Losing the Landline Market: A Critical Analysis of Pakistan

International Journal of Academic Research in Business and Social Sciences

September 2013, Vol. 3, No. 9

ISSN: 2222-6990

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Losing the Landline Market: A Critical Analysis of

Pakistan Telecommunication Company Limited (PTCL)

Muhammad Asghar

Lecturer Economics (Vis), BZU Bahadur Sub Campus Layyah, Pakistan

Email Address: m.asghar.ly@gmail.com

Muhammad Ayyaz

Lecturer Economics, University of Baluchistan Quetta, Pakistan

Email Address: ayaz.economics@uob.edu.pk

Raheel Abbas

Lecturer Economics, BZU Bahadur Sub Campus Layyah, Pakistan

Email Address: raheel.economist@gmail.com

DOI: 10.6007/IJARBSS/v3-i9/263 URL: http://dx.doi.org/10.6007/IJARBSS/v3-i9/263

Abstract:

Pakistan Telecommunication Company Limited (PTCL) covers the 96% of fixed local lines

subscribers. It acts like a monopoly in the landline market but facing the sluggish growth in last

eight years. We analysed the major causes of this back-through in this era of modern

telecommunication and technology. We used primary data collected via well-structured

questionnaire from subscriber of PTCL landline. They revealed that the major determinants of

slow down are introduction of smart mobile phones, innovative offerings and promotions and

customer’s facilitations service centres response. The validity of argument is tested with the

help descriptive as well statistical techniques. Bar diagrams and Chi-Squares supports the

argument validity. Introductions of smart mobile phones greatly exaggerated the declining

trend in fixed line subscribers. Innovative offerings and promotions has nonentity significance

except DSL facility to landline subscriber. Customer facilitations centre response is too poor and

act as a major retarding factor for growth of PTCL fixed line subscriber. On average minimum 3

days are required to remove the technical fault faced to fixed line subscriber. The study

suggests that the firm may focus on providing services in adjoining areas of cities, introduce

smart mobile phone wireless connections, offering competitive and economic bundles to

landline users, innovative and quality after sale services to his landline subscribers to recap the

market.

Key Words: Telecommunication, Innovative offerings and promotions, Customer satisfaction,

Market Share

JEL Codes: L25, L96, O31, M31.

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September 2013, Vol. 3, No. 9

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1) Introduction

Telecommunication plays a vital role in the development of an economy. Every individual,

businessman, firm, corporation, and all other entities are linked with the world of information

& technology. World has arisen as a global village. A single household is in contact with all over

the world. He can access all sorts of information, can manage his business in every corner of the

world and have to be delivered every product needed in his usual life at his door steps due to e-

marketing. Telecommunication sector also shown remarkable progress in last decade due to

foreign direct investment, openness and privatization. At the time of independence of Pakistan

only 14000 landline of telegraph and telephone was present to meet the needs of

administrative setup. In 1962, both department separated ad emerged as independent postal

department and telephone and telegraph department. Due to changing demands of household,

business sector and globalization, Pakistani government took some reforms in his

communication sector. Telephone and telegraph department converted into

Telecommunication Corporation on December 15, 1990. Later on in 1996, Pakistan

Telecommunication Authority (PTA) and Pakistan Telecommunication Corporation Limited

(PTCL) incorporated. PTCL also listed on the Stock exchange in the same year.

PTCL earns billions of dollars every years by providing domestic and international voice and

data services like broadband, landline, carrier and wholesale services, international business

and corporates services. PTCL also manufactures some IT related products. PTCL was a state

owned enterprise but in 2005 privatization commission approved the privatization of PTCL. In

2006, PTCL owns 62% of shares, 26% owned by Etisalat Telecommunications and remaining

12% owned by general public. PTCL is first largest firm in Pakistan telecommunication market

with almost 65000 employees, 6 million customers including 0.8 million V-fone users. PTCL is

also largest CDMA operator in Pakistan. In last seven years, PTCL fixed line/landline connections

significantly reduced. The maximum number of connections were recorded in year 2005. After

that the market of smart phones saturated and peoples preferred to use wireless smart phones.

