TELECOM SECTOR - IN NEED OF CONSOLIDATION
SHAMSUL GHANI (firstname.lastname@example.org)
Jan 05 - 18, 2009
During the last 4-5 years, the phenomenal growth of Pakistan's telecom sector has drawn mixed comments depending on commentators' liking or disliking for the particular government under whose rule the phenomenon took place. Politics apart, the cellular revolution has brought numerous economies to the economically struggling country. Since we, as a nation, little realize the importance of time and timely communication, the benefits of revolution remain understated. Political bickering also belittled the achievements made in the cellular revolution. In fact it was a total shift from the expensive and cumbersome fixed-line communication to the simple, extremely cheap and highly effective cellular communication. The following table showing teledensity growth during the last 5 years explains the overwhelming influence of cellular revolution.
TABLE-1 YEAR TOTAL TELEDENSITY (FIXED+WLL+CELL) CELLULAR MOBILE DENSITY CELLULAR MOBILE DENSITY AS % OF TOTAL TELEDENSITY TOTAL FOREIGN DIRECT INVESTMENT (MILLION US $) TELECOM SECTOR CONTRIBUTION (MILLION US $) Jun-04 6.25 3.29 52.64 980 207 Jun-05 11.89 8.30 69.81 1,524 495 Jun-06 26.26 22.21 84.58 3,521 1,905 Jun-07 44.06 39.94 90.65 5,125 1,824 Jun-08 58.90 54.70 92.87 5,153 1,439 Oct-08 60.40 56.20 93.05
Telecom sector has been a major contributor to the foreign direct investment (FDI). The contribution peaked during FY06 when 54 per cent FDI came from telecom sector. The subsequent two years recorded substantial slowdown when the contribution came down from 54 per cent to 36 per cent in FY07 and then to 28 per cent in FY08. In the face of a constantly increasing total FDI, the drop in telecommunication sector investment could be attributed to a number of factors. The PTA annual report cites higher taxes and major players' lack of interest in expanding their operations in rural areas as main reasons for this negative turnaround. The high inflationary pressures have started to tell on disposal incomes and the subscriber base expansion has received a setback. This is evident from the figures of Table-2. The recent increase in GST and the levy of activation charges of Rs.500/- have squeezed both the consumers and the telecom companies. The 35 per cent corporate tax regime has also come under harsh criticism by the major telecom players who argue that the fiercely competitive industry should be allowed sufficient breathing space to continue operations.
The telecom sector accounted for a total foreign investment of $3.1 billion in FY08 as against $4 billion in FY07, inclusive of $1.439 billion and $1.821 billion respectively received under FDI. This means a drop of 22.5 per cent in total telecom investment and a drop of 28 per cent in telecom FDI. Cellular mobile sector invested $2.3 billion during FY08 - 11 per cent less than the investment in the preceding year. The highest contribution to FDI came from Norway based Telenor. Besides being a major contributor to foreign investment, telecom sector is also a significant source of revenue. This sector collected under GST and CED heads, Rs.26.8 billion in FY06; Rs.36.3 billion in FY07 and Rs.44.5 billion in FY08.
During 2006-07, Pakistan was estimated to attract $2 billion FDI to the most attractive telecom sector out of a total FDI estimate of $6 billion. With the marketing of that estimate, Pakistan was tipped to be on the verge of a telecom revolution. The subsequent domestic political turmoil and the crippling global financial crisis cut the telecom sector FDI estimate down to an actual of $1.821 billion which was further reduced to $1.439 billion during 2007-08.
It will be unfair to assume that the prophesied telecom revolution did not take place. The figures of table-2 amply prove that the revolution already has taken place. A meager 5.023 million subscriber base in June 2004 has been extended 18 times to 90.526 million in 2008. The fickle economic and political forces have simply driven the sector to the imminent consolidation phase. If nature gives you a lemon, don't rub it on your wounds. Make lemonade and enjoy.
The mobile phone operators in the country are Mobilink, Ufone, Zong, Telenor, Warid, and. Instaphone. The subscriber base can be seen to have expanded at snail's pace during the first four months of FY09. Assuming this rate is maintained, the annualized growth rate comes to 8.5 per cent or so which might look dismal in comparison to previous years' growth rates. However, any positive growth rate during the consolidation period should be acceptable. With Mobilink being the market leader with an almost unassailable lead, Ufone and Telenor fight a fierce battle for the second spot. Warid occupies the fourth slot. Although lagging far behind with a subscriber base of 5.239 million, Zong appears to be the most dynamic of the lot with an enviable growth of 34 per cent during the sluggish four months of FY09. The growth rates of other market players are: Mobilink and Instaphone, negative growths of 3.7 and 8.5 per cent respectively; Warid, Ufone and Telenor, 6 per cent, 4.8 per cent and 2.8 per cent respectively.
TABLE-2 : CELLULAR SUBSCRIBERS IN PAKISTAN
Figures in Million
YEAR MOBILINK UFONE ZONG INSTA-PHONE TELENOR WARID TOTAL GROWTH% Jun-04 3.216 0.801 0.470 0.536 - - 5.023 - Jun-05 7.469 2.579 0.924 0.454 0.836 0.509 12.771 154.25 Jun-06 17.206 7.487 1.041 0.337 3.574 4.863 34.508 170.21 Jun-07 26.466 14.014 1.025 0.333 10.701 10.620 63.159 83.03 Jun-08 32.032 18.100 3.951 0.351 18.125 15.490 88.049 39.41 Oct-08 30.883 18.978 5.298 0.321 18.634 16.412 90.526 2.81
The domestic users have benefited by a fierce competition among the top players.
The government has plans to restrict itself to the areas of control, regulation, taxation and incentives. The private sector will be allowed to enhance its role in the development of this all important sector of economy. The task before the private sector shall be to seek expansion of broadband connectivity, ensure further increase in teledensity, explore the possibility of cooperation with other countries and make concerted efforts to bring network development to the remote and neglected rural areas.
The telecom sector faces a number of challenges requiring immediate attention of both public and private sectors. As against the quantitative growth, the qualitative aspect of progress has left much to be desired. The job before the government and the private sector is quite huge. They are to act in concert to take care of the following problems:
1. To expand the network to rural areas.
2. To improve on service standards.
3. To establish data warehouses and international call centers.
4. To ensure network security
5. To set up facilities to manufacture indigenous telecom equipment and cell phones.