TELECOM SECTOR: NEED FOR TECHNOLOGICAL ADVANCEMENTS
TARIQ AHMED SAEEDI
Dec 6 - 12, 2010
Pakistan has emerged as an ideal location for foreign investors in the recent past and few sectors like banking, telecom, and energy attracted bouts of investments to the betterment of the economic activities in the country. Government encourages investments in telecom and banking sectors by making attractive investment policies. Especially, telecom sector has seen significant transfers of capital and technology during this decade with companies from, Egypt, Norway, UAE, France and China cashing in on the emerging fields of information and communication technology in Pakistan.
The developments have created employment opportunities and earned government enormous revenue from the service sector. However, there is a room for progress in technological advancements.
Telecom sector has attracted billions of dollars of investments during last five years but this trend of foreign direct investment did not remain upward during the last financial year because of various reasons ranging from disturbed law and order situation to the tight price competition. The sector witnessed a significant decrease of 118 percent in foreign direct investment to $373.62 million during July-June, 2009/10 as compared to $815 million in 2008-09, according to the annual report published by the Pakistan Telecommunication Authority (PTA). The share of telecom's sector in total FDI of $2.19 billion also declined to 17 percent from 21.9 percent a year ago. Similarly, telecom investments dropped to $1.13 billion in the last financial year, down 45 percent as compared to $1.64 billion a year ago. Investments in cellular sector slid to $908 million from $1.22 billion, in long distance international (LDI) to $183 million from $276.8 million, in local loop to $22.5 million from $57.4 million, and in wireless local loop to $23 million from $82 million.
Disturbed law and order situation in the country caused decline in foreign investments not only in telecommunication sector but also in other sectors. Foreign investors feel unsecured while embarking on new projects. Despite continuous increase in defence budgets, law and order situation is not improving rather further deteriorated. Consumer buying power is petering out with frequent incidents of bomb blasts and political murders hampering the business developments. People are limiting activities outside their homes.
It is observed that telecom investments are concentrated in mobile sector to the extent that total numbers of subscribers crossed 99 million mark in the financial year ending on June 30th, 2010. Mobilink remained a market leader amongst cellular service operators with 32 million subscribers by the yearend, followed by Telenor (23 million), Ufone (19 million), Warid (16 million), and Zong (6 million).
Telecom revenues stood at Rs357 billion as compared to Rs333 billion a year ago. Mobile penetration remained at 60.4 percent. Cellular sector has dealt blow to the fixed line services, emerging as favourite substitute telephony. According to the PTA report, teledensity ratio of mobile and fixed line telephony was 94 percent to six percent in 2010. Government revenue is decreasing as mobile market has reached the saturation point. Subscription rate is not as fast as it used to be in the recent years.
Telecom sector's contribution to the national exchequers during 2009-10 also dropped by Rs2.5 billion. The government earned Rs109 billion through taxes, licence fees, and other levies last year. Interestingly, tax rates on telecom services are high. PTA report highlighted that telecom sector contributed Rs500 billion to national exchequers during last five years.
During an almost a decade telecommunication services have penetrated into a larger portion of the society and especially telephone has become a household product. This is also manifestation from the price competition that telecom service providers are currently busy in. Cellular density is expanding rapidly during the recent time. Market behaviour that focuses on price is also one of the triggers of price competition in Pakistan. Telecom companies are reluctant to introduce innovative products as fast as they play with incentives associated with a product to grab market share. Especially, mobile companies involve in stiff price competition trying in a bid to dominate over competitors by sales promotion in the mass market. Telecom experts said that customers in Pakistan are not features-savvy but price conscious.
Government is supporting information and communication technology developments in Pakistan and devising policies to attract investments in the overall sector. Though recognising this, investors are slowly introducing advanced telecommunication services that are even in vogue in neighbouring country. For example, mobile manufacturing facility of a multinational company is based in India to supply parts in and around the region, albeit it can find skilled labours in Pakistan and setting up plant in the country can provide the company with comparative advantage.
Broadband penetration in Pakistan is still very low despite competitive tariffs compared to regional markets of India, Bangladesh, Nepal, Bhutan, etc., noted in the report. It said broadband penetration is growing at a fastest rate of 150 per year while currently it stands at 0.55 percent. At the end of last financial year, broadband subscribers were recorded at 900,648 as against 413,809 a year ago. PTCL holds the 53 percent shares in broadband sector with 474,387 subscribers to both of its DSL and EvDo services. The competing Wateen plays second fiddle with 188,725 subscribers (21 percent market share), followed by WorldCall with 97,280 subscribers (11 percent), Wi-Tribe with 51,912 (six percent), and LinkDot Net with 34,818 subscribers. The investments in broadband is not compatible with its growth rate of as more as near 2000 percent for a company. Global liquidity crunch slowed the flows of foreign investments in the broadband services in Pakistan, said the report.