Price War in Pakistan Cellular Industry

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Management Sciences Department NUCES 0-001-008 June 12, 2008

PRICE WAR AMONG PAKISTAN CELLULAR COMPANIES

Price war is a global phenomenon. In the present world of economic growth, changing socioeconomic factors, dynamic labor markets and hyperactive macro environmental factors, almost all the companies face the problem of Price war. In this very competitive business environment no business can enjoy and sustain the success until it deals with the problem of lowering its’ products prices efficiently and successfully. In the near past, the competition among the businesses has been immense which has increased the importance of pricing function in any organization. Now companies are very cautious about the pricing policies and there is a great emphasis on defining the pricing efficiently not only to increase the market share but also to get the competitive advantage. Pricing is considered as the basic function of marketing in which companies invest heavily to attract and retain the customers. And after all these efforts, losing these customers is a great loss to the companies. Therefore, there is a great need to first, identify the factors that cause the company to enter into the price war. Secondly, devise the strategies to avoid entering into the price war scenario. And finally, come up with the ways to sustain its market share and reputation in price war situation.

Pakistan Government issued Telecom deregulation policy on 13th July 2003 which ended the monopoly of PTCL and awarded two new mobile licenses in April 2004, bringing the total number of licenses in Pakistan to six. As a result in early 2005 Telenor-Norway based company-entered into the Pakistani market with number of different tariff plans at a very low call rates. And this was the turning point for the existing players. Ufone, the state owned GSM operator re-launched its services during the year-returning to the market after a gap of more than a year. Paktel also converted to GSM technology and launched its services aggressively. Mobilink’s recognition within the market, its history of cash generation and profitability, the support of its majority shareholder, and the existing coverage and quality of its network provide Mobilink with a strong foundation on which to consolidate its market leadership and increase the competitive pressure it can impose on the existing operators. But still those big players kept their rates little above to that of Telenor in order to get the advantage of more covered locations network wise. Then in the mid of the same year, 2005, a UAE based group enter with a new brand, named, Warid Telecom. Induction of two new operators has ignited the price war among the operators. Launch of services by Telenor and Al-Warid, have fuelled this fire in the market.

When a market expands as a whole, the growth may be at the expense of a lower ARPU (average revenue per user), which would result from lower tariffs and lower MOUs (monthly minutes of usage). The decrease in tariffs and MOUs would be mainly a consequence of the companies targeting lower income level households through prepaid smart cards. But this tactic would not remain long lasting because the competitors responding to it very quickly and ultimately the companies need to come up with new tariff plans via cutting their margins once again. This leads the players of cellular sector to remain unable to cut the margins any more and shift their focus from low pricing to value added services or bundle packaging e.g. currently Ufone is providing handset with its SIM. Currently the companies are coming up with new innovative value added services by keeping the call rates constant. But, unfortunately, due to multiple factors such as low literacy rate and high number of...
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