TELECARD TO INTRODUCE WIRELESS PAYPHONE

An interview with Javaid Firoz, Managing Director TeleCard

By Syed M. Aslam
Mar 25 - 31, 2002

Pakistan reels from one of the lowest telephone density in the region 2.3 fixed telephone lines per hundred inhabitants compared to 20 in Malaysia, over 8 in Thailand, 3.7 in Philippines, almost 3 in Indonesia and over 2.84 in Sri Lanka.

Payphones: Studies show that there is a direct link between the telephone density the two are directly proportional. Low GNP in Pakistan makes it all the more difficult to justify investment to expand the fixed line telephone infrastructure which requires heavy investment. However, this lack of individual telephone service can be overcome by widespread penetration of public telephone services like payphones, Public Call Offices (PCOs), prepaid calling cards and more recently the Mobile PCOs.

This, in turn, offers a unique opportunity for investment in public telephones services evident from drastic increase in number of payphones service providers operated by the private sector and its overall growth. The interest is evident from the fact that Pakistan Telecommunication Authority (PTA), the regulator of the telecom industry, issued 72 licenses for various value-added services last year, the majority of which were issued to the private payphones operators of the total 65 payphone licenses issued so far, 31 were issued alone last year.

These are exciting times for the telecom industry of Pakistan. As the ultimate liberalization of the telecom industry draws to a close this year with the expected privatization of the PTCL ending its fixed-line monopoly all other sectors of the telecom industry have already been opened for the private sector payphone, mobile phone, ISP and cable television.

This article will deal only with the payphone segment of the telecom industry, the most important tool of public communication. The fact that PTCL's fixed-line network and facilities caters more to the needs of the people in the urban centers than those in the rural areas 75 per cent compared to 25 per cent respectively makes it all the more important for services in far flung areas. Private payphone operators can play a vital role to provide services in the rural areas.

TeleCard Limited is one such payphone operator. TeleCard was the first payphone company to commence operations in the country when it soft launched its services by installing its first booth in August 1992 at the Quaid-e-Azam International Airport Karachi. Encouraged by the success, TeleCard officially commenced its nationwide operations in February 1993 from Islamabad and soon afterwards expanded its service to Karachi and other major cities of the country. In 1995, TeleCard went public at Karachi and Islamabad Stock Exchanges to become the first listed privately-owned telecom company in Pakistan.

The Growth of Payphone: The payphone segment has registered a tremendous growth which goes beyond the issuance of six dozens licenses issued by the PTA last year. The number of payphones installed nationwide has almost doubled in last two years from 35,000 in June 2000 to 65,000 at present. Of the 65 payphones licenses issued so far, over 40 have already commenced operations. Like the fixed-line network of the PTCL the payphone network also tilts heavily in favour of urban areas 75 per cent compared to 25 in the rural areas.

The presence of such a large number of payphone operators has not only resulted in immense competition within the payphone segment but the payphone operators are also facing tough competition from three other players in public calling system the PCOs many of whom are unlicensed, prepaid card operators and the Mobile PCOs.

TeleCard Unethical Competition Faced by Payphone Operators: PAGE talked to the Managing Director of TeleCard, Javaid Firoz, about the fast changing scenario of telecom sector to better understand the issues and concerns of its most promising segment the payphone. Javaid said that the "biggest concern for the payphone operators such as his company today is unethical competition by unlicensed PCOs as well as their Mobile counterparts the former mainly in the cities and the later primarily in the areas not covered by the PTCL.

"The unethical competition is costing us immensely in lost revenues thus depriving us a fair return on our investment. For instance, installation of each booth costs us Rs 40,000 half of which is subsidized. On the other hand, the large number of unlicensed PCOs are operating with complete impunity in all major cities, suburban and rural areas. In addition, the reduced cost of owning and operating a mobile phone which costs Rs 5,000 maximum has resulted in a growing number of mobile phone operators is also hurting the payphone operators. These unlicensed PCOs and cellular operators with the least investment and no overhead costs enjoy a big edge over the licensed payphone operators like TeleCard which has made heavy investment, pay all relevant taxes, absorb heavy overheads. The unregulated sector enjoys great advantages over the regulated operators these individual operators have their own tariff for the customers way above that charged by the Payphone Operators (PPOs) regulated by the PTA.

"Similarly, operators of prepaid card operators enjoy an edge over the PPOs as unlike the later they don't have to come up with heavy initial investment, don't have to absorb the cost of PTCL interconnect charges, operating costs and other overheads such as line protection, line-fraud detection, etc. However, PCOs singularly the most unscrupulous competitors."

