STRATEGIC MANAGEMENT REPORT ON WATEEN TELECOM LTD.

PROGRAM: MBA/M.PHILL DUE DATE:28-APRIL-2011 SPECIAL THANKS TO: DR. IMTIAZ SUBHANI SUBMITTED TO: UZMA BASHEER GHAUS SUBMITTED BY: SYED ADNAN KALEEM (8631) MUHAMMAD FARHAN FARHAT (9312)

INTRODUCTION
Wateen Telecom Limited provides international voice retail and wholesale communication services to carrier, corporate, and individual customers in Pakistan. It offers various networking services, such as WiMAX, a wireless broadband access; direct to home television; LongHaul OFC network; metro OFC network for high bandwidth connectivity in various cities; and hybrid fiber coaxial network, as well as VSAT products and solutions in support of various applications, such as carrier class telephony networks; broadband, Internet, and multimedia access; corporate enterprise private networks, including banking; rural telephony public network extensions; government and military networks; and GSM and cellular applications. The company also sells and deploys telecom equipment, as well as provides system integration services; and offers international routing and termination of direct dial telephony traffic via voice grade switched circuits to international carriers.

ORGANIZATION CHART
Naeem Zamindar Chief Executive Officer

Syed Jibran Ali Chief Commercial Officer

Furqan Qureshi Adviser to CEO

Faisal Sattar Chief Technology Officer

Sajjeed Aslam Chief Financial Officer

VISION Statement
Wateens vision is to take Pakistan into the digital revolution of the 21st century by offering complete communications and media solutions such as Telephony, Internet, Data and TV / Multimedia to the public at large based on quality, affordability, availability and reliability. To make Pakistan a regional communications hub, inter-connecting the East with the West and Central Asia to the Middle East.

MISSION Statement Offer affordable communication services that cater to the needs of our customers Deliver high quality, flexible solutions that allow customers savings, choice and enhanced efficiency Make Broadband Pakistan a reality Achieve maximum customer satisfaction at all levels Provide innovative, efficient and creative solutions

PRODUCT & SERVICES

WiMAX Metro Fiber Managed Capacity DPLC / IPLC & IP-transit VSAT [Very Small Aperture Terminal] Co-location / Tele-Housing Broadband Internet Telephony Consumer Calling card / calling account Content &Media Online Gaming

SWOT
Sales Own satellite HUB Own Long-Haul

Strengths

Weaknesses
Decreasing profit margin Lack of skilled human resource High Employee Turnover Increase in Debts Customer Retention Strategic direction Low revenue per user (ARPU) Noresearch and developmentprograms

Strong management

Metro Fiber in major cities Largest WiMAX Network Investors

Opportunity
Huge market size LTE Technology Broadband services Satellite solutions IP Transit Telephony [voice/video] Increasing un employment rate Removal ofinternational tradebarriers

Threats
Satellite Provisioning by Mobilink Metro Fiber by Multinet PTCLs smart TV Managed Services DSL for WiMAX Un-licensed or local fiber provider Increase in tax rate High inflation rate New competitor in broad band Price war Political Instability - Security issues industry

PORTER FIVE FORCES MODEL

Overall Industry Attractiveness
S# 1 FACTORS Threats of New Entrants Exit Barriers Competitive Rivalry Bargaining Power of Buyer Bargaining Power of Supplier 2.25 Average 5.75 3.16 7.8 2.25 3 2.75 4 Unfavorabl e < 2.5 Neutral 3 Favorable > 3.5 3.8

2 3 4

FINANCIAL STATEMENT ANALYSIS

Wateen 2010 2009CHANGE % Operating Ratio Gross Profit Margin Net Profit Margin Performance return on Operating Assets Debtors' turnover Return On Equity times % % 25.67 (25.38) 31.17 6.02 (17.65) (521.56) 11.58 (15.37) 16.31 (5.84) 2010 Worldcall 2009CHANGE % (29.01) 163.24 33.08 16.26 36.30 15.45 2010 PTCL 2009CHANGE % (8.87) 5.23

