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It is time to revamp the state-owned Pakistan Telecommunication Company Limited

Feb 26 - Mar 04, 2001

If internet is the lifeblood of information technology, telecommunications is the very heart which pumps that lifeblood into its veins. Attempts to develop IT in the absence of a fast, efficient and reliable infrastructure would be as futile as trying to farm fish without having a pond.

But this is somewhat the case with Pakistan Telecommunication Company Limited (PTCL), the sole supplier of related services, manufacturer of telecommunication related equipment which also enjoys the authority to decide which equipment can be used by the customers.

The PTCL infrastructure comprises 3.8 million telephone lines of which some 3.03 million are connected to customers; 2,663 telephone exchanges; 1,362 Nationwide Dialing (NWD) exchanges. According to official figures about 21,000 PTCL customers were connected through the internet till last March whereas the total number of internet users during the same period were 120,000. Though the number of internet connections has almost doubled from 11,041 in 1997-98 the same still remains much to negligible in a country which has a population of over 135 million. This means that less than 2.5 per cent population of the country has a telephone connection while a negligible 0.016 per cent has internet connection.

Talking to PAGE, the general manager of Cybernet, the leading internet service provider, Ansar-ul-Haque said that PTCL is not meeting the expectations of the internet users trailing far behind the accepted international standards both in terms of connectivity and the surfing speed. PTCL's inter and intracity as well as international infrastructure is acutely suffering from availability of telephone lines as well as lacks acceptable connectivity.

Putting number of internet connections at less than 200,000 he said that the actual connections are even less than 150,000 due primarily to 25 cross subscribers who use more than one ISP service for reasons of convenience. Claiming to have the biggest subscriber base of 45,000 internet users, Ansar said that it is atleast 5-time bigger than any other ISP in the country. Cybernet, he added, has 4,500 operation telephone lines offering the fastest service of 16 megabit bandwidth compared to 2 megabit used by the rest of its competitors.

He said that PTCL's infrastructure lacks modern technology- it absolutely lacks hi-speed and high-capacity digital lines such as Chamellin DS3. Secondly, and as important, services and tariffs for only 2 megabit are available which results in increased costs. For instance, he added, Cybernet has to use eight separate services to provide the 16 megabit service each of which is proving expensive to maintain due to individual maintenance, works and rental costs. The failure of the PTCL to invest in induction of latest technology is taking a huge financial cost as well as resulting in unreliable and inefficient service to the subscribers.

Moreover, he said, PTCL does not only takes months to implement a decision taken by the government but also does not honour what it says. For instance, PTCL ceremoniously advertised on September 3 last year that it is cutting the internet tariff by 25 per cent from $ 20,000 to $ 15,000 per 2 megabit half circuit. PTCL took six months to reduce the said tariff and that too not at the advertised 25 per cent but by only 20 per cent last week.

This is what Dr. Altamash Kamal, a Director of PTCL Board, has to say when informed that PTCL was still sending advance invoices at the old rates till last week and that it reduced the internet tariff by 20 per cent and not 25 per cent as instructed by the relevant federal minister: "Had I not been on the PTCL Board, I would have suggested that all of you made payments as per new rates. Then if PTCL were to try something silly you could have gone in for some 'industrial action' and made sure the press got to know about it. But alas, since I am in that state of dubious honor, I stand constrained from making any such subversive suggestions. God save PTCL . . . . Perhaps now only He can."

He further said that "The minister was quite categorical about this being fixed. It would appear that his instructions have not found their way to the relevant people in the behemoth," adding that "We will take up this matter in the BoD meeting and hopefully get this resolved ASAP." Perhaps nothing else could better highlight the attitude of decision makers in the PTCL.

Ansar was also very critical of the fact that ISPs are not only required to make investment in the PTCL infrastructure at its exchanges and yet have to pay a rental charge to the PTCL. Ansar said Cybernet which has invested $ 5 million in infrastructure alone and another $ 5 million in setting up offices and workforce have top of the line equipments which it is not able to use to its fullest capacity primarily due to inferior technology available at the PTCL. What is even worse is that PTCL seem least inclined to invest in upgrading its infrastructure to meet the needs of latest IT requirements.

