Mobilink, Pakistan - Full

Asian Journalhttp://ajc.sagepub.
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of Management Cases
MobilinkPricing under Competition
Farid Ahmad and Ehsan ul Haque

Asian Journal of Management Cases 2011 8: 7
DOI: 10.1177/097282011000800103
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ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: VIIVIII

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728
SAGE PUBLICATIONS LOS ANGELES/LONDON/NEW DELHI/SINGAPORE/WASHINGTON DC
DOI: 10.1177/097282011000800103
MOBILINKPRICING UNDER COMPETITION

Farid Ahmad
Ehsan ul Haque
Mobilink management needs to come up with a response to the entry of Telenor
in the Pakistani cellular phone market. Contrary to Mobilinks 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 final recommendations in an hours 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 tomorrows newspapers regarding whatever announcement we decide. Our ad agency people need their own ad finalization 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 Telenors launch of cellular services in Pakistan that morning.
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.
Telenor had used aggressive pricing as an entry strategy much to the dismay of the
industry leader, Mobilink. Now, Mobilinks strategy team, led by Rashid Khan, Chief
Commercial Officer, and Bilal Munir Sheikh, Vice PresidentMarketing, was debating
which of the six pricing options to choose in order to give a strong response to Telenor.
Participants were divided over the costbenefits of various options. However, they
had a deadline to meet.
COMPANY BACKGROUND
Mobilink started operations in Pakistan in 1994. They were the first 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, Mobilinks 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 Greenfield 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 programme 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 lions share of market expansion in the coming years and by early 2005,
it had obtained a commanding 63 per cent market share. Mobilinks 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.
8 FARID AHMAD AND EHSAN UL HAQUE
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 significantly.
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 significant 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 government 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 fixed landline penetration of approximately 4 per 100 inhabitants, 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 ambitious, investor friendly Mobile-Cellular Policy in 2004. As a consequence, many
MOBILINKPRICING UNDER COMPETITION 9
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 conventional 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 impending 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 Multiple Access (TDMA) technology in 2003 and launched operations on GSM technology
only in October 2004. One reason for this delay was Paktels 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 marketPaktel 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 expensive 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 Pakcoms 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 first operator to offer General Packet Radio Services (GPRS) and Multimedia
Messaging Services (MMS) to customers. Its brand, Ufone, was the first 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 investments 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 microfinance 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 midto late-2005. Warid Telecom was backed by the Abu Dhabi group, which was one of
the largest and most well-diversified groups in the Middle East. They had operations
in oil and gas, financial 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. Warids 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 affluent 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 specific 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
findings 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 several other services industrieslike airlines and hotelsin that it coupled a high initial
fixed 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 benefit 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, depreciation 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 flows. 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, Mobilinks 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 traffic congestion, and consequent poor connectivity, during the busy business hours. Deep
discounts during off-peak times were also expected to generate significant 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 unprofitable 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 competing with them for years. They expected the two new players to emerge as major competitors. While Warid was an unknown entity, senior managers were sent to countries
where Telenor was operating to assess Telenors 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 Telenors 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 financial
muscle to fight 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 sufficiently rapidly for
all competitors to obtain decent market shares. Mobilink hired a reputed international
consultancy firm 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 financial implications of various moves and counter moves.
War room meetings were held with senior management flown in from Egypt to finalize
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.
TELENORS 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 mornings 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 flat 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.
Mobilinks strategy group assembled in the video conference room in the morning
of 14 March 2005. Members from Egypt appeared on the screen and intense discussions on Mobilinks 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 Mobilinks 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 decisivelythis first 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 devils
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
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 reduction 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 Mobilinks prepaid scratch cards.
One school of thought was to match Telenors unlimited validities. Managers in favour
felt that after having seen Telenors offer, customers would not accept anything less.
Those against worried that this will give licence to customers to delay recharging
indefinitely causing ARPU to decline dangerously. The connection recharging behaviour 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 final recommendation within one hour.
He asked the finance 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 Telenors launch.
4
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 1
Excerpts from Economists Article on Orascom
The New Pharaohs
As Middle Eastern economies start to boom, so do the Sawiris familys firms
FROM the pyramids to the Citadel, Cairos skyline features some of the most famous silhouettes
in the world, reflecting past periods of might and prosperity. More recently, a new monument to a
contemporary power and success has sprung up along the Nilethe 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 firm, 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 reflect the different personalities of the Sawiris brothers. Naguib is a racing car laughs Samih Sawiris.
OTH has ridden a rollercoaster. Starting in 1998 as a partner in Egypts first mobile phone operator,
MobiNil, OTH expanded rapidly, buying licencesoften at absurd pricesacross 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 countrieswhere it has 11m subscribers
and, estimates Karim Khadr, a telecoms analyst at HSBC, made a profit of around $370m last year.
Naguib now aspires to make OTH one of the worlds 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 financial restraint: as proof, he points to last years 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 fixed-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
firm valued at 12 billion ($16 billion).
Source: The Economist (print edition), 10 March 2005.
Exhibit 2
Pakistans Macroeconomic Climate
Population (million)
Nominal GDP (US$ billiion)
GDP per capita (US$)
Real GDP growth (%)
Consumer price inflation
(average %)
Exports (fob, US$ billion)
Imports (cif, US$ billion)
Trade balance
(customs, US$ billion)
2000
2001
2002
2003
2004f
2005f
2006f
2007f
137.5
72.9
530.1
3.9
3.6
140.4
65.7
467.6
1.8
4.4
143.2
73.2
511.2
3.1
3.5
146.0
83.4
571.2
5.1
3.1
148.7
93.9
631.4
6.4
4.6
152.0
104.5
687.6
6.0
7.8
155.3
113.9
733.4
6.1
5.0
158.7
124.0
781.3
6.4
5.0
8.57
10.31
1.74
9.20
10.73
1.53
9.13
10.34
1.21
11.16
12.22
1.06
12.27
15.47
3.20
Source: BMI research.