The trend is clear in the following graph-1 that almost number of connections reduced to half of

the connections as compared to year 2005. On average PTCL is losing 40,000 customer in each

year.

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September 2013, Vol. 3, No. 9

ISSN: 2222-6990

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Graph-1: PTCL fixed line connections

Source: Pakistan Telecommunication Authority

PTCL is the largest firm providing the broadband facility on its landline connections. Broadband

users split into DSL and 3G-EVO wireless broadband. DSL facility is provided on PTCL landline

while 3G wireless facility is provided in the form of 3G-EVO devices and smart EVO tabs. The

mere increase in the broadband user is due to 3G-EVO devices. Better and economical

offerings of other mobile cellular service provider causes reduction in the number of landline

connections and hence reduction in DSL subscriber. The PTCL provided infrastructure to other

corporate agents in the country and launched mobile data services in 1998 in the form of Ufone

and Paknet. Paknet got lose his identity in the corporate market but Ufone still is a largest

telecommunication firm providing cellular services. Now it becomes a gigantic investment area

for foreign firms also. It significantly contribute to the gross domestic product of the Pakistan.

The study focuses only on PTCL landline market. PTCL is acting as monopoly for landline in

telecommunication market since its incorporation. But in last five years some other firms enters

in the metropolitan areas to offer internet services only. With the privatization of this market,

number of other firms (JAZZ, Warid, Telenor, Zong, Instaphone, and Ufone) enters in the

market. They offered same cellular and data transfer and mobile services at economical rates.

Only that customer preferred to use PTCL landline who were using DSL services. If we analyse

the financial statements of PTCL, it’s clear that earning per share and market value per share

has decreasing trend as shown in graph-2.

International Journal of Academic Research in Business and Social Sciences

September 2013, Vol. 3, No. 9

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Graph-2: EPS & Market Value per Share

Source: PTCL Year-end financial statements June 2012

In short, PTCL loses its monopoly market due to lack of mobility of landline connections. Smart

mobile phones significantly contributed to the loss of PTCL landline. Smart mobile phone also

provide internet facility. There are number of factors that affects the usage level of PTCL

landline. Here we have to analyse some factors that why peoples are going to prefer other

mobile service provider instead of PTCL landline. Although PTCL earns millions of rupees but its

profit share per year is going towards decline. The graph-3 is reflecting the scenario and trend

line depicting decreasing level of profits.

Graph-3: Profit (Million Rs)

Source: PTCL Year-end financial statements June 2012

The availability of landline in remote and adjoining areas of cities is still a problem while other

telecom operators offered their services in remote areas. They captured the market share and

consumer database which was demanding landline before the arrival of such companies. Not

just the telecom services and availability were problems but the quality of customer facility

International Journal of Academic Research in Business and Social Sciences

September 2013, Vol. 3, No. 9

ISSN: 2222-6990

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services were a major problem of concern. PTCL landline with reference to its competitors was

providing very poor and unsatisfactory customer relation services. The customer facilitation

officers did not respond to complaints made by customers in time. Their competitors get

advantage of this weakness to attract the customers towards more quick and efficient

networks. Innovative offerings by cellular services contribute the usage level of a particular

firm. The PTCL offered many new products and services but fails to provide innovative offerings

to his landline customers. In short our objective is to analyse the factors that causes reduction

in the usage level of PTCL landline. In the forthcoming pages, the researcher have to focus on

relevant literature review, research methodology, data issues, results and discussions,

conclusion and policy lesson.

