Competitive GSM Companies in Kazakhstan - Case Study Example

UCL Language Center UPCH Term 2 Culture and Society Research Project Topic: Competitive GSM companies in Kazakhstan, in particular 'K'cell' and 'K-mobile' Tutor's name: Sandy Nand-Lal Vyacheslav Prokopenko (UPCH) Word count: 3197 19.02.2008 Table of Contents UCL Language Center 1 Tutor's name: Sandy Nand-Lal 1 Word count: 3197 2 Introduction 3 The Research 3 Present GSM Scenario 4 Kazakhstan's Telecom Market 4 Business strategies of Telecom Operators 6 Economic Aspect 7 Market Segmentation 8 Socio-cultural issues 11 Conclusion 14 Bibliography 16 Introduction On the contemporary phase there is hardly any industry or company that operates without smart application of information communication technologies benefits. Thus, undeniably, ICT have improved these standards in all walks of life. Mass digitalization has spoil 21st century economy and potentially superseded the effects of the 20th century mechanization. This is the positive outcome of network result due to the mass application of mobile telephony, wireless communication, smart cards, Internet, and broadband telecommunications on both private and corporate levels. New applications are developed since the more users befit from additional value. The path of technological development cannot be bended and today's human interactions predominantly rely on advanced networking options applied greatly in every corner of the globe. The Research This culture and society research project analyzes the competition between GSM companies in Kazakhstan, particularly 'K'cell' and 'K-mobile'. The emphasis is placed on social problems, including poor quality of service, prices, and customer attitudes. The research question is whether there is true competition between GSM companies in Kazakhstan, especially between 'K'cell' and 'K-mobile'. The spotlight of the research is how competition affects people living in Kazakhstan. Present GSM Scenario One of the most significant innovations in mobile communications and cell telephony is associated with the approval of the Global System for Mobile Communications (GSM) standard in 1984 by the European Commission. As of 2006, GSM was actively applied by more than two billion people in over 212 countries.1 In actual fact, GSM standard assumes cellular network that connects mobile phones by searching nearby cells. In turn, mobile phones operators apply GSM to provide international roaming worldwide. Customers apparently benefit from GSM application since it enables them to receive high digital voice quality at relatively low cost for calls and text messages. Another attribute of GSM popularity is the SIM card. Subscriber Identity Module, which is a detachable smart card that stores user data. Mobile operators are changed at users' discretion by simple replacement of SIM cards (GSM Association, 2007). Kazakhstan's Telecom Market Kazakhstan's telecom market is booming. According to the new legislation adopted in 2004, the telecom sector was liberalized and that stop 'Kazakh telecom' monopoly. Rapid development of the mobile market led to the increase of mobile subscribers (from 260,000 in 2000 to more than 5 million in early 2006) (Totel, 2006). At present, two leading GSM providers operating in the Kazakh domestic market are "K'cell" (60%) and "K-mobile" (30%) with the remaining 5% covered by other mobile operators. 'K'cell' was founded on 30 September, 1998 and since then it is symbolized by 'K'cell' and "Active" trade mark. The company involves such shareholders as 'GSM Kazakhstan', "Kazakh telecom" JSC and the joint company representing three countries, Finland, Turkey and Sweden, "Fin Tur Holdings B.V." Furthermore, 'K'cell' is a national leader, consider the scope of provided services, to number of subscribers (approx. 3.3 m.), and actual amount of investments. To prove this, during 2002-2005 the company was awarded the status of a lead cellular operator in Kazakhstan (K'Cell, 2006). In addition, the company was warded the prize called "Choice of the Year in Kazakhstan" and therefore became lead cellular operator in Kazakhstan for 2008. Moreover 'K'cell' was the first company in Kazakhstan that introduced GPS, WAP, and MMS, as well as the initial provider of GSM standards with the focus on serving large corporations. 'K'cell' is positioned as an efficient and highly profitable company that serves large corporations due to affordable price policy and high-quality service. Furthermore, 'K'cell' maintains its lead position on the domestic market due to its "barometrical lead status", which is apparently proved by numerous awards and prizes won by the company over 2002-2008. In addition to this, 'K'cell' permanently maintains high degree of flexibility regarding harsh competition with its main rival as well as other operators dealing on the market. Therefore to preserve its lead position the company is constantly ready to alter its strategic policy as the case may be. The second largest mobile operator in Kazakhstan is 'K-mobile' which covers 35% of the national mobile market. It was founded 2 years after 'K'cell', and became its main competitor. 