PAKISTAN TELECOM SECTOR PERFORMANCE 2004: A REVIEW
Remarkable growth has been witnessed this year
By MALAHAT RAB
Apr 25 - May 08, 2005
The year 2003-2004 has been crucial year to the telecom growth in Pakistan. The Government of Pakistan decided for deregulation of telecommunication sector and announced telecom deregulation policy, mobile policy and broadband policy. PTA undertook the challenging task of implementing these policies in just earnest. The investors from all across the world were encouraged, through an even and transparent regime in addition to number of incentives for operation of telecom services. Consequently PTA awarded 2 mobile cellular licenses through open bidding in addition to award of license to 12 LDI, 36 LL and 18 WLL companies.
Remarkable growth in Pakistan telecom sector has been witnessed in this year. Newly licensed companies have stared rolling out their networks across the country. Prices of all telecom services have dropped down drastically and revenues of exiting operators have improved significantly.
The creation of conducive environment after deregulation in addition to number of incentives led to record growth of the sector. Improved economic indicators due to this growth for the year 2003-2004 include, increased share of telecom in GDP up to 1.93 percent, increased share of telecom in total Foreign Direct Investment up to 22 percent and 0.33 million employment opportunities have been created. Telecom is now considered as one of the most vibrant and lucrative sector of Pakistan economy.
The telecom sector financials exhibit remarkable growth this year. In the fiscal year 2003-2004, the total telecom revenues reached Rs110.05 billion which were Rs91.1 billion in the year 2002-2003, showing an increase of 21%. Revenues from each segment of the sector improved whereby mobile sector had highest revenue growth of 56 percent during the year 2003-04. Combined revenue of four mobile operators reached Rs21.4 billion during 2003-04 as compared to Rs13.8 billion in the year 2002-03. Basic telephony segment generated total revenues of Rs78.6 billion during 2003-04 as compared to Rs70.6 billion in 2002-2003, showing increase of 11 percent. Although basic telephony is major contributor in telecom sector but its growth in revenue had been slow this year due to the fact that people have been switching over to mobile services. Listed telecom companies also exhibited positive financial statements among which Telecard, World Call Communication and World Call Multimedia showed revenue increase of 52%, 44% and 59% respectively. Telecom manufacturers and vendors showed positive trend in total assets where total assets of the industry increased by 18%.
In addition to above Government of Pakistan generated handsome revenue from telecom sector deregulation in the year 2003-2004. In this regard, PTA collected total of Rs30 billion this year from licensing of new mobile and fixed line services. In addition, PTA also collected Rs15 billion from auction of spectrum for WLL services.
Total investment in the sector also increased with major investments made by new operators. Mobile cellular operators Telenor and Warid are investing US$400 million and US$392 million respectively in the year 2004-2005. Similarly existing mobile operators plan to invest total of US$645.5 million in the year 2004-2005. LDI operators including DV Com and Red Tone are making total of USD 38 million each.
INFRASTRUCTURE & SUBSCRIBERS GROWTH PATTERNS
The fixed line sector in Pakistan this year went through dramatic changes, with end of PTCL monopoly. PTA issued licenses for LDI, LL and WLL services in order to introduce competition in fixed line telephony.
By November 2004, there were 4.8 million fixed lines in service with 3.2% teledensity in Pakistan, which is still quite low as compared to similar economies in the world. Pending demand for fixed line services in Pakistan registered with PTCL alone reached 0.403 million at the end of year 2004. As a result of potential competition in the sector, the incumbent operator (PTCL) announced series of price cuts and offered other incentives, resulting in increased traffic and number of new connections. Recently, Government has invited Expression of Interest (EOI) for divestment of 26% of its stake of company along with the management control.
Other two fixed line operators in Pakistan are National Telecommunication Corporation (NTC) and Special Communication Organization (SCO). NTC has a subscriber base of 73,330 with capacity utilization of 87% in June 2004. Corporation has earned Rs2,158 million in term of revenue with Rs240 million profit in the year 2003. Similarly, SCO has total installed capacity of 97,092 lines with 77,770 working connections both in AJ&K and NAs. The organization is also providing Cellular service in AJ&K area with subscriber base of only 3000 connections. In addition to fixed and cellular services, organization provides WLL, ED PCO's and Internet service in the AJ&K and NAs.
