Justification of GrameenPhone IPO Process
1.0 Introduction to the Organization:
1.1 .k (GP):
The concept of mobile telephony became largely familiar and phenomenal in Bangladesh in the early 90’s. The government of Bangladesh awarded Grameenphone a nationwide digital cellular license in November 1996. Grameenphone has been established by a consortium involving Grameen Telecom of Bangladesh, an affiliate of the world famous Grameen Bank; Telenor AS, the main Norwegian Telecommunication Company, Marubeni Corporation, one of the largest trading and investment companies in Japan; and Gonofone Development Corporation, a telecommunication development company in the United States.
The company’s cumulative investment now stands at BDT 14,400 crore including BDT 480 crore in 2009. Grameenphone Ltd. posted a 10 percent growth in revenue reaching to BDT 1,628 crore in the second quarter of 2009 compared to BDT 1,477 crore in the same quarter of last year. As of November 2009 there were 50.5 million mobile subscribers in the country and Grameenphone, with 23 million subscribers, holds 45.5 per cent of the market share.
Grameenphone has built the largest cellular network in the country with over 10,000 base stations in more than 5700 locations. Presently, nearly 98 percent of the country’s population is within the coverage area of the Grameenphone network.
Grameenphone was also the first operator to introduce the pre-paid service in September 1999. It established the first 24-hour Call Center, introduced value-added services such as VMS, SMS, fax and data transmission services, international roaming service, WAP, SMS-based push-pull services, EDGE, personal ring back tone and many other products and services.
The entire Grameenphone network is also EDGE/GPRS enabled, allowing access to high-speed Internet and data services from anywhere within the coverage area. There are currently nearly 3 million EDGE/GPRS users in the Grameenphone network.
Grameenphone considers its employees to be one of its most important assets. GP has an extensive employee benefit scheme in place including Gratuity, Provident Fund, Group Insurance, Family Health Insurance, Transportation Facility, Day Care Centre, Children’s Education Support, and Higher Education Support for employees, in-house medical support and other initiatives.
Grameenphone has played a leading role in increasing the country’s tele-penetration rate from less than one percent in 1998 to over 29 percent as of May 2009. It is committed to making modern mobile telephony and data services available to everyone, both in urban and rural areas, thereby making a positive contribution to the lives of the people of Bangladesh. Grameenphone has built the largest cellular network in the country, covering 98 percent of the population. A total of 4181 new Base Stations were installed during the year, bringing the total number of Base Stations to over 10,000 located in around 6,000 sites country-wide.
1.2 Company Profile:
Grameenphone is the largest mobile telecommunications operator in Bangladesh by revenue and subscriber base. It was incorporated on October 10, 1996 as a private limited company and commenced services on March 26, 1997. It converted to a public limited company on June 25, 2007. As of November 2009 there were 50.5 million mobile subscribers in the country and Grameenphone, with 23 million subscribers, holds 45.5 per cent of the market share.
It provides services to both rural and urban customers across Bangladesh, where mobile telephony is a major driver of socioeconomic development.
Grameenphone is 62.0% owned by Telenor Mobile Communications AS (“TMC”) and its affiliates and 38.0% owned by Grameen Telecom (“GTC”) and its affiliates. TMC is a wholly owned subsidiary of Telenor ASA (“Telenor”), a leading international telecommunications company based in Norway with an established track record of building and expanding businesses in multiple emerging and developed wireless markets. Telenor currently has mobile telecommunications operations in 13 countries across Scandinavia, Eastern Europe and Asia with more than 164 million mobile subscribers as of December 31, 2008. GTC was established in 1995 as a not-for-profit company for improving the standard of living in, and eradicating poverty from, rural Bangladesh. GTC works in close collaboration with 2006 Nobel Laureates Professor Muhammad Yunus and Grameen Bank. GTC’s mandate is to provide easy access to GSM cellular services in rural Bangladesh and to create new opportunities for income generation through self-employment by providing villagers, mostly poor rural women, with access to modern information and communication-based technologies. TMC and GTC have been its shareholders since it was incorporated and they increased their holdings in 2004 by purchasing all of the shares held by two minority shareholders.
Over the years, Grameenphone has always been a pioneer in introducing new products and services in the local market. GP was the first company to introduce GSM technology in Bangladesh when it launched its services in March 1997.
Telenor Mobile Communications AS:
TMC AS is the leading Telecommunications Company of Norway listed on the Oslo Stock Exchange. It owns 62% shares of Grameenphone Ltd. Telenor, a more than 150 year-old organization, has played a pioneering role in the development of cellular communications. Manual mobile telephony services were introduced in Norway in 1966, as a forerunner to the automatic NMT system, which appeared in 1981. Its digital successor, GSM, was introduced in 1993, and third generation mobile network, UMTS, was launched for commercial use in 2004. Telenor’s strong international expansion in recent years has been based on leading-edge expertise, acquired in the Norwegian and Nordic markets, which are among the most highly developed technology markets in the world. It has substantial international operations in mobile telephony, satellite operations and pay Television services. In addition to Norway and Bangladesh, Telenor owns mobile telephony companies in Sweden, Denmark, Hungary, Russia, Ukraine, Montenegro, Thailand, Malaysia, Pakistan and Serbia with more than 145 million mobile subscriptions worldwide as of 31st December 2007. Telenor uses the expertise it has gained in its home and international markets for the development of emerging markets like Bangladesh. As part of the conversion of Grameenphone from a private limited to a public limited company, Telenor Mobile Communications AS transferred 10 shares each on 31st May 2007 to its three affiliate organizations namely Nye Telenor Mobile Communications II AS, Norway; Telenor Asia Pte. Ltd., Singapore; and Nye Telenor Mobile Communications III AS, Norway.