'K-mobile' is considered the largest national state company in Kazakhstan. Interestingly, this company covers larger catchment areas compared to that covered by 'K'cell'. The company's annual revenue exceeds 180 million dollars. By mid-2007 the company had 2 million subscribers. This number is permanently ascending due to the low-tariff policy applied by the company. Moreover, 'K-mobile' won sufficient marketing niche due to effective customer-oriented advertising campaign. In particular, 'K-mobile' spends several million dollars to provide significant promotions. Not surprisingly, most government officials use 'K-mobile' services and facilitate this national producer since the company promotes national production on the domestic market (K-mobile, 1998). Business strategies of Telecom Operators According to Mrs. Dzhapueva, over the year's operation of two companies have never experienced direct competition due to the fact that 'K'cell' is largely oriented towards implementation of new mobile services and innovative technologies, whereas the 'K-mobile' strategy is oriented towards introduction of lower tariff policies to attract more subscribers. Furthermore K-mobile's revenues, innovative technologies, and the actual number of subscribers fell behind compared to those of 'K'cell'. According to interview that I have done there is no actual collusion between the two companies, the only agreement that binding them is to send SMS messages. However it seems that both companies have experienced a certain degree of price collusion, though actual details are not made public. In turn, 'K-mobile' brand manager, Nurlan Serikov, claimed that the company is eagerly striving to increase the number of users and enlarge the covered market share to even actual penetration with K'cell in a few years time. Thus, the company's long-term objective it to win 50% of the national market and attain lead position. In 2007, 'K-mobile' sold 550000-600000 numbers, while in 2008 this number increased up to 800000 numbers including Beeline. The company's market share has increased by 5% in 2008. As was already mentioned above, the company's success is largely explained due to effective advertising campaigns covering most mass media channels. More than that, 'K-mobile' is rather active participant in hosting charity actions as well as various surveys to attract highly-skilled staff. The company's profits are deemed as super normal, including, high taxes, so the company is balanced on own revenues. Economic Aspect On the economic side, Kazakh domestic mobile market falls into oligopolistic category with a 'duopoly' shared between 'K'cell' and 'K-mobile'. This means that oligopoly market structure is operated by few companies (Glanville, 2003) that actually dominate it. At that, the market is featured by high entrance barriers, including the high cost of R&D in communication area, high production cost and tooling-up of good quality standards, as well as high marketing costs. Thus, the remaining companies cannot enter the market easily and so compete on it properly (HarperCollins Publishers Limited, n.d.). Such market environment is established to reduce prices and increase supply. Under the control of two or more market players, oligopoly necessitates 'interdependent behaviour' (Glanville, 2003). The domineering company, for instance, is free to change its price policy interdependent with other rivals. Market Segmentation In due case 'K'cell' actually controls the market and is regarded a highly profitable company by earning super normal profit (SNP) that leads to monopolistic status in the long run. Such situation actually disables other players to enter the market and gain sufficient share therein. For example, Moscow Telecom Network (MTN) is making efforts to enter Kazakh market, though it seems that the state telecom-oriented policy is interested in keeping 'K'cell's' dominant position since the company pays solid taxes to the state budget. On the other hand, 'K'cell's' major stakeholder 'Fin Tur' (51% of stock capital) is not interested in the increase of competition on the Kazakh's highly profitable market. Odds are that there is certain mutually profitable agreement on fair competition concluded by 'K'cell' and 'K-mobile' to maintain domestic competition unchangeable. At that, end users are not safeguarded from temporary price fluctuations that may potentially increase the cost of mobile communication services in the country. In the foreseeable future, however, the national telecoms market stands chances to transfer from monopoly to a "mature" competitive market that corresponds to the principles of market economy. Apparently, cartel-oriented development has no great future in Kazakhstan since any domestic market is a part of global competition, and so Kazakh telecom market cannot function in isolated conditions with only two operators. The shift to mature competition certainly demands time and effort, though presumably more and more new operators will be competing for gaining their own share on this developing market. More than that, cartel deals cannot keep end users loyal for the long period of time; they will certainly change operator whenever prices go up, or for any other reasons or/and individual preferences. Therefore, Kazakh telecom market will be son prone to various alterations, including re-branding, mergers and acquisitions, investments and exported capital from abroad operators aiming to provide high-quality cellular services in GSM standard. The interdependent agreements to avoid collusion between two lead operators is fine short-term strategy to keep customers satisfied, though competitive market will not allow them to mutually control telecoms sector for good. Therefore, it would be advisable if the companies let other operators to compete on the same principles of fair market presence. The market will eventually benefit from new incentives, innovative strategies, advertising campaigns and promotions, price policies and international perspectives (Ahonen, 2002). And so will Kazakh people - millions of current and potential subscribers that demand high-quality communication service. This is to stress that the domestic competition between 'K'cell' and 'K-mobile' is not enough to potentially satisfy future telecom market demands; furthermore, such monopolistic competition with oligopoly status does not adhere to the international principles of market economy. Neither will it suit World Trade Organization (WTO) principles, for example. Thus, the competition between two domestic operators can hardly be deemed true. In other words, it is a competition fair just to a limited extent to serve short-term market demand. Without innovative developments and presence of new operators the domestic market will be prone to downfall, since neither 'K'cell' nor 'K-mobile' are able to compete internationally regarding their monopolistic attitude. Nonetheless, this economic situation is peculiar to the developing country with GSM development over less than a decade. Furthermore, for the time being, local customers are fairly satisfied with the offered telecom services. Though, whenever they compare domestic situation with those in well-developed countries they hardly pay compliments to either 'K'cell' or 'K-mobile'. This means that domestic market is not in fact competitive; it is rather interdependent and controlled by the state-owned and private company. Such state of affairs allows both companies to decide on the best alternatives for themselves not end users. In due course, innovation-oriented population is hardly satisfied with such limited choice of telecom options. Thus, the current situation necessitates long-term change. To gain most benefits and cope with the situation in a right way both companies should somehow motivate their competitors and let them bigger share on the market. It is evident that today's correlation of '60-35-5' can hardly be regarded as fair or competitive. Socio-cultural issues Apart from economic aspect, there is also socio-cultural issues on the Kazakh telecom agenda. Mobile communication sector presupposes numerous socio-cultural aspects, many of which are deemed problematic in various world countries. There are numerous research studies regarding the factors that affect adoption and/or application of new communication products and services. At that, many behavioral and psychological factors affect the adoption of new innovations, including: the ease of use, customer awareness, accessibility, security and techno-phobia largely associated with the reluctance to change, cost of adopting the innovation, preference for personalized services (Suganthi, Balachandher and Balachandran, 2001). Moreover, customers' acceptance of technological innovations is not only influenced by their demographic and socioeconomic characteristics. What matters even more is their perception of specific technologies and their main features. For instance, customers are motivated to use communication and mobile services due to the perceived convenience and time saving. To this end, many studies indicate that customers will not adopt any innovative product unless it reduces their costs and does not require them to change their behavior when using it. Thus, adoption has also been associated with a technology's availability and the time required learning to use it (Anguelov, C. E., Hilgert M, A., Hogarth, 2004). One of the most important features for adoption or acceptance of any innovative service or product, therefore, is the creation of awareness among the customers of the product or service. To this extent, Rogers and Shoemaker (1971), asserted that certain amount of conviction, knowledge and skill, as well as decision-making and confirmation is required before customers are able to adopt new product and become aware of its usefulness (as cited in Suganthi, Balachandher and Balachandran, 2001). Moreover, there are many customers that have been afraid of new technologies. These customers may not have the knowledge or know-how in dealing with telecom gadgets. Their fear for ICT generally grows and eventually develops into a phobia for technology. To this end, Ghaziri (1998) points out that in the future customer's loyalty will be determined by convenient and innovative delivery of products and personalized services. As well as these, end users (telecom subscribers) need constant alternative, i.e. various opportunities to choose between the options offered by GSM operators. The lack of choice will subsequently lead to the lack of demand, and therefore the profits of telecom providers will fall. Therefore, telecom operators should develop entrusted interaction with their customers on both private and corporate levels. Advertising campaigns should be user-friendly, reflecting the operator's true customer-oriented policy. Thus, two providers operating on Kazakh domestic market should also foresee supplementary budgets aimed at research and development programs. Such socio-oriented agenda will help them to win new customers by previously researching such important issues as: Contemporary socio-economic developments that affect buying capacity of end-users, including: migration, demographic issues, ethnic conflicts, gender, healthcare, ecology etc); Social groups' lifestyle research; Public-opinion monitoring; Socio-political and electoral research. Due analysis should be complemented by marketing research, including, the research and analysis of competitive environment; research of consumer behavior and preferences; product and/or service research, corporate and media advertisement