Are there any takers for Pakistan’s multi-billion dollar telecom business? Things seem to be moving fast towards major decisions.
This may be news to many global telecom operators who are facing a prolonged business slowdown. But, things can happen differently in Pakistan.
Telecom Ministry says, it expects a $15 billion investment in Pakistan’s large telecom infrastructure. The financial size of telecom companies listed on the bourse was Rs164.568 billion and their turnover Rs90.375 billion in fiscal 2002. The growth in size that year was 7.30 per cent and in turnover 21.30 per cent, compared to fiscal 2001.
The financial size of cellular mobile companies, alone, in fiscal 2002 was Rs27.464 billion, and turnover Rs9.206 billion. The growth in the financial size that year was 47 percent, and in turnover 147.25 per cent compared to 2001. As far as investment in telecom industry is concerned, 79 percent of it is shared by companies listed on the bourses, 13 percent are mobiles, 4.0 per cent internet, 3.0 per cent payphones, and 1.0 per cent equipment manufacturers. The share of the listed companies in the total turnover in fiscal 2002 was 69 per cent, 15 per cent was mobiles, and eight percent each of payphones and manufacturers.
Four cellular companies, Mobilink, Instaphone, Paktel, and U-Phone, share two millions phones among themselves, officials says. The number is projected to increase to three million this year. A total of 68 per cent mobile phones operate on GSM, 12 percent on CDMA, 10 per cent on TDMA, six percent on PDC, and four per cent analogue technology. The cellular phones saw a 142 growth in 2001 and 67 per cent in 2002.
The telecom market covers both the public and private sectors. Major business decisions are slated to be taken in the weeks to come. This multi-billion (b) dollar businesses will receive a big boost as soon as the government announces its new, market-based Telecom Policy within the next few days, as part of a nearly-total deregulation of the telecom sector.
Awais Ahmad Khan Leghari, Minister for Information Technology and Telecommunications says “Radical steps are required to promote telecommunications in the remote areas as only 1,213 out of 50,588 villages are connected, so far,” says Leghari. The present rural teledensity is 0.77 —phones per 100 population, while it is 5.76 for urban areas—or a country average of 2.6. Maldives, India, Bangladesh and Sri Lanka, are the other countries in the region that have done far better in telecom. The average teledensity for the world is 17.19. It varies from 52 in the high income countries, to 1.48 in the low income countries.
Pakistan has a variety of choices to expand telecom facilities and access to rural areas. Shahzada Alam Malik, Chairman, Pakistan Telecommunication Authority (PTA), the telecom regulator, says telephones should be provided in all villages. It can be done through copper-based system, rural radio telephony, digital radio system, VSAT, rural telecommuniction via Pakistan’s Pak-Sat-1, WLL (wireless local loop), cordless telephone, digital European Cordless Technologies (DETC), CMST, cellular mobile, and GMPCS.
Also there is the need to establish telecenters in the government’s existing rural health centres for telemedince, distant education as well as other uses. It should address Pakistan’s peculiar geography and vastness that ranges from world’s highest mountain peaks in the north to deserts in the South, fertile plains in the centre, and rough, dry mountains in the West. The quickest way to provide access to people in remote areas is to provide public all offices (PCOs), using cellular mobile services, and digital long-range cordless telephones as a cost effective and practical solution for developing rural telecoms. WLL can be the long-term and permanent coalition. VSAT through PakSat-1 or satellite phones though Thurraya (GMPCS) could also be a practical approach.
Who should fund the expansion of telecom facilities, particularly in the low-yield rural areas where investment payback period is seven to eight years, compared to three to five years in urban areas? Naturally, private investors would like government to do the funding, while the administration’s rationale is that it should be the private investors who will make the profit. However, the proposed Telecom Policy will provide a framework for setting up a Universal Obligation Fund (UOF) to which all the operators, playing a major role in telecom industry should contribute.
The Fund will be used to build infrastructure in rural and remote areas in a competitive and transparent manner, to implement the plan for “Telecommunication Access to all.” Commercial banks, in case they start extending advances for telecom business, especially telecom centres, will require hypothecation of the borrowers’ equipment and other property, as a collateral.
But, looking at the growth of the telecom market, Pakistan expects a sizeable Foreign Direct Investment (FDI) in this field. Deregulation of the telecom sector, currently going on, will encourage investment in various segments of the industry. “The government is proactively engaged in creating an investor- friendly environment. A liberal policy framework will definitely facilitate the flow of investment and technology to cater to the increasing demand of telecom services,” Leghari hopes.
Pakistan also pins its hopes on its geostrategic position in Asia and the Pacific. It hopes, too, to serve as a hub for the South and Central Asian regions—the areas that are forecast to be future engine of growth in the world, in sharp contrast to North America and Europe, now experiencing a growth slowdown.
The new telecom policy aims at achieving a sustainable development of telecommunications and IT through a market-based strategy, thereby creating a self-propelling mechanism to even address the difficult area of the long-neglected rural communications. “The guiding principles of the new policy are transparency, fairness and non -discrimination,” Leghari says. Future has an increasing role for private-government business. The public sector, as of now, consists of Pakistan Telecommunication Company Ltd. (PTCL), the government monopoly in fixed telephoney, domestic and international traffic, leased lines, and services to private telecom operators.
It has 4.5 million access lines, a network that is almost totally digital, nationwide backbone and international communications links. Its revenues rose to Rs66.43 billion up from Rs62.04 billion in 2001. Its revenue growth in recent years has ranged between 12 to 14 per cent a year. Its share of Rs10 each received Rs2.75 as dividend in 2002. The dividend has been progressively increasing over the last five years. PTCL stock is blue chip at the country’s main bourse— Karachi Stock PTCL, 88 per cent owned by the government of Pakistan, is up for privatization.
Privatization Minister Dr Abdul Hafeez Sheikh, says three potential parties have already been prequalified for bidding for PTCL, most likely by December. These three companies are: Saudi Oger Limited (SOL), Orascom Telecom (OTH) and Menara Telecom Consortium. But, this month, Turkish Prime Minister, Tayyb Recep Erdogan, during his visit to Pakistan, expressed interest in bidding for PCTL. A Turkish Telecom Ministry delegation is expected here shortly to pursue the matter. But, will the Turkish company, at this late stage, be allowed to bid for PCTL? The private sector appeared on the telecom scene in the 1990s by introducing cellular phones in Pakistan. Now four fiercely competing cellular companies are in the field with a remarkable growth.
Pakistan’s 149 million people, who for years, had been waiting for the privilege of a phone, multiplied cellular phone demand—and the company profits—as soon as mobiles were introduced. Seeing this huge boom, and potential to make money, the government launched its own cellular company— U-Phone, that is wholly owned by the PCTL. U-phone’s growth has been phenomenal, too. It is now undergoing its third expansion . Pakistan also hope to reduce its domestic tariff for leased lines and other telecom uses as a result of a vast expansion of its optic fibre backbone. This and other projects, nearing completion, will expand telecom capacity by 160 times by the next year.