Grameen Telecom (GT):
Grameen Telecom, which owns 38% of the shares of Grameenphone, is a not-for-profit company in Bangladesh, working in close collaboration with Grameen Bank, winner of the Noble Peace Prize in 2006 along with its founder Professor Muhammad Yunus. The internationally reputed bank for the poor has the most extensive rural banking network and expertise in microfinance. It understands the economic needs of the rural population, in particular the women from the poorest households. GT’s mandate is to provide easy access to GSM cellular services in rural Bangladesh and creating new opportunities for income generation through self- employment by providing villagers, mostly to the poor rural women with access to modern information and communication-based technologies. GT is also one of the three National distributors of Nokia brand handsets in Bangladesh and also the authorized service provider of Nokia Care network, providing after-sales services to the Nokia customers. With the help of Grameen Bank, Grameen Telecom, with its field network, administers the Village Phone Program, through which Grameenphone provides its services to the fast growing rural customers. Grameen Telecom trains the operators, supplies them with handsets and handles all service-related issues. GT has been acclaimed for the innovative Village Phone Program. GT and its chairman Nobel Peace prize laureate Professor Muhammad Yunus have received several awards which include: First ITU (International telecommunication union) World information Society Award in 2005; Petersburg Prize for “Use of the IT (Information Technology) to improve Poor People’s Lives” in 2004; and the GSM Association Award for “GSM in the Community” in 2000. As part of the conversion of Grameenphone from a private limited to a public limited company, Grameen Telecom transferred one share each on 31st May 2007 to its two affiliate organizations namely Grameen Kalyan and Grameen Shakti.
Vision of Grameenphone:
The vision of Grameenphone Ltd. is “We are here to help”. Grameenphone exists to help its customers get the full benefit of communications services in their daily lives. It wants to make it easy for customers to get what they want, when they want it.
Mission of Grameenphone:
GP’s mission is divided in five parts. These are:
Grameenphone has a dual purpose: to receive an economic return on its investments and to contribute to the economic development of Bangladesh where telecommunications can play a critical role.
Grameenphone basic strategy is coverage of both urban and rural areas. Grameenphone builds continuous coverage, cell after cell. While the intensity of coverage may vary from area to area depending on market conditions, the basic strategy of cell-to-cell coverage is applied throughout Grameenphone network. Strategies of Grameenphone At a glance-
Continue to grow our subscriber base
Focus on high value customers
Achieve capital and operational efficiencies to improve profit margins and cash flow generation
Increase brand awareness and reinforce our brand values
Increase revenue from non-voice services
Continue to expand our comprehensive distribution network
Grameenphone GSM technology is the most widely accepted digital system in the world, currently used by over 1.3 billion people in some 150 countries. GSM brings the most advanced developments in cellular technology at a reasonable cost by spurring severe competition among manufactures and driving down the cost of equipment. Thus consumers get the best for the least.
The people of Grameenphone are young, dedicated and energetic. All employees are well educated at home or abroad, with an even distribution of males and females and social groups in Bangladesh. They know in their hearts that Grameenphone is more than phones. This sense of purpose gives them the dedication and the drive, producing the biggest coverage and subscriber-base in the country. Grameenphone provides equal employment opportunities and recognizes the talents and energy of its employees.
Grameenphone believes in service that leads to good business development. Telephony helps people work together, raising their productivity. This gain in productivity is development, which in turn enables them to afford a telephone service, generating good business. Thus development and business go together.
Objectives of Grameenphone
Grameenphone Ltd. has a dual objective to receive an economic return on its investments and to contribute to the economic development of Bangladesh through telecommunication. This is why Grameenphone, in collaboration with Grameen Bank and Grameen Telecom, is aiming to place one phone in each village (Village Phone) to contribute significantly to the economic benefit of the poor. It is on the way to bring a total revolution in the telecommunication field. By attaining the success factors, Grameenphone would like to be recognized as a reliable, honest and committed company to its valued subscribers and stakeholders.
Serving the mass market is one of GP’s primary goals. By serving the general public as opposed to niche markets, the company plans to achieve economies of scale and healthy profits. At the same time, service to the general public means connectivity to a wider population and results in the economic development of the country. The company has devised its strategies so that it earns healthy returns for its shareholders and at the same time, contributes to genuine development of the country. In short, it pursues a dual strategy of good business and good development.
Corporate Governance is the structured process through which an organization is directed, controlled and held accountable. It clearly defines the rights and responsibilities of the Board, Management, Shareholders and other Stakeholders like Government and the society at large. Grameenphone believes in the continued improvement of corporate governance. This in turn has led the Company to commit considerable resources and implement internationally accepted Corporate Governance Standards in its day-to-day operations. The Board of Directors and the Management Team of Grameenphone are committed to maintaining effective Corporate Governance through a culture of accountability, transparency, well-understood policies and procedures. The Board of Directors and the Management Team also ensure maintaining of compliance with all laws of Bangladesh and internally developed policies, procedures and controls. The Articles of Association (AOA) is the key governance guideline for the company set by the Shareholders. The Board of Directors and Management Team run the affairs of the Company in compliance with the guidelines of the AOA and the Companies Act, 1994. Internal and external rules and procedures provide Grameenphone with a sound platform for good corporate governance and for further development of a positive, responsible and healthy corporate culture.