research (Expert Consulting Agency, 2008). At that, customers will gain opportunity to compare domestic telecom policies and prices with those applied in other countries. Furthermore, as the telecom market develops, telecom services should develop as well, considering customers buying capacity compatible with international standards. Domestically there is lack of relevant research to assess customer attitudes to the operating telecom providers. Such situation demands improvement since the telecom penetration constantly increases and so new subscribers are demanding better service options. The situation regarding telecom development in Kazakhstan is also a rarity in Internet. There are few briefs and rare costly reports that hold outdated information; therefore the situation in the country remains unknown for English-speaking visitors and potential telecom operators and/or investors. Furthermore, telecom area needs advance statistical analysis as well as opinion polls and related social surveys to estimate true customer attitudes to the currently operating companies. In other words, there should be enough feedback to make the companies work better and at the same time correspond to the customers' requirements and expectations. Conclusion Current situation on Kazakh telecom market is rather monopolistic, including the oligopoly on the part of two main GSM operators 'K'cell' and 'K-mobile'. In spite of the fact that the present situation is deemed normal and stable for the time being, there are potential hazards that should be taken into consideration. On the economic agenda, two companies will never create sufficient competitive environment that will adhere with the principles of market economy. Other telecom providers that are attempting to enter the market may initially quit their trials and transfer to another country's market that will offer more suitable conditions. The current monopoly satisfies state, though it can hardly be attractive to foreign investors ready to flow costs into the development of Kazakh telecom infrastructure. Last but not the least; monopolistic status will potentially isolate Kazakhstan from mutually beneficial participation and cooperation under the umbrella of reputable international institutions. On the socio-cultural agenda, the number of new subscribers is currently on the increase due to favorable market prices on telecom services. Though, the development and implementation of new ICT may present potential hazards for unprepared customers. Techno-phobia, insecurity as well as the lack of research on telecom market will deprive thousand of potential users from the application of innovative technological gadgets and services. Therefore, Kazakhstan should reconsider its telecom policy on both governmental and corporate level. Existing operators should strive to establish fair competitiveness environment to attract foreign players, capital flows and investment. Only under such conditions domestic telecom market stands the chance to become a part of global telecom community. At that, current and potential users should be offered with sustainable choice in price, telecom options, roaming alternatives and payment methods. Further research studies should assess telecom focus groups in terms of their e-readiness to adequately perceive the entire scope of the offered services on the national telecom market. Thus, both 'K'cell' and 'K-mobile' should spend additional budgets on fair and comprehensive promotion of telecom-related content to make their customers more aware of the available and future options on the market. On the other hand, holding a monopolistic status will make neither company any good. Therefore, the market share owned by the remaining operators should be increased to 1/3. Optimally, the domestic market should allow entrance to 1-2 foreign operators that will bring fresh ideas and innovative approaches to operate domestic telecom market. Bibliography 1. Ahonen, T. (2002) "mProfits: Making Money from 3G Services" published by John Wiley & Sons. ISBN-13: 978-0470847756 2. Anguelov, C. E., Hilgert M, A., Hogarth J.M. (2004), "U.S. Consumers and Electronic Banking, 1995-2003", Retrieved on 28/04/2008 from: http://www.federalreserve.gov/pubs/bulletin/2004/winter04_ca.pdf 3. Economics Explained Revised Third Edition. Published by HarperCollins Publishers Limited. Pan Books Ltd., London 4. Expert Consulting Agency (2008) Services, Retrieved on 28/04/2008 from: http://www.expert.kg/pages/eng 5. Ghaziri, H. (1998) "Information technology in the banking sector: opportunities, threats and strategies", , Retrieved on 28/04/2008 from: http://almashriq.hiof.no/ddc/projects/business/it-banking.html 6. Glanville, A. (2003) Economics from a global perspective. Published by: Glanville Books Ltd. 7. GSM Association (2007) Brief History of GSM & the GSMA, , Retrieved on 28/04/2008 from http://www.gsmworld.com/about/history.shtml 8. K'Cell (2006) "K'Cell about", , Retrieved on 28/04/2008 from http://www.kcell.kz/ru/'l=about 9. K-mobile, (1998) K-mobile about, , Retrieved on 28/04/2008 from http://www.ukg.kz/partners10.htm 10. Suganthi, Balachandher and Balachandran (2001) Internet Banking Patronage: An Empirical Investigation of Malaysia May 2001, vol. 6, no. 1 The Journal of Internet banking and Commerce, , Retrieved on 28/04/2008 from http://www.arraydev.com/commerce/jibc/0103_01.htm 11. Totel (2006) "Kazakhstan - Telecoms Market Overview, Statistics & Forecasts", , Retrieved on 28/04/2008 from http://www.totel.com.au/kazakhstan-telecommunications-research.asp'cid=KZ&toc=1122 Read More