2) Literature Review

Innovations are new ideas, new products, new services and new objects to be introduced in the

market. Basically it is a multidimensional phenomenon as defined by number of researcher:

Brouwer and Kleinknecht (1996) called it “newness to the firm”, Song and Montoya-Weiss

(1998) called it “newness to the customer”, and Atuahene-Gima and Ko (2001) called it

“newness of the product. World is acting like a global village due to advancement in technology

and telecommunications. Peoples in twenty first century demand sophisticated and innovated

products to satisfy their wants. Every firm especially in competitive market, must focus on its

innovative and adoptive strategy (Hivner, et al. 2003). Kanter (1988) and Wolfe (1994) stated

that the firm must apply innovative ideas to initiate new or improving a product, process or any

service offered. Innovation brings advancement in products and services that makes the

customers to be well rewarded with the best possible services provided in the same cost.

Customer facilitation centres is the only department of PTCL that has direct interactions with

his users. It greatly play a role to the customer satisfaction and loyalty. Homburg and Bruhn

(1998) detailed that customer satisfaction is experience based evaluation by customer of his

service provider. He judged that how his client is following his expectations. Oliver et al. (1993)

elaborated that customer service centre response is a major driving force influencing the

psychological behaviour, emotions and personal feelings towards consumption experience.

Bauer et al. (2006) concluded that service quality positively affects the customer satisfaction.

Wang et al. (2004) analysed communication industry of China, Kim et al. (2004), Tung (2004),

Turel and Serenko (2006) examined the mobile sector of South Korea, Singapore and Canada

respectively and conclude that customer satisfaction is influenced by service quality and

customer service centre response.

Mobile phone has several advantages over landline fixed connections. The great edge is of

mobility. Peoples prefer to stay connected everywhere. It may bring gains in their pleasure and

profits. Samuel, Shah, and Handingham (2005) stated that use of mobile phone increase profits

of the firms, save time of the executives and improve communication with suppliers for small

and medium enterprise. In Pakistan number of firms enters in the market and peoples from

rural areas are especially got benefitting with mobile phones. Because there is no way or

substitute available to communicate. It is the nature of human being to adopt the inventions

and innovations. Conley and Udry (2010) suggest that improved communication means improve

the social networking and influence the rate of new technology adoption. Peoples are using

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varieties of facilities offered on mobile phones like mobile banking, reservation, making bills

payments and transferring money to other peoples.

Mobile phone technology evolve to fourth generation (4G) technology but no innovations made

to landline connections. Mobile phones also used as a low cost device to transfer data. They are

helpful for campaigns in elections and marketing information. Aker (2009) found that low cost

mobile phones are promoting level of literacy in Nigeria. The illiterate peoples found numbers

and letters on mobile phone, they learn to send text messages because they were almost seven

times cheaper as compared to call rates. All of the above discussion conclude that mobile

phones have several advantages over landline fixed connections and got preferred. The same

situations is observed in Pakistan and number of landline subscriber goes on diminishing with

the passage of time. Even the use of mobile phone increase the consumer and producer surplus

in developing countries (Jensen 2007, Aker 2008).

3) Theoretical Framework

The study attempts to explain that why a monopoly firm loses his mere market segment.

Theoretically, a firm value usage depends upon numerous factors. But for the ease of

parsimony and data availability, the researcher focuses just on its some behavioural aspects of

study. Level of value usage of PTCL is the dependent variable which is the variable of primary

interest. We attempted to explain this problem by taking three independent variables, one

mediating and one moderating variable. Moderating and mediating variables are used for

controlled analysis. Independent Variables considered are introduction of smart mobile phones,

innovative offerings like broad band facility for landline customers and other economics

packages and customer facilitation services like getting information, justification of bills,

settlement of complaints and dealing technical problems etc. Moderating variable and

mediating variables are government legislation and customer satisfaction.