Notes: f: BMI forecast.
fob: Free on board.
cif: Cost, insurance, freight.
13.87
17.95
4.08
14.84
19.38
4.54
16.18
21.32
5.15
0.0
610
0.4
0.0
600
0.4
1,000
0.7
500
0.3
3
43.5
23.9
1.2
1,715
2.8
3,940
2002
0.5
812
2.4
3,400
Source: BMI research.

Notes: f: BMI forecast.
Ratio of telephones and population.
No. of main telephone lines in

Service (000)
No. of main telephone lines/100
inhabitants
No. of cellular mobile phone
subscribers (000)
No. of mobile phone
subscribers/100 inhabitants
No. of mobile phone
subscribers/100 fixed line
subscribers
No. of Internet users (000)
No. of Internet users/100
inhabitants
No. of Broadband Internet
subscribers (000)
No. of Broadband Internet
subscribers/100 inhabitants
No. of PCs (000)
No. of PCs/100 inhabitants
2001
625
0.4
0.0
15
2,600
1.8
81.2
2.4
3,450
2.9
4,250
2003
700
0.4
0.0
40
4,800
3.2
133.7
5.4
7,970
4.0
5,960
2004f
800
0.5
0.1
150
9,000
5.9
217.1
10.9
16,500
5.0
7,600
2005f
5.9
9,100
2006f
327.4
22.8
37,000
7.0
11,300
2007f
1,100
0.7
0.1
200
1,500
0.9
0.2
380
11,000
15,000
7.1
9.2
286.8
16.9
26,100
Exhibit 3
Pakistan Telecom Sectors Historical Data and Forecasts
2,200
1.3
0.4
600
18,200
11.0
425.0
30.7
51,000
7.2
12,000
2008f
ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: VIIVIII

Exhibit 4
Indian Cellular Market Growth
Source: Company documents.

Exhibit 5
Customer Research
A. Mobilink Customer Satisfaction
(Exhibit 5 continued )

B. Reasons for Satisfaction

C. Reasons for Dissatisfaction (February 2005)


D. Chance of Switching

E. Preferred Company for Switching


F. Main Reason for Switching (February 2005)

Exhibit 6
Customer Lifetime Value (CLTV) Calculations
Companies in the cellular industry typically spend a significant 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
flow method to calculate the lifetime value of a customer. The typical formula for calculating CLTV:
( Ma )r ( a 1)
AC,
a
a =1 (1 + i )
N
CLTV =
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 fixed across periods and
2. infinite economic life of customer (N ),
the formula can be simplified to the following approximation:
CLTV =
M
AC
1 r + i
Average revenue per user Cash cost per user

