Baku, Azerbaijan, June 11
By Anvar Mammadov - Trend:
Interview by Trend News Agency with Gunnar Pahnke, CEO of Azerfon LLC (Nar trademark).
First, I would like to ask your opinion about the telecommunication market of Azerbaijan. Which changes would you notice here and which factors influence it?
Trends in the telecommunication market in Azerbaijan are more or less same as we see them around the world and I am quite proud that we implemented here some things, which helped to develop the telecoms market much faster as it might be without them.
The first one is of course that we are significantly growing in the overall market regarding demand for mobile internet services. Just to give you some figures as well regarding data usage this is very significant uptake. In the Q1 2018, Nar registered 86 percent of data growth. This is the most crucial growth we currently register in terms of customer demand, and we support this significantly with our products portfolio.
Secondly, this is pushing all operators to invest in new technologies. Currently, we are in the investment mode for the 4G. We are changing generation from 3G to 4G - this is in line with the overall industry, but it is a challenge as well because all operators have to invest in new technologies heavily.
And the third one which I would like to mention is that we have in Azerbaijan quite a high competition between all operators because they are competing in the relatively small-sized market. There are four operators in the market. And strong competition between operators is pushing us - all four operators, to be more and more efficient. We are constantly looking for new business models, which will help us to reduce cost to keep the price on the same level or to make it even more affordable.
And what about the demand of customers? Has it changed and how has it affected the market and your work?
I think with a significant move into the data business customers have the clear expectations to be online 24/7. And it leads to higher data consumption and even faster internet and the whole market is moving up into more volume and high-speed data products. This is the first one.
The second one is that customers moved into the internet world where they perceive, everything is free. So this puts at the same time more and more pressure on the competitiveness of players, meaning customers are looking for the most affordable offers in the market, which is a challenge for us. This leads for a dilemma: more cost to invest in new technologies and higher speed in the internet on the one hand side, more pressure on the price level on the other hand side.
There is another element, which is that the customer expects to be more and more involved in the development of the products. We are very proud because when it comes to new products offerings, we always try to reflect exactly the customer needs. I would like to give you an example, which is a bundling of voice and data including roaming: “Full” package Bundle products are state of the art, and we tried to find a way to make it the most attractive to clients by just questioning what the customer expecting for such bundling products is. Here are two elements - the first one is that getting bundles - volumes of minutes and megabytes is attractive because it gives more security to the customers. The second one is that the customers don’t want to lose free minutes and bundles they gained by paying the monthly fee, and they are expecting that they have a longer time to consume their bundles. We implemented this with the most attractive offer in the market with rollover feature for three months. The customers don’t lose their megabytes and minutes.
The third one is that the customers expect flexibility. It is nice to have certain volumes of megabytes and minutes, but the customer extremely appreciates to have the option to exchange megabytes for minutes and the other way. This is why we introduced first in the market so-called exchange functionality.
This is what differentiates Nar in the market. We understand the overall trends, but we do it in the most customer-oriented way.
Mr. Pahnke, we know that you have a rich experience of 25 years in the telecommunication market of Europe, Latin America and the Middle East. Which innovative experience, implemented in the mentioned region, would you like to apply in Azerbaijan?
It is important to understand the benchmarks of the industry and follow the overall trends. I have experienced three things, which I want to highlight. The first one is fast technology development. Once there is a technology, which is now 4G, which is driven by handset providers, by the suppliers of the telecom industry and which response to the demand of the customers regarding better data experience, you have to push this, as fast as possible. You should not only try to optimize your investments and finding the optimal point of moving from one technology like 3G to the 4G. The faster you are in development of such new technologies, the bigger the opportunities for you to gain positive feedback from the customer and as well revenue uptake the better it is. Accept as a provider new technology developments, embrace them and be a leader in rolling them out.
The second one is that I am a big fan of long-term thinking and strategy. I think this is one of the most important experience I made during my more than 20 years of experience. Don’t try to run from a quarter to quarter. Customer will not like it, and this is just short-term thinking. If the customers get the understanding and the feeling that indeed you care about them, that you invest into the areas where they are expecting more from you as a provider, like in the customer,and network experience, it’s better to have a long-term business plan and to invest than trying to get most of the profitability in short term.
And the third one is that everything is about bundling in the mobile business. In this regard, we are really a front-runner in Azerbaijan with our product called Qutu, which is the first fixed and mobile conversion product. We combined mobile communication with the fixed internet and fixed TV. And the customer is requesting this because it is reducing complexity on one hand side and it gives the customer benefits regarding price on the other hand side. These are our three main elements.
You told about the competition between operators, and I would like to ask if it is favorable. Do you think there are any aspects hindering the development of the mobile communication market in the country? If yes, which?
Azerbaijani telecom market is very challengeable with strong competition between operators. As mentioned there are four operators in the market, so this gives a lot of challenges to us. On the one hand, customers expecting really to invest in new technologies giving them best experience in terms of data usage but as well regarding the quality of network like in the voice services. On the other hand, it is to respond as well to the requirement of the customer that services have to be very affordable. And this situation is quite common for many countries, including Azerbaijan.
