TBY talks to Richard Shearer, CEO of Bakcell, on the company’s position in the market, number portability, and the prevalence of pre-paid.
TBY What is your history in the mobile telecoms industry?
RICHARD SHEARER I ran an operator in Bulgaria. I built it, and sold it twice to private equity firms. I was a board member at TPSA, which is Eastern Europe’s largest publicly traded telecommunications company. I’ve worked in 25 or so countries around the world, both during my time as a consultant or senior executive, almost always in telecommunications, and almost always in the mobile sector.
What sort of market share does Bakcell have in Azerbaijan?
About 35%. We’ve seen a huge increase in the last 12 to 15 months, taking 8 to 10 percentage points during that period, both through growth in the number of subscribers and also by taking market share from other companies—a 50/50 ratio overall. We’re getting towards the end of the penetration boom, and it’s currently around about 100% of the addressable market. That being said, there are elements of dual SIM ownership here, meaning some people have more than one mobile line, skewing penetration figures. That will continue as we sell more data SIMs. The market is moving from a traditional mobile voice-type market to one with more mobile broadband. That will drive further growth in the market.
How do you think number portability will change the market?
It’s an opportunity rather than a threat for us. We’re number two in the sector rather than number one, and so we stand to gain more than lose. Mobile number portability doesn’t really affect mobile data or mobile broadband. People don’t use the number at all. When I was in Bulgaria and we were new entrants to the market, we had a very successful program of selling new data SIMs because there was no equity in the phone number. You never saw it. All you were doing was accessing the internet. However, if you’ve had your number for five years you’ve got quite a lot of equity bound up in the number. People know it, and people call you on it when it’s a business number. So for us, portability is a good thing.
Do you think handset costs are high due to taxation?
There’s a lively secondhand market in handsets as well. If you want a handset you can get one, so it’s not too big an issue. On new imports, sure, handset costs are higher than in other markets. We don’t have a subsidy market here, which is good for the operators’ economics. We’re also at close to 100% of the addressable market, so it can’t have been that much of a barrier.
What would you identify as your target market?
We have a brand that appeals to a broad spectrum of consumers. We have very good value services for lower income users, and higher-feature services for medium and higher income segments.
What level of average revenue per user (ARPU) are you generating?
If you look at Azercell, their publicly available information from Telesonera states that they’re at about AZN8.50, and Bakcell is better than that.
How extensive is your network coverage?
We cover about 98% of the population and about 90% of the landmass. We’ll always keep expanding. The challenge is also depth. Research shows that we have by far the best network performance; however, the perception is that Azercell’s network is better than ours. We have to educate customers that the investments we’ve made in infrastructure over the last 18 months have made our network the strongest in terms of quality and availability. A substantial amount of investment has gone into increasing coverage and capacity.
Is your network officially ready to incorporate and provide 3G?
Yes. We’re ready to launch. Once the spectrum’s released to us there’s a lot of optimization work to do, and that would be the next phase. We will start in 2011.
What other projects are you looking at?
We are probably at or around the market average in terms of the mix of subscribers between pre-paid and post-paid services. We want to over-index in post-paid, bringing higher-feature services to higher-value customers, and a 3G platform is required to do that, obviously. Broadband in this country is a bit of a mix of various technologies, from fixed through WiMAX, through Wi-Fi, through mobile, and we’re really starting to stamp our presence in that marketplace. This is important to us from a strategic standpoint, both in terms of smartphone usage and in terms of basic broadband access. The internet in all its various guises is an important point of focus for us.
Do you think the underdevelopment of the broadband market when it comes to cable internet is giving a chance for mobile companies to expand in this field?
Absolutely. When you look at any kind of market where fixed infrastructure hasn’t been rolled out aggressively, everyone leapfrogs to mobile. Look at India with voice—no fixed infrastructure, yet massive growth of mobile voice. There’s no reason to expect that mobile broadband won’t experience the same thing.
What is your mix when it comes to post-paid and pre-paid accounts?
The market average is around 93-94% pre-paid. We index the market. We over-index slightly in post-paid.
That seems to be quite high for pre-paid. What is the reason behind it?
It is. Italy’s is 90%. My home is in Italy and everybody utilizes pre-paid options—I’ve got three pre-paid phones in Italy. India’s pre-paid ratio is almost 100%. I think the issue of pre-paid or post-paid is about how you pay for the services rather than about the classification of the customers. Historically, pre-paid customers were low value and post-paid customers were high value, but that’s now changed quite a lot over the last five or six years, and now it’s really about how you pay for the service. If you look at the tariffs, there’s little differentiation, and also little difference in usage. The reason customers go post-paid is to get a few more features sometimes, things that we can provide when we have an ongoing billing relationship with the customer, as we can understand a customer’s credit status, what he or she pays, how he or she pays, and how regularly he or she pays. Therefore, based on those variables we can offer different services to suit customer needs.
What is your general outlook for the mobile sector in Azerbaijan?
I haven’t been in this market for long, but I am very optimistic. I think there is a huge opportunity in broadband. We believe all markets are pretty much on the same curve—albeit different points of the curve—and we believe this market is about to explode in terms of broadband. Having a 3G network, having strong technology partners, and having a strong franchise with our customers means Bakcell is in a great position.
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