Processes are well documented and controlled throughout the entire company. Practices are in place to consistently evaluate and improve processes. Critical processes are subject to rigid assessments on a regular basis. Analytical techniques are in place to identify and solve process management issues. Partnerships with suppliers and other stakeholders have been established to better manage processes for the benefit of all players.
1.3 Design & Introduction of Products and Services:
The organization systematically gather customer needs and desires, and then translate these customer inputs into revisions, modifications, and other standards for product and service bundling. Retained highest market share over the last 10 years is a clear indication of its success in product innovation and engineering. The diagram below reflects its product ranges.
Products and Services of GP:
In addition to the voice call, other services such as international roaming services, SMS roaming services, Insta bill, Push Pull Services, Health Line, EDGE/Data Services, and Content Provider Services etc are also tailored considering the need of the customer.
New products are launched through market survey and competitors move. To retain and grow its market share GP as its policy evaluate and tries to shorten design processes for new products and services.
Production and Delivery Processes: The organization has control over processes, including control over variations and defects in processes that are used for producing and delivering products and services. The organization uses systematic and standard approach to evaluate processes for better quality, defects, and other operating performance attributes.
Business and Support Service Processes: The organization manages quality control relates to routine business processes and support services such as human resources, finance, legal, payroll, public relations through pre defined goals and goal achievement indicators as well as variance analysis. The organization structure and its functionality ensure the check and balances among and between the departments and units. Both top down and bottom up feedback system, coherence of the team, compliance department dedicated for resolving grievances as well as quality linked performance bonus help the management to reduce error in business processes.
Supplier Quality: GP maintains its code of conduct for all of its stakeholders. It communicates quality standards and requirements to its suppliers and it has a quality assurance process to ensure that suppliers are meeting quality requirements.
Products and Services:
Grameenphone prepaid and postpaid voice subscribers have access to national and international long-distance dialing. In addition, it offers a variety of GSM facilities services in different combinations according to the airtime package selected. These services include call waiting, call holding, call conferencing, missed call alert and caller identification. Grameenphone also offer its voice subscribers international roaming services, which enable them to make and receive calls when outside Bangladesh, as well as bundled products and services. These services made up 83.7% of GP’s revenue for 2009.
Prepaid product- “Smile”
Introduction of Grameenphone Pre-Paid Service is a revolution of mobile telephony in Bangladesh. More than 95% of GP’s subscribers are prepaid users. Smile connections are of two types namely, “Smile” and “Smile PSTN (Public Switched Telephone Network)”. The former is only mobile-to-mobile, while Smile PSTN connects to BTTB local, BTTB-NWD (Nationwide Dialing), ISD (International Standard Dialing), all Grameenphone mobiles, and other mobiles and receives calls from the same. It frees the subscriber from the hassles of paying bills, security deposits and line rents. A wide range of value added services are offered with this connection, namely – news updates, downloadable ring tones, wallpapers, data transfer, internet browsing etc.
Postpaid Product- “Xplore” Packages
Grameenphone has around 500,000 post-paid subscribers. For these subscribers it offers Xplore-Package. It connects to BTTB local, BTTB-NWD (Nationwide Dialing), all Grameenphone mobiles, and other mobiles and receives calls from the same. It also gives
ISD (International Standard Dialing) facilities. But as it is a post-paid connection so a subscriber has to deposit some security money and pay the bill with a flat line rent.
Business Solutions is a complete, quality business communications service from Grameenphone – designed especially for the business community in Bangladesh. The Business Solutions team provides the business users customized telecommunications solutions through consultation with them.
The newest attraction in Grameenphone Business Solutions portfolio is Blackberry, a complete solution for the business users. Blackberry Smartphone enable users to access the proven Blackberry wireless services with support of email, phone, internet, instant messaging, organizer and much more. This enables the business users to create a much needed balance between work and personal life.
There are two different services depending on the need of the user:
Blackberry Internet Service (BIS) – Complete wireless solution for enterprise:
Blackberry Enterprise Service (BES) is a unique and totally integrated service that offers corporate mail integration, secure administration, advanced wireless devices, desktop tools and more. It ensures mobility of workplace by connecting the user to customers, colleagues, and information that drive business. Wireless connectivity allows the user to stay in touch with business contacts at both home and abroad.
Blackberry Internet Service (BIS)-Complete wireless solution for individual:
Blackberry Internet Service (BIS) is the easiest and the most affordable way for individuals to start using Blackberry Smart phone. It is an out-of-the-box service which when integrated with ISP mail service, provides the user with seamless mobile extension to his/her existing email service.
Business Solutions offers services like – International roaming, Internet and data services, business news, business SMS, missed calls alert and many more. This allows business people to stay connected – At office or on the move.
Youth Segment Product – Djuice:
Djuice is a niche prepaid Service designed especially for the youth segment. It was introduced as a Youth Product on ‘Pahela Boishakh’ in April 2005. The core target market of Djuice comprises of 19 to 26 years old youth having a socially active and outgoing lifestyle. Extensions of the core target group are the two secondary groups, 13 to 18 and 27 to 30 years old, people pursuing the same lifestyle benefits from their mobile subscription.
The vision of Djuice is to become an integrated part of youth life and help them get more out of it. The brand identity of Djuice in Bangladesh has been developed based on some core values such as Original, Entertaining, Trustworthy, Refreshing, Empathetic, Dynamic, Socially active and Challenging. The call rate of Djuice is low and has lower pulse to attract the young generation.
Djuice offers a unique range of value added services for its unique group of subscribers. XTRA Khatir, dDuniya, drockstar are some of those.
