The slow downfall of the telecom sector
The telecom sector in Pakistan is a major contributor to government revenues. During the last decade, Pakistan has made tremendous progress in the telecom industry because of deregulation and privatisation of the sector. Unfortunately, for the past 3 years, unwarranted complacency and vested interests have arrested rapid growth in the telecom industry.
According to the Economic Survey of Pakistan 2011-12, total investments in the telecom sector stood around $495.8 million in fiscal 2010-11, as compared to $1,137.5 million in fiscal 2009-10. These statistics show that fiscal 2010-11, total investments in the telecom sector fell by 56.4%.
As regards foreign direct investment (FDI), the telecom sector has been a major beneficiary from 2003 to 2009. However, after that period, investments in the telecom sector have declined every year because revenues of cellular operators have diminished owing to tough competition, which has made investors reluctant to contribute additional capital.
If we look into statistics, in fiscal 2010-11 FDI in the telecom sector stood at around $79.1 million; around 5% of total FDI in Pakistan during 2011. In the fiscal year preceding 2010-11, FDI in the telecom sector stood around $374 million; around 17% of total FDI in Pakistan during 2010. These statistics show that total FDI in the telecom sector reduced by 78.9% over FY2010-11.
Besides these facts, total revenues generated by the telecom sector during fiscal 2010-11 were around Rs363 billion: an increase of 5.4% as compared to revenue generated in fiscal 2009-10, which was around Rs344 billion. During the same period, revenue earned by cellular companies rose by 11% to around Rs262.76 billion, as compared to Rs236.05 billion in the previous year.
Due to an increase in revenue generation this year, the telecom sector contributes Rs117 billion in taxes to the national exchequer – the highest ever. But revenue earned by cellular companies is far less as compared to their expenditures on infrastructure, expanding coverage area and services improvement. This is the reason investors are wary of taking any bold decisions as regards investment.
Given the trends, what can the government do to attract foreign investment in telecom? There is only one window of opportunity in sight so far: the auction of 3G and 4G licenses, for which telecom operators and investors have been waiting for over three years now. Unfortunately, due to a lack of political interest, the decision has been postponed yet again.
Pakistan is among the few countries which have yet to adopt the 3G/4G technology. Even countries like Nepal, Sri Lanka and India have already adopted these technologies, which have in turn contributed to positive GDP growth with increasing mobile and internet penetration.
Pakistan is a huge market for mobile telephony and mobile broadband, as the population of Pakistan is growing at exponential rates. For the last four years, there has been tremendous growth in broadband subscribers. According to the Pakistan Telecommunication Authority, broadband penetration will reach 10 subscribers per 100 inhabitants by 2020, and the number of broadband users in Pakistan will touch 78 million.
2G has insufficient utility in fulfilling the demands of services required for agriculture, commerce, health and education sectors. However, 3G technologies have the essential elements for advancing socio-economic development as it will enhance quality of life and provide economic opportunities both in public and private sectors.
The transition from 2G to 3G/4G technology will entail significant economic benefits for Pakistan. Experts in the telecom sector believe that increasing broadband penetration leads to economic gains: a 10% increase in broadband penetration contributes by a percentage in GDP growth, while around 80 new jobs are created for every 1,000 new broadband connections.
According to the International Telecommunication Union, a total of 159 countries around the world are providing broadband and 3G technology services to their populations, while the number of active mobile-broadband subscriptions has exceeded one billion users.
Pakistan must now join the 159 countries that have already adopted 3G/4G technologies. As we already have a well-established 2G infrastructure in Pakistan, 3G/4G can be easily deployed to take broadband access to every nook and corner of the country.
Pakistan cannot afford to delay the process any further. Any further delay in auctioning of 3G/4G licenses will adversely impact this potential sector. The current national IT and telecom policies are outdated and the government must revise its decisions regarding 3G/4G technology and reframe a clear, multidimensional, stakeholder-friendly policy, and also provide an implementation roadmap that can cater for both short-term and long-term objectives.
THE WRITER IS A CONSULTANT AT THE SUSTAINABLE DEVELOPMENT POLICY INSTITUTE.
Published in The Express Tribune, July 9th, 2012.
COMMENTS (17)
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Pakistan was favorite of world telcos., which queud up in 2003.Afghanistan started 3G services. Imagine the cellular companies are not paying Federal taxes. There is no code of conduct to advertising in Pakistan. Hence the major cost is advertising, promotion, gifts. Cars and so many things which are given to promote SIM sales. The CCOP Govt. of Pakistan and the PTA will not allow lottery, gaming for the card or load. The advertising promotion of mobile prepaid cards is to the max. However the regulator should let the operator upgrade and pay them royalty and auction of spectrum.
