TELECOM SECTOR GROWTH IN PAKISTAN

HAMADULLAH ABRO,
RESEARCH ANALYST

Mar 03 - 09, 2008

Today every 3rd Pakistani owns a mobile phone in Pakistan, which was once considered to be most expensive and elite class attitude, but today even a khokhe wala can afford it. Few years back, no one could foretell telecom sector will grow colossally, which has benefited almost all segments of the economy from creating jobs, national exchequer (contributed Rs 36.3 billion in 2006-07) to high satisfaction of consumers at very low rates. Number of factors contributed to its growth making Telecom sector one of the fastest growing sectors of the economy and one of the largest recipients of FDI. During 2006-07 it received $ 1.8bln and had 2% share in GDP which is quite impressive.

SUCCESS FACTORS

HUGE MARKET

Pakistan is 6th populated country in the world, with 162 million population majority between 20-25 years and has been growing, along with unprecedented growth at an average of 7% annually for last 5 years.

INVESTMENT POLICIES

Pakistan has been pursuing the investment conducive and liberalized telecom sector polices and transparent implementation of them, 100% repatriation of profits.

ECONOMIC GROWTH

Robust macro economic indicators (GDP growth at an average 7% annually) have attracted tremendous investment in Telecom sector.

TELEDENSITY

Pakistan had lowest teledensity in 2003 as compared to her counterparts in the region which was 4.3% as compared to 7.1% in India & Srilanka 12.2%. It started increasing since then along with growing middle class and increasing per capita income which made Pakistan's telecom sector most attractive in the world. In FY-06 Pakistan had Teledensity of 26.3% as compared to India 12.8%, Bangladesh 9%, Nepal 3% and Srilanka 27%. As of Jan08 Pakistan's total teledensity is 53%, depicting a huge untapped potential market, which is evident from entrance of CHINA MOBILE (world biggest cellular operator) and Singtel in Pakistan. [See Table # 1]

TABLE # 1

5 YRS TELEDENSITY IN PAKISTAN

YEAR

CELLULAR

FIXED LINE

TOTAL TELEDENSITY%

2002-03

1.61

2.7

4.31

2003-04

3.29

2.95

6.25

2004-05

8.3

3.6

11.89

2005-06

22.21

4.05

26.26

2006-07

39.94

4.12

44.06

8 Jan-08

48.96

4.45

53.41

FOREIGN DIRECT INVESTMENT

Foreign Direct Investment is considered an important source of economic growth and generation of employment opportunities. PTA has created a conducive and investors friendly environment in the telecom sector by awarding licenses in a fair and transparent manner. Pakistan Telecommunication sector attracted investment from several countries which includes UAE, Norway, Qatar, Singapore and Egypt. During last 4 years Pakistan attracted almost Rs 267 billion in telecom sector and generated over 212000 employment opportunities.

FDI in telecom sector has been increasing sine 2001-2002, but in 1H-08 Telecom sector has attracted $654.30 million Foreign Direct Investment that has been 32.5% of the total FDI injected into Pakistan economy. The telecom sector contributed $363.9 million in the 1Q-FY08 and $290.4 2Q-FY08, remained major contributor in FDI during period under consideration.

Political uncertainty and insecurity are the main reasons behind the lesser inflows but it is expected the situation will reverse by the end of FY07-08.

In 2006-07, telecom sector received $1.824 billion FDI and emerged as main sector of the economy with 35.60 percent share in the total FDI. Since liberalization in 2004, Pakistan Telecom Sector has been major contributor to the FDI as reforms along with attractive macro economic, demographic and political factors, which made it attractive for many global telecom giants who had invested in Pakistan. [See Table # 2]

Table # 2

FDI IN TELECOM SECTOR (US $ MILLION)

 

FDI

FDI IN TELECOM

% OF FDI

% OF GDP

2001-02

484.7

6.1

1.26

1.6

2002-03

798

13.5

1.69

1.6

2003-04

979.9

207.1

21.13

1.7

2004-05

1524

494.4

32.44

1.7

2005-06

3521

1905.1

54.11

1.9

2006-07

5124.9

1824.3

35.6

2

July-Sep 07

962.5

363.9

37.71

-

Oct-Dec 07

1052.1

290.4

27.6

-

TELECOM SEGMENTS IN PAKISTAN

Telecom services are divided into different segments. It includes Fixed Line Segment, Cellular Segment, Wireless Local Loop, Payphone segment and Internet segment. Brief performance of each segment is in following paragraphs. [See Table # 3]

Table # 3

NUMBER OF SUBSCRIBERS

. . . .

