PEAK YEAR FOR CELL PHONES
Cell population at saturation point in 2005
By AMANULLAH BASHAR
Feb 14 - 20, 2005
The cell phone population is estimated to approach the level of 10 million by the end of the current year 2005. The addition of around 0.5 million new connections every month to the existing handset users indicates the mobile phone craze as well as great attraction for the investors in Pakistan.
The official quarters were attaching hopes to attract $15 billion investment in telecom and IT sectors in the next few years. The World Bank projects it at $8 to 10 billion, however, the local market players have their own assessment about the investment which they see between $5-8 billion in Pakistan telecom market.
If these projected figures were not exaggerated, this newly emerged sector would certainly contribute significantly to the economic growth besides lending a substantial support to the exchequer as every call made through mobile phone generates revenue in the form of taxes and duties.
A careful review of the growth, however, reveals that though the number of cellular phone users may continue to grow yet how many of them can be placed as revenue generating customers, is the pertinent question.
The cellular market at present comprised of six companies after addition of recently inducted two more companies. The overall picture of the sector includes Egypt-based Orascoms Mobilink, Instaphone and Paktel that have partnership between a Pakistani group and Millicom International Cellular of Sweden, and state-owned U-fone is already operating here. Mobilink with its attractive customer packages has more than 3 million subscribers out of 5.2 million. There were only 200,000 cellular subscribers in 1999 when the first cellular service started in Pakistan. So far penetration of mobile phones at 2.3 percent is quite low compared to the Asian region, as it should be more than 10 percent.
It may be recalled that PTA had issued two licenses for launching cellular services to UAE's Al-Warid of Chairman Shaikh Nahyan bin Mubarak Al Nahyan and Norway's Telenor of Chief Executive Officer Fredrik Baksaas last year. These companies are expected to invest around $300 to 400 million besides paying $291 million as the license fee to the telecom regulator, Pakistan Telecommunication Authority (PTA). Scores of other foreign and domestic companies have just lapped up licenses for investment in Long Distance International (LDI), Fixed Local Loop (FLL) and Wireless Local Loop (WLL) services.
One of the most interesting aspects of the fast emerging telecom sector relates to the age groups of the subscribers. Generally speaking, the youngsters constitute the largest segment of the total cell population around the world. It is a fun for them to have a colorful handset with attractive ring tones, yet they are not really revenue generating customers especially in our environment where income generating level is much low as compared to rest of the world. With this background, it is said that most of the revenue generating subscribers have already been tapped by the mobile phone companies.
The Chief Executive of a leading mobile phone company who requested not to be quoted says that the addition of two more mobile companies including Telenor and Al-Warid in Pakistan market will add to cut-throat competition which has already eroded the profitability of the existing companies.
As far as the market potential for the new companies was concerned, it will continue to attract the foreign investment, yet the low rate of return could discourage the new comers. The situation calls for reduction in government levies and fees for issuing new licenses so that the new and the existing companies could survive. Heavy government taxes and license feel have resulted in bankruptcy of many telecom companies especially in the Western countries, he observed.
Recently, a Wireless Local Loop (WLL) license holder company had come with ambitious plans and aggressive marketing tactics, yet the company has started receiving complaints about poor reception of income calls which may prove a setback to this new segment of the telecom sector in Pakistan.
A total of 105 foreign and domestic companies keenly competed in open bidding for these licenses. All told, they paid a hefty total of Rs14.453 billion as license fees. PTAs total revenues from grant of various license fees now stand at Rs48.453 billion. Twelve of these companies were granted LDI licenses, 73 for FLL services, and 20 for WLL services. Pakistan had started its telecom deregulation policy in 2003 to end the monopoly of the state-owned Pakistan Telecommunication Company Ltd (PTCL). The entry of LL operators in 14 telecom regions and LDI operations will completely put an end to PTCL's monopoly over basic telephony, said PTA Chairman, Shahzada Alam Malik.
