Analysis

CASE STUDY : XYZ TELECOM ORGANIZATION ENTERING INTO UAE

SUBMITTED BY:PRATEEK SIGH [email protected]

AGENDA

Three objectives :

1. Secondary research for the XYZ organization.

2. Create a Methodology for successful entry.

3. Provide a sustainable solution for business.

GCCCOUNTRIES

GCC COMPANY COMPARISON

Country Subscriber base(08/09)

Growth rate (08-09)

No of players GDP(PPP) GDP Per

capita (PPP) ARPUPrepaid postpaid

ratioInternet

user

UAE 10 million 25.60% 2 $ 201 Billion

$ 42,000 USD 55 1.9 2.92 Million

Saudi Arabia

44.8 million 43% 4 $ 585.8 Billion

$ 20,400 (Not able to find)

6.34 7.7 Million

bahrain 1.4 million 16% 2 $ 27.99 Billion

$ 38,400 USD 30.24 4.8 4,02,900

kuwait 3 million 22.00% 3 $ 145.7 billion

$ 54,100 USD 54 5.24 1.4 Million

Qatar 1.8 million 21.10% 2 $101.4 Billion

$121,700

USD 45 (Not able to find)

4,36,000

Oman 3.9 millon 20% 2 $ 69.48 Billion

$ 23,900 USD 23.81 10.06 4,65,000

Mobile Penetration Rates in Middle East

Major Operators in GCC

Assumption• XYZ is an Indian organization with a good financial for the

development of infrastructure.• Is looking to invest in UAE.• Has considered all the legal consequences that are applicable in UAE.• Company is looking for quick launch within 3 to 6 months time span.• Research methodology used for the firm would be according to

current scenario and it can have secondary data research.• Company is having Approx $ 70 million for marketing Budget• Company has a brand name that consumers perceive as value for

money, quality, innovation and an aspiring degree of fun and competitive challenges.

U.A.E

UAE (Major City)Leading population centers

RANK Core city EMIRATE Population Metro area rank

1 Dubai Dubai 1,770,533 1

2 Abu Dhabi Abu Dhabi 896,751 2

3 Sharjah Sharjah 845,617 3

4 Al Ain Abu Dhabi 651,904 2

5 Ajman Ajman 372,923 5

6 Ras Al Khaimah

Ras al Khaimah 171,903 6

7 Fujairah Fujairah 107,940 7

8 Um Al Quwain Um Al Quwain 69,936 8

9 Khor Fakkan Sharjah 49 635 7

10 Dibba Fujairah 30,000 7

Telecom revenues breakdown in 1H09 (rounded figures)

• The telecommunications sector in the UAE experienced dramatic growth between 2003 and 2008. Revenues tripled, reaching AED 27.72bn in 2008 vs. AED 9.2bn in 2003, whilst the telecoms sector contribution to UAE’s total GDP increased from 3.1% to an estimated share of 5.2%.

• Even in 1H09, amidst a global economic slowdown, telecom revenues rose by 12%, reaching AED14.5bn. 59% of these revenues were generated from mobile services, whilst data services and fixed-line generated 14% and 13% respectively.

Telecom marketMobile Segment

Fixed-line Segment

Internet Segment

•Introduction of competition

•Inflow of expatriate•High GDP per capita•Dual SIM card usage•Intensification of competition•Network upgrade by operators

• Real-estate roll-out in New Dubai• Competition on the international calling front• Spread of FTTH network• Provision of triple-play service

Skilled citizens• Advanced IT infrastructure• Expanding broadband connectivity

Market Structure

Subscriber 4-year CAGR by segment (2004-2008)

UAE mobile subscribers and YoY growth

Operators net additions and market share (quarterly)

Parameters Du Telecom Etisalat

Customer Base 3 million 7 million

Active Customers (Approx.) 2.7 million (90%) 5.6 million (80%)

