TELECOM SECTOR REVIEW

THERE ARE SIGNS OF SATURATIONS

SHABBIR H.KAZMI
Oct 05 - 11, 2009

Having registered robust growth for many years telecommunication sector has started showing signs of some slow down. The number released at the end of July 2009 shows that cellular teledensity improved to nearly 60% with fixed line remaining less than 4%. While FY09 was marred by PTA's measures to curb illegal use of SIMs the number started improving once gain July onwards.

Cellular base in the country touched 96 million at end July as compared to a little above 89% a year ago. Among the players Telenor and Warid continue to register increase in number of subscribers. However, market share of Mobilink seems to be on the decline.

During July WLL subscriber base increased by 35,000 to 2.65 million and WLL teledensity reached 1.6%. WorldCall outperformed others during the month adding 3.6% or 12,700 subscribers out of a net addition of total new subscribers. Wateen's subscriber base reached 77,000 but number of subscribers of Pakistan Telecommunication Company remained almost stagnant around 1.3million.

A report by Invest & Finance Securities provides better insight of the sector. It says after going through a supernormal growth from FY04 to FY08 period in which the annual growth rate averaged 105%, cellular subscribers grew by just 7% YoY to 94.34 million in FY09. According to the report factors contributing towards the deceleration in growth include 1) market saturation, 2) high base effect, 3) change in subscriber base accounting (Mobilink), and 5) crackdown on use of unauthorized SIMs. Nevertheless, cellular teledensity grew to 58.2% taking the total telecom teledensity to 61.8% in FY09 compared to 58.9% a year ago.

The report further says that in June 2009, 1.2 million cellular subscribers were added, which was an eleven month high. Highest increase was witnessed in Telenor of 0.41 million subscribers followed by Mobilink of 0.32 million. As per calculations, the industry's churn rate (rate at which subscribers leave a supplier) has also mellowed down to 1.4% in June 09 after increasing to 2.9% in December 2008, which saw the highest reduction in monthly subscribers in FY09.

Following a 9% Y/Y reduction in subscriber base, Mobilink market share contracted to 30.9% in FY09. Coming from a low base, Zong recorded the highest YoY subscriber growth of 62% taking its market share to 6.8%. In FY09, Telenor overtook Ufone, with the second highest market share of 22.1%, with a 15% YoY growth in subscribers compared with 11% for Ufone. Other Cellular Mobile Telecom Operators (CMTOs) have steadily eaten into Mobilink's pie. Mobilink's market share in FY04 stood at a whooping 64%, which has progressively reduced to 31% by FY09 following increased competition.

PTCL FINANCIAL RESULTS

Pakistan Telecommunication Company Limited (PTCL) is the largest player and a closer look at its financial results provides some insight about the sector. The company recently announced its annual results, which were more or less in line with market expectations. The company posted profit after tax of Rs 9,151 million (EPS: Rs1.79) for FY09 compared to loss after tax of Rs 2,824 million (LPS: Rs0.55) for FY08. The reversal in fortune can be attributed to the absence of the one time VSS cost of Rs23,937 million booked in FY08. Profit for 4QFY09 was Rs1,927 million (EPS: Rs0.38) compared to profit of Rs 3,736 million (EPS: Rs0.73) for 4QFY08, registering a decline of 48% YoY. The company did not announce any dividend.

Sector analysts have been hinting towards sever competition and also demanding reduction in tax applicable on the sector. The inevitable has started casting shadow, evident from 10% decline in the revenues of the company to Rs59,239 million for FY09 as compared to Rs66,336 million for FY08. The reduction in revenues was more significant due to the shrinking base of fixed line subscriber owing to fixed-to-mobile substitution and the emerging inclination for wireless local loop (WLL). Fixed line teledensity in FY09 declined 2.20% with the total subscribers of 3.60 million as against 2.60% teledensity in FY08 and a subscriber base of 4.42 million.

