Strengths and weaknesses
By SYED M. ASLAM
Oct 14 - 20, 2002
By end this year the global population of personal computer is expected to increase to 605 million, 105 million more than it was in 2000. The number of internet users worldwide is also expected to rise to 655 million, more than 80 per cent over 361 million in 2000. Similarly, the global population of both fixed-line and mobile telephones is expected to rise substantially — the latter depicting a much greater rate of growth than the former: The number of fixed-line telephones is expected to touch 1.115 billion over 986 million in 2000 and number of cellular subscribers almost doubling from 741 million in 2000 to almost 1.4 billion.
The telecom industry will play an important role to help pump $ 1,445 billion in the global economy. Revenue from telecom services and equipment worldwide is projected to register a sharp increase over 2000 — the revenue from services is expected to touch record $ 1,110 billion, $ 190 billion more than it was in 2000, while sales of telecom equipment would increase from $ 290 billion in 2000 to $ 335 billion end this year.
The global telecom indicators highlighted above are meant to underline the importance of the telecom sector and the inherent benefits that it offers to the economy of Pakistan. Without neglecting the ground realities — such as low penetration of PCs, internet and mobile users and an IT sector which still remains much in its nascent stage — Pakistan has many advantages. Number one, the fact that IT industry of the country still remains more or less in nascent stage means that the opportunities have not thus come to a point of saturation, The fact that the country still much remains a virgin IT market offers immense potential for growth where profits can still be easily made.
However, a major cause of concern is the small share of the services sector in the GDP. Presently, services sector is contributing just over 5 per cent to the GDP of Pakistan of which only about 3 per cent comes from the Information and Communication Technologies (ICTs) sector and 2.5 per cent from the financial services sector. Pakistan, thus, has failed to benefit from the ICTs and reels not only from extremely small share of services sector but also from a negligible share of contribution from ICTs sector. The contribution of services sector itself in Pakistan's GDP falls much below the global standards. The contribution of services sector in the GDP of the USA, for example, far exceeds the contribution of the manufacturing sector. Services sector is contributing 80 per cent to the GDP of the USA, a good 30 per cent of which is contributed by the ICTs.
However, Ireland is the best example of how ICTs can turn around an economy. ICT is contributing 40 per cent to the GDP of Ireland making it the top country in term of GDP-ICT ratio in the world.
There is no need to feel guilty only to feel motivated to understand the need to increase the share of services sector in the Pakistani economy. It may be realized that the share of services, and thus ICT, sectors in the GDP would not take place overnight and will only come with time provided the policy makers and the entrepreneurs start realizing its importance. However, it must be understood that investing in services and ICT sector is imperative to help boost the Pakistani economy as they need less capital investment and more human investment, which we have in abundance here.
A preliminary question that arises here is: what should be the role of telecommunication in increasing the share of services and ICT sector in the GDP of Pakistan? The answer is: just as the IT is an enabler, the telecommunication is enabler's enabler. This is so as without a reliable, dependable and state-of-the-art telecommunication infrastructure the services and the ICT sector would fail to improve their share in the GDP in the global-village world of today where time is everything and consumers are not reluctant to pay the premium for a good service.
Before we proceed further, let us highlight the problems restricting the growth of the ICT here in Pakistan. The foremost problem is a low telecom penetration in a country which reels from a low fixed line penetration of just 2.3%, compared to average of 8.6 per cent in the Asia Pacific. However, the apparent weakness can very well its very strength to attract the investment in the ICT sector in a country which offer immense opportunities that such an unsaturated market does offer. Certainly, the situation offers numerous incentives for investors in a market such as this in terms of quick returns and profits.
This is true particularly as the government has decided not to privatize the state-owned Pakistan Telecommunication Corporation Limited (PTCL). Let us look at the PTCL to better understand the situation. PTC was established in December 1990 to take over operations and functions from the Pakistan Telephone and Telegraph Department. The operations of PTC were governed by the Pakistan Telecommunication Corporation Act 1991. Around the same time the federal government also allowed private participation in the telecom sector for the first time ever awarding licenses for cellular and prepaid card phones and paging. Today, there are four private cellular phone operators including one which is a subsidiary of PTCL. More recently, the government also opened up the data communications services for the private sector.