% times %

(11.85) 2.44 (48.00)

6.60 5.55 21.53

(279.51) (56.04) (322.94)

(8.96) 3.70 (11.21)

(4.05) 3.97 (4.31)

121.19 (6.81) 159.94

10.54 5.62 9.32

10.45 5.50 9.21

0.81 2.11 1.19

Leverage Debt equity Time Interest Earned Liqiudity Ratio Current Ratio Quick Ratio Valuation Earning per Share(Before Tax) Earning per Share BOOK Value Per Share

times times

6.06 (0.57)

4.93 3.35

22.78 (116.88)

1.15 (1.02)

1.01 14.53 0.03 (3,589.6)

0.51 36.42

0.55 16.53

(7.02) 120.25

times times

0.34 0.30

0.71 0.63

(52.34) (51.77)

0.43 0.39

0.78 0.69

(44.78) (43.86)

1.51 1.37

1.50 1.36

0.19 0.88

Rs Rs Rs

(6.78) (4.43) 9.23

3.46 2.22 10.31

(295.79) (299.55) (10.49)

(1.75) (1.33) 11.86

(0.72) (0.57) 13.21

142.03 133.33 (10.24)

2.80 1.82 19.56

2.75 1.79 19.49

1.86 1.56 0.37

FINANCIAL STATEMENT ANALYSIS

Wateen 2010 2009CHANG E % 2010 Worldcall 2009CHANGE % 2010 PTCL 2009CHANGE %

Historical Trends Operating Results Revenue Profit Before Tax Profit After Tax Rs(000) Rs(000) Rs(000) 7,961,103 15,410,115 (3,091,546) (2,020,513) (48.34) 7,464,404 8,408,275 1,446,824 927,763 (11.23) (313.68) (317.78) 57,174,527 59,239,001 14,281,118 14,020,917 9,294,152 9,151,185 1,446,824 (313.68) (3,091,546) 927,763 (317.78) (2,020,513) 1.86 1.56

(3.48)

Efficiency Ratio Assets Turnover Return on Assets Return on EQUITY price Earning Ratio Price To Book Value EARNING POWER(EAT/T.A) SG&A to Sales working capital times % % times times % % Rs(000) (6.80) 19.50 (0.98) 3.63 (287.44) 11.86 (1.05) 64.42 (6.59) (5.21) 21.78 (0.92) (2.15) 16.13 (0.81) 142.29 35.04 13.10 311.28 6.16 16.38 (1.20) 5.94 18.15 (2.96) 3.77 0.27 (6.80) (48.00) 0.60 (55.54) 0.34 (5.21) (11.21) 0.37 (2.15) (4.31) (7.96) 142.29 159.94 0.38 6.16 9.32 0.38 5.94 9.21 3.63 (287.44) 21.53 (322.94) 3.77 1.19

(1.39)

(9.75)

Sustainable Growth Rate %

(59.37)

(16,098,958) (3,028,679) 431.55

(4,803,268) (1,167,886)

15,257,458 18,133,919

(15.86)

External Factor Evaluation Matrix (EFE)

Opportunities
1 Huge market size 2Broadband services 3Satellite solutions 4LTE Technology 5IP Transit 6Telephony [voice/video] 7increasing un employment rate 8Removal ofinternational tradebarriers

Weight

Rating
0.08 0.07 0.05 0.06 0.05 0.08 0.03 0.03

Score
3 3 2 2 2 3 3 3 0.24 0.21 0.1 0.12 0.1 0.24 0.09 0.09 0.1 0.24 0.21 0.12 0.02 0.06 0.08 0.2 0.15 0.32 0.2 2.89

Threats
1Satellite Provisioning by Mobilink 2Metro Fiber by Multinet 3PTCLs smart TV 4Managed Services 5DSL for WiMAX 6Un-licensed or local fiber provider 7increase in tax rate 8high inflation rate 9new compititor in broad band industry 10price war 11Political Instability - Security issues.

