IT & TELECOM - DEMONSTRATING PERSISTENT GROWTH

FOZIA ISHAQUE (fozia.ishaque@hotmail.com)
Dec 08 - 21, 2008

In Pakistan the telecom and IT sector have reflected positive but slow growth during the last financial year. As a matter of fact this sector is emerging as one of the most potentially lucrative and promising sectors of Pakistan's economy. It is likely to bring in substantial revenues, foreign direct investment and creating new job opportunities for the youth.

According to the annual report compiled by Pakistan Telecommunication Authority (PTA) for the year 2007-08, the gross investment in the telecom sector during financial year 2007-08 stood at US $3.1 billion as compared to that of US$ 3.9 billion recorded in the previous fiscal year. The Foreign Direct Investment (FDI) in the telecom sector during 2007-08 remained at US $1.4 billion, which is about 30% of the total FDI in the country. During 2007-08, telecom sector is second after financial sector as major recipient of FDI in the country. The highest contribution in FDI was made by Telenor, a Norway based company share of which in total FDI in telecom sector for 2007-08 was 34% which is equivalent to US $486 million. The FDI invested by Warid Telecom and World Call has been reported US$214 million and US$203 million respectively during 2007-08.

According to the Economic Survey of Pakistan 2007-08, telecom sector remains a major source of revenue generation for the government as Rs100.5 billion were collected in the form of taxes, duties and regulatory charges during the previous year. During 2006-07, the government also collected Rs17.6 billion as activation tax on new mobile connections at the rate of Rs500. Total cellular subscriber base stands at 82.5 million (March 2008) whereas it was 34.5 million in 2006 and 12.7 million in 2005.

The tremendous growth is attributed to many internal and external factors starting from deregulation down to implementation of mobile number portability. Almost 90% of total population in Pakistan is covered with mobile networks in addition to availability of fixed and Wireless Local Loop services. Till December 2007, more than 7,011 cities, towns and villages have mobile networks by one or all operators. But growth in the broadband market is slow despite the fact that services have been available since almost five years. Currently there are a total of 12,689 broadband subscribers which give a dismal picture when compared with other similar economies.

As far as IT sector is concerned, it has also displayed a tremendous potential for sustained growth by registering 50% annual growth in exports during the last five consecutive years. It is believed that Pakistan's annual IT exports could have crossed $220 million if it had not been hit by the power crisis. Despite having been badly affected by incessant power outages, the productivity of many ICT companies is expected to achieve the targeted volume of IT exports in the forthcoming years.

According to Japan's Ambassador to Pakistan, Seiji Kojima , some Japanese companies have shown interest in setting up a massive database and a call centre with a capacity of 1,000 calls, at IT Park in Karachi. Pakistan has already introduced a package of incentives, including tax exemptions, until 2016, for IT sector, 100% repatriation of foreign equity and earnings and low-rent facilities for IT companies.

Pakistani IT companies are also fulfilling the needs of local industry and many leading telecom companies are utilizing their services to automate and enhance their operations. Ufone signed agreement with Teradata to expand its Data warehouse with state-of-the-art 5550H nodes and to enhance its customer support services. Some of these corporations are establishing contacts with globally renowned companies. Many of them have succeeded in obtaining venture capital funds from foreign investors.

NetSol, a local leading IT company is listed at NASDAQ. It has also obtained dual-listed status for trading on the Dubai International Financial Exchange (DIFX). The presence of Pakistani IT companies on international stock exchanges is a positive sign for the foreign investments in Pakistani IT industry. Two leading US based Venture Capital (VC) firms, ePlanet Ventures and Draper Fisher Jurvetson (DFJ) are providing funds to Naseeb Networks and this speaks volumes of the trust placed in the potential of Pakistan's IT industry by foreign investors.

Pakistan has set a challenging mission of developing a network of IT parks across the country. This step is taken primarily to sustain the growth rate at current level. Pakistan Software Export Board (PSEB) intends to develop three IT Parks one each at Karachi, Lahore and Islamabad on BOT basis. After completion of these projects Quetta, Peshawar and other major cities will also be covered on the same pattern.

Chak Shahzad IT Park is the first milestone towards realization of that goal. A landmark project for Pakistan's IT industry, this park will house over 10,000 IT professionals. In addition to providing affordable and quality IT enabled work space for companies, this park will generate new employment opportunities, bring in foreign investment, enhance IT/ITeS exports, and stimulate economic growth.

RECOMMENDATIONS:

Despite several advancements in the industry there is enough room and untapped areas for more progress in this field.

The market presents a perfect business case for attracting local manufacturing of mobile phones. Attracting foreign companies to invest in manufacturing of telecom equipment in the country would decrease the burden on foreign exchange, encourage technology, and knowledge transfer and create further employment.

It is imperative to begin manufacturing the latest generation Wi-Fi and WiMAX equipment under joint ventures with Original Equipment Manufacturers.

Broadband or telecom operator should be encouraged to establish equipment manufacturing or latest next generation equipment facility in Pakistan

The Internet kiosks at airports make Pakistan look very primitive. We need to exploit WiMAX technology to provide seamless wireless connectivity everywhere.

Mobile Network Operators 'Universal Services Fund' currently looks at providing services to underserved and unserved regions. Part of the USF should be better utilized to encourage the take-up of ICT by professional groups in cities (government, lawyers, doctors, engineers, teachers, etc).

Ministry of IT&T is currently considering the auction of 3G licenses. However it has to devise a license policy that mandates a request for proposal from all bidders that include the socio-economic benefits in the form of local R&D facilities, percentage of local manufacture/purchase of equipment, local development of value-added services, etc. This would deliver far greater socioeconomic benefits than license fees alone.

Telenor recently opened its regional R&I centre in Kuala Lumpur prior to auction of 3G licenses by the Malaysian government. With the right policy and government intervention such R&I centers could be easily attracted to Pakistani shores to conduct local development, local research, local innovation to ensure knowledge & technology transfer, to generate meaningful employment and create network externalities.

CONCLUSION:

The telecom sector provides large scope for foreign investors to further explore avenues where the business could be lucrative for them. The telecom sector has attracted more than US$5.6 billion foreign investment in last five years, which has created large employment opportunities in Pakistan. If nurtured fully, the IT industry could bring in voluminous economic and commercial benefits.

Though Pakistan lags behind the rest of the world when it comes to the advent and public use of technology, the graph of advancement and implementation and adaptation of telecom-related technology has been steep. There is a pure optimism, among great expectations, when one ponders on the future of telecom in Pakistan.