Pak Datacom – The Commutative Path

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Interview with Ali Akhtar Bajwa, COO of Pak Datacom Ltd. (A data communication company)

What is the present situation of the data communication sector?

Companies are not investing on expanding their networks and unfortunately there are very limited opportunities available for establishing new businesses. These days the focus of the industry players is to retain the existing clients by providing excellent support services.  We deal with the corporate sector which is linked with the financial and economic condition of the country. As the financial and economic situation is down, the corporate sector is cutting the costs and the major share of cost cutting usually comes in data communication. Therefore, the companies go for massive discounts instead of massive dis-connectivity which reduces the profit margins.

 

Tell us about Pak Datacom (PDL) and its history.

The core business of Pak Datacom is to provide network solutions (WAN) based on satellite (VSAT & iDirect), Digital Cross Connect (DXX), MPLS and Radio.

Pak Datacom Ltd. was incorporated as a private limited company in July 1992 and was subsequently converted into public limited company in June 1994. The testing of the network and related system started in April 1994 and commercial operations commenced in July 1994. Pak Datacom s one of the key players in the market with a market share of around 30% to 35%.

 

Who are your major competitors and how do you differentiate yourself from them?

Our main competitors include Supernet, Comstar, Wateen Telecom, World Call etc. We differentiate from all these companies in terms of diverse solutions related only to data and internet connectivity, competent team of engineers and more presence across the country.

The rates of our services are decreased because of the increasing competition but on the other side the energy shortages have increased the operations cost due to the use of backup generators. The skilled human resource is also expensive making the overall business situation rather difficult.

There are around 20 companies which are providing only data communication services and a few more companies which also offer LDI and other related services. In total, there are 30 companies who have PTA issued licenses.

Tell us about pricing issues in data communication business?

Big companies like PTCL and Mobilink offer lower prices to clients because their core business targets a larger market and data communications is not on their priority list. On the other hand there are companies which are being run by a single person. The overheads in these companies are almost zero which is why they offer lower rates. These two types of competitors create a tough situation for companies like PDL which have data communication services as their core business.

Overall quality is being compromised in this sector due to fewer margins. One example of low quality is visible in banking sector as the ATM machines usually have issues in cash transactions. We do not compromise on our service quality which is why at times our company loses business on rates. Clients do not want to compromise on quality and want cheaper rates.

 

What products and services is Pak Datacom offering?

PDL offer’s the following networking solutions:

  1. SCPC VSATs
  2. iDirect
  3. Optical Fiber based Digital Cross Connect (DXX)
  4. Broadband
  5. MPLS
  6. Radio Links

Can you name some of your major clients?

Our current clients belong to almost every sector of Pakistan including:

a)    Financial & Banking

b)    Telecom

c)     Power & Energy

d)    Govt. Regulatory Authority

e)    Foreign Missions etc.

 

How much workforce do you have?

The total workforce of PDL excluding temporary employees is more than 250.

 

Which industry has the maximum potential for this business?

The banking sector is well suited for this business. Banks like MCB, ABL, UBL, HBL and National Bank have countess number of branches and all major players of data communication have a share in this sector. Military and Armed forces, development and government sectors also have the potential for this business as they have ongoing projects. On the other hand, the corporate sector has cost cuttings, price competition and quality is being compromised which makes it less profitable. Companies with only one or two individuals working have no overheads which is why they take projects at minimal rates but are unable to provide quality service and after sales services. Moreover, they also buy services from companies like PDL.

What are the major requirements of local clients?

The requirement of local clients varies form organization to organization. However, majority of the clients are interested in DXX services. After conducting a survey, if the required solution gets feasible on DXX, we then propose it to the client otherwise other solutions based on satellite and radio are proposed.

 

What are your views about the IT professionals/graduates in Pakistan? Are they Tier 1 graduates and meeting the requirements of the industry?

In the telecom industry, the IT professionals/graduates fall in tier 1 category. Majority of the graduates are fulfilling the requirements of the industry. However, the numbers of graduates available are on the higher side as compared to the demand in the market. Our government should make a policy to create a balance between the demand and supply fresh IT graduates to reduce unemployment.

 

What would you like to say about government policies?

The Government is not taking any measures for this sector. It has a GSM (mobile sector) focused policy. Their policies are only for big players (cellular companies) and have nothing to do with data communication. My suggestion to the Government is to keep in mind the whole telecom sector including the sub sectors which will be beneficial for the whole industry. I do not entirely blame the government, even the data communication companies never worked together to find the solutions for the problems and convey them to the government.

 

What is the customer behavior in this business?

In our business, loyalty is one trait which is not found in our customers. Even if we have a customer for the past 10 years, he or she will always cross check the rates from our competitors and if a lower rate is available, the customer gives us an option of either meeting the cheaper rate or losing business.

 

Are you intending to start any new product/service in near future?

Yes, we have already signed a multi-year, multi-million dollar agreement as O3b’s exclusive supplier of services into the Pakistani market.  This agreement will enable us to provide national and international satellite capacity to all borders of Pakistan. After the launch of these services, we will be able to provide fiber quality, high speed internet and data connectivity through satellite to any location of Pakistan where no other connectivity is available.

 

Are you intending to enter into any other business in the telecom sector?

The telecom sector has almost reached its saturation point especially in the voice area (cellular). The margins have been reduced and the growth pace has been decreased. In the data communication sector, the growth is also very slow especially with corporate clients. There are only few major clients which are bouncing from company to company depending upon the rates every year. The financial sector however does have potential for data communication which is our main focus these days. Apart from that, we are trying to penetrate in other countries with the same services.

 

What are your future plans?

In the next 2 to 3 years, the rates will further increase because the equipment used in data communication is being imported and has a direct link with Rupee Dollar value which is on the rise. To maintain the network 24 hours, human resource, electricity and backup generators are required. All these factors are expensive making the future prices of data communications high. I honestly do not see any kind of investment opportunity from the operator’s point of view but there is potential of investment from the customer’s side.

In the next 5 years, I see some companies going out of the market. The government needs to focus on its policies and should create a balance among all the businesses in the telecom sector.  It should understand that the Industry does not grow with increasing number of licenses but it expands with a moderate policy which provides level playing field and gives business security.

For example, a number of licenses were issued during the last government regime to the Pay Phone industry (phone booths) yet today a single phone booth cannot be seen anywhere in the cities as the policies did not provide security to these Pay Phone companies and focused more on the mobile business which kept on reducing call rates. In the end, the Pay Phone industry was completely destroyed. Similarly, the government is now focusing only on 3G without considering the business of Wimax, once the 3G business starts growing, the Wimax industry will start shrinking. A policy needs to be designed which offers security to previously licensed companies.

 

How do you compare Pakistan’s telecom market with other countries especially Middle East, Africa and Afghanistan? What are the positive and negative differences?

There is a huge difference between the Pakistani market as compared to Middle East, Africa and Afghanistan. The local market nowadays is not very active due to the current political, economical and security reasons whereas in Middle East and Africa, the demand of network services is on the boom due to the progression in economy and stable political and security condition. Despite the security issues in Afghanistan, many companies are coming to the country for establishing businesses to take advantage of the opportunities available.

As a matter of fact, there is a price war going on in our market which is affecting the quality of services as it is not possible to provide excellent support services on lower rates.

What advice would you like to give to new entrepreneurs who are entering into this business?

My advice would be to get as much information about this field as possible and then after analyzing it, decide whether the new business can survive or not. The competition is too high in this industry and for new entrants it would be difficult to survive.

 

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