Smart mobile phones have a significant impact on the value and usage level of PTCL. PTCL has

availability problem over the country in far-away areas as compared to its competitors in

telecom sector. Pakistan is not a metropolitan country. It has vast remote area and to provide

landline connections services is far difficult. Peoples prefer to use wireless mobile phones. So its

leads to decline in its value and usage level. Competitor’s availability as well as mobility played

a significant role to reduce the value of PTCL landline as perceived earlier as well as its usage

rate. Innovative offering include broad band facility, smart wireless phones and other facilities

like 2G, 3G and 4G networks. The variable of government legislation is moderating and having a

contingent effect on independent variable. Because no new firm can enter into the market or to

sell his product without government permission and satisfaction of legal restrictions. The

variable customer satisfaction is mediating ,as we may say that customer facilitation services an

independent variables adds to the mediating variable customer satisfaction and in turns explain

that why people go for using PTCL or not which leads to an incline or decline in its value and

usage level. Diagrammatically the relationship between dependent and independent variables

is expressed as under.

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September 2013, Vol. 3, No. 9

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Moderating Variable

Mediating Variable

Independent Variables Dependent Variable

A number of issue addressed daily by customer facilitations centres like getting new

information, correcting overbilling, handling tax matters and also get complained for technical

faults. These issue especially technical faults takes days to be removed. That’ why lack of

prompt and quick response at facilitations centres causes to be less and less dependence on

landline connections. To justify the above statements, it’s necessary to test the validity of the

argument. The research question is addressed as;

H1: Invention of smart phones negatively effects the value usage of PTCL.

H2: Innovative offerings for landline users positively effects the value usage of PTCL.

H3: Quick customer facilitation response positively influence the value usage of PTCL.

Present study utilize the descriptive as well as statistical techniques to test the validity of above

three alternative hypothesis. Bar diagrams are constructed to present our results in most

convenient way. Chi-Square Test is used to check statistical reliability of the argument.

4) Data Sources and Collection Issues

The study is based on primary data obtained from the major market area of PTCL from district

Layyah. Our basic sources of gathering information are respondents like males and females

customers like businessmen, business executives and some persons that are directly associated

with telecommunication industry.. In order to collect information from respondent we used a

well-structured questionnaire and filled them personally by our respondents to avoid any error

(non-response error and delayed response error). The value of Cronbach’s Alpha is 0.83. The

minimum acceptable of Cronbach’s Alpha is 0.60 estimated by Cronbach (1951). A mixture of

five point scale and others scales were used in questionnaire. The simple random sampling

procedure is adopted to get information from a sample size of forty customers. According to

gender, 58% respondents were male while all others were females.

GOVT

LEGISLATION

SMART MO BILE

PHONES

LEVEL O F

VALUE USAGE

CUSTO MER

SATISFACTION

CUSTO MER

FACILITATION

SERVICES

INNOVATIVE

OFFERINGS

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5) Results and Discussion

If we do descriptive analysis of data collected; the introduction of wireless communication

devices causes to be less demanded the landline communication lines (diagram-1). Wireless

devices have extra advantage of mobility, ease of net surfing at desired place and carry them to

use everywhere because of less weight and slim size make them to be attractive and hence less

demand for PTCL landline connections. These wireless communication services are offered by

PTCL itself all other telecommunication operators prevailing in the country. PTCL fails to provide

economical bundles to their customers. It is logically true that PTCL charge more price for

bundles offered because it is working as a monopoly protected by government for providing

landline connections. This factor also played a greater role in losing landline market share.

While all other operators are providing economic bundles to both male and females. The bar

diagram-1 shows that PTCL fails to offer economical bundles and promotions and right pane of

the figure depicts the ease of using wireless mobile phone affected PTCL landline market share.