According to data provided by the PTA, the number of cell phone users is increasing tremendously in the current fiscal year compared to previous fiscal year, which ended on June 30, 2004. In financial year 2003-04, only 2.5 million people were using mobile phones in Pakistan.
Official figures indicate that till the end of the last year, the Mobilink was on the top of the list of four existing cellular companies, as it has the biggest subscriber base. Till October 31, 2004, the company had some 4.23 million subscribers in Pakistan, U-fone had 1.61 million users, Instaphone 0.56 million subscribers while Paktel has just 0.35 million.
Pakistan's state telecommunications' regulator is projecting investment of $5 billion to $8 billion in the country's cellular and fixed-line phone network over the next five years, fueled by the industry's recent deregulation.
PTA estimates that expansion in telecom sector is likely to create 370,000 new jobs, while the telecom sector's share of gross domestic product is likely to increase to 3 percent from 1.7 percent in the fiscal year ended June 30. It didn't say how much it expects phone networks to expand in the next five years.
Pakistan's telecom deregulation has attracted many private players to the sector which consequently bringing an end to PTCL's monopoly in the country. Norway's Telenor ASA (TELN) has already started operations with attractive products and services to grab the market share.
The government also announced plans recently to sell a strategic 26 percent stake, along with management control in Pakistan Telecommunication Co. Ltd (PTCL) as an integrated company to maximize its value and generate international interest.
Since deregulation, cellular phone subscriptions have been growing robustly. There were 6.5 million subscribers in September this year, from 2.4 million at the end of 2003. Pakistan's teledensity reached 2.9 percent in the last fiscal year from 2.2 percent in 2000. The authority said another 118 licenses were issued for card payphones services in the last fiscal year, six for audio telephone services and five for non-voice network communication services.
Shahzada Alam, Chairman PTA said in his annual review that he was conscious that despite we have achieved key milestones this year, there is much more to be done. Any issues which are likely to emerge after liberalization of the telecom services will be appropriately handled.
Foreign direct investment of $207.1 million came into the sector in the last fiscal year, from $6.1 million in the previous year, through the sale of two cellular licenses. Separately, the authority generated Rs30 billion through initial license fees for mobile services, long distance international services, local loops and wireless local loops. In all, the authority has awarded 33 companies 84 local loop and 12 long distance licenses, while it issued 108 licenses to 20 companies for wireless telephone services.
Foreign direct private investment has started flowing into Pakistan's hot and huge telecom and IT sector with the amount projected at more than $2 billion this year. But, telecom industry watchers say "it will not be surprising if the investment goes up to $3 billion."
Investment, according to immediate plans in cellular companies is estimated at $600 to 800 million, besides $1, 09 million in Fixed Local Loop (FLL), and $240 million in Long Distance and International (LDI) projects. Other operators are fine-tuning their investment plans and installation schedules. In that case, it will triple the overall FDI investment in all sectors that had totaled just $1.0 billion in 2004.
The deregulation of the telecom sector is designed to provide increased service choice to customers at competitive rates, increased teledensity and expanded telecom infrastructure, particularly in the un-served and under-served areas.
The scope of investment is also evident from the fact that in this country of 159 million, teledensity is as low as 2.8 per cent, compared to an eleven percent average for Asia. Out of 50,000 villages, 31,000 villages are still without telecom facilities or access.
In view of Pakistan's location and linkages to Gulf-Middle East in the West and Central Asia in the north, its targeted GDP growth of 6.6 percent for 2005 and 8.0 percent for 2007, the teledensity should have been eight to 10 percent.
Paktel, Pakistan's pioneering mobile operator has come forward to help the victims from one of the worst natural calamities of human history — the tsunami tragedy that has claimed more than 80,000 lives in South Asia and Africa, the sources said here. According to officials, Paktel would donate the entire income from its SMS services for the period December 31st, 2004 to January 1, 2005 in the cause.