Prepaid subscriber 1.8 million 3.64 million

Postpaid Subscriber 0.9 million 1.96 million

Current paper based/physical recharge customers

1.6 million approx. 3.3 million

Current Virtual recharge customers

0.2 million 0.3 million

MARKET OVERVIEW

Mobile

Fixed-line

Positives Negatives

- High government stakes in both operators tend to limit price wars between operators.- Adoption of UMTS/HSDPA+ network stimulates usage of value-added mobile services.- Convergence between mobile and internet helps operators boost their data-related services.- Dual SIM usage ensures a sustainable market for mobile services despite high penetration rate

- The extraordinary high mobile penetration above 200% provides little room for growth due to market saturation.- Intensification of competition depresses tariffs, especially on the international front, leading to ARPU erosion.

-The extension of FTTH network by both operators opens a market for fixed-line through triple-play services, which will likely attract a new wave of customers and enhance ARPU.- The relatively low maintenance cost of FTTH network will reduce the incurred costs ; thus improving EBITDA margin for telecom operators in the UAE.

-The economic downturn and real-estate crisis triggered a contraction in fixed-line market by 2k subscribers in 2Q09 reaching 1.659 mn subscribers vs. net additions of 23K recorded a quarter earlier.- The concentration of du's services in New Dubai renders fixed-line market a concentrated one even after the introduction of competition.

Market

- A moderate internet user penetration level of 71% based on users suggests growth potential.

- The adoption of advanced technology WiMAX and UTMS/HSDPA+ enhances the provision of high-speed mobile internet.

-The availability of smart phones stimulates the growth of broadband users.

- The existence of well-educated citizens ensures a growing addressable market for internet connectivity.

- There is a trade-off between lower data usage (as VoIP is banned) and lower international calling traffic (once VoIP is permitted), given the country's large expatriate population.

-The existence of stringent state censorship on certain sites may inhibit internet usage.

Positives Negatives

Internet

Methodology

STEP OBJECTIVE KEY ACTIVITIES OUTPUT1. Problem Identification

Identifying the Market challenges That XYZ would faced will entering in the UAE Telecom sector

1. Porter Analysis of UAE Telecom Sector. 2. Pest Analysis.

a)Help in determining the competitive intensity, and thus the overall attractiveness of a market.

b)Help in describes a framework of macro-environmental factors.

2.Research Agenda

To provide a comparison of the countries in the GCC in terms of telecom metrics like subscriber base, ARPU, growth rate, pre-paid postpaid ratio, mobile services revenue, competition level , broadband penetration

Develop a formal research agenda, perform secondary research.

Input for the Methodology ,Clear representation of the metrics, A Suitable entry strategy for the operator.

3. Secondary Research

To investigation of secondary sources of data. This would help in identification of the challenges

Retrieved from World Wide Web, unpublished sources and computerized literature retrieval databases.

The market or target population characteristics and check relationships among variable. The results lead to formal conclusions and recommendations to inform decision-making. The idea is to get enough response that the research will feel confident that the results reflect the market.

4. Suggest a framework

Formulating strategy for the firm involving management.

1. Private Equity framework: To make Investment Decision 2. Internal and external frame work: To understand market trends, competitor, cost structure. 3. SPACE matrix Framework: To determine what type of a strategy a company should undertake

Entry strategy for the organisation to capture market

Forces to consider Drivers Importance

Competitive Rivalry (High) 1. Players: a) Du b) Etisalat2. Market growth a) mobile (24% growth in last 4 years) b) Fixed (8% growth in last 6 years) c) Internet(25% growth in last 4 years)3. Market Size (10 million)4. Marketing cost

High

High

MediumHigh

Bargaining Power of Supplier(High)

1. Switching cost2. Degree of supplier

differentiation.3. Supplier price comparison.

