State of Telecom Industry in Pakistan

According to recently released numbers on the teledensity (a term commonly used to describe the number of telephone lines per 100 people) the growth in Pakistan telecom sector shows no sign of slowing down.

According to a recent report in Business Recorder the teledensity has reached over 26%. This is quite remarkable given the situation a few years ago. As the article notes the cellular and Wireless local loop (WLL) segments have shown the highest growth rates.

“It is interesting to note that cellular users accounts for around 85 percent of the total telecom subscribers in Pakistan. The remaining 15 percent are using fixed line (wireline and wireless). In India, about 68 percent of the total subscribers are mobile users with teledensity of 13.5 percent as of May 2006”

Wireless local loop is a new technology which has grown in popularity due to its portability and convenience. WLL is a system that connects subscribers to the public switched telephone network (PSTN) using radio signals as a substitute for copper for all or part of the connection between the subscriber and the switch. This includes cordless access systems, proprietary fixed radio access, and fixed cellular systems. Telecommunication analysts agree that WLL will stir competition for phone service in the developing countries. The article notes

“The WLL, relatively a new phenomenon in Pakistan, has posted gigantic growth of 284 percent with 1.03 million subscribers by FY06 versus that of 0.27 million a year ago. The PTCL, the largest player in WLL, gained its market share from 61 percent in FY05 to 64 percent in FY06. While Telecard, the second largest player, has lost its market share to 22 percent from 37 percent in FY05. The PTA awarded two more licenses of LDI making total number of LDI operators to 14. Here also, increased competition was observed leading to price war-like situation amongst the players.”

Read the full article here
http://www.brecorder.com/index.php?id=452746

Bloomberg has an interesting article about one of the mutual funds in Pakistan. In the July 13 2006 story “Abamco’s Ali Uses Cricket Strategy to Outperform Pakistan Index” the fund manager Najam Ali discusses his approach to investment. It is interesting to note that:

His top five holdings as of March 31 were Faysal Bank Ltd., Pakistan International Container Terminal, Pakistan Telecommunications Co., Attock Petroleum Ltd. and Adamjee Insurance.

For those who are interested in investing in Pakistan’s telecom sector, such funds can be one option. Although as the story acknowledges the market is highly volatile.

The Karachi index recorded volatility of 32 percent from the average in the year ending June 30 compared with 16 percent for the MSCI Emerging Markets Index, according to data compiled by Bloomberg. Volatility measures stock-price swings.

`The Pakistan market has given us superb returns no matter which way we look at it,’ said Ali.

Right now the Abamco funds seem to have a 4-6% holding of telecom sector .. but who knows, with enough competitors there could be a fund with more focus on the telecommunication and high-tech sector.

If you are interested in making calls to Pakistan for a nominal cost it is worth knowing  about Internet Telephony or VOIP, its availability in Pakistan and the controversies surrounding it. As far as disruptive technologies go VOIP tops the list. VOIP is the future of communication. See references at the end for further information about VOIP and other related technologies. 

You’ve probably dabbled with the services which offer free PC-to-PC calls (Yahoo, MSN, GoogleTalk) .. gets the job done but not the most convenient and attractive solution. The user-friendly options use VOIP technology transparently … you make calls from a regular phone to another regular phone line (with or without additional tools). You may have used this when you used a phone card to call Pakistan from abroad or the other way around. Or you can have a VOIP enabled phone and service such as offered by Vonage. The main attraction of VOIP is its nominal cost compared to conventional phone rates and the freedom of being able to access your communication anywhere Internet is available. VOIP has come a long way in the recent years with great improvements in quality and reliability.

Now lets discuss the current situation with VOIP in Pakistan. For years and years PTCL has been enjoying monopoly on  international call rates. The emergence of VOIP is a big threat to its international call revenue and accordingly Pakistan Telecom Authority (PTA), the regulatory arm of PTCL, has closely controlled and regulated the use and licensing of VOIP. On the other hand VOIP is a market opportunity sought after by many companies in Pakistan including the Internet Service Providers (ISPs). This tension is an international phenomenon.  India has exactly the same sort of problems. Infact most countries are struggling with a good policy for VOIP which balances consumer interests and incumbent provider revenues. See here for a summary of VOIP policy for selected countries. 

For an overview of PTA’s point of view on VOIP regulation see this article. According to PTA the problem is with those who want to use the enhanced services without proper license and revenue sharing agreements. Of course PTCL is using VOIP for its own use and has contracted with Nortel to build the infrastructure … the controversy is mainly around other independent operators of VOIP. There are number of technical and non-technical ways by which PTCL enforces its rules. 

The policy of PTA towards VOIP has major implications for communication choices for Pakistanis living in Pakistan and abroad.  It certainly goes beyond the millions of Pakistanis living abroad who are interested in staying in touch with family and friends. It impacts the productivity and competitiveness of Pakistani businesses (call centers, offshore outsourcing firms etc)  which rely on frequent communications with partners and clients. The market opinion is that the regulation of Pakistani VOIP market is hurting the adoption of new and cost-effective technologies in Pakistan.