Thus, he added, private operators are forced to pay for the inefficiency of the PTCL by investing in infrastructure the use of which is subjected to rental charge. In addition, PTCL allows the buying of the needed equipment only from two companies, Siemens and Alcatel, denying any choice of price and equipment to the operators. This, Ansar lamented, has given a PTCL draconian monopoly to let an operator buy only a particular product at its own terms and price.

In addition, he added, it takes months for the PTCL to do a job despite paying 100 per cent of the price in advance. For instance, he said, that Cybernet paid Rs 10 million in advance to the PTCL for lying optic fibre infrastructure which took an exorbitant 10 months to be commissioned destroying the entire business and marketing plans.

While internet tariff still varies from ISP to ISP the reduction in internet rates by the government during last one year has resulted in lowering the overall retail prices from Rs 45 to 25 per hour barring few which are still charging the maximum rate.

Putting the PC population sales in the country at 750,000 Ansar said that some 200,000 PCs are sold in the country annually of which only half are new. The rest of the annual PC sales comprise used machines which show that unaffordable prices shy half the potential buyers away from buying new machines.

The problems of the telecom sector and the directly related IT industry thus can be summed as a small PC population which is increasing by just 100,000 new machines every year, small number of operational telephone lines and even smaller number of internet connections, the reluctance of the PTCL to invest in latest technology and its overall bureaucratic setup which is reluctant to follow the instructions eminating from the highest levels.

Financial performance

PTCL's revenues and profits have registered a substantial increase over the years- Revenue increased by 26 per cent from Rs 46.4 billion in 1997-98 to Rs 58.6 billion in 1999-2000; operating profit by 30 per cent from Rs 19.5 billion to Rs 25.3 billion. However, it is to be noted that international revenue revenue from for foreign network operators for calls that originate outside the country has increased by nine per cent revenue from domestic services has depicted a sharp increase of 41 per cent from Rs 27 billion to Rs 38 billion during 1997-98 and 1999-2000. The tremendous increase in domestic revenue was made possible by incessant increase in monthly line rent of subscribers which has witnessed a five-fold increase during last few years.

PTCL's revenues have been increasing in terms of rupees but they have remained stagnant in terms of dollars during last half decade. Sources also expressed concerns that only a negligible 2 per cent of PTCL's revenue comes from the value-added service such as 800 and 900 toll free numbers, internet, CLI, etc., which is much low than its counterparts overseas the 20-40 per cent revenue of whom come from value-added services. In certain cases, the sources added, the voice and value-added services of many of these foreign operators each contribute half and half to the total revenue.

It is thus imperative for the PTCL to increase the share of its value added service to the revenue, expand its lines and improve its recovery. The catch is until the share of the value added services is increased and recovery is bettered the Company would not be able to improve its infrastructure and increase the lines both of which require considerable investment. This is a catch-twenty-two situation indeed.

As is the PTCL's debts are on the rise- Total trade debts have increased by 40 per cent from Rs 22.5 billion in 1997-98 to Rs 31.39 billion in 1999-2000. In 1999-2000 of the total trade debts of Rs 31.39 billion, Rs 13.3 billion were considered as 'doubtful' or in plain language 'bad or unrecoverable.' Of the Rs 13.3 billion 'doubtful debts' Rs 10.7 billion were domestic, Rs 2.4 billion were international and Rs 164.6 million telex and telegraph. This depicts a drastic increase in bad debts during last three years. Despite registering envious profits, primarily led by domestic revenue helped in no small part by incessant increase in monthly line rent, the increasing volume of trade debts in addition to stagnating international revenue and negligible revenue from value added services poses many questions.