It was for the first time in 1991 that the government announced its intention to privatize PTC. Three years later in 1994, the third quarter to be exact, the government issue 6 million "vouchers" exchangeable into 600 million shares, with a par value of Rs 10 per share, of then future PTCL in two separate placements. These vouchers were converted into shares of PTCL in mid 1996. The conversion allowed the government to retain 88 per cent shares of the PTCL while the remaining 12 per cent is owned by the private investors. PTCL's market capitalization today accounts for about 30 per cent of the total capitalization of the Pakistan stock exchange markets today.
A Presidential Ordinance "Pakistan Telecommunication (Reorganization) Ordinance" promulgated in 1995 established the basis for the monopoly of PTCL with regard to providing basic telephony services in the country as well as the new independent regulatory regime for the development of the sector. Thus, in October 1996, the new Pakistan Telecommunication (Reorganization) Act was passed by the Parliament, which contained the same provisions as the Ordinance albeit on permanent basis.
The end of the PTCL's monopoly and its privatization scheduled end this year was widely welcomed by all segments of the subscribers be it industry, trade, business or residential. Subscribers welcomed it because years of monopoly made PTCL inefficient, corrupt and an uncaring behemoth unable to provide value for their money. The deadline to privatize PTCL is ending on December 31 this year and once again there are feelers in the press that since the organization is earning big revenues it would not be privatized no more but will be deregulated.
A range of reasons have been offered to justify why PTCL should not be privatized. Talking to PAGE, Javed Nushahi, member of e-Commerce Task Force Ministry of Science and Technology, said that the decision to deregulate PTCL instead of privatizing it as planned is influenced by sound financial ground realities in the post-September-11 world. "11.9 sent the global economy into a spin which left no sector of the economy untouched worldwide and the telecom was no different. The fallout of the crash of telecom giant Worldcom made the situation even more worse for its counterparts worldwide, of which PTCL is a part, making it impossible for the government to get the $ 8-10 billion price. The Worldcom fallout has made the government, and the PTCL, to change its priorities towards the privatization as it is feared to fetch no more than $ 3 billion.
"Not only the privatization would not fetch the price previously deemed possible but also the foreign exchange reserves have improved considerably to make the privatization a less attractive option. Five years ago not only the PTCL was able to command the price but there were also many eager buyers ready to pay that price. Today, the global economic sluggishness and the crash of Worldcom have brought the sell-off price drastically down making the privatization prospects extremely financially unviable at this point in time. More so, the improved foreign exchange reserves have wiped out all urgency to sell the PTCL off."
So, how deregulation differs from privatization? While privatization means the transfer of entire PTCL infrastructure, administration and services of the PTCL, deregulation will allow the PTCL to allow the private sector get involved in many projects which though heavily capital intensive allow fair returns.
INCREASING THE SHARE OF SERVICES SECTOR
The outgoing minister for Science and Technology, Dr. Ata-ur-Rehman, played an important role to prepare the ground for the IT revolution. During his 30-month stint Dr. Ata has been instrumental in solidifying the basis for primary IT catalysts and enablers. This includes expansion of fixed-line phone network, substantial increase in cellular phone subscribers, internet connections and users, induction of mass IT institutions such as Virtual University, expansion of universal internet access from less than 40 cities and towns to over 800 cities and towns, drastic reduction in internet bandwidth tariffs resulting in substantial reduction in average internet price for the end users, and tremendous reduction in both domestic and overseas calls.
However, much still remains to be done as most of the policies and energies were spent on creating supply while less was done to generate the demand without which the human resources would remain unabsorbed. However, there has been pocket of success particularly in the banking sector which has played an active role to allocate substantial funds to set up ATMs and e-banking projects. The Ministry of Science and Technology's e-Commerce task force and State Bank of Pakistan's Electronic Clearing House (ECH) task force led by Navid Khan of ABN Amro Bank have been instrumental to help develop the much needed demand side for the IT.
Javed said that Habib Bank's undergoing $ 10 million e-banking project is one example of developing the demand-side IT and many other nationalized commercial banks including National and Allied are also working on similar projects. However, much still remains to be done to develop demand-side IT which offers immense potential to absorb immense pool of professionals to let services and ICT sectors improve its share in the GDP of Pakistan which stagnates at just over 5 per cent and 3 per cent.
