Jordan's mobile phone wars

For nearly six months in 2000, the lights never went off in a six-story building in the heart of Amman. The building is the headquarters of mobile telephone service provider Fastlink, and its top officials were huddled in meetings all day and into the night for the entire period, preparing their strategy for the arrival of competition, which was going to put an end to their four-year monopoly of the Jordanian market.

And there was good reason to worry. Although Fastlink had been the sole operator in the kingdom, the mobile market had not developed rapidly. Prices were high, and there were few takers for the service. It was only in early 2000 that the market really started to grow. The arrival of competition at such a crucial juncture called for drastic measures by Fastlink if it did not want the new arrival to take large chunks of the market away from it. And the newcomer, Mobilecom, was no lightweight - it was backed by France Telecom, one of the world's largest operators.

Fastlink, initially a consortium of a few Jordanian investors, won the license to be Jordan's first mobile telephone company in 1995. Besides paying a one-time fee for the 20-year license, it also had to give 20 percent of its annual revenues to the government. But Fastlink had a monopoly for five years.

Initially, things went slowly. Mobiles were yet to come into fashion and prices were high. To get service at that time, you would have to chip in over $4,000 and then pay an exorbitant $1 per minute. As business was slow, Fastlink was not keen to invest heavily or be proactive. Fastlink's management was caught in the typical dilemma: invest for profits or wait for profits before investing.

As a result, Fastlink had a measly 11,000 subscribers in 1999. Then came two changes that completely revolutionized the market. First, Fastlink caught the attention of Egyptian businessman Naguib Sawiris, who had just begun expanding his telecom business outside Egypt. His Orascom Telecom Holding (OTH) bought out the local investors, and Fastlink became part of OTH's growing portfolio. It lost no time in bringing in entirely new management to revolutionize the way business was done.

Fastlink was not the only company that witnessed a change of management. Jordan's government had been toying with the idea of privatizing Jordan Telecom (JT), the fixed-line monopoly, and had reached a deal with France Telecom. As part of the deal, France Telecom was to buy 40 percent of JT. But France Telecom had its own precondition: it wanted a mobile license thrown in to sweeten the deal. For this, the government was forced to turn to Fastlink since it was committed to a five-year monopoly.

This proved to be a lucky break for Fastlink. Because it agreed to waive its right to monopoly status a year ahead of time, the firm won a huge concession from the government. Revenue sharing was halved - from 20 percent to 10 percent. "This was almost a gift for us. By the time Mobilecom really came online, we had barely two months more of regulatory monopoly period left. By letting in competition two months ahead of time, we made huge profits, and our costs were down sharply forever," says Saad Abu Odeh, Fastlink's marketing director.

As a result of the deal with the government, on January 1, 2000, Fastlink dropped its rates from one Jordanian dinar ($1.50) per minute to about 0.30 dinars per minute, giving Jordanian consumers the opportunity to subscribe to mobile telephony without going bankrupt. It also introduced prepaid cards. But even at this stage, Fastlink's targets were modest. "It would be great if we could take our subscribers from the current 80,000 to 200,000," said a company official at the time.

Fastlink had 100,000 subscribers at the end of 1999. In January 2000, it knew that within eight months its monopoly would be over, and so set out to increase the market. "We packaged our products differently and marketed them very aggressively. We began to pre-empt competition and introduced several new products, like SMS. Then the whole thing just exploded. In the eight months that followed, we gained 80,000 subscribers and nearly doubled our base," says Abu Odeh, adding that this was despite the fact that for three months before the Mobilecom launch, the market went cold as consumers preferred to wait and see what the new player had to offer. "We got the bulk of 80,000 new subscribers in the first five months of the year," he says.

Mobilecom, for its part, began an aggressive marketing campaign nearly six months before the launch of its service. The high-profile campaign caught everyone's attention. And Mobilecom made its first strategic mistake. It raised expectations so high that it could never have met them. There were rumors before launch that Mobilecom would offer something like 0.04 dinars per minute as an average rate, while in reality the price was closer to 0.15 dinars. But the rumors were on everyone's lips and had Fastlink running scared. "We were worried," admits Abu Odeh. "We thought that if they cut prices so radically, neither of us could make any money in this market."

Mobilecom introduced an expensive pre-launch offer. It offered 63 free minutes every month for a year to anyone who registered before launch. That deal proved hugely attractive and got hundreds of thousands of responses. But Fastlink was not unnerved.

A few days before Mobilecom's launch, Fastlink offered to charge for just one minute for every call up to 120 seconds long, charging for another minute only from the 121st second. "We did this because we didn't want people to compare our offer with that of Mobilecom," says Abu Odeh. "It looked on paper that we were offering one minute free for every one minute charged, thus halving the price for our subscribers. In reality, it was not so expensive for us. In terms of revenues, it meant a drop of about 25-30 percent, not a straight loss of 63 minutes as with Mobilecom."

Another key mistake made by Mobilecom was offering a flat tariff. This suited Fastlink very well since it had just lowered its on-net (mobile-to-mobile) tariffs, which stood at 0.08 dinars and 0.12 dinars per minute in off-peak and peak hours respectively. If Mobilecom wanted to attract consumers, it had to match this figure. But they could simply not afford to lower their flat tariff without risking bankruptcy. Instead, Mobilecom positioned their tariff at about 0.25 dinars for prepaid and 0.10 dinars for post-paid, somewhere between the Fastlink tariff for mobile-to-mobile and mobile-to-fixed line connections.