Rural Users – Village Phone Program (VPP):
The internationally acclaimed Village Phone Program with the help of Village Phone operators is providing telecommunication services in over 85,000 villages in 61 districts of the country. Started since the inception of Grameenphone in March 1997, the Village Phone Program is a unique initiative to provide telecommunications facilities in remote, rural areas all over Bangladesh. The Village Phone is a shared access model which links the telecommunications sector with the microfinance sector to enable microfinance clients specially women to borrow the money needed to establish a Village Phone business in rural areas. The Village Phones have proven their immense potential in boosting income of poor households in rural areas, promoting health care, development of agri-business and in the social empowerment of rural women. Recently all Village Phones were converted into prepaid for more convenience of the subscribers. The Village Phone Program has also been replicated in a number of countries including Uganda and Rwanda in Africa.
Village Phone Program is a unique initiative to provide telecommunications facilities in remote, rural areas. It has brought about a quiet revolution in mobile telephony in Bangladesh, by putting cell phones in the hands of the rural poor, many of them women, who had never seen a telephone before.
The Village Phone (VP) works as an owner-operated pay phone. It has created a good income-earning opportunity for the VP operators, mostly poor women who are borrower members of Grameen Bank. Typically, a member of Grameen Bank takes a loan to buy a handset and a GP subscription and she is trained by Grameen Telecom on how to operate it. As of today, there are more than 260,000 VP operators in over 50,000 villages in 439 Upazilas (sub-districts) of the country. Amongst GP subscribers, VP operators yielded the highest average revenue per month.
VPP has received many international awards while it has also been extensively featured in the international media over the years and documented by researchers both at home and abroad. It was given the “GSM in the Community Award” by the GSM Association at the GSM Congress in Cannes, France in February 2000. It also received the “Commonwealth Innovation Award” in 2003 and the “Petersburg Prize” awarded by the Gateway Foundation in 2005.
Grameenphone Public Phone:
Grameenphone Public Phone is a product for the public call office market whereby a telephone facility, run by one of its subscribers, is provided in a public place for use by the general public. GPPP offers a low call rate, rechargeable through Flexi Load or scratch cards, for its subscribers. Grameenphone Public Phone is targeted towards potential subscribers in the urban and semi-urban public call office market.
Grameenphone Community Information Centers
Launched in February 2006, Grameenphone Community Information Centers (“CIC”) provide access for rural people in Bangladesh to Internet, voice communications, video conferencing and other information services. They are designed to be run independently by local entrepreneurs as small businesses. Grameenphone provides the entrepreneur with training and support. The services also include office services, including scanning, printing and e-fax, CD writing, telemedicine services, multimedia education for children, electronic governance services and certain value-added services. Grameenphone had more than 555 CICs as of December 31, 2009.
Mobile Handset and Other Sales:
We offer mobile handsets from a number of manufacturers, including Blackberry TM handsets, particularly in connection with bundled promotions. Handsets are typically sold for approximately Taka 2,000 to Taka 4,000 per handset. We also sell certain other products on a consignment basis at Grameenphone Centers and Grameenphone service desks. Historically, high ARPU customers are more likely to buy bundled handsets. Revenue from sales of mobile handsets accounted for less than 1.0% of our revenue in each of the year ended December 31, 2008 and the year ended December 31, 2009.
Grameenphone also offer non-voice services, which refer to as value-added services, or “VAS,” to its subscribers. Its subscribers are increasingly using these non-voice services, in particular Internet access, downloadable content and ring-back tone services, each described in further detail below.
SMS: Allows subscribers to send short text messages to other mobile users’ handset display screens.
VoiceSMS: Allows subscribers to send audio messages (instead of text) to other GP subscribers.
Web to SMS: A web-based SMS service that allows our subscribers to send SMSs to single or multiple recipients.
Voicemail: Enables subscribers to retrieve audio message recordings left by callers.
MMS: Allows subscribers to send pictures, text and sound/voice in a single packet message.
EDGE/GPRS: Allows subscribers to use their mobile phones to access the Internet, send and receive MMS, browse WAP and download files;
GP World: Allows subscribers to visit wap.gpworld.com from WAP enabled phone sets to download Poly Tones and True Tones of hit songs;
Blackberry TM services: Allows subscribers to use Blackberry TM wireless services with support e-mail, phone, Internet, instant messaging, organizer and more;
Bull-Stock Information: Allows subscribers to receive, almost in real-time, updates on stock prices on their mobiles.
Instant Messenger: Allows subscribers to use PC-style instant messaging through our own chat software.
Multimedia Content Services: Allows content such as music, sports, news and finance and other content to be accessible or pushed to subscribers’ mobile handsets, including instant news updates and headlines (including News Update, Traffic Update and Cricket Alert);
Grameenphone Health Line: An interactive teleconference with a licensed physician that provides medical advice and assistance to our subscribers and non-subscribers (who register for a fee) for both emergency and non-emergency situations, 24 hours a day, seven days a week. Health Line was awarded the GSMA Award for “Best Use of Mobile for Social and Economic Development” at the 3GSM World Congress in February 2007;
Mobile Chat: A WAP-based instant messaging service that allows subscribers to engage in online and mobile chat;
Mobile Web: Allows subscribers with compatible mobile handsets to access the Internet;
Pay for Me: Allows prepaid subscribers to call another subscriber even if the caller does not have sufficient balance in his account to make the call. The intended recipient can decide whether or not to take the call.
Welcome Tunes: Allows subscribers to set the tunes that callers will hear when they call
Bill Pay service: Power Development Board customers in Chittagong and Cox’s Bazaar and Titas Gas Transmission and Distribution Company customers in greater Dhaka, Maymensingh, and Camilla can pay their bills either from their handsets or at any authorized Bill Pay center whether or not they have a mobile phone.
