Telecom booms as global investors come calling

Pakistan’s telecommunications industry has been growing and competition is heating up. With a noticeable improvement in telecom infrastructure, a widespread variety of handsets and the deregulation of the telecom sector, scores of new private entrants have been entering the country making it one of the fastest growing cellular markets in South Asia.

When former president Pervez Musharraf first deregulated the market in 2003 encouraging foreign companies to invest he put the country’s telecom industry on the map. Following this, local telecom regulator, Pakistan Telecommunications Authority (PTA) awarded over 84 licences to more than 35 companies for fixed-line local loops and licensed 15 others for wireless local loop operations in different regions, while 12 licences were issued for long distance and international service.In 2008, the country became the world’s third fastest growing telecom market and since then has benefited from a remarkable 145 per cent year-on-year growth in subscriber numbers.

A tough competition

As the number of mobile phone subscribers surpassed 122.1 million, international investors have been flooding in. Egypt’s Orascom, UAE’s Etisalat, Abu Dhabi Group’s Wari Telecom and Canada’s Nortel Networks, Chinese telecom giants ZTE Corporation and China Mobile have all been entering the lucrative market. “There is no purely “local” operator in Pakistan anymore. Warid is backed by the Abu Dhabi Group, Mobilink is Vimplecom, Telenor Pakistan is Telenor Group, Ufone/PTCL is the Etisalat Group and Zong is China Mobile,” says Abdul Qadir Qayum, Manager Recruitment, Ufone GSM Pakistan.

As the operators battle it out on their pricing, consumers are enjoying higher penetration and better rates. However, while more competition spells cheaper rates for consumers, it also means declining revenue margins and a market share for the operators. “Right now, the order of the day is consolidation. Telecom companies, having reaped the benefits of high profit margins and fresh penetration in the market are now, well, to put it mildly, singing the same old tune. As a result, companies are diversifying into alternate streams such as mobile banking,” says Qayum.

“The principal focus for all players in the industry is how to reduce their operating expense, as in order to boost their profit margins within the same markets, the cost has to be controlled. Since the bread-earning segment for any telecom company is the mass-market segment, most of this demographic is cost-conscious and not very brand loyal. In an economy where the cost for all imperatives is rising, along with the devaluation of the Pakistani Rupee, companies are finding it hard to cut costs, and maintain their market share,” he says.

Industry challenges

From an employment perspective, competition has had an even greater impact. “With the sector responsible for over 600,000 jobs, tougher competition also means companies striving to be more flexible. This sees consolidation not just occurring at the industry level, but also at the operator level. As a result, resource mobility between companies and the export of talent outside of Pakistan is becoming a challenge,” says Qayum.

As the industry starts focusing on the regulatory side of the market it will have a considerable effect on growth and calling rates. “The major hurdles in the industry include legislation, litigation, privacy, national security, internet expansion and peer-to-peer+VoIP, cost of technological advancement, high tax rates, prevalent energy crisis and the rising cost of fuel,” says Qayum.

So far, government performance and regulatory decisions have remained major disappointments. The PTA-banned popular video-sharing website YouTube and failed to auction licenses for the 3G spectrum despite three attempts. The government also failed to pass the Prevention of Electronic Crimes Bill to make it a legal act.

The government has also restricted a major sales channel for mobile operators by banning the sale of SIMs through retail outlets, causing a massive decline of about 85 per cent in the industry’s sales. “The government is entering the election phase: technically, it will need at least about five months for the auction if Public Procurement Regulatory Authority Rules and the Telecom Act are followed,” says Mudasir Jahangir, editor-in-chief of More Magazine.■