.

Internet

.

Fixed Line

Celluar

WLL

PayPhones

Dial-Up
(Mln)

DSL

2002-03

4,047,423

2,404,400

-

127,910

1.6

-

2003-04

4,502,230

5,022,908

-

180,901

2

-

2004-05

5,277,546

12,771,203

265,028

279,320

2.1

14,600

2005-06

5,240,012

34,506,557

1,027,868

353,194

2.4

26,611

2006-07

4,806,206

63,159,857

1,850,234

387,490

3.5

45,153

Dec-07

4,836,691

76,883,070

2,127,279

-

3.5

700,000

Jan-08

-

78,738,187

2,200,599

-

-

-

Source: Pakistan Telecommunication Authority

FIXED LINE SEGMENT

There are 6 players in Fixed Line segment PTCL, NTC, Brain Limited, World Call, Union Communication and Nayatel. In this segment PTCL has highest market share of 97% but increase in fixed line teledensity was very passive. Fixed line teledensity was 2.7% in 2002 and stood at 4.12% in 2007. The reason can be attributed to the monopoly of PTCL in fixed line segment, due to absence of competitors PTCL did not penetrate aggressively in the fixed line segment. Due to stagnant number of fixed lines and decreasing tariffs because cellular companies are offering much lower rates in different segments its profits had been decreasing. Recently, PTCL has revamped her image and continuously coming up with innovative packages to lure inactive and potential customers to get fixed lines. It is learnt from indirect sources PTCL got huge response and it is expected in current year she will earn handsome profits.

CELLULAR SEGMENT

There are six cellular services providers operating in Pakistan including both local and foreign firms which include Mobilink, Ufone, China Mobile, Instaphone, Telenor and Warid. Mobilink (pioneer in introducing GSM technology) has highest market share of 40% followed by Ufone with 21% and Telenor with 19.5%. Currently there are 78.7 mln cellular subscribers which have been increasing 1.85 mln per month. As there are 6 cellular operators, everyone is trying to grab more market share by slashing prices, innovating new attractive packages in order to retain and increase sales volume since switching cost is very low. Now Chine Mobile and Singtel have entered in market which will definitely change the dynamics of industry but one thing for sure end consumers will benefit for this move.

WIRELESS LOCAL LOOP

In WLL segment, there are 7 companies operating in Pakistan namely PTCL, Tele Card, World Call, Great Bear, Burraq, Watten and Mytal. PTCL has almost 60% of WLL market share in Pakistan followed by Tele Card with market share of 21%. In the last 3 years WLL segment has been witnessing unprecedented growth and number of subscribers has reached to 2.2 mln as of Jan 2008. It is believed that PTCL will lead this segment in terms of market share in future because she has huge network across the country and can grab market untapped rural market in Pakistan.

PAYPHONE SEGMENT

Due to its easy access to general masses that can not afford phone at home, this segment has been showing impressive growth for last 6 years. In year FY07 total number of payphones stood at 387490 against 353194 in FY06, showing a growth of 9.7%.

INTERNET SEGMENT

Internet service in Pakistan is provided by two modes Dial-up and DSL (introduced in 2005). Growth in Dial-Up segment has been growing gradually due lack internet and computer operating skills. DSL (Dedicated subscriber Line) introduced in year 2005, due to its service quality subscribers in this segment showing phenomenal growth. As of Dec-07 number of DSL subscribers stood at 700000 against 45153 on June-07 showing an astounding growth.

FUTURE OUTLOOK

Future outlook of industry is quite favorable. Entrance of China Mobile with the objective to achieve 20-25% market share by mid of next year and Singtel, Government plans to increase fixed-line teledensity to 7% (around 10 million fixed lines) by 2010 and competition among these giants show that competition will be intense to retain existing share and grab untapped market. It is believed that all stake holders (end consumers, cellular companies and Government) will benefit from it, consumers will reap the benefits of lower tariffs (expected flat rates by 2010), Technological Advancement & innovation (Data Transfer) and quality service, on the other hand, due to increasing number of subscribers the cellular companies will be able to achieve economies of scale and hence increased profitability even with lower tariffs and contribution of telecom sector in national exchequer will be higher in years to come.