The telecommunications sector has always been regarded as a catalyst for economic development for countries, particularly the developing ones, by fostering growth in services, finance, and emerging technologies.
However, the recent exit of Telenor from the Pakistani market has ignited a debate to identify if it is just an isolated event or if there are more intricate aspects plaguing the industry. In this discourse, we delve into the multifaceted issues leading to the exit of the pioneer telecom operator and propose viable solutions for a sustainable and thriving sector.
Intense competition has always been a hallmark of the telecom sector, but recent technological advancements have escalated this competition to unprecedented levels.
The race to the bottom, marked by lowering prices to remain competitive, has become a necessary survival strategy. Consequently, profit margins are squeezed, and the financial health of telecom operators is in jeopardy.
Striking a delicate balance between competitiveness and sustainability is now a tightrope walk that the sector must navigate as we may see further consolidation.
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For over two decades, telecommunications have been the backbone of Pakistan’s services sector, driving advancements in fintech and emerging technologies. However, despite these strides, a critical examination of the nation’s internet and 5G readiness reveals a stark reality – Pakistan lags behind even its regional counterparts.
While 5G is already rolled out in India and Bangladesh is planning to do the same for major cities this year, Pakistan has not even fully utilised the potential of 4G network. This deficiency underscores the urgent need for strategic investments and infrastructure development to ensure the sector’s continued pivotal role in the nation’s development.
A stable regulatory environment is paramount for the flourishing of any industry, and telecommunications are no exception. Unfortunately, Pakistan grapples with challenges such as unfriendly policies and a lack of transparency.
On top of that, the recent trend of frequent internet shutdowns to quell political protests creates an air of unpredictability that hampers long-term planning for telecom companies. This erratic landscape not only affects the operators’ strategic decision-making but also serves as a deterrent for potential investors looking for stability.
The government heavily relies on the telecom sector for revenue, subjecting operators to a myriad of taxes and levies which are eventually passed on to the consumer.
In the absence of meaningful incentives, the strain on telecom companies becomes unsustainable, impeding their ability to invest in essential network upgrades and service enhancements. This challenge highlights the need for a comprehensive review of the taxation structure and upfront expenditure for licences, ensuring it remains conducive to the industry’s growth while addressing the financial burden on operators.
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The affordability of mobile phones is a critical factor in their widespread adoption, especially in a nation where economic disparities exist. However, the cost of mobile phones in Pakistan is inflated due to hefty taxes, hindering their accessibility to a significant portion of the population.
Addressing this issue requires not only a reassessment of taxation policies but also strategic initiatives to make cutting-edge technology more affordable to the masses through technological collaboration and local production.
As per the latest report “The state of mobile internet connectivity 2023”, prepared by the Global System for Mobile Communications (GSMA), the cost of mobile phone handsets is considered one of the major barriers for mobile internet use.
Telecom operators in Pakistan face a unique challenge in the form of participating in spectrum auctions and paying licence fees in dollars while earning profits in Pakistani rupees. The depreciation of the rupee against the dollar and the exorbitant prices of bandwidth add to the financial vulnerabilities of telecom companies.
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A recalibration of this financial dissonance is imperative for sustainable operations, perhaps through a nuanced approach that aligns costs and revenues more effectively.
In conclusion, navigating the turbulence in the telecom sector requires a collaborative effort from all stakeholders involved. Revisiting taxation policies, providing meaningful incentives for infrastructure development, ensuring a transparent regulatory environment, and fostering healthy competition are the keystones of a win-win solution.
Striking this balance will not only retain existing operators but also attract new investments, benefiting end-customers through improved services, affordability, and technological advancements.
Also, if 5G-enabled handsets are not made available at affordable prices, then it will eventually become the bottleneck to participate in the next technological revolution.
As Pakistan aspires to achieve economic growth and technological prowess, a resilient and dynamic telecommunications sector is not just a luxury but a strategic imperative. Telenor’s exit serves as a clarion call for proactive measures, steering the sector towards a robust and sustainable future.
The writer is a financial market enthusiast and is attached to Pakistan’s stocks, commodities and emerging technology
Published in The Express Tribune, January 15th, 2024.
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