March 05, 2007	Monday	Safar 15, 1428

TELECOMMUNICATION is one of the fastest growing sectors and has attracted the largest chunk of foreign direct investment. Just only five years ago, no one could have predicted that this sector with one of the lowest teledensity in the region will witness such a huge growth.

Deregulation of the sector coupled with investment-friendly policies have brought about fruitful results. In 2004, the sector was declared an industry and was allowed foreign investment with no minimum requirement of foreign equity to start the business

The government also decided that there will be no restriction on foreign investors to repatriate their earnings and hence were allowed to expatriate 100 per cent of their profit. Such policies and growth prospects boosted the confidence of investors. A country with a population of 160 million has become an attractive destination for FDI in telecommunication. The share of the industry in the total FDI flows are shown in the table.

Increase in fixed line teledensity was subdued. It was 3.25 million in 2001 and stood at 5.274 million in 2006. It can be attributed to PTCL monopoly in fixed line segment and the absence of competitors. PTCL did not penetrate aggressively in the fixed line segment.

No significant improvement has taken place even after the privatisation of the PTCL; its revenues are declining due to stagnant number of fixed lines and decreasing tariffs because cellular companies offer much lower rates in different segments, forcing the PTCL to cut its tariffs. A positive development is that Eitsalat recently announced that it will invest $500 million in PTCL to widen its fixed line network. It will add around one million telephone lines in the system.

In the absence of fixed lines, the WLL segment has seen phenomenal growth in the last two years. The number of subscribers in this segment increased to 649,685 in 2006 from 267,000 in 2005. PTCL can take full advantage of its large network and hence can aggressively penetrate in WLL segment in the rural areas. However, it is likely to face stiff competition in urban areas by other WLL operators.

Up to 2002, Pakistan lagged behind in cellular penetration as compared to other Asian countries. Unlike Pakistan, the number of mobile subscribers had overtaken fixed line subscribers even in countries like Bangladesh, Sri Lanka and Maldives. However in 2004, mobile phone subscribers surpassed those of fixed line, and their number increased to 5.02 million against 4.4 million fixed line subscribers, as compared to 0.74 million against 3.25 million in 2001.

Afterwards, exponential growth started in cellular segment and the subscribers totalled to 48 million against 5.274 million fixed line subscribers in 2006. Currently this number has been increasing at the rate of about 1.8 million new customers per month for the cellular companies.

In developed countries, the cellular penetration is at maximum and there are very little growth prospects.Hence most of the international cellular companies now focus on developing countries.

In Pakistan, more multinational companies have shown interest in investment after successful operations of Egypt-based Mobilink, Norway-based Telenor and UAE-based Warid. China Mobile has acquiring Paktel for $284 million. And the companies are reinvesting their profits as they see more growth in the sector. So far, the mobile companies plan invest $2.4 billion in telecom infrastructure.

The competition between these giants has been very fruitful for consumers, and they are reaping the benefits of lower tariffs. Also, due to increasing number of subscribers cellular companies have been able to achieve economies of scale and increased profitability even with lower tariffs.

The entry of China Mobile will fragment market share and hence an increased competition may result in lower tariffs. According to PTA, Pakistan’s Mobilink has currently more than 50 per cent market share.

The local small and medium investors could not participate or benefit from the boom in the industry because of the capital required in launching telecom ventures. There is a lack of interest among these companies to raise capital from local market. In 90’s, the cellular companies in Malaysia, Singapore and Taiwan listed themselves on the local stock markets in order to raise capital. In India, almost all the big companies are listed. But in Pakistan two cellular companies have indirect representation in the stock market through their parent and associated companies like Ufone is owned by PTCL (100 per cent) and Warid Telecom by Bank Alfalah (18 per cent).

Pakistan plans to have 90 per cent teledensity by 2015, as compared to the current 39 per cent, and it would be about 185 million as the population is likely to swell to 206 million by then. This shows the tremendous growth potential in all the three categories i.e. fixed line, wireless and cellular. It is being considered to migrate from seven digits to eight digits number for both cellular and fixed line services so that future demand can be accommodated.

Efforts are being made to utilise the mobile services for diversified purposes such as transfer of money of Pakistanis working abroad. Consumers will be benefited more after the implementation of mobile number portability (MNP), as it will allow consumers to move from one operator to another, without changing the number with the same SIM. Consumer will enjoy this competitive growth in form of lower charges and diversified services that will be offered by cellular companies in different packages.