The CEO of a leading mobile phone company in Pakistan feels that the boom in the cellular industry was about to reach saturation point in the country.
Outlining the overall picture of the cellular industry, he observed in an exclusive interview that like elsewhere around the world the local market was in the grip of mobile phone craze which is reflected in the overwhelming growth. The cell phone connectivity has already taken over the landline users by crossing 8 million mark and the overall cellular phone domain is going to attain the level of 10 million which be believes may be a saturation point in view of the market depth.
The existing four mobile companies have already grab the major share of the market while two more licenses issued by the government to new companies will obviously accelerate the pace of new connections. Among the new arrivals i.e. Al-Warid and Telenor, the later one which is a major telecommunication company from Norway has also started full-fledged operations in Pakistan with an impressive investment worth around a billion dollar in this country.
The mobile phone users would be the ultimate beneficiary of the on going cut-throat competition among the six players resulting in improved and better services with declining call rates.
To a question about the contribution of the cellular industry towards government revenues, he said that every call made through cell phone is subject to central excise duty and other taxes which contribute significantly to the exchequer. He said that a culture of willing tax payer has yet to develop in this country and till that time the government has no option but to collect taxes through such utility services. Without revenue how the government would carry out its business, hence justified the existing levy of taxes collected through telecom sector. He, however, suggested that heavy license fees charged by the government for issuing licenses to new companies may prove counter-productive towards a sustainable growth of the industry. He cited examples of various eventualities of bankruptcy of mobile phone companies due to heavy government charges in different countries. Rationale and affordability is a pre-requisite to enable these companies to carry on their business. Lost of economic interest results in collapse of any business.
Non-resident Pakistanis were yet another factor who can bring a revolution by bringing back their money and technology they acquired during their stay abroad. It is unfortunate that usually they find it difficult to initiate a business here due to unfriendly and arrogance of the people occupying the key positions in the system. The non-resident Pakistanis have a great zeal to get settled with their investment in the telecom sector of Pakistan.
However, they would not come back unless the rampant corruption which is a major hurdle in the way of smooth sailing was effectively weeded out of the society. In the existing system things cannot move unless you are willing to please the greedy ones or having a strong "Sifarish" recommendation even for a genuine work. In fact, a strongly developed culture based on social, human and economic values with a focus to help out people purely on merits is the key of success in the developed economies like Europe and the United States. Unfortunately, we are missing such an environment here in our country.
The hassles created by the corrupt officials are the real irritants and bottlenecks deterring foreign investment in our country. As a matter of fact, majority of the overseas Pakistanis have a great love for their homeland and they really want to bring huge investment in this country, however, the discouraging attitude of the corrupt elements forces them to stay away from Pakistan. It is amazing to note that attractive incentives are offered to attract foreign investment by the governments. To tell you the truth, the overseas Pakistanis could prove a great asset for this country and can bring investment which could be suffice to overcome the entire financial constraints of the economy provided they are protected from the hands of the cheats and the corrupts who are out to distort the image of this country only for a few bugs of bribe.
The present telecom policy has, however, produced positive results which have changed the course of telecom history in Pakistan.
The robust growth witnessed in the telecom sector during last three years was of course unparallel in the history of this country for which the credit goes to the economic managers for attracting investment in the telecom sector.
The present telecom policy evolved by the government of the day has brushed aside all those barriers depriving people of the easy access to telephone facility which is not a luxury or status symbol any more. By and large growth of the telecom sector is a positive sign and may help achieving the economic and social targets of providing an improved living standard to the people at the grass root level.
The telecom industry, having enormous economic potential, can go a long way to give a real strength to the national economy besides bringing positive change in social and economic behavior of the people. This industry requires a subtle handling especially in terms of levying taxes or other levies.
The companies operating in Pakistan will continue to generate revenue for the government kitty provided they were allowed to sustain and flourish by providing level playing field.
