Ban on retail outlets: Telenor increases SIM prices to avoid slump in profits

KARACHI:

In what may be regarded as the telecom industry’s first reaction to the recent ban on retail outlets, which will hit the industry’s profitability, Telenor Pakistan has increased the price of its SIMs. Other operators may take similar measures to protect profitability, say telecom sources.

In a background conversation early this week, a telecom official said following the closure of retail outlets and top-up shops – two major sales channels – the telecom industry is reconsidering its position. The restriction, he said, will adversely affect profitability of cellular mobile operators (CMOs).

“Sales will drop but operational cost will remain the same,” the official said, adding, “CMOs, therefore, will have to pass additional costs to the consumers to protect their profitability.”

In an official notification dated December 6, Pakistan Telecommunication Authority (PTA) banned the sale of cellular SIM cards through retail outlets with immediate effect. The telecom regulator directed the operators to sell mobile SIMs only through company-owned customer service centres and franchised outlets.

“The network of sales channels has been reduced from 100,000 outlets to about 2,000 outlets as a result of the December 6 notification,” the official said. This will greatly reduce the sales volume – 362,195 is the number of SIMs, the telecom industry has sold in July-September quarter, according to latest statistics available on PTA’s website.

Anticipating a decline in sales, the industry may take various steps including an increase in SIM prices and possible layoffs, especially at call centres, the official said.

The closure of one of the major sales channels had already led to job cuts and will further affect about 2,500 direct employees working for these multinationals as profitability will soon begin to nosedive, he said.

In the first sign of industry’s response to the restriction, Telenor increased prices for SIM Starter Pack and replacement SIM by Rs100 and Rs40 respectively on Tuesday.

“The recent change in sales process has virtually shut down 99% of our points of sales. This has resulted in substantially lower sales while costs remain the same,” Aamir Ibrahim, Chief Marketing Officer of Telenor Pakistan, said in a statement emailed to The Express Tribune.

Under the given circumstances, Ibrahim said, the company had no option but to pass some of the cost on to the customers. “We hope that the government will consider the adverse impact of the decision in the longer run and support reopening of regular sales channels at the earliest.”

Telecom is one of the heavily taxed industries, which contributed Rs117 billion to the national exchequer in 2010-11 in the form of taxes, fee and R&D support.

It is the only industry, which has reduced prices whereas all other industries have increased prices to deal with rising inflation and rupee depreciation, a telecom source said.

Giving an example, the official said the activation tax charged from every new subscriber has been reduced from Rs2,500 a few years ago to Rs250 now. The telecom sector has always kept low cellular tariffs, but it has to think about their profitability now, he said.

The increase in SIM prices by Telenor is a strong sign that other operators will follow suit. However, a rise in cellular tariffs may not be on the cards, according to telecom sources.

Unlike telecom sources, industry analysts rule out the possibility of immediate layoffs. CMOs need resources for 3G rollout, Muhammad Raza of Elixir Securities said.

Both government and CMOs are going through a transition period to find a middle ground, Raza said. Explaining, he said, selling SIMs through pan walas (small stalls and shops selling betel leaves) won’t work for the government while blocking all retailers is economically not viable for the industry.

Published in The Express Tribune, December 13^th, 2012.