The priority accorded to the IT by the present government has resulted in substantial decrease in the internet tariff. The internet tariff were reduced by 53 per cent last July followed by another 50 per cent cut in December. Though the ISPs chose to pass only a portion of the tariff reduction to the users, Ansar said that this has resulted in an overall reduction of 50 per cent at the retail level. Sources said that the ISPs were able to pass only a portion of the tariff reduction to the users as the tariff applied to PTCL's bandwidth access and not over the entire backbone which comprises Foreign Half Circuit (the company which actually provides the bandwidth) and symmetric provider which gives one way direct link to the ISPs. The cost of internet bandwidth has the three above mentioned components 33 per cent of which goes to the PTCL for providing access to an ISP; 30 per cent goes to Foreign Half Circuit, and the rest of 37 per cent goes to the symmetric provider. Thus while the PTCL announced to cut its internet tariff by 53 per cent the real discount came to a mere 17 per cent as the reduction did not apply to the overall backbone. The number of cities with international internet access has increased ten-fold from just 29 cities in August to almost 300 in November last year.

A number of operators have established telecom systems and operate services through interconnect arrangements with the PTCL under license from the Pakistan Telecommunication Authority. There were some 325,000 mobile connections in the country till last year which were provided by three cellular phone operators in the private sector.

Wake Up Call

There is an unanimous concensus at all levels among the IT industry be it software houses, education institutions, ISPs, corporate or individual users that is time to revamp the state-owned Pakistan Telecommunication Company Limited. It is time for the PTCL to invest in data services system which thus far remains primarily voice-based to be better in tune with the changing demands and too for its own good. Global trends indicate that while revenues of the telecommunications operators from voice service is on a decline the revenues from data service is on the rise. Telecom operators worldwide have created a separate entity to better meet the growing demand for data services in addition to the traditional voice-base business, the PTCL too should no more remain indifferent to the growing demand for data service and the immense revenue potential that it offers.

Trends also show that national telecommunication carriers, or their subsidiaries, are collaborating with experienced carriers to share the knowledge to facilitate technology transfer to improve the existing infrastructure and to better the quality services. PTCL can also benefit from these global experiences.

Access to a reliable, efficient and speedy internet connectivity is a pre-requisite of developing IT culture and PC penetration is the ultimate barometer of it. Internet access and PC penetration are the two basic pre-requisites which compliment each other.

Much has been done to encourage the software firms to increase the volume of software exports vide numerous incentives including retaining a substantial portion of their foreign exchange earnings in the foreign markets, reduction in import duty on computer accessories as well as reduction in taxes applicable at the export stage.

Much, however, still remains to be done to encourage the PC penetration in the seventh or sixth, depending upon who you choose to believe most populated country on the earth. Except for the abolishment of customs duty of PC, computer hardware and accessories in the Budget 1999-2000 not much has been done to encourage the PC penetration in the country. It must also be said that most of the computer hardware accorded the duty-free status in the Budget was already enjoying the exemption previously.

The time has come to look beyond internet tariff reduction and duty free PC and hardware import. Despite the abolishment of the duty the PC prices still remain much prohibitive to encourage the PC penetration in the country. While the importance of branded PCs, hardware and accessories can hardly be undermined, the provision of inexpensive counterparts in a country having a low per capita income should also not be overlooked.

Unless the prices of PCs come down to an affordable level in Pakistan which has a low per capita income and even lower purchasing power the real growth in the PC population is not going to take place despite the sincerest of government efforts. Without the increase in the numbers of PCs, and its strong annual growth, the internet connections would remain stagnant at acutely low levels denying PTCL to offer better value added services such as the internet.

True that the internet tariff has been slashed drastically, international internet access in more cities across the country, a 15-year tax exemption has been announced recently for the software houses, banks are instructed to provide soft loans to promising individual IT entrepreneurs as well as companies , and a national IT testing service and accreditation agency is established.

However, increased PC penetration, growth in the number of internet users, substantial increase in the volume of software exports remain the only true barometer of the success of all the IT related policies. The real test of the success of the policies will be the ultimate growth trends in all of the above spheres.B