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Granting of industrial status to telecom sector

The telecom sector needs to be granted industrial status. Before the current fiscal year budget, a high-level representatives of telecom companies working in Pakistan had demanded of the government to grant telecom sector industrial status and slash down rate of withholding tax from 12.5 percent to 10 percent. The telecom representatives also asked provinces to bring down General Sales Tax (GST) on services including data from 19.5 to flat 16 percent.

The telecom sector has witnessed impressive growth in the last four years. In 2014, 3G licenses were awarded to Jazz, Telenor, Ufone, and ZONG the last one was also given the license of the 4G service. Later on, in 2016, Telenor received the 4G license and after that Jazz was awarded the same license in 2017. Pakistan Telecommunication Authority (PTA)’s initiative of the biometric verification of the SIM cards resulted in the blocking of 98.3 million SIMs in which the 26.1 million SIMs were the active ones. PTA is also working on Device Identification, Registration and Blocking System (DIRB) to fight the grey market smartphones in the country.

Last year, Xiaomi, a Chinese brand and the world’s third largest smart-phone maker made entry into the Pakistani market, a booming market of mobile consumers worth 40 million. China’s most popular smartphone brand has partnered with a Pakistani company Smart Link Technologies for distribution and after-sales service. Vivo, another Chinese brand, plans to enter Pakistan market. The Chinese company manufactures and designs smartphones, mobile accessories, online services and software. The software development by Vivo include its App Store, proprietary Android-based operating system called Funtouch OS and iManager. With entry of new smartphone players in the market, users will get huge variety of mobile phones.

Pakistan is rapidly evolving as one of the telecom sector’s key investment prospects. The telecom sector has witnessed a significant year-to-year growth in the country. About 90 percent of Pakistanis live within areas that have cell phone coverage and more than half of the total population has access to a cell phone. The country’s telecom infrastructure is improving dramatically with foreign and domestic investments into fixed-line and mobile networks; fiber systems are being constructed throughout the country to aid in network growth.

In the last four years, the cellular mobile sector was the main driver of growth in telecom sector. In terms of overall investment in telecom sector, the momentum started in fiscal year 2013 for up-gradation of telecom networks for 3G and 4G services, has continued. Telecom operators invested a significant amount of US$ 589 million during July-March 2015-16. Pakistan as a market of about 200 million people continues to allure foreign firms to invest in the country’s telecom market, which has the footmarks of strategic investors such as Orascom, Etisalat, Telenor, Abu Dhabi Group’s Warid Telecom and Canada’s Nortel Networks and China’s telecom giants — ZTE Corporation and China Mobile.
Pakistan has the highest mobile penetration rate in the South Asian region. There is a tough competition among five cellular mobile companies operating in the country. These operators include Mobilink, Ufone, Warid, Telenor and ZONG. The mobile phone operators compete by offering users attractive packages and drastic reduction in call rates. The people take advantage of this competition among multiple mobile operators.

 

Telecom deregulation brought an end to more than five-decade-old monopoly of the PTCL. The main challenge for the government was to preserve the PTCL in wake of opening the telecommunications market.

The availability of advanced mobile phone internet – 3G, 4G and LTE – has helped the otherwise struggling telecom companies maintain their revenue and the sector earned Rs452.8 billion in the fiscal year ended June 30, 2016, only 1.4 percent higher than Rs446.2 billion earned in the preceding year, according to PTA annual report 2016.

The cellular companies earned revenue of Rs98.82 billion from sale of data on 3G, 4G and LTE networks in the year under review. This is 27 percent higher than Rs77.94 billion on sales of the data in the previous FY15. The number of internet users on 3G/4G LTE networks doubled to 32.29 million in the year from 16.88 million last year. However, the revenue earned by the telecom sector as a whole in FY16 remained 2.3 percent lower than the historic one at Rs463.5 billion earned in the fiscal year 2013-14. The slow recovery in revenues on year-on-year basis with high rate of tax and levies on use of mobile phone voice and data services.

Presently, there is competition in every telecom service segment in Pakistan, including fixed telephony, mobile cellular, payphones, internet and other value-added services. Some analysts, however, argue that the country with high operating costs is discouraging the operators in an environment where profit margins have been narrowing due to stiff competition. Moreover, increased taxes and import duties on equipment purchase are the hurdles which would ultimately discourage are evaporating the prospective and the existing investors in the country’s telecom industry.

The competition among smartphone manufacturers has reached its peak as many local and international brands have entered the market, offering wide variety of feature phones and smartphones. The global telecom market has become more competitive among smartphone brands. Presently, Apple and Samsung, the two global leaders are losing share to manufacturers out of China and elsewhere. Samsung and Apple continue to be in a position of strength despite the presence of brands like Huawei, Lenovo and LG in the market. With 3G/4G auction, the smartphone market is growing fast in Pakistan. There is a stiff competition in the market due to the presence of both local and international brands offering a variety of smartphones. This has created new ways of growth for the smartphone manufacturers and distributors. Just after 7 months since launch of 3G/4G service the mobile broadband subscriptions for 3G stood at around 10 million. The spectrum auction for next generation mobile services gave people access to mobile broadband services and it also encouraged investment in mobile networks in Pakistan.
The government needs to create a technology-driven, consumer-oriented and business-friendly environment with fair competition, affordable tariffs, high quality of services and extended land coverage. The upcoming government after 2018 elections must declare an industrial status for telecom for vibrant growth of this sector.

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