May 18 - 24, 2009

It is now clear that the boom in the telecom industry especially the mobile phone sector is over throughout the world including Pakistan. However, the reasons for this scenario are different in Pakistan from rest of the developed and the developing world. In case of developed countries downfall began because mobile phone industry reached its peak. In Pakistan the telecom industry has not reached that stage but its growth declined during the last year because of heavy taxation introduced on mobile phones in July last.

The Telecom Industry of Pakistan which was showing a fantastic growth of about 50% annually during the last 5 years took a reverse turn after July 2008 when Government introduced new taxes. The Government is now charging Rs31 in the shape of taxes on Rs100 pre-paid card from cellular subscribers. The GST has been increased to 21% (from 15%) Rs750 on ordinary hand set in addition to continuation of reactivation charges of Rs500. This has added to the burden of users manifold. These taxation measures, however, did not serve the desired objective of rising additional revenue because of decline in growth?

Before these measures the leading companies operating in Pakistan were sure to escape the effects of global recession as they still had a big untapped marked in the country. In view of this market potential, mobile phone companies continued with heavy investments in the infrastructure. Increase in taxes and duties on the telecommunication services in the budget 2008-09 made negative impact in attracting fresh investment as the resultant increase in the cost of mobile services turned out to be beyond the purchasing power of the remaining potential subscribers of above 5 million living in the rural areas.

In Pakistan, the total number of subscribers which had touched an all-time high figure of 90.52 million in October 2008, according to the data released by Pakistan Telecom Authority, dropped to 89.9 million in December, showing a 0.7 per cent decline in three months. The main reason is that imports of handsets have registered a 70 per cent decline in the July-December period of 2008 when only 1.788 million sets were imported compared to 5.924 million in the corresponding period last year. The drop is attributed by the industry to Rs500 customs duty per set imposed in the last budget and a regulatory duty of Rs250 introduced in August. These duties are intended to raise more revenue to meet the IMF-dictated revenue target. The huge shortfall is, however, stated to being met through increased smuggling but the prices have, of course, soared.

The sales are down even in other markets such as China which has seen explosive growth for years and its subscribers have gone up to 650 million. In India, which is the second biggest market after China, there are 300 million subscribers. There is a consensus in the western market that one of the worst slumps is underway and that 2009 will see at least one percent decline in global handset sales which may be revised to five per cent any time in the year. In October 2008, shipments of mobile phones in Japan fell by 57.8 per cent, compared to shipments in October 2007. Only 1.08 million units were shipped. There is little demand for new handsets or replacements because the domestic market is saturated.

In Europe and the US, the cellular phone growth has been slowing for years because practically everybody has a mobile phone. In fact, the western countries have relatively more mobile phones. According to Eurostat, Luxembourg had the highest mobile phone penetration rate of 158 per 100 people. In Hong Kong the penetration rate reached 139.8 per cent of the population in July 2007.

Over 50 countries have penetration rates higher than that of the population. Between the 1980s and the 2000s, the mobile phone industry underwent a great transformation. From being an expensive item used by the business elite, it became a personal communication tool for the general population. In most countries, mobile phones outnumber land-line phones.

According to PTA, mobile phone user base started shrinking in Pakistan in the last few months, posting a negative growth. About 6.618 million subscribers have become inactive by stopping use pf their phones. In fact, the leading five companies have squeezed most of the market in the big cities - keeping more than one set is not yet in vogue here and now the challenge before them lies in capturing the untapped market in small towns and rural areas where a mobile phone may work wonders for those living or working at long distances. The mobile phone teledensity or penetration which had reached 56.20 in November has come down to 55.80 by the end of December as the downturn began. Still, it means that about half of the population may be possessing the phone.

The PTA data shows that Mobilink remains the leading company with 28.47 million subscribers but there is a cut-throat competition for the second position between Telenor and Ufone, the former with 19.38 million subscribers having a slight edge over the latter, having 19.30 million users, in December. However, in August this year, Ufone was ahead of Telenor with 18.6 million subscribers against the latter's 18.3 million. And 16.91 million people are using the service of the UAE-based Warid at present. Chinese mobile phone company, Zong, a new entrant, has built a subscriber base of 5.5 million in the country so far.

The major reason attributed by the industry for shrinking of the subscriber-base is, of course, imposition of high taxes. A mobile user has to pay almost 31 per cent in terms of taxes/service charges which is at least 14 per cent higher than any where in the world. Now every customer has to pay Rs5 more in terms of service charges to the mobile phone company on every recharge of Rsl00. However, the stiff competition has compelled some companies to lower their call rates and offer attractive packages to maintain their profitability rates. The telecom sector was a major recipient of foreign direct investment (FDI) at $5.6 billion during the last five years and in 2007-08 it was estimated at $3.1 billion. However, their future investments and promotional plans would depend on what direction their parent companies take to fight the affects of the global recession.

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