Source: This exhibit has been adapted from HBS Note 503-019 on Customer Profitability and Lifetime
Value and HBS Case 504-028 Virgin Mobile USA: Pricing for the Very First Time.
Exhibit 7
Market Prices and Prepaid Scratch Card Validities
A. Market Prices on 1 March 2005
Local
On-net
NWD (Average Distance Band)

Off-net
On-net
Off-net
Company
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
PaktelGSM
3.75
5.75
2.99
(12 p.m.
7 a.m.)
6.75
3.75
3.75
5.75
12.25
(10 p.m.
7 a.m.)
5.75
3.00
1.50
(10 p.m.
7 a.m.)
11.00
Ufone
0.99
(12 p.m.
7 a.m.)
3.00
1.50
(10 p.m.
7 a.m.)
6.75
Note: Prices/minute.
B. Prepaid Scratch Card Validities
Mobilink Card
PKR 300 30 days

PKR 625 180 days
PKR 1,000 180 days
PKR 1,500 180 days
Ufone Card
PKR 200 45 days

PKR 500 180 days
PKR 1,000 180 days
9.5
(10 p.m.
7 a.m.)

Paktel Card %
PKR 300 45 days

PKR 600 180 days
PKR 1,500 180 days
Exhibit 8
Telenor Launch Print Advertisements



Exhibit 9
Price Reduction Options
Options
Wait and see
Match Telenor 1
Match Telenor 2
Match Telenor 3
Beat Telenor 1
Beat Telenor 2
Proposed
On-net Rate
( PKR/min)
Estimated On-net
Incremental
Usage (min)
Proposed
Off-net Rate
( PKR/min)
Estimated Off-net
Incremental
Usage (min)
4.75
3.99
3.99
3.99
3.50
3.50
0
6
6
6
8
8
7.75
3.99
5.99
7.75
5.50
7.75
0
10
4
0
6
0
Exhibit 10
Mobilink 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.
z
z
Validity period: User could make and receive calls

Grace period: User could only receive calls. This was 15 days for all of Mobilinks 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 Mobilinks grace period customers is provided below:
Customers Entering
Grace Period
4,493
100%
Daily Recharge Trend within Grace Period
Recharge within
Grace Period
Days 13
Days 46
Days 710
Days 1115
Deactivated
2,307
51%
901
20%
511
11%
414
9%
481
11%
2,186
49%

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Asian Journalhttp://ajc.sagepub.

Farid Ahmad and Ehsan ul Haque

>> Version of Record - Mar 25, 2011

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: VIIVIII

MOBILINKPRICING UNDER COMPETITION

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

Personal interview with Mobilink managers.

8 FARID AHMAD AND EHSAN UL HAQUE

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

OPPORTUNITIES IN THE CELLULAR MARKET

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

Pak Telecom Mobile Limited (PTML)

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

PRICING IN THE CELLULAR MARKET

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

TELENORS LAUNCH AND THE VIDEO CONFERENCE

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

Personal interview with Mobilink managers.

16 FARID AHMAD AND EHSAN UL HAQUE

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

Our surveys suggest price is an important concern of customers, Bilal Sheikh

Personal interview with Mobilink managers.

MOBILINKPRICING UNDER COMPETITION 17

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

Source: Thomson Datastream.

18 FARID AHMAD AND EHSAN UL HAQUE

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

Source: BMI research.

MOBILINKPRICING UNDER COMPETITION 19

Source: BMI research.

No. of main telephone lines in

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: VIIVIII

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

Source: Company documents.

Source: Company documents.

MOBILINKPRICING UNDER COMPETITION 21

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

Source: Company documents.

Source: Company documents.

22 FARID AHMAD AND EHSAN UL HAQUE

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

Source: Company documents.

Source: Company documents.

MOBILINKPRICING UNDER COMPETITION 23

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

Source: Company documents.

N is the number of years over which the relationship is calculated;

24 FARID AHMAD AND EHSAN UL HAQUE

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

Average revenue per user Cash cost per user

NWD (Average Distance Band)

PKR 300 30 days

PKR 200 45 days

MOBILINKPRICING UNDER COMPETITION 25

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

PKR 300 45 days

Source: Company documents.

26 FARID AHMAD AND EHSAN UL HAQUE

ASIAN JOURNAL OF MANAGEMENT CASES, 8(1), 2011: 728

Source: Company documents.