PTCL PRIVATISATION AND PARADIGM SHIFT

SHABBIR H. KAZMI
(feedback@pgeconomist.com)
Aug 9 - 15, 20
10

Etisalat, the telecom giant of the UAE had won the bidding for 26 per cent of shares of the state-owned Pakistan Telecommunication Company Limited (PTCL) by offering $2.598 billion with management control. Etisalat had offered the highest bid with $1.96 per share, China Mobile of China was the second highest bidder offering $1.063 and SingTel of Singapore offered $0.88.

The agreement was signed between the Government of Pakistan and Etisalat in 2006 for the purchase of stake for $2.6 billion but only $1.4 billion has been received, due to dispute on transfer of title of properties.

Under the agreement, the GoP is obliged to transfer the title of properties in the name of Eitsalat.

Earlier Pakistan's minister for privatisation informed about an agreed framework with Etisalat facilitating transfer of $800 million by the end March once the property issues were resolved soon.

In December, Etisalat said the remaining $1.2 billion would be paid in equal installments over a period of four and a half years in consideration for "certain corresponding deliverables by the Pakistani counterpart." It remains unclear whether Pakistan has decided to give the telecom giant a discount.

Pakistan wishes to resolve all the issues relating to PTCL privatisation and move on to attracting strategic buyers for other state owned enterprises. It is believed that most of the land and properties under the contact had been transferred to Etisalat.

Analysts fail to understand the reasons Pakistan cannot reach an amicable solution. Pakistan has not benefited from the controversy. In fact the war of words is likely to mar future privatisation transaction as well as foreign investments. Analysts believe Pakistan cannot afford to be at loggerheads with foreign investors.

The present regime has not been able to conclude any privatisation transaction since coming into power. Because of the security situation foreign direct investment is not flowing in Pakistan.

Salman Shah, an economist and advisor on finance during the previous regime, believes that the changing stance will do nothing but scare off strategic investors. He was also of the view that if Pakistan continues to harass people no one will come here. Etisalat is a global firm and its entry in Pakistan has put the country on the global investor list.

Until April last year, Etisalat had big expansion plans for the Pakistan that included acquiring another 25 per cent stake in PTCL eyeing on Pakistan's first 3G licence. But any future investment in Pakistan now hinges on a satisfactory resolution of its dispute with the government.

Pakistan's recent road shows aimed at promoting sale of government's stake in country's top 10 companies, was well received in the UAE. But the investors who expressed interest in possible deals will probably be having second thoughts after the Etisalat controversy. For Pakistan there is a lot more at stake than just a few properties.

NEW INITIATIVES

PTCL has doubled its broadband data rate speed and upgraded all its existing 2Mbps customers to 4Mbps data rate on the same tariff and all existing 4Mbps customers have been upgraded to 6Mbps data service at the same tariff. In addition a new 8Mbps package has also been introduced. PTCL is the largest broadband service provider in Pakistan with over 500,000 broadband users. Its broadband is available in over 414 cities across the country. The customers have the liberty to choose from various packages. While broadband keeps customers connected to high speed internet all the time, economical package are available for students, corporate and individuals. Access to free movies, music, classical Pakistani plays, famous cricket matches, educational and religious contents is available to customers on 'Buzz' broadband web content infotainment portal.

PTCL has also launched Broadband WiFi Service to its fixed line broadband that gives users the access to use broadband service any where within a house. Pakistan's fastest broadband service with in house WiFi facility multiple people can access high speed broadband at the same time on a single broadband connection: secure password enabled protection to avoid any misuse; broadband connectivity with all WiFi enabled devices including desktops, laptops, PSP and cell phones etc; and strong WiFi signal up to 54Mbps

WAY FORWARD

Pakistan's IT policy was announced in 2000 and Telecom policy in 2003, there is a dire need to review and update these policies to realign vision and goals to capitalise on new opportunities and cope with upcoming challenges. However, national policies cannot be formulated in isolation but with active consultation with all the stakeholders.

New challenges have emerged requiring redefinition of telecom policy and regulatory framework to accelerate the digital progress. The key issues are security and privacy, spectrum availability and harmonisation, convergence of technologies and growth of useful content and regulatory framework. The government of Pakistan is determined to address all these issues in next policy through consultative process.

The federal government in FY11 Budget has revealed non-tax revenue target for Pakistan Telecom Authority (PTA) at Rs51 billion. The hefty amount is expected to be generated through the issuance of 3G licenses for cellular operators, which has already been delayed by at least one year.

The cutthroat environment in cellular industry makes the consumer happy but telcos grim. ARPUs as well as EBITDA margins in Pakistan are amongst the lowest for the international operators. Huge investment for the purchase of 3G license and then capex expenditure coupled with already very low ARPUs is going to make 3G a difficult choice for cellular companies.

Sector analysts believe that mobile broadband would mostly be affordable for the upper class as the tariff as well as the handsets required for 3G consumers is unaffordable for the masses at large. Using postpaid users as a proxy for wealthy individuals, the initial market size for 3G is being estimated around 2.5 million postpaid users representing roughly two per cent of total cellular subscribers. Given the expected high upfront license fee coupled with low margin environment analysts expect mergers and acquisitions in the telecom sector in FY11.