Mobilecom also waived the deposit on subscriptions, saying France Telecom had faith in the Jordanian people; Fastlink required a deposit of100 dinars. Mobilecom's offer proved to be another strategic error - Fastlink had disconnected over 40,000 lines in the previous four years for non-payment. But while Fastlink had the deposits to recoup the losses, Mobilecom had no such surety. Not surprisingly, a number of customers with poor credit histories quickly migrated to Mobilecom. The operator finally realized its mistake almost six months after launch, in March-April 2001, when it reportedly disconnected over 40,000 lines. Later that year, it began demanding a deposit.

Another crucial error made by Mobilecom was to commit itself to September 15th as the launch date. Instead of keeping its rival in the dark, it told it exactly how much time it had to prepare itself for a counterattack. Fastlink made good use of this advance notice. Just a week before September 15th, Fastlink launched two new schemes aimed at the prepaid and post-paid market, in an attempt to saturate the market just before Mobilecom came on stream.

Finally, on September 15, 2000, Mobilecom launched its services. The lavish party is still remembered in Amman. Thousands of Jordanians went to the party to see what Mobilecom had to offer. But the turnout at the party did not translate into immediate subscribers. The same day, Fastlink had splashed the town with ads asking consumers to wait for another week before buying a mobile phone or choosing a provider. "We have a big surprise for you next week," ran the ads. The offer was to give away handsets at throwaway prices with every new subscription.

"This was the coup de grace," says Abu Odeh. "All the latency of the market which had been accumulating over the six months since Mobilecom had launched its own campaign exploded. We sold a record number of phones, over 30,000, in the 12 working days that remained in September. And we created a new record for sales for every month until December."

Both the players ended 2000 with handsome gains. Fastlink had 250,000 subscribers; Mobilecom had 100,000. In little over three months, the two operators had managed to double the size of the market from 180,000 to 350,000.

But round one had gone to Orascom Telecom. "Despite being dazzled by France Telecom, their coming into the market and their subscriber base worldwide," says Abu Odeh, "we still kept our head on our shoulders without really being too distracted by them. This is actually the main lesson that we learned from this battle. That we know ourselves and we know our market."

The next round of the battle began in 2001. It was clear that the market would continue to grow at an explosive rate, and Fastlink exploited the opportunity to the fullest. It focused on acquiring new customers and accelerated the pace of competition. It knew it was on a roll, and wanted to increase the gap between itself and Mobilecom, which was suffering from a launch party hangover.

"Mobilecom actually featured Aladdin and the magic lamp in their launch campaigns. It was like, ask for whatever you want. They were promising the moon to the people. But they could never meet the expectations that they had raised," says Abu Odeh. "That was one of their biggest screwups."

Damage control. For most of 2001, Mobilecom was busy with damage control and trying to rectify the mistakes made in the days up to launch. It reversed a number of its initial strategies. From a flat tariff, Mobilecom moved to a complex matrix of numerous combinations of tariffs. It began charging a deposit, just like Fastlink. And it dropped nearly half of its subscribers because they didn't pay their bills. The errors were serious enough for the company to replace its CEO and to try a new strategy to break the stranglehold that Fastlink had over the market.

Meanwhile, Fastlink was busy strengthening its grip. By mid-2001, it was becoming clear that mobile phone manufacturers had overestimated the demand for new phones and that they were sitting on a mountain of inventory. "We saw the opportunity," says Abu Odeh, "and we struck very attractive deals for hundreds of thousands of new sets, which we then literally gave away in the market and thus acquired new customers."

Mobilecom eventually caught on, but too late. It took nearly six months to react to Fastlink and by then inventories had dwindled. Manufacturers had raised the prices of handsets by 20-40 percent. Giveaways were simply no longer viable.

Fastlink's proactive approach paid off handsomely. At the end of 2001, it had increased its lead over Mobilecom significantly. While Fastlink ended the year with 650,000 subscribers, having added 400,000 new subscribers in the preceding 12 months, Mobilecom had managed to add just 80,000, for a total of 180,000. And while Fastlink was a profitable operation, Mobilecom had losses of over 20 million dinars in 2001.

But Fastlink's management had failed to foresee the boom, and the company began having problems. In late 2001, Fastlink's installed network capacity was far short of the number of subscribers, leading to network overload and poor connection rates. The problems were serious enough to shake up management, which invested $120 million in doubling its network capacity. The company says it will increase the margin between projected demand and capacity in order not to repeat the mistakes of 2001.
Saturation.

Nine months into the year, it is clear that Orascom Telecom has won this battle. By July, Fastlink's subscription base increased to 850,000, while Mobilecom was way behind at 250,000, with little chance of catching up. Fastlink says it will end the year with 1 million subscribers and that the Jordanian market is racing towards saturation. Getting every new subscriber is increasingly difficult for both operators because of a lack of purchasing power at the lower end of the economic scale. The boom of 2001 and early 2002 is clearly over.

Mobilecom says it hopes to curtail its losses to $18 million this year, but the company has little hope of recovering lost ground. The market is expected to take a year to reach a total of 1.5 million subscribers, which is saturation point for Jordan with its population of just 5 million.

The experience in Jordan has turned out very differently for Orascom Telecom and France Telecom. While Fastlink is currently one of the Egyptian company's most profitable and biggest ventures, Mobilecom represents one of the French operator's biggest losses and casts a shadow on its presence in Jordan. It is perhaps no coincidence that, in mid-September, France Telecom's embattled CEO, Michel Bon, was forced to resign. The latest victim in the global telecom wars.