State of Telecom Industry in Pakistan

Pakistan’s telecommunication market is one of the hottest in the emerging economies. This post will briefly review the mobile phone players in Pakistan and discuss how to evaluate and invest in these companies. In future posts I’ll review the major companies in more detail. See this page for the most recent numbers about mobile subscribers and companies.

As the number of mobile subscribers climb up in Pakistan to over 40 million, so does the competition and that makes it hard to tell which companies will do well in future. What are the success factors and the upcoming changes such as mobile number portability (discussed here)? FirstI’ll present the snapshots of the companies. Then I’ll go over some of the indicators and performance metrics which can be used to evaluate thse companies.

About Pakistani Mobile Companies & Their Foreign Connections

First lets look at the market share of the 6 mobile players in Pakistan. I took the subscriber numbers (in millions) from PTA site a few weeks ago.

At the top is Mobilink, the Pakistani unit of Egypt-based telecom company Orascom. It has been in Pakistan since 1994. With 19.2 million subscribers it has the largest market share. Its shares are listed on the Egyptian and London stock markets as GDRs. My next post will focus entirely on Orascom and its performance.

Ufone, a wholly owned subsidiary of Pakistan Telecommunication Co. Ltd (PTCL),  is now under the control of Etisalat group of UAE. With 8.4 million subscribers it is the runner up. For those in Pakistan it is the one company where they can easily invest locally.

Warid, owned by the Abu Dhabi group of the United Arab Emirates and sister of Wateen group is number 3 with 5.6 million subscribers, that is 14% market of subscribers.

Norway’s Telenor, a recent entrant with about a billion US dollar invesment in Pakistan has been doing well, based on its recent earning report. It has about 4.26 million subscribers or 11% of the market. Telenor stock is listed in the Oslo stock market (TEL) and Nasdaq NY (TELN).

Paketl was owned by Millicom International Cellular (listed in Nasdaq as MIC) at the time of writing of this post. (Later it was acquired by China Mobile)It has 3% of the subscriber share in Pakistan.

Total Telecom in July 2006 acquired Instaphone - a cellular business of Luxembourg’s Millicom, in the first ever sale of a mobile business in Pakistan by a foreign company. It has 0.3 million subscribers.

How do you tell the winner?

Put another way if you decided to invest money in one of these companies how would you make the choice? The actual investment logistics will be discussed in additional posts.

When you look at the performance and results of the mobile companies, here are some useful industry indicators to look out for (in addition to the financial results):
- Growth rate: how many net subscribers has it added in the quarter/year?
- What is the churn rate (customers who leave) ? Low churn indicates customer loyalty.
- What is the average revenue per user ARPU (what does average subscriber spend) and what is the profit margin per subscriber? How much of ARPU is voice vs data (eg sms)?
- What is the percentage of pre-paid subscribers (considered less loyal than postpaid)?
- How much does it cost to acquire a new subscriber?

Pakistan is still an unsaturated market and with the falling cost of handsets there are plenty of new subscribers to go for. But eventually as in saturated markets, if mobile operators want to avoid simply competing on price, they will have to compete on superior service,  innovative features and ease-of-use. As an example of new trends there were so many text messages (SMS) sent on this Eid that the networks of all 6 companies were kept extremely busy!

Look for future posts for more detailed analysis and performance discussion of the major players.