PPOs: The Weakest Inter-Connect: Javaid said that despite tremendous investment the PPOs remain the weakest interconnect for following reasons. "Number one, the Telecom Act says that there will be a fair return on investment which under the prevalent situation is just not there. Number two, the per line cost of PTCL at present is much lower than that for the PPOs Rs 26,000 compared to over Rs 40,000 respectively. Thirdly, PTCL offers discounts of 10 per cent on local calls and 25 per cent on NWD & ISD calls to the PPOs which is lower than the 22 per cent offered to the PCOs. This is highly unfair indeed as PPOs require a far bigger volume of investment, create much more employment and are also exposed to high risks such as line fraud which requires protection which is costly.

"Even the cost of cards used by the PPOs is much more expensive than that used by their another competitor, the prepaid calling card operators. The smart card used by us cost Rs 28 while the card used by the prepaid calling operators costs only Rs 7. Till December PPOs were offered a flat call discount of 10 per cent whereas the prepaid calling card operators were enjoying a discount of 22 per cent. Despite increase in discounts (as above mentioned) the weightage average still tilts in favour of the prepaid segment which still enjoys a 22 per cent discount.

Royalty

Javaid welcomed the reduction in the royalty and the change in the basis of its calculation as a positive development for the payphone segment. The royalty has been reduced from 4 per cent to 2 per cent and now it is calculated only on the revenues unlike on the revenue plus the interconnect charges as previously. However, he said, that "it still falls short of providing a genuine level playing field as public calling through the prepaid calling cards, unlicensed PCOs and unlicensed mobile PCOs don't pay any royalties."

Large Number of Players: TeleCard has a strong presence in the payphone segment of the market. Over 10,000 or over 15 per cent of the total 65,000 booths operated by some 50 PPOs belong to TeleCard. Javaid stresses that it is time to let the market forces play their role. "At present", he added, "it is hard to get a PTCL line in areas where there is a traffic. The issuance of such a large bulk of licenses has not helped the growth of the industry as the bulk of the PPOs are owned by just 5 companies which among themselves share 90 per cent of the entire market. The spoilers have taken the payphone industry back to the pre-PPOs era and it is becoming almost impossible to implement the dictates of the regulator, the PTA. There are immense unethical practices undermining the true growth of the payphone industry.

Wireless Local Loops (WLL): The PTCL signed contracts with three companies in 1999 to install and operate Wireless Local Loops (WLL) payphones. TeleCard, WorldCALL and Pak Datacom all of whom are listed companies are allowed to set up wireless payphones across the country. TeleCard will set-up the bulk of the WLL payphones 125,000 followed by 50,000 by WorldCALL and 20,000 by Pak Datacom.

The contracts are aimed at increasing the phone connectivity particularly in suburban and rural areas of the country. Javaid told PAGE that all three agreements stipulates that 30 per cent of all the WLL payphones lines will be installed in the urban areas, 40 per cent in the suburban areas while the remaining 30 per cent will be installed in pure rural areas. "TeleCrad has already installed 15,000 WLL lines while expansion for another 10,000 lines is underway. InshahAllah, we will start working on our rollout in Central Punjab after June to finish the work on 125,000 WLL lines by 2005. Though the agreement was signed with the PTCL in 1999 the work could not start as frequency allocation was not in place by the relevant authority and thus we only started working in September last year and thus far have been ahead of schedule as prescribed in the contract.

"We feel that the introduction of WLL will be another telecom revolution that the country is witnessing as in the past the extremely high cost of deployment of fixed-line telephone in the rural and suburban areas deprived the major part of the population in these areas of this essential service. The WLL network will contribute substantially to the socio-economic growth of the rural areas and will also help the devolution plan of the government as well as good governance."

Asked to comment on the problems related to the ceiling on card payphone price which in some instances violate the cap, Javaid said that "we are trying our level best to see the PTA tariff implemented. Unfortunately, it is extremely difficult to implement this fully for the simple reason that there is no way we can use any legal framework or recourse. However, the silver lining is that at least the PPOs are following the PTA tariff to some extent compared to other three public calling segments PCOs, prepaid calling card operators and cellular operators. The most glaring example is that of the public calling through unlicensed operators using prepaid cards PTA's tariff for prepaid calling card is Rs 2.31 per unit whereas unscrupulous operators using normal PTCL lines are charging many times that amount from the customers.

"For the growth of the telecom industry it is essential that both the licensed telecom operators and the PTCL jointly work towards the national objective of making Pakistan a reasonably advanced country in terms of telecom and IT. Without PTCL and private operators working hand in hand it will be impossible to attract new investments in this sector. We see PTCL as a dominant player in the market place in quiet sometime to come With its North to South backbone on fibre PTCL will have an edge over any new entrant in near future."