Aug 22 - 28, 2011

Pakistan is excelling in the telecommunication sector as it has become need for the people. In past, it was not up to the mark and the authorities did not take interest in this very sector.

Now almost every Pakistani has cell phone and its usability has been increased in few years, because of the changed trends of communication and low cost service provision.

Telecom sector is the highest tax-contributing sector. According to Pakistan telecommunication authority (PTA) quarterly report, 2011 the contribution of telecom sector to national exchequer through taxes, duties, and regulatory charges kept growing. At the end of fiscal year (FY) 2010, the total contribution was over Rs109 billion of which almost 50 per cent came from GST.

In the first half of the FY2011, the total contribution to national exchequer was Rs56.3 billion which was almost Rs49 billion in the first half of FY2010 showing growth of 15 per cent since last year.

According to an estimate, telecom sector contributes more than 90 per cent share in total taxes by the services sector of Pakistan, which is now being diverted to provinces under 18th Amendment.

Similarly, share of GST in total contribution from telecom sector is also very impressive where almost 50 per cent of total contribution comes from GST collection. Only in the 1st half of FY 2010-11, total GST collection is Rs23 billion which was Rs21 billion in the same period of FY2010.

GST collection in telecom services mainly came from mobile sector and its share in total GST collection is 86 per cent followed by basic services as 11 per cent.

The activation tax contribution to national exchequer stands at Rs3 billion at the end of 1st half which was Rs4 billion in the same period a year ago.

Main reason for drop in the activation tax is due to market maturity. There is a time for the government to abolish this tax on operators to further strengthen its growth whereas in order to increase GST the government needs to reduce the existing 19.5 per cent rate, so that usage could be enhanced, which would result in better GST collection.

The report says that the growth of telecom sector remained healthy and positive. The total teledensity growth kept oscillating between highs and lows till the end of year.

Total teledensity including mobile, fixed and WLL services stood at 65.2 per cent. The teledensity growth in the first half of the year (Jan to June 10) was 0.9 per cent whereas in the second half of the year (July-Dec10) the growth was 1.7 per cent, showing more stability and resilience as compared to 1st half of the year. Total teledensity of the country grew by more than 2.67 per cent in the last one year.

The PTA report further says that the telecom sector has been experiencing decreasing ARPU's, exorbitant advertisement budgets, power crises, and negative net profits, aggressive competition, market saturation and decreasing exchange rates.

"The mobile industry has been seeing a drop in average revenue per unit (ARPU) for the last couple of years due to the fact that initially operators are adjusting to amplified fixed investments," said a PTA official.

Telecom regulator continued to facilitate the sector in regulatory issues and maintaining competition in the sector.

In this regard, PTA has taken many initiatives and launched National Rabta Information Portal survey to check power level of mobile towers and billing verification of mobile operators. Other measures are aimed at curbing the menace of illegal traffic and introducing online complaint management system and other consumer friendly initiatives.

Foreign direct investment (FDI) in the sector continued to drop by 39 per cent in the first half of the current fiscal year 2010-11.

"The local telecom companies received $111.2 million FDI in the first half of current fiscal year as compared with $181.7 million recorded in the corresponding period of last fiscal year," the report notes.

Qubee, a broadband operator, invested $35 million. The major part of this investment was made on the revamping and repair work of infrastructure damaged by floods in July and August last year. More than 3104 BTS sites of cellular operators' were damaged as reported by PTA.

The report says that telecom operators witnessed $16.8 million negative reinvestment of their earnings during July-Nov 2010, which shows losses to some operators in the sector.

Telecom analysts say that cellular phone companies have started curtailing FDI for the last couple of years due to the decline in service sales and revenues following the global financial crisis.