Hutch-Etisalat merger, Would it reduce the healthy competition in telecommunication industry ?
The telecommunication industry in Sri Lanka had a state monopoly until 1989. When the government decided to allow the entry of the private sector to the telecommunication industry, Celltel was the first to enter into mobile telecommunication sector in Sri Lanka. It was introduced with a “Brick sized” pocket radio type mobile phone. These phones had only been used by the upper-class society. But today telecommunication is one of the dynamic and competitive industries with four mobile operators namely Dialog, Airtel, Mobitel, and Hutch. Serving the ever expanding customer base.
Celltel was first introduced to Sri Lanka on 18th June 1989 by Motorola TACS system. It enjoyed the monopoly status in mobile services sector until Mobitel and Dialog entered into the market. Celltel had no problem in making additional efforts to promote its service since its brand had positioned well in customer’s mind. In 2007, Celltel transformed into Tigo. Millicom having had multiple telecom operators had been the reason for this. Millicom wanted to build a strong united brand amongst all these operators. The brand they chose was Tigo in Latin America, which had the image of a youthful brand.
However, when such decisions are made, a company risks losing everything it gained from its previous brand. But for Celltel it wasn’t a loss. This was because it was seen as an old brand that was associated with bulky old cell phones. CEO of Celltel shared the view that young people described it as, “Celltel is for my father, not for me.” Thus, the company wanted to change the
negative image people had on “Celltel” an old fashioned,overnight. When people woke up the next morning, It was not the word “Celltel” that appeared in the screen as“Tigo”.When they went to get a reload they were told, “There’s no Celltel now. It’s Tigo.” Within a week, the company had repainted all of its billboards across the island in blue color.
The transformation of Celltel to Tigo was done over the course of a single week. But two years later, they’d have to undergo another transformation. In responding to this second transformation, the marketing manager told CEO, “Oh no! Not again! ”By 2009, Millicom had three telecom operators in Asia located in Sri Lanka, Cambodia, and Laos. However, they decided to move out of Asia and focus on Africa and Latin America. As such, the operations were put up for sale. Etisalat chose to buy Tigo in Sri Lanka. Initially, Etisalat was optimized for voice calls. But when Etisalat came in, the network was optimized for data.
Additionally, the company also introduced 3G in 2010. However, CEO admits that this was too late. While Dialog and Mobitel were on the road to 4G and 5G, Hutch, Etisalat, and Airtel were still stuck on 3G. The reason for this delay was because as Celltel, it couldn’t attract investors due to the war. By the time the war ended, Milicom had already lost interest because it was selling the company.
In this phase, Hutchison Holdings and Etisalat Group have entered into a definitive agreement to merge their mobile telecommunications businesses in Sri Lanka.CK Hutchison completed the acquisition of Etisalat Lanka on 30 November 2018.
The merger between Hutchison Telecommunications Lanka (Pvt) Ltd and Etisalat Lanka (Pvt) Ltd is likely to relieve some competitive pressures that have undermined Sri Lankan telecom companies’ revenue and EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization) growth in recent years, says Fitch Ratings.
Hutch-Etisalat merger will ease competitive pressure Sunday Times, 1st May 2019,(online). Available from http://www.sundaytimes.lk/article/1042741/hutch-etisalat-merger-will-ease-competitive-pressure-fitch.
Hussain, M.(2018),Climbing the ladder: The legend of Dumindra Ratnayaka, 11th April 2018, Read me. Available at, https://www.readme.lk/dumindra-ratnayaka.
UKEssays. November 2018. The Mobile Telecommunication Industry In Sri Lanka Management Essay. [online].Available from:https://www.ukessays.com/essays/management/the-mobile-telecommunication-industry-in-sri-lanka-management-essay.php?vref=1.
Read the given case study and answer the following question.
Identify and explain the external environment factors which may have influenced the decisions made by Celltel ? (cite from the case study) .
(Total -100 Marks )