IS TELECOM BOOM OVER?
Aug 9 - 15, 2010
Despite overall economic slowdown in the country, the telecom industry in Pakistan has maintained its upward trend during the financial year 2009-10 proving wrong the assessment of the experts that "the boom in the industry was perhaps over". According to the figures released by the Pakistan Telecom Authority (PTA) tele-density stands at 63.5 percent rising from 57 percent last year.
With over 100 million subscribers across the country, Pakistan has far exceeded its own targets in terms of tele-density. As could be expected, it is the cellular variety that has been in the vanguard of this telecommunication revolution which has cut across the rural-urban divide of the base of 110 million subscriber in an official estimated population of 173.5 million, as many as 97.5 million happen to be using cellular phones. It is really a big growth.
It is now clear that the boom in the telecom industry especially the mobile phone sector is over throughout the world including Pakistan. However, the reasons for this scenario are different in Pakistan from rest of the developed and the developing world. In case of developed countries downfall began because mobile phone industry reached its peak. In Pakistan, the telecom industry has not reached that stage but its growth declined during the last year because of heavy taxation introduced on mobile phones in July last.
The telecom industry of Pakistan, which was showing a fantastic growth of about 50 percent annually during the last 5 years, took a reverse turn after July 2008 when the government introduced new taxes. The government is now charging Rs31 in the shape of taxes on Rs100 pre-paid card from cellular subscribers. The GST has been increased to 21 percent (from 15 percent) Rs750 on ordinary handset in addition to continuation of reactivation charges of Rs500. This has added to the burden of users manifold. These taxation measures, however, did not serve the desired objective of rising additional revenue because of decline in growth.
Before these measures the leading companies operating in Pakistan were sure to escape the effects of global recession as they had a big untapped marked in the country. In view of this market potential, mobile phone companies continued with heavy investments in the infrastructure. Increase in taxes and duties on the telecommunication services in the budget 2008-09 made negative impact in attracting fresh investment as the resultant increase in the cost of mobile services turned out to be beyond the purchasing power of the remaining potential subscribers of above five million living in the rural areas.
Negating all such fears and apprehensions of the experts, the telecom sector in Pakistan maintained a growth rate of above six percent in the financial year 2009-10.
The government since the turn of the century has actively promoted the telecom sector. The current figures indicate a recent burst beyond the expectation of those who set the ball rolling. Just four years ago, addressing an international telecommunication union (ITU) conference in Turkey, the then Pakistan's Federal Minister for Information Technology, Awais Laghari had expressed hopes that Pakistan would touch 35 percent tele-density by the end of 2010.
The rise of the cellular variety has been in line with global trends. According to the World Telecommunication Development Report 2010, which was released a couple of months ago, mobile technology is the most widely spread entity. There is data available to suggest that by the end of 2008 almost three-quarters of the world's rural inhabitants were covered by a mobile cellular signal, up from 40 per cent in 2003.
The lowest coverage is in Africa, but even there the relevant figures stands at over 50 percent, indicating a significant improvement over 2003 when coverage stood at only 20 percent. Complete mobile coverage of all rural areas worldwide by 2015 is a rough target set out by the International Telecommunication Union and Pakistan seems to be ahead of the target in that regard as well.
On an year-on-year basis, the number of cellular subscribers has grown six per cent this year. However, the big question today facing the stakeholders relates to the potential of the local market to continue to prosper at the same pace.
The general mood is upbeat among market-watchers who argue that so well-entrenched is the mobile phone in today's lifestyle and business ethics that even the federal budget was largely a non-event for the sector. Implementation of VAT or increase in GST are factors that are unlikely to have much of an impact on the demand side, they argue, insisting that the growth is expected to continue its upward journey.