FDI IN TELECOM SECTOR
The telecom sector achieved the status of an industry in 2004 and was allowed foreign investment with no minimum requirement of foreign equity to start the business.
Mar 26 - Apr 01, 2007
Pakistan's telecommunication sector has achieved a phenomenal success and has become the focus of attention by the leading telecom giants of the world. At present, there are more than 52 million mobile subscribers in Pakistan and around 1.5 million subscribers are believed to be joining in each month. This speaks volumes that the number of mobile subscribers in Pakistan might increase to the figure of at least 100 million in next three years. Undoubtedly, the telecom sector has reached the pinnacle of success however this does not mean that it has reached the saturation point, as declared by some critics. There are some critics who think that the telecom sector might not expand further and the new entrants might face tough times and the returns might be not so lucrative as the market has saturated. The telecom sector has boomed and it would further boom since there is still big potential market in this country which has over 160 million population including over 100 million people below the age of 25 years of age. It is to be seen that out of these 100 million young people, there are off course millions to avail the cellular services yet.
There were 68,038 cellular subscribers in 1996 in our country and by 2001 the number had reached 742,606. In September 2004, the number of cellular subscribers went as high as 6,556,942. And after that just within the span of three years, due to the increase in cellular operators and increasing competition, over 33% population avails the cellular services in our country today.
The telecom sector achieved the status of an industry in 2004 and was allowed foreign investment with no minimum requirement of foreign equity to start the business. The investors welcomed Pakistan's policy in respect of foreign investment and no restrictions on repatriation of profit or capital. In 2001-02, the share of telecom sector in FDI was merely 1.26 percent however it skyrocketed to 21.81 percent in 2003-04. And today telecom is one of the leading sectors in terms of attracting FDI. By June 2005, according to an estimate, investment in telecom sector had reached up to US $3 billion. Looking at the booming prospects, in 2005 it was declared by the Board of Investment (BoI) that the telecom sector would attract $1 billion FDI annually. Last month the official sources declared that as a result of government's policies of deregulation, privatization and liberalization the telecom sector has attracted an investment of 9 billion dollars, which includes the cost and upgradation of equipment, equity and license fee.
According to Pakistan Telecommunication Authority (PTA), the telecom sector constitutes 2 percent of the GDP, which is expected to rise to 3 percent in the next three to four years. This reveals that further investment in the sector is a healthy sign for our economy. It is for sure that there will be a lot of interest by the foreign investors in Pakistan's telecom sector because of rapid increase in the number of subscribers in the days to come. The number of subscribers would surely increase because of various reasons: low tariff due to increasing competition among the service providers; availability of cheaper cell phone sets; Mobile Number Portability (MNP); increasing interest by the rural population because of the ease; increasing trend of cell phone possession by school and college going kids in the society etc.
These days one could watch lots of mass marketing efforts put in by the cell phone service providers. Ufone offers BAAT BAN JAAI tag line which gives the message that one could 'call @ 99 paisas per 30 seconds. Any network, anywhere in Pakistan! Ufone Prepay Public Demand'. Telenor projects Ali Zafar for the package called Talkshawk which promises 'call any network @ 95 paisas per 30 seconds.' Moamar Rana dances with the offer by Mobilink's Jazz Budget package called Happy Hour which says 'call@ 40 paisas per 30 seconds any Mobilink number.' Warid zem is being endorsed by Ali Azmat which claims to be the most inexpensive package available to the customers. Apart from the marketing efforts by the cell phone service providers, there are various companies which offer new cell phone sets for as low as Rs 1600 which is within the affordability of the masses. This has become one of the major reasons that not only the affluent class but also the poorer stratum of our society is getting the benefit. Availability of the cheaper cell phone sets in the market has become instrumental in the success of the cellular service providers. At times, poor service of any cellular service provider disappoints the customers and a customer thinks to change the service however such step is not taken as one does not want to face the hassle of telling one's contacts his/her new number and one does not want to lose contact with them either. Now such a problem seems to be fading away. A recent press release of Pakistan Telecommunication Authority reads 'Chairman Pakistan Telecommunication Authority (PTA) Major General (Retd) Shahzada Alam Malik has said that all preparations for the provision of Mobile Number Portability (MNP) facility to country's mobile consumers are completed and the system would be launched on March 23rd as scheduled. Chairman PTA said this during a visit to Pakistan Mobile Number Portability Limited (PMD) office in Islamabad. Mr. Malik said that with the launch of MNP system, more than 52 million mobile subscribers would be able to avail the facility from the 26th of this month. He said the facility, the first to be introduced in Pakistan in the region would not only encourage healthy competition between cellular mobile operators for quality service and competitive tariffs but would also provide consumers the choice to opt for any mobile service provider while retaining their mobile number.' Last year in August, it was declared that cell phone operators in the country would investing nearly $100 million for the implementation of MNP. Telenor planned to invest $7.5 million for implementing the MNP. Ufone was quoted investing $20 million to upgrade its system and equipment for the execution of MNP. It has been witnessed that the cellular companies invest for better services and further increase in their market share. Mobilink with over 50 percent market share invested $500 million during last year, a source says. Eitsalat has recently announced that it will invest $500 million in PTCL to widen its fixed line network. China Mobile has acquired Paktel for $284 million and there are expectations in this regard for the investment in this heated cellular market. According to a source Telenor has invested over $1.5 billion in Pakistan and the concerned authorities have declared that the telecom sector was likely to attract $3-4 billion investment in next three years.
There is increasing demand of the cell phone service providers in the rural areas of our country these days. Rural population of Pakistan constitutes over 60% of the total population which now prefers using cellular services to fixed line phone service. The cellular companies are fast spreading telecom facilities in the rural areas to capture the market. Based on all these facts, one could see the tremendous growth in the telecom sector of the country and this would attract the foreign investors who might be facing saturated market in the developed countries. It is expected that teledensity, the number of telephones available per hundred inhabitants of a particular territory, will increase to 90 per cent by 2015 in our country. PTA says that teledensity had risen to 35.4 per cent in December 2006 from just 3.66 per cent in 2001-02. By August 2006, there were around 34 million mobile phone users in Pakistan. The market share of Mobilink was over 16 million whereas Ufone, Warid, Telenor and Paktel had 7.5 million, 4.5 million, three million and one million customers respectively. However at present Mobilink has over 20 million customers whereas the share of other cellular companies also has increased significantly.
The International Telecommunication Union with its headquarter in Geneva celebrates May 17 as the 'World Telecommunication Day'. The big players in the telecom industry of the world must be eyeing Pakistan as an attractive destination for investment as the country has been experiencing strong economic growth and increasing educated population.