"For instance, there are a total of 18 customs clearance points in the country including 4 which are located in Karachi — two at the Port of Karachi and one each at Port Qasim and Quaid-e-Azam International Airport. Though only 4 out of 18 customs clearance houses are located in Karachi, 50 per cent of all the customs revenue is generated in Karachi. These 18 customs clearance points are not interconnected electronically and this is resulting in pushing the importation costs anywhere between 5-15 per cent and exportation costs between 5-10 per cent depending on the value of goods. These are World Bank figures whose report also mention that it absence of electronic connectivity at 18 customs point of clearance is resulting in delays of up to 7 days for imports to get released and up to 3 days for exports to get loaded on a vessel.
"By linking these 18 points of customs clearance across the country would help cut the importation and exportation costs substantially to not only reduce the landed costs of imports but also the shipment costs of exports — the first directly benefiting the end consumers and the second making the Pakistani products competitive in the international markets. In addition, it would bring transparency to cut down the rampant corruption be it in the form of greasing the palms of the officials, sales-tax drawbacks and other.
"This would also help tremendously improve the GDP-Tax ratio which presently stagnates at low 13 per cent. This will help induct transparency to eradicate the menace of tax-cheating and frivolous drawbacks. The electronic debt and credit and transfer or withholding of funds would also help ease pressure on paper currency to help save printing costs as heavy use puts a heavy strain on currency circulation which is estimated at around 463 billion rupees While the cost of electronically interlinking these 18 points of customs clearance is an affordable $ 8-10 million, a small price compared to benefits which it offers, it requires a reliable telecom infrastructure for data transfer which only PTCL can provide."
That highlights the need for an efficient, reliable, fast and dependable infrastructure for data services. The PTCL infrastructure still primarily focused on catering the voice service. According to globally acceptable standards 70 per cent of revenue of a telecom company should come from voice while the remaining 30 per cent should come from data service. In PTCL's case, less than 5 per cent of the revenue is coming from the data service: About one-third of the PTCL's total revenue is coming from the international voice traffic while the remaining two-third is coming from the domestic voice and traffic, less than 5 per cent of which is from the data service.
The share of earning from data service in PTCL's total revenue thus remains much below the globally accepted standard. With the PC and internet use on the increase and with the increased pace of digitalization the volume of data transfer will only increase in near and distant future. That makes it imperative for the PTCL to gear up to make the required changes in the infrastructure. Javed stressed that it is time for the PTCL should have a separate set-up to provide reliable and efficient data collection, storage and transfer service. "While the Ministry of Science and Technology has done numerous other marvellous jobs in last 30 months under the leadership of Dr. Ata-ur-Rahman this one important job still remain to be done. The creation of a separate data department in the PTCL can now be done by involving the private sector under deregulation."
Another factor discouraging the digitalization is the cost of Daccess line, the data transfer line, which is too costly even from one building in the same locality to another in the same area. At present, Javed said, the Daccess line costs from one bulding to another in Karachi more than having a similar access between Karachi and Peshawar. This is due mainly as PTCL is selling the required equipment only two vendors at exorbitant price and the subscribers are not allowed to buy the same, or similar equipments, from the market which costs much less. "The PTCL has seen it fit to sell the equipment of these two companies at exorbitant prices at unthinkable premium thus discouraging their use at the cost of the consumers. The cost of Daccess should be cut at least by 50 per cent, if not more, and the subscribers should be allowed to buy the equipment from the open market to suit their individual budget. At present 64 k Daccess costs a prohibitive Rs 700,000 including the equipment of PTCL's choice and prices."
Increasing the share of the services, and ICT, sectors in the GDP from negligible 5 per cent is all the more important as IT provides the biggest opportunity for highly-priced and highly-sought products which offer immense value-addition prospects with comparatively least capital investment.
With services sector contributing a negligible 5 per cent to the GDP, including 3 per cent by the ICT and 2.5 per cent by the financial sector, the importance of increasing their respective shares in the national economy can hardly be overstated. However, much stills remains to be done to make the PTCL to develop an efficient, dependable and reliable data service infrastructure at affordable prices. This will not only help PTCL increase its revenue and to bring it at par with the global standards but also to supplement its income from data service. It is also necessary to help attract investment in the telecom sector even if the PTCL is deregulated and not privatized by offering quality service to the subscribers.
Once again, much has been achieved during the Ata-revolution but much still remains to be done. It's time to look ahead.