The company offers a wonderful and friendly working environment in the office. Grameenphone has conducive and safe working environment. The Company’s intent is to establish a good working relationship through a mutual understanding of expectations. They believe in working in a team and demonstrate team spirit to maximize and excel in standard quality service to their valued subscribers in the area of telecommunication. Employees work in an environment where they feel valued, responsible and supported by the authority as well as by their colleagues.
Grameenphone also takes preventive and safety measures to avoid all sorts of hazardous situation that might take place in some areas of technical functions. With its present status GP aims to expand and grow at a faster pace by utilizing the best possible opportunities and expansion of Network throughout the whole country. This enormous task requires dedicated, devoted and committed manpower.
Best Network in Bangladesh:
Grameenphone operates an advanced GSM network. As of December 31, 2008, its network covered approximately 98.1% of Bangladesh’s population and 87.0% of Bangladesh’s land area—all of the districts in the country except in the mangrove forest in the southwest area of the country. The Government announced in 2008 that mobile service may be provided in the Rangamati, Bandar ban and Khagrachhari districts, which were formerly-restricted districts, and it has expanded service into these areas. By the end of 2009, it completed its expansion of network coverage and capacity build-up in 18 sites in the above-mentioned districts, being seven sites in Rangamati, seven sites in Bandarban and four sites in Khagrachhari. It currently expects to extend its coverage and capacity in these districts by building up to 11 more sites by the end of 2009.
Its network comprises over 11,500 base stations, over 110 base station controllers (“BSC”) and over 45 mobile switching centers (“MSC”). The base station sites are linked to the BSCs mainly by microwave links and optical fiber, and the BSCs are linked to the MSCs by fiber optic networks. It also interconnects the other fixed-line and mobile telecommunications operators using E-1 lines through microwave and optical fibers. In 2007, we expanded our network coverage by improving our network capacity in order to handle an increased number of subscribers and higher traffic volume. Grameenphone achieved, by the end of 2008, a level of uninterrupted network availability of above 99.7% which would allow us to ensure accessibility to our subscribers. As of December 31, 2008, we have GPRS coverage of 87.0% of the land area of Bangladesh and EDGE coverage of 83.8% of the land area of Bangladesh. Given the power shortages in Bangladesh, it has installed back-up generators for our network, most of which are diesel-based. We have built two sites with solar power as an alternate power source and we are further investing and expanding this effort with up to 10 more sites by the end of 2010.
In line with the BTRC’s infrastructure-sharing guidelines, we are currently evaluating the possibility of sharing infrastructure, including BTS, with other operators to optimize investment and use Bangladesh’s national resources optimally. Overall, we expect that the new infrastructure-sharing regime will be of benefit to us and our operations, principally as a source of additional revenue from other operators using our infrastructure.
Grameenphone completed all phases of our network expansion in 2007. The last phase focused mainly on capacity building and quality enhancement of our network. We have increased our network capacity to more than 14,000 base stations by the end of 2009.
Grameenphone have an agreement with Bangladesh Railway to use their fiber optic cable network until 2027. We have agreed to upgrade that network at our own cost in exchange for reduced rent and are in the process of completing that upgrade.
We lease dark fiber optic cable from the Power Grid Company of Bangladesh Ltd. (“PGCB”), including a lease of over 200 kilometers of dark fiber optic cable on the Dhaka to Chittagong route until 2021. On April 22, 2008, we entered into an agreement with PGCB to lease over 100 kilometers of dark fiber optic cable on the Chittagong to Cox’s Bazaar route until 2023. Both leases allow us to sub-lease spare bandwidth capacity.
Grameenphone core network and radio access equipment has principally been supplied by Ericsson. GP’s framework contract with Ericsson is in effect until the end of 2008, although it has a plan to renew it. An amendment was signed on June 10, 2008, covering commercial issues such as discount voucher adjustments, revision of the price annex and support fees. In April 2008, it signed a long-term purchase arrangement for network and radio access equipment with Huawei.
Grameenphone is committed to providing the best in class customer service to each of our customers and to developing our customer service as a competitive advantage. It operates a 24-hour call center for Business Solutions and individual subscribers, retailers and service points. The center is located in Dhaka and staffed with more than 400 full-time and more than 400 part-time employees as of December 31, 2008. It has an online customer service system that allows our subscribers to interact directly with our customer service staff. Our call center staff also engages in direct sales marketing. Grameenphone Centers and Grameenphone service desks also provide customer support.
Grameenphone established a loyalty program under the “thank you” brand. For postpaid subscribers that are consumers, it provided discounts on voice calls and, for our prepaid subscribers that are consumers or in the youth segment, it provided bonus airtime. The program also provides discounts to all subscribers with various partners, including stores, restaurants and hotels.
1.4 Industry Overview:
Telecommunication Industry Scenario The telecommunication sector being one of the largest infrastructure providers of the economy experienced milestone growth where the tele-density reached at 24% with 35.55 million people having access to telecommunication facility. The number of land phone users also increased to 1.18 million subscribers during the year. At present, 6 mobile phone operators and Bangladesh Telegraph and Telephone Board (BTTB) along with 12 private PSTN (Public Switched Telephone Network) operators are connecting the people of Bangladesh within and outside the border. Reduction in start -up price and significant tariff reduction (by 30 percent) for both prepaid & postpaid segments continued. Attractive offers with bundled handsets were also made to attract customers. All the operators emphasized on freebies with new connections; focused to win back churned out subscribers through aggressive loyalty & retention campaigns and on increasing non-voice revenue sources. The operators will continue to explore untapped potential market both in rural & urban areas of the country with innovative products and services.
