DYNAMICS OF TELECOM SECTOR

FOZIA AROOJ
(feedback@pgeconomist.com)

Mar 19 - 25, 20
12

Telecom sector has played a crucial role in Pakistan's economy and made enormous progress over the years. It has reflected growth during the last financial year as all the performance indicators exhibited encouraging signs. During 2011, the telecom sector's contribution to the national exchequer was a massive Rs116.9 billion around two per cent of GDP. Tele density touched 68.39 per cent - a 6.7 per cent rise since 2010. Mobile subscribers were estimated to be around 108.9 million - flaunting a growth rate of 10 per cent. Number of cell sites increased from 30,126 in June 2010 to 31,303 in December 2011.

The number of broadband users has crossed the one million mark. As a matter of fact, this sector has emerged as one of the most potentially lucrative and promising sectors of Pakistan's economy.

In the year 2005-08, the telecom sector attracted US$5.086 billion in the country which is considered a boom period of telecom industry. World's strongest and most successful telecom players (China Mobile, Etisialat, Singtel, Orascom, and Telenor) invested their money here. However, the FDI in the telecom sector fell by 79 percent in the year of 2010-11. The overall telecom sector including LDI, cellular, broadband and various class value-added service providers have brought merely US$79.1 million FDI during FY 2010-11 as compared with US $ 374 million during FY 2009-10. However, FDI in telecom sector is likely to rebound its growth in the coming years owing to development and advancement in cellular phone and broadband sectors.

Telecom industry of Pakistan has several sectors including cellular, internet, fixed/wireless LAN/DSL/broadband, Wi-Max, VoiP. WiMAX is a service that provides wireless internet access. This service is still new and in phase of development in Pakistan. Wateen has emerged as the largest player and has started WiMAX services since December 2007. Internet is in use throughout Pakistan since 1996, but its use has widely spread in recent years.

New services and companies are coming in the market everyday. A reasonable investment is being put into this, especially by cellular companies and PTCL.

VoIP (Voice over IP), in other words, an International call, local rates, is new telecom sector in Pakistan. Companies providing VoIP and call forwarding services are Vonics, Braintel etc. Broadband and DSL are trend of day nowadays. People wanting higher speeds and faster access prefer using broadband and DSL services. These services are a little expensive than dial-up and cable-net.

The cellular and wireless operators are incessantly investing huge capital on infrastructure expansion, maintenance and marketing. New technologies and innovating IT applications are transforming national and international arena. Value added services such as 3G and mobile banking are becoming the major areas for telecom operators, banks and content services providers to invest million of dollars to launch latest technology in Pakistan.

At least, nine telecommunication companies including four world majors are likely to participate in bidding for third and fourth generation telecom licenses in Pakistan, raising hopes for a better foreign exchange yield.

British Vodafone, Japan's DoComo, AT&T of United States, QTel of Qatar and Roshan Telecom of Afghanistan are preparing for bidding to be new foreign entrants in the country's fast growing telecom industry. The existing players including Ufone, Mobilink and Zong are also keen to get the new licenses to be available for 15 years.

The auction of 3G licenses in the country is expected to attract more than a billion dollar. At least $850 million is the target, which is bound to be achieved. Defunct instaphone license is also presented for competitive bidding. To encourage competition, new international players as well as existing operators would also be invited for instaphone license auction. In addition to 3G, FDI may land through various potential sectors including LDI operators, class value service providers such as vehicle trackers, satellite, and wireless communication services.

DRAWBACKS

Some of the negative implications of telecom sector growth and diversification have been: cellular market ruined local loop (land line) such as PTCL and WLL market; regulator (PTA) was unable to ensure quality standards of cellular companies that had flaws in their services; 20 million illegal and un-identified SIMs are circulating in market; exorbitant increase in spam text messaging and unwanted phone calls; network over charging; low average revenue per user (ARPU) due to competition; and low ROI (return on investment) for smaller to mid-sized telecom business.

During 2011, the profitability of telecom sector has been eroded on account of rising marketing expenditure in response to aggressive competition. Telecom companies are more focused on expanding the range of services for improving revenues but this strategy has resulted in tough competition, leading to very high marketing costs and declining operating margins of the service providers.

Import expenses of the telecommunication sector have gone up substantially owing to the import of apparatus, equipment, and accessories to cater to the expansion of networks and infrastructure advancement.

Telecom has contributed $766 million to the soaring import bill of 2011 exerting pressure on foreign exchange reserves. The demand in the broadband sector is on the rise, which surges import bill in huge volumes by internet service providers (ISPs), and particularly the WiMAX sector because of the use of customer premises equipment (CPE), dongle or USB devices. Moreover, mobile handset imports soared to the $218 million mark, showing a leap of 29 per cent.

In the coming months, the subscribers base is foreseen to contract significantly after unverified and unregistered SIMs are blocked in millions. The campaign of PTA initiated on the direction of interior ministry will cut the huge subscription and overall tele-density in the country. Nevertheless, the number of subscription in different telecom services are projected to be increasing with emerging technology and growth in rural areas with huge land and populated areas.

In Pakistan, the level of mobile phone penetration is lower than that of other regional countries, suggesting that growth potential in this sector is still strong but it will require additional investments in infrastructure to increase the subscriber base further and tapping market's potential.

WAY FORWARD

The telecom sector has potential to attract million dollars investment in the upcoming months due to massive expansion of their service network and physical infrastructure in the big untapped market. In order to cater for the growing needs of telecom industry, quality human resource, especially, IT and telecom specialists are of vital importance. It is estimated that numbers of mobile users, broadband subscribers and fixed line customers will surpass the marks of 160 million, 19 million and five million respectively by 2020. Government of Pakistan needs to place special emphasis on enhancing the capacity of technical institutions, besides, undertaking research and development programs in well-reputed institutions of higher education.