Gross margins for FY09 registered a significant decline to 36% compared to 44% in FY08 on account of high cost of services. Administrative costs declined by 17% during FY09 to Rs8,935 million compared to Rs10,823 million in FY08. This is attributable to the VSS exercise that the company conducted during FY08. However, financial and selling costs increased to Rs908 million and Rs1,817 million respectively, during FY09.

Pakistan Telecommunication Authority has revised downward the Access Promotion Contribution (APC) rate to 5.5 cents/minute from 7.5cents/minute, while the Approved Settlement Rate (ASR) has been reduced to 10.5 cents/minute from 12.5 cents effective July 20, 2009. This cut will increase international traffic owing to cheaper call rates to Pakistan. The increasing traffic and depreciating Rupee will help support the increasing international revenues and their contribution to the total revenues.

In FY09 PTCL's total subscriber base stood at 200,000 against just 56,000 in FY08. Consequently, broadband revenues swelled by 200%. However, the segment's contribution to overall revenues remains marginal. At present, it contributes only 2% to the top line but going forward broadband contribution is likely to increase to 6% by FY13.

The growing competition demands addition of innovative and value-added services. PTCL has come up with an aggressive advertisement campaign on a national scale to revitalize the declining subscriber base, which is anticipated to increase its revenues. The package offers broadband coupled with unlimited on-net local and nationwide calls against a fixed monthly charge.

UFONE & TERADATA JOIN HANDS

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Ufone (Pakistan Telecom Mobile Limited has signed an agreement with Teradata Corporation for the expansion of its Teradata Active Enterprise Data Warehouse (EDW) .

Abdul Aziz, Chief Executive Officer, Ufone, said, "Ufone is constantly striving to provide a very high quality of Service and Support to its customers across the country. We have invested in Teradata's technology to have better understanding of our customers and insight into their needs to be able to respond with matching services and offerings at competitive prices."

Mr. Khuram Rahat, Managing Director, Teradata Pakistan, said, "Teradata is committed to delivering high performance Active Enterprise Data Warehouse solutions to its customers enabling them to carry out detailed analysis and to be able take strategic and timely tacticle decisions to better service their customers while achieving optimal efficiencies in their operations".

Since 2001, Ufone's analytical solutions from Teradata have provided a comprehensive platform for intelligently storing information and analyzing those information reserves to re-invent their business to not only offer innovative services but also continuously enhancing their quality of services.

ABOUT PAKISTAN TELECOM MOBILE LIMITED (UFONE)

PTML is a wholly owned subsidiary of Pakistan Telecommunication Corporation Limited (PTCL) that started its operations in 2001 under the brand name Ufone. With PTCL's privatization, Ufone became a part of the Emirates Telecommunication Corporation Group in 2006.

Since its inception, Ufone has focused on the people of Pakistan, empowering them with the most relevant communication modes and services. This customer focus and best offering has allowed Ufone to build a subscriber base of over 20 million in less than a decade. Ufone has network coverage in 10,000 locations and across all major highways of Pakistan . Ufone currently caters for International Roaming to more than 260 live operators in more than 150 countries. Ufone also offers Pakistan 's largest GPRS & BlackBerry Roaming coverage available with more than 150 Live Operators across 105 countries. More recently, Ufone has become a focused and intensive leader in VAS, constantly introducing innovative services, which have been the first of their kind in the Pakistani cellular industry.

Teradata Corporation (NYSE: TDC) is the world's largest company solely focused on raising intelligence through data warehousing, data warehouse appliances, consulting services and enterprise analytics.

The signing ceremony was held at Ufone Head Office in Islamabad . Mr. Abdul Aziz, Chief Executive Officer, Ufone and Mr. Khuram Rahat, Managing Director, Teradata Pakistan , signed the agreement. Also present on the occasion were, Mr. Faisal Khaliq, CIO, Ufone, Mr. Nadeem Khan, CFO, Ufone, Mr. Ehtisham Ullah Khan GM Finance and Treasury, Mr. Jahanzeb Azim, Account Director, Teradata and Mr. Qazafi Qayyum, PS Manager, Teradata.