The framework for telecommunications sector development in Bangladesh was established in 2001under the Bangladesh Telecommunication Act, 2001. In 2002, the Bangladesh Telecommunication Regulatory Commission (“BTRC”) was established under the aegis of this Act as an independent regulatory body. Since then, Bangladesh has experienced among the highest subscriber growth rates in the world. According to BTRC, the total number of mobile subscribers in Bangladesh increased from 9.3 mn as of December 31, 2005 to 43.7 mn as of June 30, 2009, representing a Compound Annual Growth Rate (“CAGR”) of approximately 85.9%. However, penetration of telecommunications remains relatively low, with a mobile penetration rate of approximately 31.1% as of June 30, 2008.
Private sector participation in the Bangladesh telecommunications industry began in 1990 with PBTL being the first operator to be offered a cellular license. Market competition further developed in 1996 once mobile cellular licenses were issued to GP, Sheba Telecom (now Banglalink) and Axiata (Bangladesh) Limited (TM Int’l) ROBI.
Currently there are six mobile operators in the market – GP, Banglalink, ROBI, PBTL (City Cell), Tele talk and Warid. As of June 30th, 2008, GP had more than double the market share of its nearest competitor at 46.5% vs. Banglalink at 21.6%, while the top three operators, GP, Banglalink and ROBI had an 86.1% market share.
Grameenphone Ltd. is the market leader in the telecommunication sector in Bangladesh. It is a joint venture of four different companies in four different countries. Starting operating from 26th March, 1997, Grameenphone Ltd. has recently completed its 11th year of dominant present in the market. It is now able to say that it has the largest network, the widest coverage, the biggest subscriber base and more value added services than any other mobile phone operators in Bangladesh. GP has a very strong competitive position in the telephone industry in the country.
Orascom Telecom Bangladesh Limited (Banglalink):
Banglalink was previously known as Sheba Telecom which began operation in 1998. It was a joint venture between a Malaysian Conglomerate, Technology Resources Industries Berhad and a local firm named Integrated Services Ltd. (ISL). In 2005 Orascom Telecom Holding (OTH) acquired Sheba Telecom and gave a new trading name ‘Banglalink’.
When Banglalink entered the Bangladesh telecom industry in February 2005, the scenario changed overnight with mobile telephony becoming an extremely useful and affordable communication tool for people across all segments. Within one year of operation, Banglalink became the fastest growing mobile operator of the country with a growth rate of 257%. This milestone was achieved with innovative and attractive products and services targeting the different market segments; aggressive improvement of network quality and dedicated customer care and effective communication that emotionally connected customers with Banglalink. At present it is holding the 2nd position in the cell- phone industry with respect to market share.
Axiata (Bangladesh) Limited (ROBI):
Axiata (Bangladesh) Limited is a dynamic and leading countrywide GSM communication solution provider. It is a joint venture company between Axiata Group Berhad, Malaysia and NTT DOCOMO INC, Japan. Axiata (Bangladesh) Limited, formerly known as Telekom Malaysia International (Bangladesh), commenced its operation in 1997 under the brand name Aktel among the pioneer GSM mobile telecommunications service providers in Bangladesh. Later, on 28th March, 2010 the company started new journey by introducing new brand ROBI. Robi is truly a people-oriented brand of Bangladesh. Robi, the people’s champion, is there for the people of Bangladesh, where they want and the way they want. Having the local tradition at its core, Robi marches ahead with innovation and creativity.
Warid Telecom Bangladesh Ltd:
Warid Telecom Bangladesh Limited is a GSM-based cellular operator in Bangladesh. It is the sixes mobile phone carrier to enter the Bangladesh market. It is wholly owned subsidiary of Warid Telecom International LLC which is the part of The Dhabi Group based in the UAE.
In May 10th, 2007, Warid Telecom launched its commercial operations in Bangladesh with a network encompassing 26 districts. By November 2007, the network had been expanded to cover 61 districts and being used by 2 million customers. Based on the NGN (Next-Generation) network, Warid Telecom’s operational activities in Bangladesh aim to achieve a new and modern corporate identity, which is congruent with the dynamic changes taking place in the telecom industry today. With a reflection of a new strategy, Warid aim to be perceived not only as a telecommunication operator of voice services, but also as a universal provider of comprehensive communications services for both residential and business customers.
Pacific Bangladesh Telecom Limited (City cell):
Among the other four mobile phone operating companies who are running their businesses in the private sector, Pacific Bangladesh Telecom Ltd. (PBTL) is the pioneer. In 1990 Hutchison Bangladesh Telecom Ltd. Was formed as a joint venture of Bangladesh Telecom Ltd. (BTL) and Hutchison Whampoa of Hong Kong. The company began their operations as the analog cellular operator using the CDMA technology in 1993. In 1996 this company was renamed as pacific Bangladesh Telecom Ltd. (PBTL) with brand name of City cell. At present the ownership of PBTL belongs to the Pacific Telecom Ltd. A concern of the Pacific Group and Hutchison Whampoa Ltd. A Hong Kong based diversified multinational conglomerate.
Teletalk Bangladesh Limited:
Teletalk Bangladesh Limited is a public limited company owned by Bangladesh Telegraph and Telephone Board (BTTB) in other words by the Government of the Peoples Republic of Bangladesh. It was incorporated on 26 December, 2004 being the only government sponsored mobile telephone Company in the country. Teletalk Bangladesh limited was established keeping a specific role in mind. It has forged ahead and strengthened its path over the years and achieved some feats truly to be proud of, as the only Bangladeshi mobile operator and the only operator with 100% native technical and engineering human resource base, Teletalk thrives to become the true people’s phone – “Amader Phone”.
