TELECOM EXPLOSION

VEHICLE OF SOCIO-ECONOMIC UPLIFT

SHAMSUL GHANI (shams_ghani@hotmail.com)
Oct 05 - 11, 2009

The telecom explosion Pakistan has witnessed during the last five years or so, has brought dramatic changes in the social and economic sectors. Faster and cheaper communication has revolutionized the lives of people on one hand, and has substantially reduced the cost of doing business on the other.

Increased use of computer and internet technology has not only given wheels to the corporate sector but has also made a positive impact on other sectors. Being an emerging economy, Pakistan has been the focus of global investors since 2001. Telecom sector exploits have given a boost to the investor confidence. Opportunities in Pakistan's telecom market have drawn welcome attention of global telecom players who have made generous investments in this sector.

Foreign Direct Investment (FDI) brought in by this sector has vitalized Pakistan's economy. This industry alone created 212,000 jobs during 2006-07. The teledensity in Pakistan has gone up from 3.66 per cent in 2001-02 to 61.8 per cent in 2008-09.

TABLE 1
TELECOM SECTOR GROWTH MEASURED BY THE SIZE OF FDI AND TELEDENSITY

AMOUNT IN MILLION US$

YEAR

TOTAL FDI

FDI IN TELECOM SECTOR

%AGE OF TELECOM FDI

TELEDENSITY %

2001-02 485 6 1.26 3.66
2002-03 798 14 1.69 4.31
2003-04 980 207 21.13 6.25
2004-05 1,524 494 32.44 11.89
2005-06 3,521 1,905 54.11 26.26
2006-07 5,125 1,824 35.60 44.06
2007-08 5,153 1,439 27.92 58.90
2008-09 3,205 . . .

A cursory view of the growth figures given in Table 1 might give one an impression of stagnancy or even a downturn. Considering the global recession triggered by the infamous financial meltdown, however, might well alter the negative perception about sector's growth potential. The teledensity fast approaching the 100 mark might also suggest that the maturity level is around the corner. But, real answers to such questions will only emerge when the dust of global recession settles down.

During the last five years, the sector has attracted around $ 6.5 billion as foreign direct investment. A number of foreign telecom companies have entered the highly competitive Pakistan market to offer a wide range of service products. The continued entry of market players and the rising heat of competition have resulted in windfalls to the subscribers who are enjoying varieties of services at easily affordable prices with an option to switch over swiftly from one brand to another.

Recently, PTA Chairman, Dr. Mohammad Yasin has said that Pakistan's telecom sector is growing at a rate faster than that of India where the teledensity rate is 37 per cent. While percentages can be highly deceptive, we should also take into account the capital formation factor on which Pakistan is lagging far behind. He further said that Pakistan has a more liberal investment policy for investors in comparison to India. This is, perhaps another way of saying that Pakistan has limited options to attract FDI as compared to India.

Dr. Yasin also addressed the country analysts' concern according to which the honeymoon period of the sector appears to be over. He said, "Telecom analysts around the world still believe in Pakistan to be a lucrative market and Business Monitor forecasts that mobile subscribers in Pakistan would hit 100 million mark by next year. We do agree that saturation is there but only in metropolitan areas. Moreover, the people are still keeping more than one SIM. So, one can say that sector would continue to grow, though not as fast as before. PTA has taken a number of initiatives which are proving to be very helpful especially in the field of broadband proliferation, LDI re-emergence and Wimax popularity."

TABLE-2
CELLULAR SUBSCRIBERS

YEAR MOBILINK UFONE ZONG INSTA-PHONE TELENOR WARID TOTAL GROWTH%
2001 309,272 116,711 96,623 220,000 742,606 142 . .
2002 800,000 350,000 218,536 330,000 1,698,536 129 . .
2003 1,115,000 550,000 319,400 420,000 2,404,400 42 . .
2004 3,215,989 801,160 470,021 535,738 5,022,908 109 . .
2005 7,469,085 2,579,103 924,486 454,147 835,727 508,655 12,771,203 154
2006 17,205,555 7,487,005 1,040,503 336,696 3,573,660 4,863,138 34,506,557 170
2007 26,466,451 14,014,044 1,024,563 333,081 10,701,332 10,620,386 63,159,857 81
2008 32,032,363 18,100,440 3,950,758 3551,136 18,125,189 15,489,858 88,019,812 39
2009 29,136,839 20,004,707 6,386,571 34,048 20,893,129 17,886,736 94,342,030 1.30
July-09 29,551,075 20,057,079 6,486,338 11,917 21,299,334 18,141,542 95,547,285 1.28
Mkt. share 30.93 20.99 6.79 0.01 22.29 18.99 100 .

2006 was the peak year for telecom sector boom when a growth of 170 per cent was recorded. The growth level first dropping down to 81 per cent in 2007 and then to 1.3 per cent in 2009 gives sufficient ground to believe that the sector has reached saturation, but there is no reason for anyone to assume that the sector lacks force to bounce back once the global situation improves. So, wait and see is a better option than to give a verdict in this uncertain situation. However, the boom the telecom sector has gone through would not appear so promising when seen from another angle. Only a portion of foreign direct investment is utilized in the setting up of infrastructure facilities, while the rest is spent on marketing efforts. The size of resultant capital formation does not reflect the size of actual FDI. Moreover, a major portion of FDI finds its way back to overseas in the shape of import cost of telecom equipment and cell phones.

Setting-up of indigenous manufacturing facilities for telecom equipment and cell phones may sound very heart-warming, yet it will take a lot of doing from private and public sectors. While attractive fiscal and monetary incentives can be designed and offered to the foreign manufacturers off-hand, the questions of proper infrastructure facilities, outage-free energy supplies and law and order situation will always be there to haunt the policy makers.