GROWING INVESTMENT IN TELECOM SECTOR

MARIAM NASIR,
Research Manager

July 16 - 22, 2007

Although, many activities have been witnessed in the banking sector regarding mergers, acquisition and takeover but in the race for foreign investment telecom sector has left the banking sector far behind. The government's 11 months provisional data shows that the telecommunications sector attracted US$1.482 billion while the banking sector received US$967 million. All this has been because of government's policies of deregulation, privatization and liberalization in the telecom sector.

PAKISTAN TELECOMMUNICATION AUTHORITY - VISION 2010

As per Vision 2010 of Pakistan Telecommunication Authority (PTA) it has been estimated that the investment would grow to as high as US$393 billion whereas total revenue of the telecom sector will reach US$387 billion by 2010. So far, the PTA has issued 92 WLL (wireless local loop), 14 LDI (long distance and international) and 79 local loop licenses. PTA has launched a telecentre project called 'Rabta Ghar' all across the country to provide the latest telecommunications and internet facilities in rural and far-off areas. Under the scheme, 400 telecentres would be established in the first phase for which the equipment worth Rs 50,000 each would be provided free of cost. In the first phase of the project, PTA with the support of telecom operators would establish 400 'Rabta Ghar' all over the country. Telecom operators have pledged their support to PTA for setting up these 'Rabta Ghar' including PTCL (100), Mobilink (100), Ufone (50), Instaphone (15), Intel (10), Worldcall (Payphones in all Rabta Markaz) while PTA will be sponsoring 125 'Rabta Ghar' bringing the total to 400. The PTA has also arranged free delivery, installation and training of the 'Rabta Ghar' equipment on the premises/location of the selected individuals by Intel through its Genuine Intel Dealers (GIDs). The PTA plans to further facilitate acquisition and mergers and make more scale available for wireless operations (Wimax). PTA would also be working on IP based Interconnection Mechanism, SLA among operators, and amendment in interconnection regulation to accommodate operators to interconnect at PTCL co-locations. Wimax along with VOIP will be having potential to bring revolution in FLL and broadband markets which is an ideal combination to bridge digital divide. PTA therefore plans to rollout USF to expand fixed network in addition to lowering FWT taxes, which would increase the WLL teledensity.

RECENT UP-COMING IN THE SECTOR

ARRIVAL OF CHINA MOBILE

The arrival of world's biggest phone company China Mobile in Pakistan in recent days has further established the worth of country's telecom sector as an ideal place for investment for big players who are now converging on Pakistan to participate in the phenomenal growth being recorded on a constant basis. China Mobile Ltd. has bought 100 per cent shares of Paktel Ltd. for US$460 million and renamed it as CMPak Limited. China Mobile Communications Corporation (CMCC) purchased all of CMPak's minority shareholding from its local shareholders. The company plans to invest US$400 million in Pakistan this year to expand its network aimed at building new network capacity of more than 20m customer base.

ORASCOM ACQUIRED MOBILINK COMPLETELY

Mobilink, the cellular arm of Egypt's Orascom Telecom has made long-term plans to invest in the country's high-tech services and infrastructure. Mobilink has recently become a wholly-owned subsidiary of Orascom after Pakistan's Saif Group sold all its 11.31 per cent shares to the parent company at US$290 million recently. This has now resulted in Orascom owning 100% of the cellular company. The Mobilink has announced to invest US$700 million in the next two years to expand its operations in the country to meet the demand for phenomenal growth in the telecom sector. Recently, the largest cellular company reached a deal with the Pakistan Telecommunication Authority to renew its license for the next 15 years at a cost of US$291 million.

SINGTEL TO BUY WARID TELECOM

The Singapore Telecommunications (SingTel) and the Warid Telecom announced that they have entered into a definitive agreement subsequent to which SingTel will acquire a 30 per cent equity stake in the Warid. SingTel will invest US$758 million to acquire a 30 per cent stake in the Warid Telecom, valuing the company at an enterprise value of US$2.9 billion. Over the years, SingTel has made substantial investments in markets with high growth potential in South Asia, such as India and Bangladesh. Warid Telecom in Pakistan is a natural fit.

FUTURE OUTLOOK

With a large population in excess of 160 million growing at over two per cent per annum, and a young median age of 20 years, Pakistan represents the sixth largest population base in the world. Fuelled by foreign direct investment, its economy has seen strong growth over the past few years. If the inflow of direct investment in the country remains strong, it would give a big boost to Pakistan's economy by improving per capita income and accelerating the government efforts in bringing down poverty level. Besides, it would work as a cushion against the external shocks and would mute the pressure of climbing current account deficit. For further investment in the telecom sector it is suggested that activation charges and withholding tax levied on telecom services be further reduced to increase the potential market and accordingly fixed number portability and symmetric termination rate framework should also be developed to increase the fixed (wire/wireless) density.