Number portability ban to benefit industry, say analysts

Big players expected to hike calling rates, cut marketing costs.

KARACHI: The recent ban on Mobile Number Portability (MNP), which allows cellular subscribers to change their service provider while retaining the same number, will benefit the telecom industry with a possible increase in cellular tariffs and average revenue per user (ARPU); according to a research report by Elixir Securities Pakistan.

The report, which has been co-authored by Raza Rawjani and Naveen Yaseen, said, “With increased switching costs for cellular subscribers, we expect cellular operators to increase their calling rates.”

The report also said that market leaders will be the first to increase their calling rates. “We expect larger players, Mobilink and Telenor, to lead the hike in calling rates – first step could be in the form of withdrawal of low call rate packages. Further savings can accrue from declining marketing costs,” the report said.

If mobile cellular operators (CMOs) act along the predictions of Elixir analysts, their consumers will no longer enjoy what is known to be the lowest calling rates in South Asia.

In the entire region, Pakistan’s telecom sector has the lowest price per minute and ARPU – a key measure of telecom revenue. According to the Pakistan Telecommunication Authority (PTA), the telecom ARPU for financial year 2010-11 was $2.45.

Analysts predict that ARPU’s can increase by 20% to 25% in two years, which translates to higher calling rates.

They argued that as per the telecom services history, many countries have started with low price plans to gain a sizeable market share and faced immense competition initially. Government intervention, consensus among players or pure economic rationality, however, has led the players to move away from price competition in most countries.

Putting Pakistan’s case in that perspective, the analysts said government’s banning of MNP and disallowing sale of pre-paid SIMs could be the tipping point.

“We are an ARPU-based industry. With telecom subscribers already reaching saturation point, the growth in the subscribers’ base will become stagnant,” Naveen Yaseen told The Express Tribune, explaining how the ban will cause the calling rates to go up.

Yaseen said that with MNP allowed, consumers had the option to switch to a different network ensuring price competition among the industry players and this kept calling rates low. Banning of MNP will halt subscriber growth and there will be no competition on prices, which will lead to rise in cellular tariffs, she said.

The report argues that price competition is beneficial till it leads to a larger subscriber base or increases minutes of usage (MOU), which is not happening. Further competition on price, is therefore, not expected.

Giving an example of Ufone –PTCL’s wholly-owned cellular subsidiary – the report said, a 10% rise in the operators’ ARPU translates in to Rs0.5 per share increase in its earnings – which will increase Ufone’s revenues by Rs5.6 billion, at a conservative net margin of 45%. Positive expectations regarding the MNP ban drove the PTCL stock to Rs18.01 per share from Rs16.77 on the day (November 15) when the ban was announced, depicting an increase of 7%.

It is relevant to mention that MNP was introduced in March 2007 by government’s own initiative to facilitate mobile consumers willing to change their service provider for better packages. It has, so far, facilitated more than 25 million consumers – which constitute over 20% of the mobile phone users.

Zong, the latest player to enter Pakistan’s mobile market, was the fastest growing operator in terms of net addition after getting almost 4.2 million subscribers during fiscal year 2011 – a significant number of that addition came through MNP.

According to PTA, 483,239 mobile phone subscribers ported-in to Zong from June to August 2012. Ufone and Mobilink, on the other hand, lost around 320,000 customers to other networks through MNP.

Based on Elixir’s report, it is safe to assume that operators with lower subscribers’ base, Warid and Zong to be more specific, will be among the worst hit operators while big players who were losing their customers because of MNP will benefit from it.

Banning of MNP coupled with new mechanism for selling fresh SIMs will certainly slow down growth both in sales and subscribers and can even create a possible merger of the smallest operators – Warid could be a likely target for both Zong and Ufone.

Published in The Express Tribune, November 24^th, 2012.