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Pakistan has become an attractive telecom market for foreign and local firms

Published on 18th May, Edition 20, 2015

 

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.

Pakistan has been awarded “Spectrum for Mobile Broadband Award 2015 ” at the prestigious Mobile World Congress 2015 of the GSM Association held at Barcelona in Spain. This is a significant development for the country’s telecom sector that recognizes the progressive policies of the current government in Mobile Broadband.

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. 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.

Competition in the South Asian region

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.

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 also the hurdles, which would ultimately discourage and evaporating the prospective and the existing investors in the country’s telecom industry.

 

Significant foreign investments

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. 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’s network growth took a boost with fiber systems, which are being constructed across the country.

Telecom sector was able to attract over $12 billion of investments from 2006 to 2012, according to the report. Telecom sector had attracted $6 billion in foreign direct investment (FDI) since FY06 but FY13 ended on a negative note. FDI in telecom sector remained on the negative side of the scale as outflows of $408 million were reported during FY2013. The FDI outflow, however, turned around with auction of mobile spectrum for high-speed internet services. Liberalization of the sector made it attractive for many global telecom giants to invest in Pakistan. Cellular mobile sector has been the major driver of growth in telecom revenues. The country became the world’s third fastest growing telecommunications market in 2008 when the mobile sector in Pakistan was most active, followed by broadband; while the fixed line sector remained somewhat static.

Telecom sector remained major contributor for bringing FDI into Pakistan during first 11 months of fiscal year 2013-14, according to State Bank of Pakistan. The country received total FDI of $1.36 billion during the first 11 months of 2013-14, slightly up from $1.32 billion it attracted during same duration a year ago. Out of this $1.36 billion, telecom sector contributed towards the net FDI with $406.4 million during the period. In the last fiscal year, telecom sector invested $736.7 million however, $330 million were withdrawn from the country by foreign telecom operators. This resulted into a net FDI of $406.4 million during the period. The investment in telecom sector had come mainly due to proceeds of 3G and 4G auction.

Issues to be resolved

It is also a fact that the foreign investment in the telecom sector is presently on decline due to higher ratio of taxes and reluctance of major players to move with expansion plans in the country’s rural areas. 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.

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