PTA has recently issued licenses against heavy amount of fee charged from the companies. This attitude might discourage more investment in this sector. For example many telecom companies financially collapsed in Europe due to exorbitant charges of 3G, which they had to pay to their respective governments. It is in the interest of the economy that such eventualities are not allowed to take place in our country. It is recommended that PTA after receiving half of the total fee should revert to Revenue Shuttering for receiving the remaining amount of the fee. The growth of the telecom sector is reflected in the fact that three lakh connections were sold in 10 years in the past.
At present only one company was selling three lakh connections in just one month which gives glimpses of the turnaround in Pakistan.
The advanced technology of CDMA has already established on sound footings in many countries in the region. While PTA has issued licenses for CDMA only a few month back. However, several new companies are launching their projects in Pakistan also. There is a need for reduction in the tax fee on the mobile connections to allow the growth of the market which would ultimately pay back to the exchequer in the long run besides creating a culture which helps developing economy on a much faster speed.
In case of Pakistan, it is the time for the decision makers to initiate with attractive incentives to attract investment in the field of manufacturing of the mobile handset within the country. If the idea of setting up plants by the leading companies like Nokia materializes it would not only add to our foreign exchange earnings but place Pakistan on the map of the world telecom industry as well. The enormous economic activity generated by the cellular industry can play an important role in poverty alleviation programme which is on top of the agenda of the present government.
Steps are required to immediately address the problems of the potential investors without going into complexities and formalities. Such helping out behavior is of vital importance to rebuild the confidence of the potential overseas investors.
By and large, the investment climate is improving gradually due to friendly policies of the government in general and PTA in particular. However, there is a lot of room for improvement especially to check the blackmailing attitude of various organizations.
We have to strike at all these social ills effectively so that the enormous resources available within the country can be transformed into progress and prosperity of the people of this country.
Cellular phone which has already taken over 1.5 billion people on earth by storm is poised to rule over the life of every civilized individual in the years to come. According to an assessment, the cellular technology is steadily heading to replace computers, web-cameras, email, telephone and fax besides absorbing audio-visual capability of radio and the television.
The story does not comes to an end, cell phone is also going to cater to the needs of the readers by offering books and magazines and movies of the choice on the mini screen. The industry promoters claim that nearly 1.5 billion of the 7 billion population of the world already owns a mobile phone.
In Pakistan, the cellular phones were introduced in early 90s. The official figures reveals that the number of mobile phone users was even less than 200,000 in 1999 obviously because of high price which was beyond the reach of the common man. At that time owning of a handset was considered as a status symbol and people used to display large size of mobile phone by demonstrating the long antennas of the mobile phone in their hands. The drastic cut in prices and improved version of the services attracted the people so rapidly that the number of users jumped to 1.2 million in 2002 and according to latest reports it has already surpassed the landline subscribers and is poised to hit the milestone of 10 million in next two to three years.
Recently, with the addition of two more companies which have also entered the arena is likely to give way to a cut-throat competition in terms of call charges, connection charges and innovative customer services. The cut-throat competition might reduce the income of the cellular companies yet the subscribers would obviously be the real beneficiary of the competition. Free roaming services and free connections are the glaring examples of the hot competition among the cellular companies to attract the subscribers. According to PTA, the attractive products and services helped to add some 400,000 new connections only in two days, which speaks about growth potential of this industry in Pakistan.
Most of the cellular phone companies have focused on urban centers while a huge market in the rural areas where 80 percent of the population dwells was yet to be explored.
Pakistan is an agriculture-based country and it is the rural population which plays the role of a spinal cord in the economy of this country. It is hoped that introduction of cellular phone culture would significantly help the growers to exactly know the current market rates so that they could get the actual prices of their hard earned crops. Currently, due to lack of communication, the middle man takes advantage of communication gap between farm and the mark. Hopefully, the negative role of the middleman will be phased out with the spread of the cellular technology in the rural areas in the days to come.