KARACHI, Nov 26: Both local and foreign investment in the telecom sector declined by almost 25 per cent during 2007-08 as authorities believe that major players are reluctant to move with expansion plans in rural areas.

Another reason behind loss of interest in the sector, which emerged as the single largest area of investment during last three years, was higher ratio of taxes.

The Pakistan Telecommunication Authority (PTA) in its annual report, released recently, stated that for the first time since 2002-03 the sector received lesser chunk in foreign direct investment in 2007-08.

The report attributes the decline to low investments by the operators in rural areas which, they feel, are less lucrative as compared to urban areas. “Moreover, substantial taxes could be another reason to stop investors from further expansion,” it notes.

The telecom sector attracted a total investment of $3.1 billion in 2007-08 as against $4 billion the previous year. Of this $1.4 billion were received in foreign direct investment, which amounts to 28 per cent of the total FDI the country received during the year under review. However, last year the sector had attracted 35 per cent of the total FDI.

“Cellular mobile sector invested $2.3 billion, which is 11 per cent lower than the previous year.”

“Of the total FDI in telecom, $133.2 million were the privatisation proceeds, 50 per cent lower than the previous year. The highest contribution in FDI was $486 million by Telenor, a Norway-based company.

The telecom regulator showed serious concerns over higher ratio of taxes mainly on cellular mobile sector imposed in last year’s budget and warned that increased slabs could lead to further cut in the FDI.

“In the current year’s budget, the government has increased the rate of GST on the sector significantly which may not only curtail mobile phone usage, but will also cause drop in GST collection from the sector,” the PTA report observes.

“Activation tax is charged at Rs500 per new connection and it has been the major demand of the industry to remove this tax because operators are unable to pass on this tax to consumers due to stiff competition.”

The report warns that the complete impact of the increased GST will be evident in coming months.

“Cellular mobile sector is the major driver of growth in telecom revenues, whose share in total telecom revenues increased from 56 per cent in 2007-08,” said the PTA report. “Fixed-line sector has shown negative growth in revenues mainly due to drop in PTCL revenues. Cellular mobile revenues increased by 37 per cent in 2007-08 and reached Rs182 billion.”