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Telecoms Stay Upbeat Despite Business Slowdown

The new inflow in 2008 includes $2.3 billion in cellular segment alone. The foreign direct investment (FDI), in the telecom sector was $1.4 billion or 28 per cent of the overall FDI inflows. It was the second highest in overall FDI inflows into Pakistan. FDI in 2007 in telecoms was $1.8 billion or 36 per cent of the overall investment of FDI in 2007. The FDI in the sector, for three years, between 2004 to 2007 was the highest in total FDI inflows.

A major part of the FDI financed import of equipment by telecom companies to further upgrade, diversify and expand their services. This is illustrated by the fact that the number of cellular cell sites spiralled 57 per cent to 21,518 in 2008. The telecom imports in 2008 totalled $1.33 billion, marginally lower than 2007.

Out of Pakistan’s overall imports of $39 billion, telecom equipment imports accounted for around 4 per cent compared to 4.4 per cent in 2007.

The country’s teledensity rose to 58.8 per cent — up from a 45 per cent growth in 2007. The growth slowed a bit compared to recent years. The factors that impacted its expansion included a deceleration in cellular growth, rising taxation and spiralling inflation, the regulators say. The tax revenue provided by telecoms to the government of Pakistan is rising constantly.

Inclusive of all taxes, the sector contributed taxes totalling Rs112 billion in 2008, up Rs10 billion compared to 2007. The revenue included Rs44 bilon as the General Sales Tax (GST) — 4.0 per cent more than its contribution in 2007.

The cellular segment of telecoms is the biggest performer. It comprises investment from well-known foreign companies and their subsidiaries.

Pakistan’s cellular density rose to 54.7 per cent of the population in 2008, up from 39 per cent in 2007, Pakistan Telecom Authority (PTA) the industry regulator says in its annual report for 2008.

PTA points out that Pakistan holds fourth position in the region in terms of teledensity of cellular phones after Hong Kong, Singapore, and Malaysia. But, India, Sri Lanka, Bangladesh and Nepal follow Pakistan in this field.The expanding cellular market earned 37 per cent more revenues in 2008 compared to 2007.

But the fast expansion and intense competition by six major cellular operators has brought down the tariff, as the number of phone users is going up rapidly. As a result the Average Revenue Per User (ARPU) marginally declined to $3.1. The sector recorded total cellular traffic of 43 billion minutes — up 31 per cent from the 2007 level.

Telecom services and facilities moved in other areas, too, in 2008. The Long Distance International (LDI) Carrier Services, for instance increased by 40 per cent to 178 in 2008, as against 127 per cent in 2007, calculated on the basis of total Point of Presence (POP).

The LDI revenue, excluding that earned by Pakistan Telecom Corporation Ltd (PTCL), formerly the state monopoly, but which is till 74 per cent owned by the government, rose 42 per cent to Rs22 billon — up from Rs15 billion in 2007.

The PTA states the investment in LDI was $390 million in 2008, or 35 per cent less than 2007. Its 77 per cent contribution was from Link Direct at $300 million. The LDI also recorded its outgoing traffic at 1.66 billion minutes which was 31 per cent more than 2007. The LDI incoming traffic grew by 163 per cent to 5.5 billion minutes — against 2.0 billion minutes in 2007. Most of it was routed from UK which accounted for 37 per cent, and United States sharing 28 per cent.

The telecom companies’ business and the traffic, both outgoing and incoming, received a significant boost in 2008 on the back of PTA action in several areas including crackdown against grey traffic, technical facility to monitor IP bandwidth and international traffic monitoring system.

The intense competition also, to a great deal, brought down the tariff and service cost to users, which in turn curbed the grey traffic.

The PTA reports, the decline in the fixed line (FL) penetration in the market went on with FL density also reducing to 2.7 per cent, against 3.04 per cent in 2007.

The comparatively new Wireless Local Loop (WLL) subscribers rose to 2.2 million from 1.7 million in 2007. The leader in this field continues to be PTCL — sharing 53 per cent of the market. It indicated a 33 per cent year-on-year growth.

This year saw the WLL penetration in the market rising to 1.4 compared to 1.1 per cent in the previous year. The infrastructure of the service is growing as the number of its sites rose 49 per cent to 2,897 up from 1,946 in 2007.

The number of card payphones is also growing. The number rose 16 per cent to 449,000. With a 40 per cent market share Telecard Company lead the field. It was followed by PTCL with 30 per cent share. PTA says the WLL-based Public Call offices (PCOs) dominated this area with a 59 per cent share in PCOs.

The telecom sector is also witnessing use of a range of other services and facilities. The customers subscribing to broadband services is growing fast. The Direct Satellite Link (DSL) is leading in this field. Nearly 65 per cent subscribers are now using DSL. At number two in the area is Hybrid Fiber-Coaxial (HFC) which has a 25 per cent market share. As a variety of telecom services are still coming in with technology advancing, the PTA is active in bringing them under its regulatory fold.

Among other areas that are being covered with new and more comprehensive regulations there are several, including migration of mobile subscriber numbers from seven to eight digits, issue of fixed line licences for Azad Jammu and Kashmir and Northern Areas of Pakistan, as well as Mobile Number Portability (MNP).

The regulator has also revised Access Promotion Contribution (APC)and settlement charges and a cut in Mobile Termination Rates (MTRs).

The MTRs are based on the model of Long-run Incremental Costs (LRICs). As a result of adoption of this model, Pakistan has become the first country in the region to implement this regulatory regime. The policies of the country’s process of deregulation of the telecom sector which started five years ago will be reviewed soon. The review of policies covering the cellular mobile segment will follow in 2009.

The industry and business stay upbeat about the telecom growth, introduction of a range of new and innovative services, and expect it will remain No.1 or Number 2 growth and business sector for future investment and profitability.