Weight

Rating
0.05 0.08 0.07 0.04 0.02 0.02 0.04 0.05 0.05 0.08 0.05 1

Score
2 3 3 3 1 3 2 4 3 4 4

Total:

MARKETING

Internal Factor Evaluation Matrix (IFE)

Strengths
1Strong management 2 Sales 3Own satellite HUB 4Own Long-Haul 5Metro Fiber in major cities 6Largest WiMAX network 7investors

Weight

Rating Score
0.08 0.1 0.03 0.04 0.04 0.04 0.05 3 3 4 3 4 3 4 0.24 0.3 0.12 0.12 0.16 0.12 0.2

Weaknesses

Weight

Rating Score
0.1 0.08 0.07 0.08 0.08 0.08 0.08 0.05 1 2 2 3 2 3 2 2 1 0.2 0.16 0.21 0.16 0.24 0.16 0.16 0.05 2.6

1Decreasing profit margin 2Lack of skilled human resource 3High Employee Turnover 4Increase in Debts 5Customer Retention 6Strategic direction 7Low revenue per user (ARPU) 8Noresearch and developmentprograms Total:

TAWS MATRIX SO Strategy 1) Having own Long-Haul and Metro-Fiber can provide reduction in cost offerings to the customer [S5:S4:O1]: Product development 2) Satellite penetration in remote areas of Pakistan and Afghanistan can provide high earning in cost and overall reduce overheads [S3:O4]: Market Penetration 3)We can increase our sales by starting a new campaign and provide new technology ( telephony Voice/Video) [S2:O6]

4) Largest WiMAX network can provide feasible solution to cater huge market size[S6:O1]

TAWS MATRIX WO Strategy 1) Wateen has decreasing profits and lack of skilled workforce to address huge market size [W1:W2:O1] 2) Using diversified portfolio, can retain customers and improve service quality and penetrate in triple play services [W5:O6] 3) We can work on our profit margin by expending our business by providing our service to other countries [W1:O8)

TAWS MATRIX ST Strategy 1) Metro fiber can provide an edge over PTCL smart TV service [S4:T3] 2) Satellite HUB deployment and market penetration by other providers like Mobilink can be catered by taping the remote areas of Pakistan and Neighbouring region of Afghanistan [S3:T1] 3) To cater managed solutions by rivals, bundled services can be offered related to corporate solutions [S4:S5:S6:T4] 4) Use Fiber & WiMAX as a alternate solution for regulations from PTA related to unlicensed fiber provider [S4:T6]

TAWS MATRIX WT Strategy

1) Increase in Debts & reduced profit margin can be a threat to Smart TV applications & managed services [W1:W4:T3:T4] 2) Metro fiber and managed services can be a threat to customer retention [W5:T2:T4] 3) Low strategic direction can result in unmanaged services, Triple play and IP transits [W6:T3:T4]

SPACE MATRIX

THE GRAND STRATEGY

Rapid Market Growth Quadrant II Weak Competitive Position Strong Competitive Position Wateen Telecom Quadrant I

Quadrant III

Quadrant IV

Slow Market Growth

EVALUATING STRATEGIES BY MATRICES

Strategic Alternative
1 2 3

QSPM Matrix
key factors

lower Price Improving or Market (Value Chain) Market Development Development or Penetration or New & Finding or Increase Market Innovative Searching New Shares Product Market Weight AS TAS AS TAS AS TAS

Strengths
1Strong management 2 Sales 3Own satellite HUB 4Own Long-Haul 5Metro Fiber in major cities 6Largest WiMAX network 7investers 0.08 0.1 0.03 0.04 0.04 0.04 0.05 3 4 4 3 3 3 4 0.24 0.4 0.12 0.12 0.12 0.12 0.2 4 3 3 3 3 3 3 0.32 0.3 0.09 0.12 0.12 0.12 0.15 4 3 1 1 2 3 3 0.32 0.3 0.03 0.04 0.08 0.12 0.15

