HIGHLY ATTRACTIVE TELECOM MARKET
Dec 10 - 16, 2007
Pakistan telecom has currently become a highly competitive market which is already dominated by six cellular operators with over 40 million subscribers. Since Pakistan has deregulated the telecom sector, scores of new private entrants are gearing up to provide service making the south Asian country one of the fastest-growing cellular markets. The government plans to increase fixed-line teledensity to 7% (around 10 million fixed lines) by 2010. The target can be achieved by installing up to 1 million additional lines annually.
According to a recent report of Business Monitor International (BMI), Pakistan is the second fastest mobile growth market across South and Southeast Asia after India. BMI is confident that Pakistan will join the small band of countries with over 100mn mobile subscribers during the second half of 2008 and that by the end of 2010, there should be just over 120mn cellular customers in Pakistan. For the first time since BMI has started to produce Business Environment Rankings, comparing 14 Asia Pacific markets in terms of competitiveness and investor friendliness, Pakistan has fought its way out of the bottom two. It now lies in equal ninth position (with Indonesia), still ahead of Vietnam, but also above Thailand, China and the Philippines.
Pakistan Telecommunication Authority (PTA) has disclosed in its last quarterly report that the country's telecom sector is all set to attract $393 billion investment by 2010 as more international players in Wimax Broadband Market would replace small internet services providers (ISPs) and local Wimax operators. The report says that the vision 2010 presented in March 2007 had estimated that the total revenue of the telecom sector will reach $387 billion by 2010. Pakistan is a high-growth telecom market, which has attracted $9 billion investment in the last three years.
Last year, mobile operators invested US$2 billion in Pakistan, 54% of the total foreign direct investment in the country. The telecom market has witnessed remarkable year-on-year growth in subscribers' number of over 145 percent. Tremendous consumer demand, high levels of competition and a government that is ready to welcome inward investment are the driving force behind this growth. Mobile industry accounts for 5 per cent of Pakistan Gross Domestic Product (GDP). GSM Association is a global trade association representing more than 700 GSM mobile phone operators across 217 territories and countries of the world. GSM is the main mobile technology in use in Pakistan. It is accessed by Mobilink, Ufone, Warid Telecom, Telenor, and local group Paktel. According to a recent GSMA report, Pakistan with 53 million mobile users and 34 per cent penetration, is now a leader in mobile usage in south Asia.
The GSM Association has recently released the preliminary results of a study prepared by Deloitte which found that this sector also contributed approximately 6 per cent of the total taxes collected by the Pakistan Central Board of Revenue. Deloitte estimates that over a period of 10 years the elimination of the activation tax would generate an additional Rs.132 billion (US$2.17 billion) in total tax revenues through the positive impact on the mobile industry and its spill over into the broader economy, above what the government would obtain maintaining the tax. The study shows that tax collections from the mobile industry would grow consistently year on year in the period 2007-2017 due to increased penetration and higher revenues.
The telecom is one of the fastest growing sectors of the country and the combined teledensity has increased from 4.5 percent of the population two years ago to over 40 percent at present. The number of subscribers of fixed and mobile telephony has increased from 8 million in 2003 to over 50 million in 2006 and the market has the potential to reach 80 million mobile in 2 to 3 years. Pakistan's telecoms market has the footmarks of strategic investors such as Orascom, Etisalat, Telenor, Abu Dhabi Group's Warid Telecom and Nortel Networks, the Canadian telecommunications equipment manufacturer. It has also the presence of leading China's telecom giants, ZTE Corporation and China Mobile. It is the success of these investors that has caused the avalanche of growth. Here is an account of some foreign telecom firms, which have registered big success stories or made investments in Pakistan market.
Canada's Nortel Networks has registered a big success story in Pakistan's rapidly deregulating telecommunications market. The Canadian company has contributed immensely to the evolution of Pakistan's telecommunications infrastructure. It has provided Pakistan Telecommunications Corporation Ltd (PTCL), the parent company of Pak Telecom Mobile Limited (PTML), with a long haul optical backbone to provide enhanced bandwidth capacity for voice and data customers.
Nortel Networks is an industry leader and innovator. It is the industry's only supplier with Wireless Data Networks operating in all three advanced technologies GSM/GPRS/EDGE, CDMA2000, and UMTS. The company enriches consumer and business communications worldwide by offering converged multimedia networks that eliminate the boundaries among voice, data and video. It has deployed approximately 100 GSM/GPRS networks in more than 50 countries, and is supplying GSM/GPRS systems to more than 50 operators around the world.
In the year 2001, Nortel Networks built the original network for PTML. Then the second major expansion was undertaken by Nortel Networks when PTML awarded it a US$56 million contract to implement a major expansion of PTML's national Ufone GSM 900 digital wireless networks. It raised Ufone's capacity to 1.3 million subscribers. Through its global expertise in deploying GSM and GPRS networks, the company has delivered a high-quality infrastructure in the deployment for phase-III of Ufone network expansion.
Nortel Networks GSM wireless technology has played an important role in helping the Ufone achieve its objective in becoming the leading cellular brand in the country.