Diagram-1: PTCL economic offerings and ease of using mobile phones

Summary of statistical analysis is shown in the table-1. Detail is available in appendix under

table-2, 3 and 4. The results shows that only results of introduction of smart mobile phones are

statistically significant at 3% level of significance. It significantly hampered the market of PTCL

landline. The company must expand his optical fibre network in adjoining areas of big cities. Big

towns still have potential to offer the landline services. In early 2000, number of adjoining areas

connected each other but after 2005 these connections disconnected due to non-serious

response by maintenance department of PTCL. In 2010 a campaign were started to increase the

connections but remained partially successful. It’s very difficult to regain previous credibility

and customer loyalty. Innovative offerings for landline customers are insignificant at 5% but

significant at 7%. It reveals that DSL facility to landline users and other economic bundles like

new budget packages, super Sunday offer and special promotions on Ramadan, Hajj, Christmas,

Eid and New Year significantly contributed to the usage level of PTCL. These promotions and

economic bundles are still not satisfactory for landline users.

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Table-1: Summary Statistics

Variables

Test Statistics

Smart

mobile

phones by

other firms

Innovative

offerings

(Landline)

Customer

facilitation

services

(Landline)

Chi-Square

16.000

8.750

6.750

Degree of freedom

Asymp. Significance

0.003

0.068

0.150

The customer facilitation centres provide a lot of information and services. Our objective is to

analyse whether the response of customer facilitation centres is satisfactory or not. Statistically

results are insignificant. The reason is that landline user usually face technical faults. It takes

more time to be maintained. A mean response time is one week. Means if ay technical faults

occurs, it usually take three days to one week to be corrected. This is very alarming and quite

unsatisfactory practice. That’s why customers get lost their loyalty and preferred to use landless

connections.

6) Conclusion and Recommendations

We have analysed some factors that seems to be responsible for the decline in usage level of

PTCL landline. PTCL is the sole service provider of landline connections in Pakistan. In last seven

to eight years, PTCL has lost its control on his landline monopoly market. The major reasons

contributing to this tragedy are introduction of wireless mobile phone, limiting landline service

to metropolitan areas, lack of innovative services (Except DSL) and economical bundles to

landline users, no proper customer care centre response to landline users, frequent technical

faults in landline connection and too delay in maintenance process of landline connections. This

is the age of information technology and people prefers to use innovative devices to get

connected with social world. Although PTCL showed a remarkable progress in other areas like

providing broadband 3G-EVO, EVO tabs, CDMA services etc. but our study concern is limited to

landline market only. Monopolies ever ruined with the invention of substitutes and same faced

by PTCL landline market. The firm should address the above cited reasons to get back the

landline customer credibility and loyalty. The major focusing areas may be introduction of

smart mobile phone wireless connections, providing landline service in adjoining areas (small

populous towns) to cities, offering competitive economic bundles and improvement in

customer facilitation centres response to landline queries and complaints.

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Appendix

Chi-Square Test:

Table-3: Frequencies; Customer facilitations centres response to

landline users

Observed N

Expected N

Residual

Seldom

8.0

-4.0

neither seldom/nor often

8.0

3.0

Often

8.0

3.0

Very often

8.0

2.0

Always

8.0

-4.0

Total

Test Statistics

Table-2: Frequencies; Availability of smart mobile phones decrease the

value usage of PTCL

Observed N

Expected N

Residual

strongly agree

8.0

-3.0

agree

8.0

10.0

neither agree nor

disagree

8.0

-1.0

disagree

8.0

-3.0

strongly disagree

8.0

-3.0

Total

Test Statistics

Availability of smart mobile phones decrease the

value usage of PTCL

Chi-Square

16.000

Asymp. Sig.

.003

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Customer facilitations centres response to landline users

Chi-Square

6.750

Asymp.

Sig.

.150

Table-4: Frequencies; The offerings made by PTCL Landline are

innovative

Observed N

Expected N

Residual

Seldom

8.0

-1.0

neither seldom/nor often

8.0

7.0

Often

8.0

-2.0

Very often

8.0

-4.0

Always

8.0

Total

Test Statistics

The offerings made by PTCL Landline are innovative

Chi-Square

8.750

Asymp. Sig.

.068