Strategic Alternative
1 2 3

QSPM Matrix
key factors

lower Price Improving or Market (Value Chain) Market Development New Development or Penetration or Increase & Innovative Finding or Market Shares Product Searching New Market

Weight

AS

TAS AS
3 1 2 3 3 3 3 1 0.3 0.08 0.14 0.24 0.24 0.24 0.24 0.05

TAS
3 3 3 1 2 2 1 4

AS

TAS
3 2 2 3 2 2 1 0 0.3 0.16 0.14 0.24 0.16 0.16 0.08 0

Weaknesses
1Decreasing profit margin 2Lack of skilled human resource 3High Employee Turnover 4Increase in Debts 5Customer Retention 6Strategic direction 7Low revenue per user (ARPU) 8No research and
development programs 0.1 0.08 0.07 0.08 0.08 0.08 0.08 0.05 0.3 0.24 0.21 0.08 0.16 0.16 0.08 0.2

Total:

2.85

2.65

2.28

Strategic Alternative
1 2 3

QSPM Matrix
key factors

lower Price Improving or Market (Value Chain) Development Development or Market Penetration New & Finding or or Increase Market Innovative Searching New Shares Product Market Weight AS TAS AS TAS AS TAS

Opportunities
1 Huge market size 2Broadband services 3Satellite solutions 4LTE Technology 5IP Transit 6Telephony [voice/video] 7increasing un employment rate 8Removal of international trade barriers 0.08 0.07 0.05 0.06 0.05 0.08 0.03 0.03 3 0.24 0 0 0 0 1 0.06 0 0 0 0 0 0 0 0 2 1 1 3 3 3 0 0 0.16 0.07 0.05 0.18 0.15 0.24 0 0 3 2 2 2 2 2 0 0 0.24 0.14 0.1 0.12 0.1 0.16 0 0

Strategic Alternative
1 2 3

QSPM Matrix
key factors Threats 1Satellite Provisioning by Mobilink 2Metro Fiber by Multinet 3PTCLs smart TV 4Managed Services 5DSL for WiMAX 6Un-licensed or local fiber provider 7increase in tax rate 8high inflation rate 9new compititor in broad band industry 10price war 11Political Instability - Security issues. Total: Total:

lower Price Improving or Market (Value Chain) Market Development New & Development or Penetration or Increase Innovative Product Finding or Market Shares Searching New Market Weight AS TAS AS TAS AS TAS

0.05 0.08 0.07 0.04 0.02 0.02 0.04 0.05 0.05 0.08 0.05 1

2 3 3 1 2 0 0 3 0 4 0

0.1 0.24 0.21 0.04 0.04 0 0 0.15 0 0.32 0 1.4 4.25

1 2 1 2 1 0 0 0 3 0 0

0.05 0.16 0.07 0.08 0.02 0 0 0 0.15 0 0 1.38 4.03

2 1 1 1 2 0 0 3 3 2 0

0.1 0.08 0.07 0.04 0.04 0 0 0.15 0.15 0.16 0 1.65 3.93

Strategies Lower Price For using this strategy, we have to reduce our cost which decreases our profit margin like general and admin expense, interest expense and operating expense. We are paying 1.97 billion Rupees in finance cost which belongs to markup long term and short term loans. Our stocks is now cheaper than our loans so we can reduce this cost by raising money from stocks and paid to loans. The second highest expense is interest expense which makes the income statement negative. The third highest expense is general and admin expense which is based on salaries, rent repair etc., where there are unemployment rate is too high in Pakistan, we can hire the staff at low salary. After cutting cost, we will be able to cut our product selling price which increases our sales and market penetration. Improving or Development New & Innovative Product In second strategy, we have to focus in our research and development department. We have to spend money in this department for invent a new technology or product. It will increase our sales because we will be the only one who will offer that technology. It will built up competitive advantage and market penetration Market Development or Finding or Searching New Market In this third strategy, we have to find some new town and selling present products or services in new markets. We have to take actions like targeting promotions, opening sales offices and creating alliances to operationalize a market development strategy