Although Grameenphone dominates the market with around 46.5% of market share, the nature of the industry is oligopolistic in nature. It is characterized by price transparency, very little product differentiation and intense competition in the market. For a competitive environment analysis, Porter’s 5 forces model is most useful.
The mobile telecom industry is fiercely competitive. Even a few years back the industry was not as robust as it is now. Initially, City cell enjoyed total monopoly in this sector. After the entry of Grameenphone and ROBI the industry condition changed. Huge competition begun and the industry became a too much competitive one though the number of firms operating in the industry were very limited – only 5. The price charged by the operators for startup as well as airtime was exorbitant and it was a seller’s market.
The scenario further changed with the entry of Orascom Telecom, the mobile giant from the Middle East. They entered the market by acquiring 100% shares of Sheba Telecom and re-launching the brand as Banglalink™. Aggressive marketing and promotion was one of their entry strategies. The airtime rates and connection prices came down because of the competition. This was an awakening call for the other operators. Grameenphone and ROBI, who were quietly enjoying their market positions, suddenly became aggressive as well. There was a huge increase in promotional activities of all mobile operators. The prices also started climbing downhill.
Companies focused on segment marketing as well as mass marketing. GP launched its youth brand Djuice to cater to the needs of young generation. City cell came up with their Aalap Super and Aalap Super Plus providing free airtime whole night. ROBI also came up with various new offers to fulfill the customer demand and making the market more competitive. Overall, the industry became a hubbub of activities. In current data, total wireless subscribers in Bangladesh have increased from 50 million in 2009 to 72.7 million in 2014.
Threat of New Entrance:
Although the industry is fiercely competitive, the overall mobile penetration rate is only 10% of the whole population. This makes the sector quite lucrative for big investors. Foreign investors are quite keen in investing in this segment. In fact, all the current players are either partially or fully foreign owned – 62% of Grameenphone is owned by Telenor from Norway; Axiata (Bangladesh) Limited 70% of ROBI and Banglalink is 100% owned by Egyptian Orascom Telecom. Recently, Singapore Telecom (SingTel) has entered the market by acquiring 45% share in Pacific Bangladesh Telecom. Warid Telecom of Abu Dhabi has got the license and starts their operation. There is rumor that China Telecom and Orange Telecom are planning to invest in the mobile telecom sector of Bangladesh.
This plethora of foreign investors shows that the threat of new entrants is very high. However, the barrier to entry and exit are also high. High setup cost and high level of sunk cost acts as a screening for small investors from crowding the sector.
Threat of Substitutes:
Mobile industry is a technology based industry and like any other technology has the danger of becoming obsolete by new technology. Thus, the threat of potential substitutes is always there.
Currently, the biggest substitute of mobiles is land phone. The land phone market, until very recently, had been a government monopoly. Private land phone licenses were issued in 2005 and the PSTN (land phone) companies are yet to capture a significant portion of the market. Moreover, it was found that people keep mobile phones even if they have land phone connection. Thus, the threat from land phones is not that high.
Another threat to the mobile phone industry is the expansion of broadband technology. People, especially youngsters, are finding it cheaper to chat online with their friends rather than talking. Broadband provides with quite a few advantages over mobile phones: chance to communicate with more than one person, cheaper rate are a few examples. However, lack of proper infrastructure is acting as a barrier to expansion of broadband countrywide. Thus, it is yet to materialize as a real threat to the mobile industry.
Bargaining Power of Suppliers:
The bargaining power of suppliers is moderate in this industry. Since the number of mobile phone companies is limited the suppliers cannot switch frequently or pressurize the buyers. On the other hand, the suppliers like Nokia, Siemens and Motorola, pretty big player themselves and have specialized sales units. Thus, there was always a good understanding between the suppliers and buyers. This situation is now tipped a little bit in the favor of the mobile phone companies by the entry of the Chinese company Huawei. They are offering to supply at lower rates than the previous suppliers. As a result, companies now have the option to go for cheaper suppliers.
Bargaining Power of Buyers:
Initially, the mobile market was a seller’s market. When Pacific Telecom first introduced their brand City cell, the startup connection used to sell for more than Tk.100, 000. The airtime was over Tk.16 per minute. However, with the increase in competition, buyers gained more power. Currently, it is now a market mainly dominated by buyers. The prices have come down too low. The low level of product differentiation and very low cost of startup connections have led the buyers to switch operators very frequently. Companies are undertaking various promotional and product strategies to reduce churn.
The middlemen played a major role in the determining the buyer power. Previously all the companies used external dealers to ensure the smooth flow of their distribution. The commission paid to dealers was very high. However, the dealers paid a very low level of commission to retailers, thus controlling the market to a great extent. Grameenphone is the first company to deal with this situation. They have started their own distribution network. This has not only reduced cost in the form of dealer commission but also increased satisfaction of retailers. Thus, in a market with strong buyer power, a self-owned distribution network can only help GP in maintaining its market leader position.
2.2 Statement of the Problem:
From this topic we will mainly know about what are the factors should be considered before going public. We will also know whether the initial public offering price of Grameenphone is under priced or overpriced and at the same time financial performance of Grameenphone and how to recover if any financial weaknesses exist and to figure out pricing strategy process and accuracy of GrameenPhone IPO.
Broad objective is to find out the justification of Grameenphone IPO process through applying some valuation method.
