PAKISTAN'S CELLULAR PHONE INDUSTRY - ON PATH OF GROWTH

MUHAMMAD AQEEL KHAN,
Research Associate

July 16 - 22, 2007

A mobile telephone or cellular telephone (commonly known as 'mobile phone' or 'cell phone') is a long-range, portable electronic device used for mobile communication. Current mobile phones can support many additional services such as SMS for text messaging, email, packet switching for access to the Internet, and MMS for sending and receiving photos and video. Most current mobile phones connect to a cellular network of base stations (cell sites), which is in turn interconnected to the public switched telephone network (PSTN) (the exception are satellite phones).

Pakistan's cellular phone market is one of the hottest in the emerging economies. Cellular subscribers reached at 60 mn till May 2007. Cellular phone industry has created more than 220,000 high-paying jobs, and accounts for 5 per cent of its Gross Domestic Product (GDP). Economy and society is benefiting from rising mobile phone usage and low tariffs, which lowers the cost of doing business and improves productivity, while helping families and friends to connect with each other at home and abroad, Pakistan's is now a leader in mobile usage in across the world.

TOP 10 CELLULAR PHONES GROWING COUNTRIES

GSM NET ADDITIONS IN 1Q07

China

18,040,914

India

13,728,036

Pakistan

7,662,993

Indonesia

5,394,269

Iran

5,135,330

Brazil

3,877,141

Argentina

3,809,765

Nigeria

3,321,118

Thailand

3,255,817

Russian Federation

3,215,204

Cellular Phone industry is flourishing due to the intense competition in the market however leading brands are under tough competition due to Chinese imitation mobile phones that are copying expensive leading mobile phone brands. Apart form this; Pakistan still does not have any manufacturing unit of mobile handsets and other telecom equipments, even though the government is attracting foreign companies to invest in this area as there is a demand for the telecom related equipment in the country

GROWTH

The mobile phone sector in Pakistan is poised to post over 10 percent growth during the year 2007, with Marvelous expansion in the Pakistan's cellular phone industry, Pakistan's imported mobile phones grew worth of US$0.80 mn during July 06 May 07 as compared to imports worth US$0.62 mn during the same period last year, showing an increase of 27.57%. During the July06 May07 period telecom apparatus worth US$1.19 mn was imported as compared to US$1.06 mn during the same period of last fiscal year representing an expansion of 11.96%.

PENETRATION

In the next FY07-08, Mobile phone imports expected to grew at 21%. Almost 2.8mn new mobile customers joined the ranks in Pakistan in the month of April - the second highest total ever recorded in the market, behind October 06. Monthly proportionate growth stayed above 5% by a whisker, after 5.1% in March, taking the total customer base in the market to 58.4 mn and penetration to 34.7% from 33.0% a month earlier. A total of 10mn new customers were added in the first four months of 2007, these being shared almost equally between the market's four largest operators.

CELLULAR MOBILE DENSITY

Jul 2006

23.67

Aug 2006

25.22

Sep 2006

26.71

Oct 2006

28.54

Nov 2006

29.87

Dec 2006

31.07

Jan 2007

32.61*

Feb 2007

34.03

Mar 2007

35.79

Apr 2007

37.58

May 2007

39.19

Sources: PTA
* Revised

According to an estimate, there are more than 1.75 mn mobile phone shops across Pakistan generating employment for over 6.45 mn people. Mobile phone shops include high-end franchise show rooms to small kiosks in markets.

MOBILE OPERATORS

Currently there are six mobile operators in Pakistan, of which Instaphone, Paktel, Mobilink, Ufone, Telenor and Warid Telecom. The mobile operators in Pakistan contribute almost 35% of their revenue to the government in terms of taxes and other charges. These operations are covering more than 70% population with 35% geographical penetration. Pakistan's rural population is 65% and the total rural cellular penetration is about 35%, and it is increasing 300 locations every month.

TOTAL NETWORK COVERAGE OF CELLULAR COMPANIES

Punjab

79%

Sindh

75%

NWFP

63%

Balochistan

34%

MARKET SHARE

At the top is Mobilink, the Pakistani unit of Egypt-based telecom company Orascom. With 25.79 mn subscribers it has the largest market share i.e. 42.20%. Its shares are listed on the Egyptian and London stock markets as GDRs. Ufone, owned subsidiary of Pakistan Telecommunication Co. Ltd, is now under the control of Etisalat group of UAE. With 13.31 mn subscribers and market shares are 22%. Warid owned by Abu Dhabi group of UAE and sister of Wateen group with 10.27 mn subscribers that is 17% market of subscribers. Norway's Telenor, has about 10.13 mn subscribers or 16.60% market share. Telenor stock is listed in the Oslo stock market(TEL) and NASDAQ NY (TELN). Paktel was acquired by China Mobile; it has 1.05 mn subscribers and has 1.90% of the market share in Pakistan. Instaphone - a cellular business of Luxembourg's Millicom, has 0.326 mn subscribers and has 1% of market share.

MOBILE NUMBER PORTABILITY SERVICE

MNP enables the customers to change the operator/service while retaining the same mobile number. This creates competition in the market and provides healthy environment for the new entrants and better choices for the consumers. According to the PTA, more then 20,000 cellular subscribers have requested to change their company. The service is launched in March 07 at a cost of Rs 5 bn; the MNP system has failed to attract many consumers. Out of a total of 58.3 mn users, approximately 18,400 subscribers (a mere 0.03%) have subscribed to the MNP system.