TELECOM SECTOR

S.M. ABBAS ZAIDI,
Research Analyst
, PAGE

Sep 8 - 14, 2008

Telecom sector of Pakistan has emerged as the fastest growing sector in the world where the infrastructure and subscriber growth patterns are unmatched all across the region. Telecom sector continues to share in our national economy positively during 2008. Despite some downward rating of Pakistan economy, the growth in telecom sector has shown positive impact on Pakistan economy where its share in taxes and employment has increased tremendously due to fastest growth in telecom penetration all across the country. In April 2008, teledensity has reached to 57% overall which is an exemplary growth in terms of penetration in the sector. Total teledensity of the country has increased more than 16% points in March 2008 compare to similar period of last year. In the current quarter, teledensity has increased about 4% points relative to previous quarter. Mobile sector continued to be major shareholder in terms of teledensity, which is adding more than 2.3 mn subscribers per months. During this quarter, fixed teledensity has increased slightly from 2.9% to 3.1% due to increased share by new local loop operators. However, it is expected that this trend may increase after Wireless Local Loop (WLL) services get momentum in coming years. WLL teledensity is continuously increasing over the years.

REGION WISE TELEDENSITY

Pakistan was far behind in terms of telecom penetration few years back compare to its peer countries like India and Sri Lanka. However its teledensity crossed both of these countries in last two years. Prudent policies of the government and concrete steps by the regulator have placed Pakistan telecom sector among rising economies like Malaysia and Singapore.

TELEDENSITIES OF REGIONAL COUNTRIES (%)

COUNTRIES

2005-06

2006-07

2007-08

PAKISTAN

29%

45%

57%

SRILANKA

26%

37%

51%

INDIA

13%

20%

24%

BANGLADESH

9%

15%

19%

NEPAL

4%

7%

10%

Source: PTA

INVESTMENT IN TELECOM SECTOR

During this quarter, Oman Telecom has finalized its deal with World Call where it has purchased 65% share of the Pakistani company worth US$ 200 mn. Oman Tel has announced that it will bring further US$ 250 mn for network expansion of the company. During the current quarter, cellular mobile sector continued to take lead in investment where it is still investing amount on network expansion. It has invested over US$ 433 mn during the current quarter, which is 44% higher than the last quarter.

CELLULAR MOBILE INVESTMENT ( $ MILLION)

COMPANIES

JAN -MAR 07

JAN - MAR 08

MOBILINK

102

133

UFONE

58

58

ZONG

511

-

TELENOR

145

108

WARID

86

-

INSTAPHONE

0

-

TOTAL

902

299

Source: Telecom Operators


ACQUISITION IN LDI MARKET

SNO.

COMPANIES WHO ACQUIRED SHARES

COMPANIES WHO SOLD SHARES

SHARES ACQUIRED %

AMOUNT PAID $ MILLION

1

Qtel, Qatar

Buraq

75

12.3

2

Oman tel

World call

65

200

Source: PTA

THE MAIN MARKET PLAYERS IN CELLULAR NETWORK

Mobilink, based at Egypt, is the leading market player with 30 mn subscribers. It has already invested in the industry a whopping $2.5 bn with plans for further investments. It has a 6,500 Km of optic fiber backbone with further expansion plans for another 2,000 Km. Mobilink's revenue of $597 mn as of June 2007 account for 24% of the overall group revenue.

Ufone enjoys the second position in the market. Ufone, having a customer base of 16 mn has already spent $1 bn in network expansion with plans to invest another $150 mn this year. Ufone contributed 20% to PTCL group revenue during 2007. Telenor, based at Norway has more than doubled its customer base during the period of 2006 to 2007. With a customer base of 15 mn, Telenor has already spent $1.8 bn. Having introduced high speed EDGE services, the company has plans to expand further. Telenor Pak has contributed 4% to the overall group revenue of $13 bn. Warid Telecom, having a customer base of 14 mn, has already invested $1.2 bn in Pakistan since 2005 and has plans to expand further. It is backed by one of the largest group in Middle East, the Abu Dhabi group. China Mobile (CM Pak) formed through acquisition of 89% shares of Paktel for $460 mn, is the new entrant making its presence felt in the Pakistan telecom market. Presently having a base of 2 mn subscribers, the company aims to have a market share of 20 to 25% by the middle of next year. CM Pak plans to invest another $800 mn during 2008.

MARKET SHARES OF MOBILE COMPANIES

COMPANIES

MAR - 07

MAR - 08

Mobilink

44.30%

39%

Ufone

20.90%

21%

Telenor

16.30%

20%

Warid

16.10%

17%

Zong

1.90%

3%

Instaphone

0.60%

0%

source PTA

NETWORK GROWTH AND COVERAGE

In a very competitive market, all operators have to expand their network rapidly to grab their share in this low ARPU market. Currently the service is available to more than 90% of the people of Pakistan. Cellular coverage by the end of last quarter has reportedly exceeded 6,700 destinations. When compared with last year, cellular operators have added more than 2,000 new destinations.

CONCLUSION

Deregulation ended PTCL's monopoly by introducing competitors into the market. Service providers, seizing the opportunity deployed their networks to start sharing and boosting the revenues of long distance and international traffic with the incumbent. Although the consumers have been the beneficiaries of this competition, but at times the investors have, seen their profits going down as prices fell in the long distance sector. However, with concrete steps taken by the regulator and Long Distance International (LDI) operators it is expected that the sector would grow in future. These concrete steps include rationalization of Access promotion Charge, Installing of IP bandwidth and Call Monitoring facility, establishment of an International Clearing house and most importantly replacement of sick LDIs (almost non-functional) with fresh aggressive investments possessing aggressive investment plans.