HUGE OPPORTUNITIES IN TELECOM SECTOR

FOZIA ISHAQUE (fozia.ishaque@hotmail.com
Mar 03 - 09, 2008

Pakistan has evolved as one of the telecom sector's key investment prospects enjoying the highest teledensity in South Asia increased from 3% in 2000 to 52.8% in 2007. Through increased level of mobile penetration, coupled with up surging demand in technologies and satellite access, it has developed one of the fastest growing telecom networks in the world. Continued market liberalization is reshaping the regulatory environment, creating a more investment friendly climate in telecommunications.

Pakistan telecom sector performance in terms of infrastructure and subscriber growth patterns is unmatched across the world. Teledensity (Fixed line) has reached to 13.2% which was just 2.1% in 1999. Similarly mobile subscribers have crossed 76.6 million which is almost twenty times than landline subscribers of 4.8 million. Internet users have crossed 3.5 million whereas more then 1900 cities are connected to internet. There are total 387,490 PCOs working in the country. During 2006-07 total telecom revenue was Rs 236 billion. On average 2.3 million subscribers were added every month during 2006-07. Up to June 2007 6,000 cities/towns/villages have been covered by mobile operators. Upto December 2007, there were total 17,779 cell sites all over Pakistan. Today mobile network coverage is reaching to almost 90% of the total population. The telecom sector received above US$ 1.8 billion FDI, 35% of the total FDI. Telecom sector contributed Rs. 100 billion in the national exchequer in terms of taxes and regulatory fee, which was 32% higher than the previous year. GST/CED collection during the period reached Rs. 36.28 billion. Rural Telephony Project launched during the year under which 400 Rabta Ghar (Telecentres) are being established in rural areas. Total investment in the LDI sector grew up to US$ 603 million in 2007. New LDI sector revenue stood at Rs. 15.3 billion. Total LDI outgoing minutes from Pakistan grew to 1.3 billion minutes in 2007. 12 LL companies are operational out of 38 companies. At the end of December 2007, WLL subscribers reached 2.1 million in Pakistan and teledensity stands at 1.34%. By June 2007, Broadband subscribers reached 71,000 and 65% of Pakistani broadband users enjoy DSL broadband technology. Total number of Internet subscribers crossed 3.5 million and total number of users crossed 17 million mark in 2007.

In the year 2007 this sector experienced high economic activity and a number of private companies secured licenses at exorbitant prices. A major chunk of foreign investment was also poured in telecom. This triumphant phase created euphoria amongst the economic managers of the country. Resultantly further investment and employment are also expected to arise in the coming years.

Pakistan telecommunication sector had been a monopoly since inception and continued to adhere to conventional methods for a long time. However in July 2003 the policies took a turn around and a deregulation policy was announced abolishing the exclusivity of PTCL. `So far Pakistan Telecommunication Authority (PTA) has issued 12 LDI and 76 LL licenses in addition to 92 WLL licenses. Similarly, PTA has also issued 2 new mobile service licenses to international companies through open auction. New telecom operators have contributed over Rs. 30 billion in deregulation process. With all this, telecom sector of Pakistan is now open for competition.

This revolutionary change has not only trimmed down the tariff for services but also instilled tremendous quality and attached value addition to money. As an impact of liberalization mobile penetration has crossed fixed line penetration this year. About 22 million youngsters are already connected on mobile networks. Pakistan has already crossed the Asian connectivity average, surpassing India and Sri Lanka and getting close to China. The telecom sector attracted foreign investment on license and infrastructure of over US $ 9 billion during the last five years, and another four billion dollars are expected on roll-out by 2010. Multinational companies are expanding their networks in Pakistan where PTA has ensured and promoted smooth working environment through well defined policies and guidelines.

New telecom companies are promising huge investment in the telecom sector in coming years. Mobile operators planned to invest more than US $2.4 billion just in infrastructure and total telecom investment during the year was US $ 4.12 billion and the share of telecommunication sector in GDP was 2.0%. Telecom companies have invested over US $ 8 billion during the last four years, mobile sector investment share accounts for 66% of the total investment. During 2006-07 the revenue of mobile industry was Rs.133 billion, an increase of 48% from pervious year. China Mobile investment is US $ 704 million during 2006-07 for expansion of CM-Pak networks. Mobile Sector paid approximately Rs. 63 billion taxes to the National Exchequer during the year 2006-07. Out of 17 WLL licensed companies, 5 are fully operational whereas two companies (Wateen and Mytel) have been issued commencement of service certificates.

Number of incentives has been given by the government to further increase the investment. In this regard the sector has been given the status of industry whereby subsidies and incentives given to other industries are now available to telecom sector. Taxes and duties have been made viable to the minimum in order to make business viable for the operators for return on their investments. PTA has reduced all the formalities for acquiring licenses for any services to its minimum and in this regard window operation is provided by placing FAB under PTA. In addition, PTA has also reduced royalties and fees of all the licensees and a simple and liberal licensing regime has been adopted. PTA is starting 3G mobile phone licensing process sometime this year, hoping that these modern services would be available in the country by 2009. For this purpose, auction of the spectrum would be carried out this year and good thing is that licenses would be awarded through competitive bidding. The 3rd-generation mobile services will enable consumers to use Internet with high speed, make video calls and other value-added data services.

As an immediate implication of the above scenario, number of investment opportunities has been created in the sector and there exists enormous untapped area in this field. The forward and backward linked businesses to telecom have become very lucrative from investment point of view. Some of which are Call Centers, IT enabled services, outsourcing, franchises by newly licensed operators both in mobile and fixed line, network solution providers to telecom operators etc. Besides these few pointed areas there is enormous potential in the segments of this sector where investment opportunities have been created. Government is planning to issue more licenses for LDI and LL services so that more local and foreign investors enter the sector.

However with inordinate proliferation of the industry certain challenges are also arising. For instance there is an apprehension prevalent amongst folks that with so many licenses, no one will be able to make any money. The major players are also worried that the Pakistan Telecommunication Authority, which regulates the sector, lacks the expertise to deal with conflicts among the legions of new competitors. Sector experts believe that issues will come up and the regulator needs to be prepared for this beforehand. To do so, regulators are studying how other countries have handled deregulation and also refining its existing polices. It has put much responsibility on the regulator to keep check on the sector to avoid the burst of bubble in telecom sector.

Since last few years, Pakistanís Telecom sector is witnessing a period of dynamic growth and investment, resultantly there was number of acquisitions in 2007 whereas established local players increased their interest by improving their service potential in various segments. Keeping in view all above facts it seems obvious that currently and in near future, opportunities from investment point of view in the telecom sector are huge. Forecasted figures show that the sector would grow further at accelerated pace with right impetus that has been provided by the Government and PTA.

INTERNET USERS 2007

DATA SOURCE: 2007 CIA WORLD FACTBOOK

1

World

1,018,057,389

2

European Union

247,000,000

3

United States

205,326,680

4

China

123,000,000

5

Japan

86,300,000

6

India

60,000,000

7

Germany

50,616,000

8

United Kingdom

37,600,000

9

Korea, South

33,900,000

10

France

29,945,290

11

Italy

28,870,000

12

Brazil

25,900,000

13

Russia

23,700,000

14

Canada

21,900,000

15

Spain

19,204,771

16

Mexico

18,622,500

17

Turkey

16,000,000

17

Indonesia

16,000,000

18

Australia

14,663,622

19

Taiwan

13,210,000

20

Vietnam

13,100,000

21

Malaysia

11,016,000

22

Netherlands

10,806,328

23

Poland

10,600,000

24

Pakistan

10,500,000

25

Argentina

10,000,000