Transforming Network Infrastructure Industry News

TMCNet:  THE FAST GROWING TELECOM SECTOR

[January 04, 2013]

THE FAST GROWING TELECOM SECTOR

(Pakistan & Gulf Economist Via Acquire Media NewsEdge) In the fiscal year ended on June 30, 2012, the telecom sector contributed Rs 363 billion to the Pakistan's economy showing an increase of 5.4 percent compared to previous year. Cellular revenue rose to Rs 262,761 million as compared to Rs 236, 047 million in the previous year. The telecom sector generated Rs 197,686 million worth of revenue during the first two quarters of 2012. The telecom firms invested more than $12 billion in building of infrastructure and other projects in the last six years.


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. With 118 million mobile subscribers in March 2012, the country has the highest mobile penetration rate in the South Asian region. 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. In 2008 Pakistan was the world's third fastest growing telecommunications market.

In 2011, the telecom sector invested $495.8 million with the cellular mobile sector being the major contributor, according to the report of Pakistan economic survey 2011-12. The telecom sector made its higher contribution to the national exchequer in 2011 as almost Rs 117 billion deposited by the telecom companies showering 7% growing in 2011. Foreign direct investment (FDI) by the telecom companies was more than 30 percent of the total foreign direct investment in the country during last six years.

In 2011, the telecom sector attracted over $79 million FDI in the country. The auction of 3G license is expected to bring more investment into the country.

Teledensity in the country stood at 68.3 percent showing 6.7 percent growth in fiscal year 2012 as compared to the previous year, according to the economic survey. Since the mobile sector contributes over 95 percent to the total density of the country an increase in mobile penetration from 60.4 percent in 2010-11 to 64.9 percent in 2012-12 resulted into improvement of 4.3 percentage points in total density. Fixed teledensity has been declining over the year due to mobile substitution and today it stands at 1.93 percent in 2011-12 as compared to 2.1 percent previous year showing a decrease of 0.17 percent.

Pakistan ranked No 1 in the internet and telephony competition, according to the World Economic Forum's Global Information Technology Report 2101-11. The total of mobile subscriber reached 118.3 million at the end of fiscal year 2012. The mobile market witnessed intense competition. Market shares are now more balanced among the five operators. At the end of March 2012, Mobilink had a market share of 30.25 percent followed by Telenor with 24.80 percent and Ufone with 19.54 percent.

Though Average Revenue Per User (ARPU) shows declining trend over the last few years, aggressive marketing and expansion of network has enabled mobile operators to grab more subscribers on their networks. On one hand, the security concerns are growing due to the ongoing war against Islamist extremists in the country's northwest, while on the other hand, the power crisis has come as the major hurdle in smooth functioning and growth of cellular phone companies in the south Asian country where cell stations have to be equipped with electricity generators at all times, which increased operating costs.

Pakistan is currently facing an acute power deficit and prolonged load-shedding. The country's remote areas have limited access to the electricity grid, and operators have traditionally used 1+1 Diesel Generator Solutions to power their network sites. The rising prices of fuel for base stations increased the operating cost for wireless operators that do not find it cost-effective to expand their network coverage especially in small and medium sized cities, suburban areas, countryside, as well as in mountainous areas.

Pakistan telecom has become a highly competitive market which is already dominated by six cellular operators. Since Pakistan has deregulated the telecom sector, scores of new private entrants are gearing up to provide service making the country one of the fastest-growing cellular markets. The telecom sector is growing at a faster pace with new exciting opportunities coming up for big players like China Mobile. China Mobile's first overseas operation came about when it acquired a license from Millicom in 2007 to operate a GSM network in Pakistan. China Mobile is the world's largest mobile phone operator by number of subscribers, operator of the world's largest mobile network, the largest Chinese company listed overseas and the largest telecom carrier in Asia. The company injected more than $800 million into Pakistan's telecom sector after a landmark takeover of Paktel's operations in February 2007. China Mobile plans to expand its network by installing 2500 'towers' each year across the country.

It signed a $500million contract for network expansion with four leading vendors, Alcatel-Lucent Pakistan Ltd, Ericsson Pakistan Pvt Ltd, Huawei Technologies Paksitan Pvt Ltd and ZTE ZhongXing Telecom Pakistan Pvt Ltd. Under the agreement, the company is extending its services into the Northern Areas of Pakistan or Gilgit-Baltistan. A major hurdle in China Mobile's expansion plan has been the Long Distance International (LDI) license, which has not yet been issued to the company. A dispute emerged between the government of Pakistan and Emirates Telecommunications Corp of the United Arab Emirates over issuance of LDI license to China Mobile and proposed 3G spectrum auction plan.

Pakistan 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. Analysts believe the country with high operating costs, higher taxes, and import duties on equipment purchase are the factors discouraging the operators in an environment where profit margins have been narrowing due to stiff competition.

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