkIndigo, Ladies First,

TalkShawk, TelenorAzadi, DJuice

Customer Base 17.2 million 3.6 million

Marketing Operations Excellent Average

Proposed Action Plan

PRODUCT

WHAT HOW WHO WHEN

Implementing Mobile Number Portability

By increasing investment.By increasing budgetary allocationJoint ventures.

Telenor’s CEO also chairman of MNP supervisory board

By the end of 2007

Superior network Quality and Coverage

Investing heavily in cell sitesSharing infrastructure and space with other mobile operators

Telenor By 2008.

DISTRIBUTION

WHAT HOW WHO WHEN

To make distribution a competitive advantage to reach as many people and to cater to as many cities as possiblehigh channel loyalty

increase the distribution channelsoffer Fair profitability for channels

Telenor marketing and distribution heads.

As soon as possible by the end of 2009

REPOSITIONING

WHAT HOW WHO WHEN

Telenor design specific packages to appeal to different growing segments-Women-Corporate/ SME

Offer discounts cards, entertainment, cooking tips, health tips through sms. Remarkably low call rates.

Marketing and creative heads of telenor pakistan

mid 2007

PRICING

WHAT HOW WHO WHEN

Low cost leadership

Revamping the value chain and outsourcing high cost producing activities

Marketing heads of Telenor

By the end of 2007

MANAGEMENT

WHAT HOW WHO WHEN

Human resourcesEmployees at management position

Hiring the competent staff and firing the incompetent staffTough screening criteriaMultinational standard salary to be paid.

Telenor Pakistan As soon as it can be done.

OPERATIONS

WHAT HOW WHO WHEN

InfrastructureSharing

Sharing infrastructure and space with other mobile operators

Telenor Pakistan,Mobilink, Warid, Ufone

Between 2007- 2008