Dec 08 - 21, 2008

Despite increase in the number of mobile subscribers in the country over the past few quarters, the telecom sector is now exhibiting a slowdown in growth. The mobile market is added with around 9.9 million new customers in the first half of 2008, expanding by 12.6 percent to have total 88.05 million mobile users.

The Annual Report of Pakistan Telecommunication Authority (PTA) 2008 shows that Telenor Pakistan emerged as the fastest growing telecom company as the company added around 7.4 million subscribers in the incumbent year as compared to 7.1 million in 2007.

Mobilink comes second with the addition of 5.7 million subscribers during the same period. Warid Telecom added another 4.8 million subscribers while Ufone bagged 4.0 million subscribers as compared to 6.5 million in previous year.

CMPak entered the cellular market with aggressive marketing and infrastructure roll out. Its growth was negative in the previous year. However, it added 2.9 million subscribers in last few months. The cellular mobile penetration in Pakistan reached 54.7 percent at the end of year 2007-08, which is 15.3 percent higher than the previous year. By the end of June 2008, the mobile penetration in Pakistan surpassed the 50 percent threshold, the report adds. Mobilink continues to dominate Pakistan's mobile market in ending quarter 2008 with over 32 million subscribers, the report adds.

Mobilink's market share continued to fall, dropping to 36.4 percent from 41.9 percent in the previous year. The operator's parent company, Orascom of Egypt, now appears to be increasing its investments in an effort to prevent a further loss of market share.

In terms of customer numbers, Telenor moved into second place in the second quarter of 2008, beating Ufone, the mobile business of Pakistan's incumbent operator Pakistan Telecommunication Company Limited (PTCL), by a mere 25,000 customers. Both operators currently sit neck and neck with 20.6 percent shares of the market. While Telenor continues to expand its market share, Ufone has had a relatively stable market share in recent quarters. Telenor is expected to pull ahead of Ufone in 3rd Quarter of 2008.

PTA has said that the process of awarding 3G licenses will be completed before the end of 2008 via an auction.

The latest data suggests that the market for both wire line and wireless fixed line services has now entered a period of decline. Although the traditional fixed line services provided by PTCL's competitors continue to grow, PTCL's own fixed line customer base saw a sharp decline in the first six months of 2008.

Furthermore except wireless local loop operators World Call and TeleCard which reported an increase in customers, PTCL endured customer losses. Having fallen by 2.8 percent in the first six months of 2008, it is being predicted that the number of fixed line customers will fall by around 4.9 percent for 2008 as a whole.

According to the PTA, Pakistan had just over 130,000 broadband internet subscribers at the end of March 2008, up from 65,000 in March 2007. Despite the strong growth, Pakistan's broadband penetration rate was still only 0.1 percent in March 2008. Digital Subscriber Line (DSL) and hybrid fibre coax (HFC) remain the most popular broadband technologies.



The telecom sector revenue grew by 18 percent and reached Rs. 278.5 billion in year 2007-08 in contrast to the last year when the growth rate was reported 21 percent.

According to the annual report published by Pakistan Telecommunication Authority (PTA) for the year 2007-8, the growth, in line with the subscription and taxes, remained slow in financial year 2007-08. The cellular mobile sector is the major driver of growth in telecom revenues share of which in total telecom revenues has increased from 56 percent in 2006-07 to 65 percent in 2007-08.

The fixed-line sector has shown negative growth in revenues mainly due to the drop in Pakistan Telecommunication Company Limited (PTCL) revenues while the cellular mobile revenues increased by 37 percent in 20007-08 and reached Rs. 182 billion. In terms of taxes, the telecom sector contributed Rs. 111 billion as compared to the previous year where the sector had contributed more than Rs. 100 billion in terms of taxes.

The rise in taxes is mainly due to the General Sales Tax, which showed an increase of 22 percent and reached Rs. 44 billion in the year 2007-08 in contrast to Rs. 36 billion which was collected in year 2006-07.

The SIM Activation Tax also grew by 11 percent and stood at Rs. 19.6 billion as compared to Rs. 19.2 billion last year. The cellular mobile sector also remained a leader in terms of GST deposits and it has contributed over 80 percent in GST collection.

The major source of revenue comes in the form of GST/CED from telecom sector, which increases with the usage of telecom services because it is airtime charge. The cellular mobile sector contributes more than 80 percent in this tax collection and this tax collection continued to rise over the years and was recorded at Rs. 44.6 billion in 2007-08 while in 2006-07 it was Rs. 36.3 billion.

Although the volume of the tax collection increased, its growth has declined significantly during year 2007-08. In year 2006-07, the collection in this head grew by 18 percent while the growth during 2007-08 declined by 17 percent as compared to the previous year. It is further explored that GST collection from cellular mobile sector has increased by about 25 percent while the GST collection from basic telephony mainly from PTCL has declined by 14 percent in 2007-08.

The GST collection from cellular mobile sector has grown by 25 percent in 2007-08 while this growth was recorded 50 percent in 2006-07. On the other hand, the share of telecom GST to total domestic collection has also declined from 27 percent in 2006-07 to 21 percent in 2007-08. The Federal Bureau of Revenue collected Rs. 36.8 billion GST from cellular mobile sector in 2007-8 as compared to Rs. 28.2 billion in 2006-7 while the collection from basic telephony has been reported Rs. 6.8 billion in 2007-8 as compared to Rs. 7.9 billion in year 2006-7.

The main reason for this decline could be attributed to the lower tariff, increases in GST rates from 15 percent to 21 percent and the closure of unverified SIMs by the government. The churning of customers from the fixed line to wireless based services could be a reason for the decline of the usage and GST from the fixed line sector. The GST rates need to be revised downwards to increase the telecom service usage and ultimately increase the tax collection.