Recently the issue of VOIP got highlighted as the services of one of the licensed private telecommunication firm BRAIN TEL were stopped by PTCL. In 2005 Braintel was given permission by PTCL to provide VOIP phone numbers in Lahore. However by definition VOIP service can be initiated form anywhere with Internet access therefore it became very popular with Pakistanis abroad who could use a regular phone with adapter and make calls using a Lahore area code phone number. Eventually PTCL got uneasy about the “abuse”and took the service down last month. The buzz on the online discussion forums is that Braintel is trying to reach an agreement with PTCL and the service will be restored. Till then all those who got used to picking up the phone and dialing their family without entering long calling card PIN numbers or international area codes should keep their fingers crossed.

VOIP Resources:

• Wikipedia  http://en.wikipedia.org/wiki/Voip
• A pdf presentation from ITU website
• FCC page on VOIP  http://www.fcc.gov/voip/

Part 1 of  as series of articles discussing telecom choices in Pakistan 

Say you are moving back to Pakistan from abroad after some years .. you are glad to know that you have choices for your regular phone service, mobile phone and Internet service.

Now that deregulation of Pakistani telecom sector has started there is a lot of action - some would say too much action. With new telecom companies entering the market and making aggressive offerings of products and services to attract customers, it has become hard to make an educated decision about communication choices.

The phone services especially mobile services are in great demand and the competition among service providers is stiff.  PTA is supposed to play the role of advisor and protect the consumers. Go to the PTA website  and browse the section for Consumer Guides. For starters it needs to keep its website up-to-date as some of the information there is from as far back as 2004. But more importantly the guides should be user-friendly. Telecom is a complex industry with lots of hard-to-understand acronyms and jargon. How do you expect a layperson to interpret all this without enough help and support?

Lets go over the Internet which is probably of greater interest but more of a maze than phone services. First lower your expectations about broadband availability and rates. Even if you are lucky and you live in one of the cities which have the so-called broadband available you may still get a sticker shock. Consider this: Nayatel offers fiber optic based Internet service in Islamabad .. the cost of initial installation is around Rs. 25000 and there are upper limits on what your data usage. Compare that to the US where companies like Verizon offer similar service for free installation and with unlimited usage. PTCL holds virtual monopoly over ther rates and even though PTA reduced rates recently Internet at reasonable speed is still far too expensive for the common person. More on the Internet availabilty and rates in a separate post soon.

Secondly, the quality of Internet service varies a great deal even within the same provider.. and there’s often no easy way to get your issues resolved. If you get stuck with limited choice (e.g. only PTCL offers DSL in your area) it could be even worse. This is another area where PTA needs to ramp up its support for the citizens.

When this news broke in June it was covered by media around the world - after all its not often that Pakistan gets to be the testing ground for a brand-new technology. Sometimes it helps to be a latecomer in the game - you get to try out the latest trends without carrying the baggage from previous technologies which did not make the cut.

I find it ironic that the initiative is mainly controlled by Wateen (UAE) and Motorola ..  any Pakistani company or organization does not seem to be in the picture. Perhaps it is a good thing that the government is not involved in this (anymore than they really have to).

Here’s an excerpt from InformationWeek about this project: (full article)

Wateen Telecom, the major carrier in Pakistan, tapped Motorola to plan, design, and deploy the nationwide wireless broadband network as part of the country’s Broadband Pakistan effort to get Internet access to under-served areas. The company expects to support more than 1 million users, and Motorola’s initial deployment should be completed by year’s end.

The scale of this project sets it apart from prior implementations which are usually city-wide. If the project claims are realized this will provide a much needed relief to the broadband hungry Pakistani public. It is well-known that technology projects rarely go as planned but I’m keeping my fingers crossed …Go Wimax!

Learn more about the Wimax technology & standards here. 

Recently the telecom sector in Pakistan has attracted a lot of attention from international investors - and for the right reasons: it is one of the fastest growing sector with a huge potential market. Looking at the billboards and media advertisements of mobile phones in Pakistan it is hard to believe that until a few years ago there was no one else but PTCL monopoly. The government is determined to make use of this opportunity to attract foreign investment. For example The International Herald Tribune recently reported:

Overseas investment in Pakistan’s telecommunications industry is expected to hold at $1 billion a year until at least 2009, said Shahzada Alam Malik, head of market regulator Pakistan Telecommunications Authority. As many as 50 percent of Pakistan’s 160 million people are expected to use telephones by that time, up from 23 percent in March this year and 4.3 percent in 2003, he said.

Telenor and Warid Telecom have since secured 20 percent of Pakistan’s cellular market, cutting the share of market leader Pakistan Mobile, or Mobilink, as the unit of Egypt’s Orascom Telecom Holding SAE is known, to 51 percent from 64 percent in 2004.

Pakistan, South Asia’s fastest growing telecommunications market, added as many as 2.6 million cellular users in April, according to a report by the regulator released that month. Prime Minister Shaukat Aziz wants to widen the nation’s communications network to help the $118 billion economy grow 7 percent in the year starting next month.

The increasing competition should theoretically be good for the Pakistani consumers as well, but only if the regulatory framework does what it is supposed to do. There remains some concern from the consumers about service and rates. The question is: Is Pakistan Telecommunication Authority doing a good job of looking out for the consumers in Pakistan?

This post also appeared in Adil Najam’s blog: All Things Pakistan on July 7, 2006.