Action Plan
Marketing plan
We have to do Customer analysis by doing customer surveys, analyzing consumer information, evaluating market positioning strategies and developing customer profiles. Right now we are focusing on corporate level user which is not sufficient coverage. We have to target home user also and home users want something more with internet service. We have to focus youth. So in marketing, we spend money in advertising, sales promotion and publicity in which we relate our product with some sports game. Production plan At corporate level, Wateen has to continue with the same enthusiasm and offering as they are doing it today. At consumer level, we have to give something more with internet like TV channels, software, movies, games, etc., for taking competitive edge from our competitor. Financial plan R&D Plan Right now we do not work on R & D department. We are already buying new technology from other sources. Some portions of those technologies are still a part work-in-progress in which Wateen group have already invested substantial amount in it. R&D required a lot of investment and time to invent a new product and in our case invent a new product is more costly than purchasing new technology from outsider. But if we invest on R&D and make something new then we will take competitive edge in the market. MIS plan Wateen have to make MIS department stronger because managerial level takes decision on the basis of information. Management information system receives raw information from both the external and internal evaluation of an organization. It gathers data about marketing, finance, production, and personnel matters internally; and social, cultural, demographic, environmental, economic, political, government, legal, technological, and competitive factors externally. Because organizations are becoming more complex, decentralized, and globally dispersed, the function of information systems is growing in importance.

PROJECTED PLAN FOR 5 YEARS

PKR(000) PKR (000) PKR (000) PKR (000) PKR (000)

FY1
15,000,000 9,000,000 6,000,000 1,800,000 4,200,000

FY2
18,000,000 11,250,000 6,750,000 2,070,000 4,680,000

FY3
21,600,000 14,062,500 7,537,500 2,380,500 5,157,000

FY4
25,920,000 17,578,125 8,341,875 2,737,575 5,604,300

FY5
31,104,000 21,972,656 9,131,344 3,148,211 5,983,133

Sales Cost Gross Profit Operating expense Profit/(loss) before interest and tax or EBIT Interest

PKR (000)

750,000 3,450,000

525,000 4,155,000

367,500 4,789,500

257,250 5,347,050

180,075 5,803,058

Profit/(loss) before tax PKR (000) or EBT Tax Profit/(loss) after tax or EAT Earnings per share
PKR (000) PKR (000)

1,207,500 2,242,500

1,454,250 2,700,750

1,676,325 3,113,175

1,871,468 3,475,583

2,031,070 3,771,987

PKR

3.02

3.64

4.19

4.68

5.08

Conclusion
We have to take immediate action and raise funds through equity and payout our debt which carry heavy financial cost. Reduce admin expenses by eliminating layers of management and inefficient employee. Work on value chain and curtail irrelevant cost. Immediate lounge marketing campaign with proper targets and pay them accordingly. Create variable pay plan to motivate efficient and effective employee. Requires a policy approved by top management that states objectives and provides a commitment to improve performance. Requires procedures for Hazard Identification, Risk Assessment, Risk Control, Identifying Legal & Other requirements maintaining documented objectives Maintaining Management Programs for achieving its objectives including designating responsibility and authority, means, and timeframes for achievement. Procedures should exist to ensure information is communicated to and from employees and other interested parties. Employees should be involved in development of procedures and consulted when changes affect their workplace. Establish qualitative and quantitative measurement processes, both proactive and reactive. Maintain procedures for handling investigations; mitigating the consequences; initiating & completing corrective actions; and confirming the effectiveness of corrective & preventive actions. Maintain procedures for the identification, maintenance, and disposition of records. Records shall be legible, identifiable, traceable, readily retrievable, and protected against loss and / or damage.