State of Telecom Industry in Pakistan

Pakistan Telecommunication Co Ltd (PTCL) on Friday reported a 24.7 percent fall in net profit for 2006-07 financial year, as rising competition led to a decline in revenues from call traffic. Sources: Reuters and other news sources.

The full results are not available on the investor section of PTCL site as of this writing but I hope that the details will be posted there soon. It will be interesting to watch the stock performance after these results and the recent announcement by Etisalat about acquiring controlling stakes. The analysts comments below are worth reading.

Highlights of PTCL financial results 2006-07:

1. PTCL earned net profit of 15.64 billion rupees ($258 million) for the year ended on June 30, down 25% from previous year. Earnings per share fell to 3.07 rupees from 4.07 rupees. This was in line with the market expectations of 15.41 billion rupees to 17.69 billion rupees range. 
2. The company said its revenue for the year fell to PKR65.28 billion, from PKR69.08 billion a year earlier.
3. Operating costs increased to PKR46.56 billion, compared with PKR41.69 billion a year earlier.
4. PTCL announced a cash dividend of 2.0 rupees per share, its first payout for 2006-07.

Analysts Are Optimistic

As reported by Reuters, Analysts said the fall in profits was a result of lower revenue from international and domestic call traffic and increased competition from new market players.

“Since the implementation of deregulation policies in the domestic telecom sector, the company is facing immense competition from new players, especially in the long-distance and international calls segment,” said Abrar Hussain, an analyst at First Capital Equities Limited.

But analysts said PTCL’s profitability is expected to rise in coming years as it expands network and attracts more customers.

“We anticipate an 11 percent annual growth in net profit of the company during the next three years,” said Abrar Hussain, an analyst at First Capital Equities. PTCL’s profitability growth is to result from the cumulative impact of expanded fixed line network, including profit of 20.78 billion rupees last year.

“The company has potential to grow in the longer run if the management succeeds in implementing steps for network expansion, service customization, cost-cuttingand the introduction of new services and efficiency measures,” said Hifza Zia, an analyst at Atlas Capital Market.

Higher dividend receipts from Ufone, PTCL’s mobile phone arm, will also have a positive impact on the company’s earning, he added.

PTCL’s revenue in 2006-07 fell 5.5 percent to 65.28 billion rupees. Operating costs, on the other hand, rose 11.7 percent to 46.56 billion rupees, which analysts said was due to a continuous rise in marketing costs and property rents.

Background & History

PTCL is the main operator for Pakistan’s land lines and also operates cell phone and Internet services. PTCL’s monopoly on land lines ended in December 2002, when the government introduced a deregulation policy that enabled private companies to set up telephone services.

Since then, dozens of rivals, including domestic wireless players such as Worldcall and Telecard, have eaten into PTCL’s call traffic and forced it to slash charges.

UAE-based Emirates Telecommunications Corp. (Etisalat) has a 26 percent controlling stake in PTCL, and the Gulf operator said last week it was considering doubling its stake in Pakistan’s largest telecom provider.

Etisalat also charges PTCL a technical services fee of 3.5 percent of revenue for sharing technical expertise.