Telecom sector: navigating the dichotomy

Abrupt policy changes limit telcos’ ability to plan and invest to improve service quality

KARACHI:

For almost two years, I’ve been advocating urgent policy interventions to help bridge the digital divide and enable the telecom industry in bringing connectivity at par with developed countries which, in turn, may also improve Pakistan’s low rankings in the global ICT indices. Even though all key stakeholders admit the current situation calls for a digital emergency, no palpable measures to tackle it have yet been taken.

Telecom is a cross-sector enabler, building the digital highways, which facilitates other sectors to create value. There is consensus around the world that digital infrastructure is no less than any other critical national asset. Unfortunately, in our country, the industry is still perceived as an opportunity to fill short-term revenue gaps for the government, which consequently deters a broader and longer-term policy agenda aimed at expanding universal broadband coverage, enabling everyone to access education, healthcare, banking, and other quality of life improving services.

The government symbolically buys into the digital acceleration agenda, however, its own policies deviate from the objectives. For instance, despite the affordability of smartphones being a key barrier to internet adoption, there is a Rs11,000 duty on the most basic smartphone of about $100. At the same time, telecom users are exorbitantly taxed at 34.5% - one of the highest rates in the world.

Counterproductive policies are driving up the cost of essential telecom services; a primary reason that almost half of our population is still offline including 25 million people without any telecom coverage. We see a similar dichotomy between the policies governing telecom companies. Case in point, the government wants to ensure high-quality mobile broadband to masses, however, it has only made one-third of the spectrum available to cellular mobile operators, making the local mobile industry one of the most spectrum deprived in the world.

For operators, less spectrum means greater and at times avoidable investment, in putting more tower and radio infrastructure to enhance capacity in their networks. For users, it means reduced network coverage, and slower speeds. Secondly, the price at which the spectrum is offered drains the operator’s resources with hardly anything left to invest in enhancement of coverage, network quality and range of services.

The country aspires to become a leading destination in terms of Ease of Doing Business (EoDB). There is no better incentive for new investors than seeing existing ones being healthy and robust. However, the way at least telecom companies are handled, having around $25 billion investment contribution, tells a different story.

A recent example is telcos’ request for the conversion of electricity tariff from commercial to industrial. Although telecom was declared an industry by the government in 2004, and its industrial status has been validated by various ministries over the years including the Finance Bill 2021 approved by the parliament, its towers and data centres are still being subjected to commercial tariffs, in the same category as restaurants, salons, and cinemas.

Developed markets focus on consistently improving the investment environment, helping the digital infrastructure keep pace. Sadly, in Pakistan, the experience is quite different. For instance, under the federal budget 2021, withholding tax (WHT) was reduced from 12.5% to 10% and promised a further 2% reduction in 2022. However, just a few months later, through mini-budget WHT was increased to 15%.

What is more painful is that this tax is collected from even those who fall below the minimum taxable income slabs and have no recourse to collect this money back from the government. Abrupt policy changes limit telecom companies’ ability to plan and invest to consistently improve service quality and hurt investor confidence. Telecom is a lifeline infrastructure whose role becomes more critical in disasters and emergency situations as it aids in relief operations to help save lives.

We have seen this as a live example in Covid and are watching it now during the floods’ rescue, relief and rehabilitation efforts. However, despite its criticality, the sector is treated as luxuries like imported cars and has been slapped with import bans and cash margin restrictions. This makes the ongoing restoration and reconstruction of flood-affected telecom infrastructure, estimated at around $100 million, more challenging.

On their part, telcos demonstrated unflinching patriotic commitment not just to restoring and maintaining connectivity despite adverse conditions but also extending a helping hand to flood affectees in terms of free calls, emergency supplies, and rehabilitation efforts. Policymakers need to recognise telecom as a key enabler of productivity across the economy and society. It is not just a sector but a cross-sector enabler.

Some of the strongest economies in the world today are the ones with a robust digital economy which rests on telecom. Digital dividends like a thriving startup ecosystem, exports of IT and IT-enabled services, etc all depend on ubiquitous broadband connectivity that is provided by the sector. While we have talked a lot about Digital Pakistan, without the right policy interventions we could actually be looking at digital dark ages.

We must act now with meaningful policy action to ensure the future remains bright.

THE WRITER IS CEO OF JAZZ, CHAIRMAN OF MOBILINK MICROFINANCE BANK, MEMBER BOARD OF NATIONAL RESEARCH & DEVELOPMENT FUND (IGNITE) AND CHAIRMAN OF PM’S IT & DIGITAL ECONOMY ADVISORY COUNCIL’S SUBCOMMITTEE ON TELECOM