TELECOMMUNICATION STABILIZING AFTER BOOMING

MULAZIM ALI KHOKHAR
May 18 - 24, 2009

After the ubiquitous penetration of telecommunication technology, the dreams of common man have turned in to reality. Communication has become so easy, cheap and accessible that even a poverty-stricken person can afford to contact the loved ones through a mobile phone.

Pakistan's telecommunication sector was de-regulated in 1996, since then the industry has witnessed a consistent growth. The industry contributes more than 2% of GDP and revenues of higher than Rs50 billion a year on part of GST (General Sales Tax) and CED (Central Excise Duty). For the last five years, except for FY09, the industry has earned the major chunk of FDI (Foreign Direct Investment) for Pakistan. The teledensity of the mobile, Fixed Line and WLL has reached to a landmark of 60.6% until 31st March 2009, and it is still growing at a decent rate.

The gigantic growth is the result of increasing number of services providers and competitions. Earlier in the history of private telecommunication services in Pakistan Mobilink was the leader in number and growth terms, but now telenor has overcome its growth leadership. Again there is another giant in the competition named China Mobile (CM Pak Ltd.) and they all are wiping out the low base market with aggressive marketing techniques.

According to the latest figures released by PTA for the period ended on 28th February '09, Mobilink has been the leader yet with a market share of 30.9%, however this share is significantly lower from 39.1% in the same period last year. Meanwhile, the gainers have been China Mobile, Telenor, Warid and Ufone, increasing their respective YoY market shares to 6.6% (up 390 bps YoY), 21.8% (186bps YoY), 19% (up 201 bps YoY), and 21.4% (up 44 bps YoY).

The Cellular subscriber base in Pakistan has increased by 13% YoY and has grabbed 91 million subscribers until February '09 compared to 80.3 million at the end of the same period last year.

China Mobile has been the stunning out performer by showing a galloping increase of 180% YoY in its subscribers base. Telenor came in second amongst the more accomplished players, with a 24%YoY growth to reach 19.8 million subscribers during February '09. Subscriber base for Ufone was recorded at 19.5 million, up 16%YoY during the period under review.

IMPACTS OF THE GROWTH

This growth of the telecommunication industry overall has been a win-win phenomenon. The companies have grown and earned decent profits while the consumers have enjoyed the low rate communication services.

But, to be realistic there have been instances where the consumers were conned and cheated by fewer benefits. The couple of instances are like: deceptive price formulas, erroneous billing, connectivity issues, noise in voice, re-sale of used prepaid cards, and lack of any compensation for damages incurred due to bad service of telecom operator. These are only a few, but not very widespread problems today.

Another problematic issue was that the cheaper communication has increased crime. The terrorists and other unscrupulous organization were given a heavenly technology to stay united and to keep organization effectively.

To solve this issue Pakistani authorities have introduced a new ordinance called 'Cyber terrorism Act' and the PTA has directed to all the mobile services providers to block unregistered SIMs and to offer new connections only to the pure identity holders.

The directives have resulted in the sharp decline in the subscriber additions over the past many months. Looking at individual cellular companies, we find that Mobilink has been impacted the most with 10%YoY decline in net additions during February '09. As a result, Mobilink's net subscriber base reached 28.1million in February '09.

CHALLENGES FACING THE INDUSTRY

The technology used by the industry is fast revolutionizing to new dimensions and new hikes. This is happening and happening at a faster pace. This faster change has shown its sign of grip on the industry but the instances of the change are less visible yet. The companies which get track of the changes will modify their systems and hence remain profitable and the other will vanish like Insta-phone.

Latest technology worth mentioning here is Wimax which implies both data and voice (VOIP) on handsets.

Another challenge for the industry is increasing taxes and levies. Government is considering 21% GST on phone calls. The increased taxes in the recent budget have already hit the industry's profits amid heated competition and this move will further aggravate the situation.

CONCLUSION

The industry's life cycle is now maturing. The major urban and rural areas have been subscribed and the foreign investment in the sector not showing increasing trend for the last 12 months. The increasing tight regulations, higher taxes and fast changing technology are indicating slower growth of the industry.