THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Nov 29, 2002

 

SECTOR REVIEW: TELECOM SECTOR DEREGULATION

This time our weekly sectoral topic is telecom sector deregulation. The regulator has issued a policy draft in this respect last month whereas it has highlighted 

 

the likely telecom sector scene post December 31st 2002. With this liberalization of the telecom sector, the monopoly of PTCL will come to an end partially from the beginning of the year 2003. However, the policy document suggests that complete liberalization is still three to four years away. Though it's not clear when this policy would become a proper law, we are of the opinion that telecom regulator will eventually retain this as a bible for the telecom sector in future. Following are the highlights:

•Only two types of licenses will be issued for (I) Local loop (LL) fixed telecommunications and (II) Long-distance and international (LDI) fixed telecommunications. Under both types the new entrants would have to start with minimum required capacities whereas the regulator is trying to force the new players to offer telephony services to all the segments of the society.

•Both type of operators will be required to submit regular reports to PTA, where they would be free to negotiate their own interconnect prices, until such time as they enjoy significant market power as determined by the PTA. Unless PTA determines otherwise, they can obtain symmetrical termination rates with PTCL.

•To encourage new entrants, low one-time license fee is likely to be applied. While, operators will be paying a fixed annual fee to PTA to cover operational costs of regulation.

•With financial premium over the cost of conveying and terminating international traffic into Pakistan, an Access Promotion Contribution (APC) regime is likely to be introduced for some period. APC would be governed through a formula, to be specified separately by PTA, driven through revenues generated out of bilateral settlement rates. This will be utilized for the promotion of local loop rollout and will also be available to cellular operators commensurate with their commitment to revised license condition.

•Licenses will have reasonable right to claim the rights of way they need to construct a national network. Entities (such as, power, gas companies, railways) with suitable land holdings will be encouraged to provide access to rights of way and the government will facilitate reasonably in acquiring the same.

•LDI licensees will have rights to install earth stations. They will have rights to co-locate in PTCL's international exchange buildings, and backhaul to and from them using their own fiber and /or own radio spectrum. Licensees will have the right to access existing landing points, and to participate in future landing points for new cables. Access by licensees to PTCL's satellite earth stations will be on commercially negotiated terms between PTCL and the licensee.

•Neither type of licensee will be subject to price regulation (except with regard to inappropriate interconnection prices or terms), unless it has significant market power as determined by the PTA.

•LDI licensees will be entitled to radio spectrum for point to point /and backbone links, within the parameters of their licenses. LL licensees will be entitled to radio spectrum for WLL systems and also spectrum for point-to-point links. Radio spectrum that is currently unoccupied and available for use by entrants will be available through a transparent allocation procedure.

•Both types of licensees will have the right to interconnection, leased lines and co-location facilities from the incumbents. Pricing of the incumbent services will be determined in accordance with rules earlier stated. However, pending the development by incumbent of cost accounts that are approved by the PTA, incumbent's interconnection prices shall be based on international benchmarks. Initial benchmark interconnection prices would come into effect on January 1st, 2003, while KHRC based target benchmark interconnection prices would come into effect by 2006

•Incumbents shall be prohibited from cross subsidization, price manipulation, and interference with competitive market dynamics or engaging in anti-competitive conduct.

•In order to facilitate market liberalization, PTCL, within a stipulated time frame is obliged to

- Prepare two transit switches in each region for interconnection
- Enable subscriber lines on all digital local switches to perform Indirect Access (call-by-call carrier selection)
- Enable all subscriber lines to perform Indirect Access
- Enable all subscriber lines to perform carrier pre-selection

•In an effort to develop universal services in Pakistan, a Universal Service Fund (USF) will be created under policy guidelines of MoST. This fund will be used to finance the expansion of basic services both on an individual and a community basis where USF will mostly be financed by revenues collected from all telecommunications licensees through a universal service fund charge. The USF may also receive matching contributions from the government, and also from international or bilateral development agencies.

•Mobile Cellular Operators would have the option to qualify for APC to be qualified for they may opt to and consent to suitably improve for their license. However, current licensees may continue their services under current licenses, tariff and interconnection terms without access to new Interconnect/APC regime.

•Certain policy measures relevant to mobile cellular operators and will encourage the expansion of wireless networks, both for mobile and fixed services:

- They will have access to interconnect charges at the same rate as for fixed line operators
- Mobile cellular operators will be permitted to apply for a LL and/or LDI license
- They may be permitted to participate in USF scheme

MARKET REVIEW: ROLLER COASTER RIDE

The market which looked confused at the beginning of the week, finally got a direction as US warning to Pakistan on charges of aiding N.Korea's nuclear development program and political instability were enough reasons to create panic in the market. MQM's withdrawal of support to PML(Q) in the center exposed the vulnerability of the newly elected government. However, news of a possible alliance between PML(Q) and MMA ahead of the vote of confidence to be taken by the newly elected PM, clipped the losses of the investors as the market rebounded strongly at the end of the week. On the political front, other major developments included the holding of the first session of all but Sindh's provincial assemblies, where controversy over LFO caused a few disruptions. Sindh's Provincial Assembly session was postponed and all political parties are still struggling to come up with majority to form the provincial government.

MARKET THIS WEEK

Political turmoil led the KSE100 Index ('Index') to fall by 2.58% to close this week at 2,286 points as against 2,346 points at the end of the previous week. Bears were in control of the market for the major part of the week as the Index lost 118 points in just three days before rebounding with a 48 point rally at the end of the week.

The stocks of interest this week were Hubco, PTCL, PSO and SNGPL. Hubco remained the most active scrip with cumulative volumes of the week reaching 195mn shares, followed by PTCL with cumulative volume of 96mn shares for the week. Both the OMC's turned out to be the major losers during the week with PSO loosing 7.7% of its value during the week while Shell closely followed with a decline of 6.7% in its value.

Average daily volume declined by 37% this week to 133mn shares as major institutions remained on the sidelines.

OUTLOOK FOR THE FOLLOWING WEEK

While the market is yet to recover the entire loss of 118 points during the last week, political uncertainty is likely to keep a check on the overall movement of the market during the coming week. We expect the market to remain range-bound during the next week, where after news flow from the political front are likely to create a substantial impact on the Index's momentum.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

9.07

8.90

-1.87

Total Turnover (mn shares)

1057.48

668.02

-36.83

Value Traded (US$ mn.)

642.61

452.01

-29.66

No. of Trading Sessions

5

5

 

Avg. Dly T/O (mn. Shares)

211.50

133.60

-36383

Avg. Dly T/O (US$ mn)

128.52

90.40

-29.66

KSE 100 Index

2346.34

2285.87

-2.64

KSE All Shares Index

1460.86

1427.59

-2.26

Source: KSE, MSCI, KASB