HighLow

Low

Bargaining Power of Customer(Medium)

1. Price sensitivity2. Switching cost3. Buyer volume 4. Discount negotiation result

MediumHigh

MediumHigh

Porter analysis :

Factors UAE Conditions XYZ Conditions of current working place

Culture Multicultural society Multicultural society

Currency Pegged with USD Uniform

Economy Stable and Growing Stable and Growing

Government (Political) Stable May be unstable

Labor Skilled workers available and Highly skilled expatriates. Skilled workers available

LanguageMultiple languages as there are many expatriates from various parts of the world

Different languages

Marketing Many media, But more restrictions Many media, no restriction

Infrastructure World class infrastructure May be inadequate

Pest Analysis

Competitive Analysis of RivalsFACTOR Etisalat Du

Positives

EBITDA Margin:higher-than-expected due to opex optimization

UAE ARPUs: better than-expected

Associates: better than- expected mainly on strong performance of Mobily and XL.

ARPUs: rebounded after a weak 1Q and came better-than expected

Mobile Subscribers:Additions surprised positivelyFixed-Line &

Wholesale Revenue:stronger thanExpected

NegativeUAE Mobile Subscribers: negativesubscriber additions in the UAE for the first time vs. Our expected positive additions

3Q2009Outlook

Slowdown in Revenue Growth:due to slowdown in the UAE subscribers growth

Slowdown in Revenue Growth:due to slowdown in subscriber growth

Market Share

SPACE Matrix Strategic Management Method Internal Strategy Position External Strategy Position

Axis X

Competitive (CA) INDUSTRY (IS)

Weightage (-6 worst, -1 best)

Factor Weightage (+6 best, +1 worst)

Factor

-1-6-1-1

PRODUCT QUALITYMARKET SHAREBRAND IMAGE

PRODUCT CYCLE

+6+5+4+6

BARRIERS TO ENTRYGrowth potentialCONSOLIDATIONACCESS TO CASH

AVERAGE : -2.25 AVERAGE : +5.23TOTAL AXIS X SCORE : 3.00

Axis Y

FINANCIAL (FSA) ENVIRONMENT (ES)Weightage (+6 best, +1 worst)

Factor Weightage (-6 worst, -1 best)

Factor

+5+4+6+5

ROALEVERAGELIQUIDITY

CASH FLOW

-3-2-3-1

INFLATIONTECHNOLOGY

DEMEND ELASTICITYTAXATION

AVERAGE : +5.00 AVERAGE : -2.25

TOTAL AXIS Y SCORE : 2.75

25

Conservative Aggressive

Defensive Competitive

SuggestedStrategy Type

SPACE MATRIX

2.75

3X Axis

Y Ax

is

S T P Analysis

• Segment : Age Structure:

• 0-14 years: 20.4% (male 500,928/female 478,388)• 15-64 years: 78.7% (male 2,768,030/female 1,008,404)• 65 years and over: 0.9% (male 27,601/female 15,140)note: 73.9% of the population in the 15-64 age group is non-national (2009 est.)

• Target : Youth (12-29) 35% approx.• Positioning :

Youth and Mobile:Desire for personalization.Love for Music.Dynamic change of taste.

“They are the household chief technology officers” (enjoys figuring out new feature)Impressed by viral application and use messaging to keep in touch.

How to position

Access to branded accessories and phones like Iphone, Google and BlackBerry and Brand accessories like MTV which represent hip-hop and youth culture.

Text messaging: this should be free between XYZ Customers.

Rescue Ring : A fake call at any time the customer wants with what ever massage the customer want to hear from us.

Online Real-time Billing

Wake up Call : Alarm for customer.

Ring tones : latest ring tones for various nationality.

The Hit List.

Fun Clips : Cartoon clips, youtube clips, Uploading clip to youtube.

Social networking Site features for the customer like facebook any myspace.

Music Messenger .

Movies : Online movie viewing on their Mobile set.

AirTime Earning Scheme : Call your friend on XYZ network and earn some air time.