· To find out whether the IPO price is under priced or overpriced.
· To identify factors related to going public.
· To offer some suggestions based on ratio analysis.
· To figure out pricing strategy process and accuracy of GrameenPhone IPO.
2.4 Scope and Delimitation of the Study:
Main coverage are measuring share price based on net asset value, share price based on projected earning per share, liquidity ratios and profitability ratios.
· All publicly available information may not be accurate.
· Management was not that much willing to provide the required data.
· Because of shortage of time (only three months) the report will cover only basic and easy methods. Some more complex method may provide accurate result.
· As financial information of others company in the industry is not available, so it will not possible to make comparison with competitors in the industry.
2.5 Methodology of the study:
To complete the study in the light of research objectives, information both from the primary and secondary sources are considered necessary. However, first, in order to build up theoretical premise, standard textbooks, reference books, journals and other related literature have been consulted. In the next stage, the related secondary information has been collected from various internal and external publicly available sources. Ratio analysis and suitable statistical tools & techniques have been used operationally the research where required.
3.0 Initial Public Offerings: Theoretical Concept:
An initial public stock offering (IPO) referred to simply as an “offering” or “flotation,” is when a company issues common stock or shares to the public for the first time. IPO is a way for companies that need capital for growth to sell ownership stakes to investors who believe in a company’s future prospects They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.
Generally, any sale of securities to more than 35 people is deemed to be a public offering, and thus requires the filing of registration statements with the appropriate regulatory authorities. The offering price is predetermined and established by the issuing company and the investment bankers handling the transaction. The term public offering is equally applicable to a company’s initial public offering, as well as subsequent offerings.
3.2 Reasons behind Going Public:
A milestone for any company is the issuance of publicly traded stock. NO doubt the prestige related with becoming a public company has a definite appeal. Public companies have historically achieved higher recognition than private companies; hence, the public relations image and the perceived stability of being a public company is a plus. A well-functioning IPO market provides exit options for stakeholders in young firms, access to low cost capital for growing firms, and greater access to capital for future expansion of large firms. Flow of capital to firms can stimulate growth in an economy.
There are many benefits to being a public company. Some of the most compelling advantages can include:
3.2.1 Access to capital:
When you go public and become a public company it can give investors more confidence in investing in your company. When your stock has a public price, it gives you a benchmark price to raise capital. Any potential investor can go on the Internet or call a broker and get a quote of your company’s stock price. Some public companies then give investors who buy stock directly from the company in a private placement a discount from the public trading price (if they are willing to hold the stock for one year). This gives this investor even more of an incentive to invest. The money paid by investors for the newly-issued shares goes directly to the company (in contrast to a later trade of shares on the exchange, where the money passes between investors). An IPO, therefore, allows a company to tap a wide pool of stock market investors to provide it with large volumes of capital for future growth. The company is never required to repay the capital, but instead the new shareholders have a right to future profits distributed by the company and the right to a capital distribution in case of dissolution.
Capital raised can be used for a variety of purposes including; growth and expansion, retiring existing debt, corporate marketing and development, and acquisition capital. A company’s financing alternatives are greatly increased. A publicly traded company can go to the public markets for capital with a stock or bond issue, and may also convert debt to equity.
By going public, a company can create a market for its stock. This gives the public company a greater opportunity to sell shares to investors. In general, stock in a public company is much more liquid than stock in a private enterprise. Liquidity is created for the investors, institutions, founders, and owners. Investors in the company may be able to buy or sell the stock more readily. Often time’s institutional investors and venture capitalist will require a company to become public before committing funds. It is generally better to raise capital as a public company because investors know they have an exit strategy.
A public company may help the company to borrow more easily and eliminate personal guarantees. Liquidity can also provide an investor or company owner an exit strategy. Liquidity is one of the many reasons why public companies are typically valued so much more than a private business.
3.2.3 Mergers and Acquisitions:
Once a company is public and the market for its stock is established, the stock can be considered as valuable as cash when acquiring other businesses & assets. This depends on the specific company. A public company usually increases a company’s valuation leading to a variety of opportunities including mergers and acquisitions. A public company also has the advantage of using the market’s valuation when exchanging stock in an acquisition. Securities and Exchange Commission disclosure requirements offer the public more confidence because in annual reports a company lays out its financial condition.
3.2.4 Increased Valuation:
The market value of a public company is normally substantially higher than a private company with the same structure in the exact same industry. Converting a private company to a public company results in a substantial increase in value to owners. Statistics published by the U.S. Chamber of Commerce demonstrates that sellers of private companies receive an average of 4 to 6 times their net earnings. Whereas, public companies sell at an average of 20-25 times their net earnings. High tech companies are valued even higher.
Investors in a private company will discount the value of its stock because of their “non-liquidity” – the lack of a ready, public market for them. Therefore, public companies often are valued so much greater than private, similar companies in the same or similar industry. The availability of other alternatives to raising capital permits a public company greater leverage in its negotiations with investors. Most institutional and individual investors prefer investing in a public company since they have an “exit,” that is, they can sell their stock in the public market. Many companies that were private and about to be purchased went public to be purchased at a much higher price.
Many companies use stock and options as an incentive to attract and retain important employees. This reward is more desirable when the company is publicly traded. Stock can be a motive in attracting and keeping key personnel. Also, certain tax advantages are a consideration when issuing stock to an employee. Being public can help to create a market for the company’s stock. This market can result in liquidity and reward for the employees. Stock compensation is a way of connecting an employee’s financial future to the company’s success.
3.2.6 Prestige of being a Public Company: