Surprisingly Zong feels it is not yet ready to take on the added challenge of integrating the Warid network with its own, Warid being on Ericsson and Zong on Huawei. DESIGN: CREATIVE COMMON
KARACHI:
If the news circulating in the market is to be believed, Ufone could be poised to become the biggest cellular player in the market, or close to it. There are very strong rumours, which no one is denying and many are supporting, that Warid is once more on the chopping block. The only company that has so far come out on the record and said it might be interested if the price is right is PTCL.
If Ufone does buy, it stands to become the second-largest operator with 36.1 million subscribers (based on March 2013 numbers). Mobilink will still be number one, but just barely with 36.3 million subscribers and Telenor will drop down to number three with 30.8 million subscribers. This will mean that Zong will maintain its position at number four but will then be a relatively tiny player – with 18.8 million subscribers in the presence of three giants.
We believe this is not a position Zong would want to be in. We also believe Zong would be smart to buy Warid. Zong, however, does not agree.
Warid has been ‘on sale’ for a long time. At one time there were rumours that Telenor was very interested, but that deal fell through. Mobilink has also been linked with it, but nothing really solid came out of that either. Then for quite some time, China Mobile, or Zong was linked with the buyout. This rumour was given credence by the company coming on the record and saying that it was targeting being the number two player by the year 2014, while it never actually said it wanted to buy Warid. Now Zong has upped the ante by saying that it wants to be number one in this market, without actually setting a timeframe for that ascension.
Perfect opportunity
Warid coming up for sale now offers Zong an opportunity to do just that. If Zong does decide to jump in and make this leap of faith, it will shoot straight to the number two position with 31.3 million subscribers. Zong has been growing at a faster rate than any of the other telecoms – a compound annual growth rate (CAGR) of 38% over the past four years – beating the industry average of 8.4%, this acquisition would set it up very nicely to challenge Mobilink for the number one slot, a position that Mobilink has never let go of.
But, surprisingly, Zong feels it is not yet ready to take on the added challenge of integrating the Warid network with its own, Warid being on Ericsson and Zong on Huawei. Zong also insists its current focus is more on acquiring an LDI licence and in upgrading to 3G. We feel the second two points are simply more reasons why Zong should buy Warid.
Warid already has an LDI licence. Problem solved. Also, the future is in data services, which pretty much all the telecoms agree, hence the urgency to get on with 3G. Data services will not be cheap and Zong’s customer base is not a very high-end user-base. It currently has the lowest ARPU in the market, at Rs151 per month – based on numbers for 2012 – and the CAGR from 2009 to 2012 has been minus 1.2%. Warid may have been leaking subscribers left right and centre, but in the same period, its ARPU has gone up from Rs142 to Rs179. Its ARPU growth is the fastest in the industry. This is the kind of high-paying user that Zong needs if it is to effectively capitalise on the market for data services.
Wait and see
Zong might be playing it smart though, hoping that Ufone too will decide against buying Warid, like Telenor and Mobilink have done in the past. This can drive the price down and Zong may then make a move. It may also be hoping that more subscribers will jump ship if Ufone – a company that has not exactly been a fan favourite of late – does acquire Warid. In this case, it may be hoping to grab some of the fallout. But we believe that the kind of subscribers that Warid has managed to hold on to, will prefer to move to some of the more established networks like Mobilink or Telenor, and not Zong. Zong would be wiser to buy Warid outright!
Published in The Express Tribune, July 8th, 2013.
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COMMENTS (20)
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@Bewildere It dosn't make sense if you have such experince and still living with it since 5 years. Get a life
Warid being the lowest ranked in terms of number of users is amazingly one of the best in terms of earning. With an ARPU of 171 and not to forget its the least spender on advertisemets as compared to other. Still warid enjoys 12m users. That's all because of the superiorty than others in term's of packages 3g service,in my openion the only reason for sale out is the amount of taxes telecom sector have to pay. I live in bahrain if I charge 1BD=260rs I get 1.1BD which is 286rs ..
according to my point of view Etasalat will buy warid because arabs always prefer arabs. and warid managment is not very much mature .Ufone have good managment skills ...
