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Telecom: The most vibrant sector to allure foreign investment

Published on 12th Dec, Edition 50, 2016

 

The telecom sector fetched more than $3.9 billion overall investment during last four years for which cellular mobile sector was the main driver behind this achievement. In terms of overall investment in telecom sector, the momentum started in fiscal year 2013 after the up-gradation of telecom networks by 3G and 4G services onward while telecom operators invested a significant amount of $589 million during July- March 2015-16.

The availability of advanced mobile phone internet – 3G, 4G and LTE – has helped the otherwise struggling telecom companies maintain their revenue and the sector earned Rs452.8 billion in the fiscal year ended June 30, 2016, only 1.4% higher than Rs446.2 billion earned in the preceding year, according to Pakistan Telecommunication Authority (PTA) annual report 2016. The cellular companies earned revenue of Rs98.82 billion from sale of data on 3G, 4G and LTE networks in the year under review. This is 27% higher than Rs77.94 billion on sales of the data in the previous FY15. The number of internet users on 3G/4G and LTE networks doubled to 32.29 million in the year from 16.88 million last year. However, the revenue earned by the telecom sector as a whole in FY16 remained 2.3% lower than the historic one at Rs463.5 billion earned in the fiscal year 2013-14. This slow recovery in revenues on year-on-year basis includes high rate of tax and levies on use of mobile phone voice and data services.

Pakistan as a market of about 200 million people continues to allure foreign firms to invest in the country’s telecom market, which has the footmarks of strategic investors such as Orascom, Etisalat, Telenor, Abu Dhabi Group’s Warid Telecom and Canada’s Nortel Networks and China’s telecom giants — ZTE Corporation and China Mobile.

Pakistan has the highest mobile penetration rate in the South Asian region. There is a tough competition among five cellular mobile companies operating in the country. These operators include Mobilink, Ufone, Warid, Telenor and Zong. The mobile phone operators compete by offering users attractive packages and drastic reduction in call rates. The people take advantage of this competition among multiple mobile operators.

Telecom deregulation brought an end to more than five-decade-old monopoly of the PTCL. The main challenge for the government was to preserve the PTCL in wake of opening the telecommunications market.

The government needs to create a technology driven, consumer-oriented and business friendly environment with fair competition, affordable tariffs, high quality of services and extended land coverage. The telecom industry added almost 10 million new cellular connections in the fiscal year 2013. The steady growth came on the back of the country’s growing teledensity. Telecom is one of the highest tax-paying sectors. The sector, on average, has contributed Rs119 billion a year to the national exchequer between FY09 and FY13.

Pakistan is rapidly evolving as one of the telecom sector’s key investment prospects. The telecom sector has witnessed a significant year-to-year growth in the country. About 90 percent of Pakistanis live within areas that have cell phone coverage and more than half of the total population has access to a cell phone. The country’s telecom infrastructure is improving dramatically with foreign and domestic investments into fixed-line and mobile networks; fiber systems are being constructed throughout the country to aid in network growth.

Significant foreign investment

Since 2003, the deregulation policy attracted significant foreign investment in the telecom sector.

Under the deregulation policy, the foreign companies were encouraged to invest in the telecommunications market. Pakistan Telecommunications Authority (PTA), the telecom regulator awarded over 84 licenses to more than some 35 companies for fixed line local loop (FLL) and licensed fifteen others for WLL operations in different regions while 12 licenses were issued for LDI (long distance and international) service.

Scores of new private entrants geared up to provide service making the country one of the fastest-growing cellular markets. Just after five years of deregulation, the country emerged as the world’s third fastest growing telecom market, as the foreign and domestic firms continued to invest in the sector.

The country has become a hub of activity for international and local telecom companies and unprecedented amount of foreign investment flowed into the sector due to the well thought out telecom policy, which was prepared after intensive discussions and debates involving all stakeholders. As the market grows, issues such as quality of service and the provision of value-added services are bound to define the nature of competition. Last year, the granting of 3G licenses and the first moves on 4G services was certain to see the mobile broadband segment move into major expansion mode.

Presently, there is competition in every telecom service segment in Pakistan, including fixed telephony, mobile cellular, payphones, internet and other value-added services. Some analysts, however, argue that the country with high operating costs is discouraging the operators in an environment where profit margins have been narrowing due to stiff competition. Moreover, increased taxes and import duties on equipment purchase are the hurdles which would ultimately discourage are evaporating the prospective and the existing investors in the country’s telecom industry.

Fast smartphone market

The competition among smartphone manufacturers has reached its peak as many local and international brands have entered the market, offering wide variety of feature phones and smartphones.

The global telecom market has become more competitive among smartphone brands. Presently, Apple and Samsung, the two global leaders are losing share to manufacturers out of China and elsewhere. Samsung and Apple continue to be in a position of strength despite the presence of brands like Huawei, Lenovo and LG in the market.

With 3G/4G auction, the smartphone market is growing fast in Pakistan. There is a stiff competition in the market due to the presence of both local and international brands offering a variety of smartphones. This has created new ways of growth for the smartphone manufacturers and distributors. Just after 7 months since launch of 3G/4G service the mobile broadband subscriptions for 3G stood at around 10 million. The spectrum auction for next generation mobile services gave people access to mobile broadband services and it also encouraged investment in mobile networks in Pakistan.

The people are switching from feature phones to smartphones due to various reasons including development of low-end smartphones, dual SIM feature, larger screens and high camera resolution. Pakistani youth are embracing connected devices. They want to stay connected all the time and hence they use apps like Facebook, Twitter, Viber and WhatsApp. The young population keen to play online games watching videos or downloading files.

Chinese brands have also penetrated the Pakistani market with their low-end smartphones at affordable prices.

Telecom operators are fully collaborating with smartphone manufacturers to promote its use in the country. The availability of 3G/4G coverage in more and more cities is expected to boost growth of smartphone market in the country.

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