FROM MONOPOLY TO LAISSEZ-FAIRE
NOW, TELECOM SECTOR STIRS ECONOMIC GROWTH
SHABBIR H. KAZMI
Oct 05 - 11, 2009
The monopolistic state control in Pakistan's telecommunication sector ended in 2002 and the economic indicators started showing positive signs immediately. This is evident from the quantum of colossal high Foreign Direct Investment (FDI). The outcome can be attributed to government policies and also the deregulation of the telecom sector.
The telecom sector has been the major driver of economic growth for the last five years and has contributed over Rs300 billion to the national exchequer from 2005-06 to 2007-08. Various operators have invested over $8.8 billion in telecom infrastructure during the same period. FDI in telecommunications stood at around $5.6 billion, which on average was over 30 per cent of the total FDI between fiscal year 2005-06 and 2007-08.
Future of Pakistan's telecom sector seems very exciting but lessons from the past must be learnt for learning and formulating future strategies. The high growth has been ushered by the government policies with the active participation of the private sector. However, active participation of Ministry of IT and strong support from other government functionaries can help the industry become more competitive and beneficial for both consumers and telecom operators.
The common complaint of the players is that the government has failed in assigning IT and telecom due priority. The IT and telecom sector has already started facing the brunt of recent economic recession. Margins have started shrinking and high inflation has reduced gross spending on communications. Instead of facilitating the investors through policy decisions, the government has worsened the situation through imposing high taxes. These policies were developed when the telecom sector was deregulated to facilitate entry of new operators. The policy survived past five-year term but work was not initiated for the next policy.
Major policy decisions necessary for the sector's growth have been delayed for months due to the absence of the sector's representation in policymaking bodies. Even petty matters that demand government's intervention take months for resolution. According to the software developing companies in this age of information technology strong telecommunication system is the backbone of entire national development and growth. The consensus is that the global village concept that emerged during the last decade can only be materialized once the traditional barriers in trade and economics have been removed by the modern communication systems. The strong telecommunication system is also the backbone of national defense system which has been providing connectivity to all the strategic national institutions but in the absence of sector representative in government taking small decisions is stymied.
The current state of affairs has become a source of frustration for all the stakeholders and it is being feared that investors may pull out their investments from Pakistan. They fear that if the foreign investments start return journey from Pakistan then the situation would be a big dent on the economy. It is time that government must discontinue its desultory approach and appoint minister to safeguard the sector's interest in national policy making, they recommend. The declining profitability and customer base across the board in the telecommunication sector is a clear indicator that the sector demands immediate attention of the government.
However, Dr. Mohammad Yasin, Chairman, Pakistan Telecommunication Authority does not subscribe to this perception. Lately, he said that Pakistan telecommunication sector has been growing faster than that of India with over 62 per cent teledensity, encouraging the foreign direct investment. India lagged far behind Pakistan with 37 per cent teledensity as compared to 62 per cent in Pakistan.
He also said that Pakistan's FDI policy was much more liberal as compared to that of India and had attracted huge investment in country's telecom sector. The growing teledensity in Pakistan provides new opportunities to the investors as well as better returns especially in the field of data services like mobile internet, mobile banking and Internet Protocol Television.
Chairman said that the telecom sector analysts around the world still believed Pakistan was a lucrative market and forecast that mobile subscribers in Pakistan could hit 100 million mark within next couple of years. The recent slow growth can be attributed to a number of factors like international financial crisis, devaluation of rupee, security situation and re-registration of SIMs.
He also contradicted the perception that the market has become saturated. The saturation may be in the urban areas. But people are still keeping more than one SIM. The sector is likely to continue to grow though not as fast as was witnessed in the past. He assured that PTA was trying to boost the growth rate by taking policy initiative to ensure healthy competition among the players for the ultimate benefit of the consumers.
PTA has taken a number of initiatives which have helped in broadband proliferation, LDI re-emergence, and WiMax popularity and the authority is focusing on growth of broadband. Currently the number of subscribers may be less than a million but growth rate was as high as146% in 2008-09.
WiMax has a sparkling future in Pakistan and this is further strengthened by the promising start of companies like Wateen, Wi-Tribe, etc. With more companies jumping into the market, the competition level will rise to compel the companies to bring down the tariffs, especially CPE charge. However, the major stumbling block is low literacy rate that hampers use of internet. Also, the lack of availability of local content is another reason, which could pose problems for wider adoption of internet by mobile community.
It is worth noting that the regulators are focusing content development and aggregation, especially for education purposes. While Chairman rejected evolution of monopolies he could not rule out emergence of significant market player.
"We do determine the SMP operator in each segment of telecom on yearly basis. We have also drafted competition rules that clearly protect operators from any anti-competitive practices by SMP's," he added. He said that looking at the current market situation where a feeling of price war was obvious, one could say that product differentiation could be possible on quality and easy availability basis. Average revenue per user is improving due to introduction of the value added service like m-banking and mobile internet. Due to growing revenues and healthy competition operators will continue to provide value added services in the country.
GREATER GOVERNANCE OF BANKS STRUGGLING WITH HEFTY EXPOSURE
ABU DHABI :Arab central bank governors met Monday last have called for greater governance of banks struggling with hefty exposure to troubled local businesses and better regional cooperation.
United Arab Emirates' central bank chief Sultan bin Nasser Al Suwaidi said in his opening speech that "the next phase will require closer cooperation between central banks and monetary institutions."
Calls for greater coordination and regulation among Middle Eastern countries was the main theme for Monday's meeting, echoing similar calls from the Group of 20, or G20, nations meeting last week.
The region's central bankers see coordination as key to monitoring financial firms, reeling from billions of dollars worth of exposure to local family businesses and real estate.
"The global economic crisis proved a need to have a better monitoring and supervision of financial institutions in the Arab world," Sudan's central bank governor, Sabir Mohamed Hassan said in a speech given at the meeting. A list shows exposure of at least $7.4 billion to global firms via syndicated loans, but total exposure including local banks is much higher.
Al Suwaidi from the U.A.E. said that 13 of his country's banks have exposure to the two the Saudi groups, and promised to reveal a list of firms with their total liabilities. He added that banks' earnings will be lower this year as they take provisions.
Oman's central bank chief, Hamood Al Zadjali, said three of his country's banks have exposure. No other governors spoke specifically about their financial sector's exposure to the groups.