Options for price structure

1. Clone Industry Prices: contracts

2. Set prices below competition: contracts

3. A whole new plan: prepaid pricing

#1 Clone Industry Prices

• Pros– Give customers more features

for the same price – Easy to promote, use current

models– Limited spending power on

promotion may be a justifiable factor

– Viable with Virgin Mobile’s limited advertising budget

• Cons– May drive margins down if

additional features are costly– Reduces competitive advantage– Difficult to penetrate saturated

market with similar offer as competitors

– Competitive with other cell phone providers and packages; does not support strong market differentiation

#2 Price Below Competition

• Pros– Drive sales and market share– Accounts for limited spending

power of target market

• Cons– Margins and profitability will be

driven down– Inconsistent with company goal

of profitability– Cannot compete in price wars– Not a long term solution

#3 A Whole New Plan: Prepaid Pricing

• Pros– Differentiate from competition – Cater to the needs of target

market– Flexibility is attractive to target

market– Profitability is key– Eliminates risk of missed

payments

• Cons– Risk of limited returns and

loyalty– Churn rate may increase

MARKETING PENETRATION

Pricing Strategy : Option 3 from the above Strategies Pricing Objective:

Sales Maximization Demand Estimate:

Current market penetration of target market. Create Demand amongst remaining. Capitalize on Highly Elastic Demand of Target Market.

Cost Estimates: Monthly Cost to Serve per Customer

Networking CostCustomer Service Cost

Pricing Method : Penetration Pricing Costs per Unit is inversely related to Number of Subscribers Reduce CCPU by increase in Number of Subscribers Increase in Margin will follow

•LTV=Life Time Value.•ARPU= Average Revenue Per Unit.•CCPU=Cash Cost Per Unit= 45% of ARPU.•M=Monthly margin =ARPU-CCPU.•AC=Acquisition cost.•r=Retention rate= 1- churn rate.•i=interest rate.

ACir

MLTV

1

Advertisement

• Marketing budget $70 million.• Quirky and offbeat advertising, different from

the competitors.• Street marketing.• Teens to be used for marketing.• Youth magazines like The Complex, Vibe,…etc

are to be used to publish “advertorials.”

CONT. Advertisement Example

References

• http://www.citc.gov.sa/NR/rdonlyres/ECC196FF-D3C1-4C88-B793-685C96CA0309/0/ICTSectorinKSA2009English.pdf

• http://www.tra.ae/annual_ICT_industry.php• http://www.reportlinker.com/p0131813/Saudi

-Arabia-Telecoms-Mobile-and-Broadband.html?request=news

• http://www.tra.gov.om/newsite1/Portal/Upload/Documents/398_Q4-2009.pdf

• http://www.tra.gov.om/newsite1/Portal/Upload/Documents/337_08AnnualReportEn.pdf

• http://www.globalinv.net/research/GCCTelecom-112009.pdf

• http://www.zawya.com/printstory.cfm?storyid=ZAWYA20091228053738&l=053700091228

• http://www.tra.org.bh/en/pdf/TelecommunicationsmarketsindicatorsintheKingdomofBahrain.pdf

• http://www.tra.org.bh/en/marketstatistics.asp• http://www.gulfbase.com • http://www.mckinseyquarterly.com• http://www.escwa.un.org/popin/members/uae.

pdf• https://www.cia.gov/library/publications/the-w

orld-factbook/region/region_mde.html• http://www.zawya.com • http://www.ptc.com.sa

• http://www.ft.com/home/middleeast• http://www.gulfbase.com/site/interface/Spec

ialReport/Qtel_15102009.pdf• http://www.reportlinker.com/p0189736/Saud

i-Arabia-Telecommunications-Report-Q2-2010.html

• http://www.reportbuyer.com/telecoms/country_overviews_telecommunications/kuwait_telecommunications_report_q2_2010.html

• http://www.nbkcapital.com/BR/Research/MER/Telecom%20Sector/Kuwait/Wataniya%20Telecom/NBK%20Capital-Wataniya%20Telecom%20Initiation-02July2009.pdf

• http://www.itu.int/ITU-D/ict/newslog/Qtel+Subscriber+Base+Exceeds+Countrys+Total+Population+Qatar.aspx