In September 2004, a $ 125 million contract was signed between Ufone and Nortel Networks for launching phase IV of the Ufone's expansion plan. Under this single largest expansion contract of Pakistan's cellular history, Nortel Networks expanded the Ufone GSM and General Packet Radio Service (GPRS) networks to more than double of the existing capacity, including the upgrade of existing wireless systems and supply of new GSM/GPRS core network and radio access equipment while a state-of-the-art Base Transceiver Station (BTS) has been implemented, positioning Ufone for the future enabling advanced wireless services.
The dvcom Limited, a newly founded company in Pakistan, awarded Nortel Networks a contract in 2004 to supply a next generation network (NGN) for delivery of high-quality national and international long distance (LDI) voice and data services in Pakistan under a license granted by the Pakistan Telecommunications Authority (PTA). This was to be the first LDI network of its kind in Pakistan. During first year of operation, 15 points of presence (POPs) were deployed including 14 in Pakistan and one in the United Kingdom in order to improve network access for subscribers.
The dvcom Limited has licenses for long distance, international and nationwide mobility networks. The company has an experienced telecom team and is backed by AKD securities, Pakistan's largest stock brokerage company. Nortel has helped dvcom deploy its new packet network and establish a strong presence among Pakistan's business and residential customers. Packet technologies converge multiple networks into one by converting voice, video and data into tiny packets that can be transmitted together over a single high-speed network. A packetized network makes a wide range of new services possible and can significantly reduce the per-minute cost of long distance communications. The packet-based solution is delivering substantial benefits to existing and new long distance carriers around the world because it helps lower transport and capital costs while allowing operators to explore additional revenue opportunities enabled by new value-rich voice and multimedia services.
ZTE Corporation has grown in Pakistan over 400 percent in terms of human resource and office space. It is China's largest listed telecommunications equipment manufacturer and wireless solutions provider with year-on-year growth of 34%.
ZTE is the largest company in Pakistan's telecom sector. It is involved in manufacture and supply of digital telecom exchanges to Pakistan Telecommunications Co. Ltd (PTCL). The company has entered the areas of long-distance education and e-government, besides planning to develop its own software for the Pakistani market and abroad. The cost of doing business in Pakistan is very low as compared to the rest of the world and combined with incentives, the country provides a lucrative market for foreign companies. Pakistan offers a number of facilities and incentives to investors seeking a good return in telecom sector.
ZTE is China's second-biggest telecom equipment vendor. Today, it is China's only listed telecoms manufacturer, with shares publicly traded on both the Hong Kong and Shenzhen Stock Exchanges. Pakistan is a very important market for ZTE. In May 2001, a memorandum of understanding between China's ZTE and PTCL was signed when the then Chinese Prime Minister, Zhu Rongji had paid a visit to Pakistan. Under the MoU, the Chinese company ZTE committed US $ 100 million financing for the manufacture and installation of digitally-switched lines to the PTCL. In December 2004, a $10.5 million MoU was signed between the PSEB and ZTE Telecom Corporation under which the ZTE Corp was to manufacture telecom equipment in Pakistan and export them as Pakistan-made goods.
ZTE already has more than ten per cent of the fixed line market in Pakistan, while its wireless products are also increasing their penetration. In December 2004, ZTE built Pakistan's first NGN (next generation network) while a CDMA WLL (wireless local loop) network for local operator Telecard. In April 2005, Chinese ZTE Corp planned to expand its operations in Pakistan by setting up a global training centre, software development centre and documentation centre. It planned to open a 60,000 square metre facility on the outskirts of Islamabad in Pakistan as part of its growing presence in international markets.
Listed in the Hong Kong and New York Stock Exchange, China Mobile is a leading mobile operator with the largest customer base and network capacity in China Transaction of China Mobile's acquisition of Paktel, a Millicom's controlled company in Pakistan, has finally been materialized. China Mobile Communications recently made its first cross-border acquisition, buying 88.86% of Paktel at an enterprise value of $460 million. It is the largest overseas acquisition by a Chinese company.
China Mobile Corporation has officially taken over Paktel Limited - a mobile communications operator in Pakistan, after paying Rs 1.9 billion, which includes $29.1 million as installment of Initial Licence Fee (ILF) and charges related to spectrum allocations and technical services. The company has transferred $700 million to Pakistan as the first chunk of its $2 billion investment plan during the next three years.
China Mobile is poised to go ahead with its future investment plan and has submitted the same to Pakistan Telecommunication Authority (PTA). It plans to invest $2 billion up to 2009 to expand its network by installing 2500 'towers' each year across the country. It also plans to install total 7500 towers by 2009. The entire investment would come from China, and no loan would be taken from the banks in Pakistan. It is operating in Pakistan under name of China-Mobile Pakistan (CM-Pak).
Pakistan's telecom sector is growing at a faster pace with new exciting opportunities coming up for big players like China Mobile. Pakistan's cell phone sector, with more than 46 million cellphone users, still has a lot of untapped potential. At least two Indian-led companies including Hungama Mobile and Pocket Surfer are reportedly planning to invest in Pakistan's growing cellphone sector. While Hungama Mobile specializes in mobile entertainment, Pocket Surfer is based in Canada and believes that its hand-held browsers can strike it big in developing countries like Pakistan. As the market grows, issues such as quality of service and the provision of value-added services are bound to define the nature of competition.