Mobile cellular segment of telecom sector has shown extraordinary growth pattern during the year 2003-2004. In order to further uplift the sector, PTA awarded two new cellular licenses to the foreign companies under the new cellular mobile policy by the Government of Pakistan. The licenses were awarded by PTA in a transparent manner to Telenor of Norway and Warid Telecom of U.A.E @US $ 291 million each through an open bidding process with fifteen years of license term. PTA has also introduced number of incentives both for mobile operators and customers. Annual royalty has been further reduced from 1.5% to 0.5% of annual gross revenue minus inter operators payments for the new entrants. For the benefit of customers, incentives are provided to the mobile operators for the expansion of networks to the rural areas. On the recommendation of PTA, government has also reduced activation charge on new mobile connection from Rs2,000 to Rs1,000. PTA is again pursuing Government of Pakistan to reduce activation tax further to Rs500. All this was done by PTA in order to uplift the sector which consequently had a spillover effect, increasing mobile penetration in the country.
Today, there are over 8 million subscribers of mobile services where as growth rate for the year 2003-2004 was 109%. With the issuance of two new licenses there was remarkable increase in the number of subscribers after July 2004 due to promotional campaigns by the existing mobile companies particularly by Mobilink and Ufone. As a result Mobilink subscriber base reached to 5.3 million and Ufone subscribers increased to 1.9 million by Jan 2005. Mobile penetration which is 5.5% now, has crossed fixed line teledensity of 3.2% in the year 2004 in Pakistan. This year again Mobilink led the market with share of 63% where as Ufone followed with share of 23%. Instaphone and Paktel could not increase their market share more than 7% and 7% respectively. In October 2004, Paktel started its GSM services with the permission of PTA that resulted in significant growth of Paktel subscribers in just two months. Recently, Paktel GSM has reduced its tariff significantly which shows considerable increase in its subscription base. It is expected that mobile sector would further grow in coming years with new companies starting their operations this year. Estimated subscriber base at the end of year 2005 in the country is expected to reach 15 million.
PTA issued 141 licenses for value-added and radio-based services in the year 2003-2004. Out of these, 118 licenses have been issued for card payphone services, 6 licenses for audiotex services and 5 for non-voice network communication services. PTA has been providing regulatory incentives to card payphones operators in terms of reduction in royalty and license fees over the years. Initially, PTA was charging annual royalty @4% of annual gross revenue or 50% of initial license fee. In the year 2004, PTA has reduced annual license fee to 1.5% of annual gross revenue or 10% of initial license fee which ever is higher. Royalty of Internet Service Providers (ISP) has been also abolished and replaced with annual license fees of 0.66% of annual gross revenue. Similarly, PTA has also reduced annual license fees of other services including Voice Mail Services (VMS), Non Voice Communication Network Services (NVCNS), Video Conferencing Services (VCS), Vehicle Tracking Services (VTS) and Audiotex Services (ATS).
During the year 2003-04, Payphones remained main contributor in increasing telecom accessibility in the country. More than 20 lak localities of the country are being served by these services. Since 2003 to November 2004, more than 70 thousand Payphone PCOs were established, showing a growth of 57%. PTA has also allowed mobile phones to be used as payphones in those areas where fixed line in not available. Similarly, Mobilink with consent of the Authority has launched village phone program.
The Government of Pakistan and PTA has made concerted efforts for the growth of ICT sector. Today total Internet subscribers have reached 2 million with broadband subscribers reached to 40,000 from 5,000 in one year. Government of Pakistan announced broadband policy this year. Under this policy there will be huge decline in bandwidth rates for high speed Internet services across the country and this will help enhance the growth of broadband subscribers.
Telecommunication equipment manufacturing segment over the years has shown positive trends. PTA and the Government of Pakistan have been protecting local industry while number of foreign based manufacturers have entered the market. Siemens Concept two significant telecom equipment manufacturers maintained their sales over the year 2003-2004 at Rs4,795 million and Rs612 million respectively. However, Alcatel's sales dropped during the year 2003-04, due to the delay in signing of Annual Development Programme with PTCL. Sales of TIP, telephone set and switch exchange manufacturer working in collaboration with Siemens, dropped last year. PTA, however, made a decision for provision of locally made telephone set with new PTCL connections. This has helped TIP improving its sales in the year 2003-2004. Number of telecom equipment manufacturers are now entering Pakistani market due to increased demand of equipment after deregulation. Similarly, existing manufacturers are also expanding their facilities to cover new projects requirements. Nortel networks and Ericsson got contracts this year from Ufone and Warid Telecom (new mobile operator) to build their networks. Similarly, DV com entered into contract with Nortel network to build its LDI network.
Telecom sector of Pakistan has shown marvelous growth trend over the years. Forecasted figures show that the sector would grow further at accelerated pace with right impetus that has been provided by the Government and PTA. Main concerns with the regulator including quality of service, healthy competition and rural accessibility, however, remain dependent upon close watch on sector with right decisions and policies to tackle up coming issues. PTA looks forward towards achieving new heights with telecom sector growth in relation to Asian and Western economies.