@Mountie: Dear, in June-2009 total users/ subscriber were 57 million, in June-2010 were 90 million, in March 2011 users were 129 million and in December 2011 the position was 179 million. So you can now calculate the % increase in user according to facts. Answers to you 2nd part of question is we have the window 3G/4G opportunity, so why not we go for further growth in this industry, so dear this industry is in still in transition stage, and we have many opportunities to grow at high pace. Your 2nd question was "How is the industry revenue related to tough competition." Dear Pakistan has SIX (6) cellular operators. This number is more than among the regional countries. So competition is there.
@gp65: Thank you for your critical comment. Dear I still stand at my point that its not 10%, its 10 subscriber per 100 inhabitants. I never made any statement in my article where i write 10% increase in users or subscriber which lead to 78 million or 7.8 million. However at one point I wrote this statement which is "Experts in the telecom sector believe that increasing broadband penetration leads to economic gains: a 10% increase in broadband penetration contributes by a percentage in GDP growth, while around 80 new jobs are created for every 1,000 new broadband connections", here u can see I didn't made any statement which you are inquiring me.
Just 10% broadband penetration by 2020?! That's pretty pathetic!
I have couple of follow up questions for raja sahab. 1) can you please tell us the % increase in the users from 2009 to 2010 and 2010 to 2011. Dont you think once the markets matures there is definitely going to be a decline in investment. 2) How is the industry revenue related to tough competition. I dont think telecom industry is facing any competition from land line or internet phone providers?
@gp65: Thanks for the response. That certainly makes sense.
What else would you expect. Telecom is a services industry, just like hotels. If people don't have money to spend on communication because manufacturing industry is dying (no power), it's obvious telecom will follow. Thank you Pervez Musharraf.
@Raja Taimur Hassan: I do not think you even understood Falcon's question. He was correlating 2 separate points in your article. One said that 10% of population would have broadband access in 2020. In another place it said there would be 78 million broadband connections. So if 78 million represent 10% of population then the entire population ust be 780 million - that is the point he was making.
If you check though most likely you will find that you meant to state 7.8 million instead of 78 million as the projected number of broadbands. Then assuming that one connection gives access to 4 people, it would probably translate into a 10% of people having broadband access.
@Falcon: I think there was a decimal typo. Currently Pakistan has around 1.9 million broadband users. If the populations doubles every 4 years it would be around 7.8 million in 2020. At that number Pakistan would probably have 10% coverage because one broadband connection probably gives access to 4 people on average.
@Falcon: @Falcon, Dear first of all THANKS for your appreciation. I think you need to stress on the statement which i have quoted form PTA "According to the Pakistan Telecommunication Authority, broadband penetration will reach 10 subscribers per 100 inhabitants by 2020, and the number of broadband users in Pakistan will touch 78 million". this statement does not mean 10 percent increase in subscriber. this is a projected estimate which PTA have calculated (need to consult that study that what formula or methodology that have applied), which means that by 2020 broadband penetration will reach 10 subscribers per 100 inhabitants. hope I answer your query :)
Are you not confusing maturity in the industry with a "downfall". And why should we be concerned for an industry which is nearly Rs 43 billion in default to the FBR? It has just coopted the emerging middle class and through its massive advertising expenditure, the media to spin policy to suit it.
I believe the business case for 3G holds viability. Its implementation is going to add another revenue stream for Telcos. Worldwide there is an increasing trend in data traffic and smart phone penetration adds more to it.
A very informative article...
Raja Sahab - Very well researched article. My only question is regarding the following statement in your article: "According to the Pakistan Telecommunication Authority, broadband penetration will reach 10 subscribers per 100 inhabitants by 2020, and the number of broadband users in Pakistan will touch 78 million.".....with 10% coverage rate, does this study assume that Pakistan's population will be 780 million by then?
Hi, Please understand that investment in cellular industry always slows down when you have full geographic coverage; Pakistan being no exception. Your comment about 3G is very weakly founded. Our market neither has the appetite nor the maturity yet to go for a 3G auction. Generating one time revenue for the government is one thing and seeing the viability of the business case another.
i liked "slow down fall". in Pakistan every thing is on free fall so slow down fall is better.