If Zong apply market development Strategy then How this strategy should be implemented ? Plz someone justify it,,,,,,,,, before 6pm today.
ET has literally buried all theories of finance alive today. This articles does not even cater to the basics of mergers and acquisitions. Who needs CFAs and CPAs when journalists who do not probably even have the slightest knowledge of finance can comment on the best bets. Please, for the love of economics and finance, hire someone who has at least knowledge of the subject.
i think ther will be a tough competition b/w ufone and telenor because each of them want to get the market share from moblink . let see. the futur prospectus of both.
@Farooq: Present Govt already sold 3G licence to their friends
I'm a user of Warid for more than 5 years now, and if they are the best, as some commentators are suggesting, then what would be the worst. They have the worst Customer Service, and despite my repeated requests they won't stop bombarding me with junk SMSs served from their paid service and of their own promotions. It is just because of the number, changing of which would be greatly inconvenient, I haven't moved to another operator so far.
As a frequent traveller, I use all networks. Warid has the best network, voice quality but low coverage and expensive packages. Management is pathetic and maybe thats why they lose customers.
Ufone is the worst in terms of call quality! Some good packages and excellent advertising skills
Zong has the best packages hands down, maybe the sole reason was huge growth. Network is ok. Better than Ufone but lower than mobilink/telenor
Telenor has excellent coverage. Even works in some FATA regions! A bit expensive
Mobilink, highest subscriber base, good corporate packages and customer service.
I like warid and im dishearten by it.
The first paragraph was extremely poorly written, and highly confusing.
Yes you are right , It also help zong to improve 2G band. Currently zong having EGSM band which is interfered that also impacting zong quality.But the thing matter who will get 3G/LTE licence.
I wouldn't take a minute to leave Warid if its purchased and converted into Ufone. The best network so far I have experienced is warid for its quality signal strength and voice quality which ufone can only dream of
Once upon a time,,, I had zongs ...or three days
Why are Warid selling-out, they are the best network with the best packages. If Ufone, the worst network in Pakistan without a doubt, or for that matter Zong acquires it then I am going to move to Telenor.
@those who think Zong is worst, try test-running a U-sim. I bet your opinion would differ then.
I just can stop laughing at 'compound growth rate'. Means there's something fishy about Zong's actual year-on-year growth rate, which is quoted as a standard means to gauge growth during acquisitions and mergers, internationally. This just provides hints that Zong hasn't registered any growth, and desperate to acquire to gain critical mass!
Amazing how ET manipulates words and figures to suit the highest bidder!
We are waiting for 3G . Who will buy liesence of that we need 3G.
Warid has its standard of superior technology and best connectivity than any mobile network in Pakistan and Zong shall make Warid's superior technology and best connectivity like its own...... Methinks Warid is for sale just due to the given 10 days' deadline to Etisilat to pay the $800m to PTCL within 10 days because how shamefully previous government sold PTCL's only and only 26% shares with administrative control to Etisilat.....
This article makes little sense. At one side it is being said that Zong's CAGR has been 38% over the past 4 years and then calling acquisition of Warid Tel a viable proposition. As per PTA's latest statistics Warid has a little above 12 million subscribers while Zong itself has 18 million subscribers.So if Zong continues to maintain CAGR of say 30%, if not the 38%, during the next 2 years then it will achieve the 30 million subscriber base mark. Hence the investment of billions in acquisition of Warid will be a complete waste of money, which if Zong invests in the improvement of its network would yield more benefits in terms of attracting subscribers from Ufone, in particular. Further if movement in the subscriber base over different networks is observed it is evident that during the years when Warid lost subscribers Zong benefited the most in terms of growth, followed by Telenor. We can presume that low budget consumers of Warid are shifting to Zong while high payers of Warid are moving to Telenor. This article should emphasis more on Warid to let down its guard on the price and divest at any price being offered by Zong before it bleeds to death and is left with to auction nothing more than its licenses.
Zong is the worst; they'll mess up Warid too. I dont know why Warid is going for sale; they provided the best packages and excellent service.