The Pakistani telecom industry is facing a slowdown as explained in detail by Shahbaz Khan in an earlier article on Pro Pakistan titled “Pakistan Cellular Market on a Downward Slide“. The slowdown has resulted in reduction in the acquisition of new subscribers and hence cast a new negative spell on the continuous growth for the telecom operators. If that was not enough, the government implemented the abolition of pre-activated sims in the market and hence further slowed down the growth to a standstill.
Now that the revenue side is not giving any positive outlook, companies are forced to look towards their cost side and hence will try to rationalize it to show a steady growth in their overall profitability. The focus on rationalizing cost is already evident in the telecom industry of Pakistan. I will share with you few of the cost rationalization strategies that are generally used by telecom wireless operators in the low ARPU markets.
Network and Cell Site Sharing
Coverage is one very important attribute for the success of any wireless telecom operator but coverage has certain costs associated with it. Generally in telecom industry, it is categorized as “Network Opex”. Network Opex is one of the major cost centre that needs to be rationalized in the current low ARPU market.
For this purpose, telecom wireless companies are coming up with the idea of sharing their cell sites with other operators in the market. Cell site sharing is already witnessed in the Pakistani market where operators like Ufone, Mobilink, Warid and Wateen have already signed agreements and sharing sites on One to One basis. I believe that the potential of cell site sharing is yet to be recognized in the Pakistani market and i think with regulations from the government, it can be effectively implemented in Pakistan.The concept of network sharing is yet to be witnessed in the Pakistani market as the market is not mature enough to take this step. But it will surely be implemented in the near future as survival depends on such strategies to keep the businesses running successfully in the over competitive market of Pakistan.
Distributed Network Architecture
In layman terms, distributed network architecture means that cellular operators network will route local calls from the same cell sites rather then taking them back to the core network and re routing them to the same cell sites. This results in substantial saving on the costly back haul resources for the operators. In majority of the local calls that are made in far fledged areas, the network route the calls to the core network using different expensive back haul resources which then re route them to the destination cell site. In case distributed network architecture is implemented in rural and mountainous areas of Pakistan, it will result in substantial reduction in cost for the operators. Distributed network architecture can be implemented in Baluchistan, Northern Areas as well as in Kashmir where expensive means are used for inter connectivity between cell sites and core network.
Optimizing Power and other Utilities Consumption
The cost of electricity and power is fast going up and hence becoming one of the major cost centres for everyone. Since telecom wireless networks are extremely power hungry, their need for power is becoming a constant headache for the GSM operators. In the low ARPU market, increasing coverage means a lot of new cell sites and hence more and more requirement for power. The network has to be kept running 24 hours a day and 7 days a week for the whole year. To cater to this uninterrupted demand for power, different power sources are utilized. The list include regular line based electricity, Diesel powered generators and UPS. Just imagine maintaining all these power sources well maintained requires substantial amount of investment. The new trend in the GSM based vendors is to come out with new technology that requires less power to operate. A lot of new research is taking place in this particular area of optimizing power usage by the GSM network. Some vendors have come out with new innovative methods of keeping the system running on minimum level when there is less traffic load on it. Majority of the components that are not utilized goes into standby mode and hence save energy. Passive strategies are under consideration to cool the base stations rather then the current active strategy of using air conditioning units. For the time being the cost of fuel has come down but it will sooner or later rise back and hence will create serious problems for the operators.
Rationalizing Network Maintenance Cost
The telecom wireless network and specially in the case of GSM technology that is used in Pakistan, requires constant maintenance and support. Just imagine that if one specific site in an urban area generates 2000 calls at a normal level and it goes down, how much revenue can be lost by the operator. Not only this, the down time will also result in substantial customer dissatisfaction and hence might result in higher churn rate. Keeping in mind the current market conditions, no operator would ever let it happen. Therefore, companies sign Service Level Agreements (SLA’s) with vendors for maintaining their network. These SLA’s are generally very stringent and hence the vendors charge a very high amount for it. I believe that in the low ARPU areas, the company can relax the SLA’s to a certain level where it don’t irritate the customer to leave the network and yet saves a lot of money because of these less stringent SLA’s and other maintenance agreements.
Human Resource Cost
The Pakistani telecom operators have done excessive hiring in the last two years and hence everyone of them is operating with at least two thousand permanent employees. The cost of such a huge human resource is very high. Recently, we all witnessed that Wateen Telecom lay off 200 of its employees. Rumours are rife in the market that other operators have also made similar lists. There is already a freeze on the hiring of new employees and very less movement is seen in terms of switch over from one operator to another. Since GSM service operators are one of the best employers in Pakistan, everyone wants to be part of this industry. What i believe is that the operators should rationalize their human resource cost by laying off the excess employees that they required during the growth stage. Since the industry is facing maturity and the addition of new subscribers is slowing down, the requirement for huge sales force and supporting staff is also decreasing. Optimizing the human resource cost will surely put a positive impact on the current EBITDA levels in the industry.
There are many other avenues in which we can reduce cost but i only tried to focus on those which are main drivers of the overall cost and also generally left untouched. I would like forward to your feedback and to other areas where you think the cellular operators can save cost?
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