UNTAPPED POTENTIAL OF TELECOMS

SHAMSUL GHANI
(feedback@pgeconomist.com)
Nov 22 - 28, 20
10

Financial year 2005-06 was the peak year of telecom industry boom when a growth of 170 per cent was recorded in cellular subscribership. The growth level first dropping down to 81 per cent in 2006-07 and then to a meager 1.3 per cent in 2008-09 gave sufficient ground to believe that the sector had reached saturation. Yet there was no reason for anyone to assume that the sector lacked force to bounce back once the global situation improved. The optimism proved to be well founded as the sector bounced back by registering a growth of 5.13 per cent in 2009-10. On a pessimistic note, one may argue that multiple access to SIMs by individual subscribers has given rise to growth on double-counting basis. But, the fact remains that the credit should go to the competing telecom companies who lure the subscribers into buying more than one SIMs purely on the merit of their innovative packages. Selling multiple SIMs to individuals is one way of showing potential of the sector.

CELLULAR SUBSCRIBERS IN PAKISTAN

YEAR MOBILINK UFONE ZONG INSTA-PHONE TELENOR WARID TOTAL GROWTH
%
TELE-DENSITY
2000-01 309,272 116,711 96,623 220,000 . . 742,606 142 .
2001-02 800,000 350,000 218,536 330,000 . . 1,698,536 129 .
2002-03 1,115,000 550,000 319,400 420,000 . . 2,404,400 42 .
2003-04 3,215,989 801,160 470,021 535,738 . . 5,022,908 109 3.29
2004-05 7,469,085 2,579,103 924,486 454,147 835,727 508,655 12,771,203 154 8.30
2005-06 17,205,555 7,487,005 1,040,503 336,696 3,573,660 4,863,138 34,506,557 170 22.21
2006-07 26,466,451 14,014,044 1,024,563 333,081 10,701,332 10,620,386 63,159,857 81 39.94
2007-08 32,032,363 18,100,440 3,950,758 3551,136 18,125,189 15,489,858 88,019,812 39 54.60
2008-09 29,136,839 20,004,707 6,386,571 34,048 20,893,129 17,886,736 94,342,030 1.30 58.20
2009-10 32,202,548 19,549,100 6,704,288 0 23,798,221 16,931,687 99,185,844 5.13 60.40
%Mkt. share 32.47 19.71 6.76 0.00 23.99 17.07 100 . .

The telecom revolution Pakistan has witnessed during the last six years or so, has brought dramatic changes in the social and economic sectors. Faster and cheaper communication has revolutionised 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 education and other sectors of economy. 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. However, the boom the telecom industry has gone through would not appear so promising when seen from another angle. Only a portion of foreign direct investment is utilised 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.

FOREIGN DIRECT INVESTMENT IN MILLION US DOLLAR

YEAR FDI IN TELECOM TOTAL FDI % SHARE OF TELECOM IN TOTAL FDI TOTAL INVESTMENT IN TELECOM
2003-04 207.1 949.4 21.8 835.2
2004-05 494.4 1,524.00 32.4 1,472.80
2005-06 1,905.10 3,521.00 54.1 1,731.10
2006-07 1,824.20 5,140.00 35.5 3,974.80
2007-08 1,438.60 5,410.00 26.6 3,136.40
2008-09 815.00 3,720.00 21.9 1,646.98
2009 (July-Dec) 181.72 1,012.24 17.9 1,108.77

Financial year 2005-06 was again the best year for telecom sector when it attracted the maximum amount of FDI. The subsequent years resulted in consistent shrinkage of FDI but that was the trend in total FDI, which went through an evaporation process triggered by global as well as domestic factors. While telecom FDI has not lost much on percentage basis in absolute terms, the decline has been more than material. Financial year 2006-07 attracted maximum total investment in the sector after which the tapering effect started.

According to the Pakistan Economic Survey 2009-10, telecom sector contributes every year 6-7 percent of total tax revenue. The government has reduced GST/FED rate from 21 percent to 19.5 percent besides reducing activation tax from Rs500 to Rs250 per connection.

CONTRIBUTION TO EXCHEQUER (MILLION RS)

FY GST ACTIVATION TAX PTA DEPOSITS OTHERS TOTAL
2003-04 12.10 4.02 0.69 21.59 38.40
2004-05 20.50 7.53 17.71 21.38 67.12
2005-06 26.80 11.40 17.38 21.55 77.13
2006-07 36.28 17.60 9.72 36.95 100.55
2007-08 44.61 19.20 10.86 36.96 111.63
2008-09 49.35 14.20 9.15 39.30 112.00
2009 (Jul-Dec) 21.44 3.80 4.91 18.45 48.60

The unprecedented growth achieved by the telecom sector and its potential to further grow should underline some positive aspects of Pakistan's economy. However, the low level of capital formation attained during the boom process demands some corrective action to make the growth meaningful. Another issue of immense social and economic importance also needs immediate attention of the authorities. This issue relates to the level of risk this particular industry poses to the masses in general and the users of telecom facilities in particular. A recent article by Anand Kumar awakens one to this issue. The Indian government has taken immediate measures to check and control the hazard of radiation in line with the recommendations of the International Commission on Non-Ionising Radiation Protection. The radiation emitted by the handsets is negligible while that emitted by telecommunication towers is materially hazardous particularly for those living in close proximity of those towers. Does our government have any such plans to check this hazard?