TELECOM SECTOR IN PAKISTAN
Research Analyst, PAGE
Jan 4 - 10, 2010
Telecom sector in Pakistan contributes one to 2% in the total GDP of the country, and has 6-7 % share in total tax revenue per annum.
During the year 2008-09, the sector continued to contribute handsome amount in national kitty through various taxes and regulatory charges. Telecom sector's contribution to national exchequer rose to Rs. 112 billion in 2008-09 from Rs. 111 billion a year ago.
During 2008-09, the teledensity in the country jumped to 62% showing a growth of over 5% over the previous year. Despite economic difficulties, the telecom sector revenue grew 19% in 2008-09.
Owing to economic slowdown, saturation in the market and global financial crisis, the total investment in the telecom sector in 2008-09 reduced nearly 47%.
Despite the fact that the operators speedily expanded their infrastructure nationwide, reaching to a large size of the population, there still remains areas like broadband, WLL, and telecom equipments' manufacturing etc. where huge investment opportunities exist.
TELEDENSITY IN PAKISTAN (%)
2004-05 11.9 2005-06 26.2 2006-07 45.0 2007-08 58.8 2008-09 61.99
During FY09, a total of US$ 815 million worth of investment has been made by all the operators, of which the cellular mobile share is about 75%. The WLL has marginally increased investment from US$ 52.8 million in 2007-08 to US$ 82.11 million in 2008-09. However, level of investments in other sectors declined.
Major countries which invested more than 70% of total investments in last 5 years in Pakistan's telecom sector included United Arab Emirates, United States of America, Norway, and the China.
UAE emerges as the leading country investing over 36% of the total FDI in the telecom sector in the last 5 years. UAE invested in the companies like Wateen, Warid Telecom, and PTCL. Etisalat, a UAE based company, bought out 26% shares of the PTCL worth US$ 2.4 billion.
The UAE has invested over US$2.3 billion in the telecom sector of Pakistan since 2004-05. China Mobile has its first overseas adventure in Pakistan's cellular mobile sector, in addition to telecom manufacturing through companies like ZTE and others. Investment from People's Republic of China exceeded US$599 million in the telecom sector of Pakistan during the last 5 years. Telenor, a Norway based company, also brought about half a billion US dollars foreign investment in the country during the last 5 years.
FDI IN TELECOM SECTOR
At present, Pakistan has the most liberal FDI policy in the region, as 100% equity is allowed and investors can repatriate 100% of their profits. Owing to this liberal policy, Pakistan attracted significant foreign investment inflows during the previous years. However, this trend showed decline in 2008-09 in which overall FDI declined by 31.2%. During the period, Pakistan attracted total FDI of US$ 3.7 billion. During the last two years, inflows crossed US$ 5 billion per year.
FDI IN TELECOM SECTOR
FDI IN TELECOM (IN MILLION)
2004-05 494 1,524 32 2005-06 1,905 3,521 54 2006-07 1,824 5,140 36 2007-08 1,439 5,410 2 2008-09 815 3,720 22
Pakistan's telecom sector remained the largest recipient of the FDI during the last few years capturing more than one fourth of the total FDI. During the last 5 years, Pakistan attracted over US$19 billion FDI, of which 34% was in telecom sector. In the last financial year, the telecom sector received over US$ 815 million FDI, which was 22% of the total FDI in Pakistan.
Revenue from the telecom sector showed a 19.8% growth during 2008-09 compared to 18.2% in previous year. During the year 2008-09, the telecom sector generated revenue to the tune of Rs. 333.9 billion compared to the last year's Rs. 278.5 billion. The cellular mobile sector continued to be the leader in telecom revenue, whose share turned out to be 64% in the total telecom revenues. The cellular mobile sector showed about 17% positive growth during the fiscal 2008-09.
To curtail the imports of mobile handsets, the government imposed custom duty and regulatory duty together of Rs. 750 per mobile handset. Therefore, the imports of cellular mobile handset have declined 66% in 2008-09, falling from the previous year's US$ 446 million to only US$ 130 million, although the total telecom imports in 2008-09 grew more than 20% reaching to US$ 1.7 billion in 2008-09 as compared to US$1.3 billion in 2007-08.
In the fiscal 2009-10, the government has extended support to mobile handsets imports while reducing the custom duty from Rs. 500 to Rs. 250 per mobile handset and abolishing the regulatory duty of Rs. 250.
Despite slowdown in economy, telecom sector continued to grow in terms of revenue, subscription, and teledensity. Teledensity in the country reached 62% while operators continued investing for infrastructure expansion. Telecom sector remained largest recipient of FDI as it attracted US$ 815 million FDI in 2008-09. Regulator is vigilant to safeguard the consumers as well as investors in the sector.