KARACHI, Nov 3: Ufone, the state-owned cell phone operator, has proposed to the government to cut taxes to zero from Rs1,000 in order to reduce cellular entry barriers.

"A cut in taxes will act as a catalyst to enhance cellular market growth," President and CEO, Pak Telecom Mobile Limited, operator of Ufone, Babar Khan, told Dawn here on Wednesday.

He said the cut in government taxes from Rs2,000 to Rs1,000 in the June budget had significantly increased the market potential and its growth. "A further reduction will lure more consumers."

On expansion plans, Mr Khan said the company had signed a phase-IV expansion contract with Nortel and Siemens valuing $160 million in order to enhance its additional capacity of three million customers and expansion to over 200 new cites by mid-June 2005.

"We have added one million customers during the last four months that also include 300,000 new subscribers under a slogan of free connection in August," he said.

At present total mobile phone subscribers of 6.2 million have exceeded the 4.5 million subscriber base of PTCL. "We estimate a current market potential of 12-15 million and possibly 30 million in the next five years," Mr Khan said.

On the entry of two new mobile phone operators in future, he said that his company having a 24 per cent market share did not feel threatened in view of market share erosion. He said the entry of new GSM operators would surely fuel overall market growth and his company welcomed the competition as the benefits of a highly competitive market trickled down to the end-users.

"I think the key factor on the arrival of newcomers is how they can operate with profitability, provide quality service and their ability to retain with a high-level of customers' satisfaction," the Ufone chief said.

Mr Khan said the cellular service industry in Pakistan had a tremendous potential, and an average 100 per cent year-on-year market growth was witnessed over the last two to three years.

Mobilink, with around four million customers, invested $250 million in 2004. Since its inception in 1994, the company has invested $750 million and planned to inflate its investment to $1 billion by the end of this year. Paktel has a subscriber base of 350,000 and hopes to enhance it by doubling the investment to $150 million quickly from the $75 million so far. Instaphone also plans to double its investment in code development multiple access (CDMA) technology in the next 18 months from the current $100 million.

Mr Khan said the company was currently not interested in introducing highly sophisticated third generation (3G) mobile, which had been launched in many western countries. "I think Pakistani market will remain stick to the voice driven market rather than 3G," he added.

The State Bank's 2003-04 annual report observes that the arrival of two new companies - Telenor and Warid - will spur competition and force the existing companies to reduce tariffs further along with improving the quality of their services.