In terms of this challenge, there are only very few to be highlighted measures which we have to bring forward. Regarding products, we have to push bundling offers into the market. This is a significant requirement of the market, and we are all moving into this. I believe that our Qutu product which is currently still in the market entry phase is the future of this market. Customers need to have bundling offers. It is complicated because we have a very fragmented market here in the fixed area, but this is the future of the Azerbaijani market.
The next element is smartphone penetration. Overall market demand in terms of data is driven by the smartphone penetration especially last generation of the 4G. Also, here indeed we have a challenge because smartphones are quite expensive. This is an element, which we try to develop going into postpaid and by this giving an opportunity to the customer to get better deals in terms of the handset. This is an area, which needs to be developed.
Last but not least regarding business model is finding new business models which help us to become more and more efficient taking into consideration the cost pressure of our customers. We are very proud as a Nar to be a frontrunner in terms of outsourcing. Outsourcing is indeed one of the significant measures to optimize processes.
Could you please give more information on outsourcing project?
Outsourcing helps to optimize processes and develop all the new technologies much faster, so the customer is really the winner of such developments. So innovation is pushed into the market.
We heard some rumors as well in the market that our outsourcing project together with Bakcell was perceived as the merging of two companies (smiling) and of course, that is a big nonsense. Outsourcing is not a merge at all. It is outsourcing and joining forces in such areas as technology and IT. Nar and Bakcell are entirely independent companies, strongly competing in the market against each other. Our company has its own team, own strategy, own sales network, product development, pricing, innovation, own branding and differentiation policies.
Outsourcing is increasing the competitiveness of the operator. Especially in our case, competitiveness and market positions of Nar will be much stronger. So I think outsourcing models can help the whole industry to become more competitive.
Outsourcing models are state of the art in our industry. You can find that in a lot of countries - Great Britain, Russia, Poland and in other countries. For instance, Vodafone UK and Telefonica decided to share the exploitation and control of their network in 2012. The similar decision taken by the two leading mobile operator companies of Russia, MTS and VimpelCom agreed upon share in the 4G network covering several regions of the country. The similar method has also been successfully applied in the banking sector of Azerbaijan. Several local banks use the services of the single card processing center co-founded by them, keeping the competitive market environment.
What distinguishes Nar from other mobile operators? What is its key advantage? On which category of customers Nar focuses?
We have four players in the market, and I can position our company as an attacker. We try to always offer the best deal in the country and at the same time delivering at least the same or even better quality especially regarding voice. Our customers in regions are still voice-oriented because we have lower smartphone penetration there. So having the best voice offer, we believe that with our Yerlim offer we have definitely the best voice offer in the country available in the regions. This is how we try to develop the market and to push competitors as well in terms of better pricing for the customers.
According to mobile network benchmarking tests, held during the second quarter of the year 2017, Nar network achieved the highest results in the country for mobile voice services. P3 Communications – an independent international company for engineering and testing services – conducted the testing of mobile communications networks.
So to summarize it, our positioning is to deliver at least the same quality level and same technologies level but as much better price with the affordable offering.
How many base stations are presently operated by the company and how many of them are planned to be commissioned until the end of the year?
Last year we had a 67 percent increase in 4G and 14 percent - in 3G, and we are continuing this trend.
Just in Q1 2018, we installed 147 4G base station, so you see that we are even accelerating the rollout of 4G and we are going to the region. Out of the 147, we develop 63 in the regions, and now 20 cities out of Baku are open for the 4G. We have built 4G in the Baku Subway, and by the formula races, we had installed 20 more base stations in Baku. The phase of developing 4G has been accelerated and mainly this and next years will be the significant investment years in 4G.
What are the primary development plans of Nar for this year and for the long-term period?
So our positioning has been the most affordable customer centric mobile operator in the market. This will be one of our main initiatives this and next year - to focus our profile as well in terms of customer perspective on affordability. But on the other hand side, there is one big opportunity which we want to offer. We would like to more focus on the customer experience when it comes to simple processes and customer-facing processes in customer service. So our strategic positioning and development of our initiatives as well will be focus not only on the strengthening the price perception among the customers, but also on the customer experience when it comes to activating Sim cards, to claims in the call-centres, when it comes to being serviced, because we believe that there is an opportunity to differentiate. This is on the positioning in the market.
Secondly - bundling products. This is just starting for us. We launched “the Full’ offering at the end of last year and just started active communication a few months ago. So this one will be the “hero” product we are going to push on this year and as well next year and the year after. Because we believe that whole market is going to work on this bundle projects. We are going to try to be a leader in this segment and position Qutu as really the leading innovative product in the country.
In overall technology development, the current trend focus for the next two or three years will be 4G. We will be ready to go for 5G when it becomes relevant. What we expect in terms of innovations on service side - is probably mobile financial services. We are focusing on innovations, to make our products for customer friendly and simple as possible.
How do you see the development of the telecommunication market of Azerbaijan in the coming two years?
In the next two or three years, the market will become even more competitive because all players indeed try to strive for more cost efficiency and on the other hand side to invest in the growth of data. Penetration of smartphones and development of data products will increase the competition significantly. Especially it will put competition on voice services. We are all trying to develop data services as fast as possible. This will be the major challenge in the market.
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