State of Telecom Industry in Pakistan

We have seen a very active discussion about the total subscribers and what this growth means. The chart above shows the total subscribers added in 2007, based on PTA numbers. Consistent with previous reviews Mobilink and Telenor came out as winners. Paktel showed a sluggish growth for most of 2007 but picked up speed towards the end of the year. All the political unrest did not dampen the short-term growth and some will argue that the telecom voice and data usage increased because of the situation. In a way this sends a message that the risk taken by companies such as Telenor in investing in volatile emerging markets can pay off.

Here are the numbers and subscribers added in 2007 as percentage of the total. For example Telenor added 55% of its total subscribers in 2007.

According to PTA released numbers the total mobile subscribers in Pakistan crossed 76 million. During 2006-07 the revenue of mobile industry was Rs.133 billion, an increase of 48% from previous year. The 4.12 billion US dollars of foreign investment poured in the telecom industry in the past year has been a major driver of this growth.

This is certainly a big achievement and PTA deserves a pat on the back. The challenge of course is to sustain this growth in a fair manner to all and not at the cost of the basic rights of consumers. Lets all remeber the basic point that consumers in Pakistan deserve good service at competitive rates. PTA must not allow the quality of service fall below reasonable standards. 

In  a recent interview with the media, Zouhair Khaliq speaks about Mobilink’s future expansion and investment plans and recent standing of the company among mobile and data service providers. Excerpts are presented below, full story here. As I have written before, Mobilink has been successful in 2 strategic directions. It has maintained its top position in mobile market by adding wireless subscribers. Secondly it has diversified into the broadband and data services market by acquiring Internet Service Providers such as DanCom, WOL, DVCom etc . Overall Mobilink continues to be a strong player and a good profit source for Orascom, the parent company.

In fibre optics, Pakistan Telecommunication Limited (PTCL) had been the only company that owned an optic fibre backbone. Mobilink has successfully introduced competition through the introduction of a nationwide network. Mobilink’s optic fibre backbone provides the perfect platform to Mobilink for connecting its customers nationwide with highest level of voice and data quality with more reliability.

Deployment of the national backhaul stands completed with full protection, making Mobilink’ optic fibre backbone fully protected/redundant. By providing last mile connectivity Mobilink has positioned itself as a one-stop shop for meeting all communication requirements of enterprises and individuals. The optic fibre network currently covers 6,500 kilometres and will be increased to cover another 2000 kilometres very soon.

“We are envisaging sustainable growth in Pakistan. With mobile penetration still at around 43 percent, the room for growth is immense. The growth is not only limited to mobile telephony, as there are huge opportunities in other fields like broadband (optic fibre, DSL, WiMax), LDI etc. This coupled with the enabling environment being provided by the Pakistan Telecommunications Authority ensures an excellent future for this sector,” he said when asked to comment on the company’s future plans in Pakistan.

As reported by Associate Press of Pakistan which cited the PTA 2007 annual report. After all these years there is still talk of incentives for handset makers and all that but no tangible plans have been announced. It also misses the point that with large scale phone manufacturing in India and China, it is hard to attract manufacturers to Pakistan.

Around 20 per cent of mobile users in Pakistan change their handset thrice a year which indicates that Pakistan is a lucrative market for manufacturers of mobile handsets and other telecom equipment. A similar percentage of mobile users change the mobile handset once a year and this could be a successful business model, said Pakistan Telecommunication Authority (PTA) in its latest report.

A survey conducted by the Authority this year also found that 20 per cent user change the mobile handset every two years.

The report said the strategic location of Pakistan which has spent about $1.347 billion on import of cellular mobile handsets and other telecom apparatus in 2006-07 is also an added advantage.

According to the report, the government was considering giving incentives to leading manufacturers of cellular mobile handsets and telecom equipment to consider manufacturing mobile sets and other equipment locally where more than two to three million subscribers were being added on cellular mobile networks every month and still a large patentable exists.

Read more »

Of course there are much bigger things at stake for Pakistan at this time than telecom but the impact to economy cannot be taken lightly. We have been discussing and writing about the progress and the potential of telecom industry and about foreign investment in Pakistan. The political crisis changes everything. This graphic from WSJ presents a good snapshot of the situation. What are the implications of this crisis? 

First, the damage to the overall business and economy - of which telecom is a major part - is deep. The extent of recovery will depend on the resilience of the nation and the duration of the conflict.  Now this turmoil has the potential to erode the progress in telecom and other sectors which the government likes to mention so often. Second, it is important to not get distracted and keep focus on the real issues (respect for rule of law and human rights). Third, keep the actions of individuals separate from the sentiments displayed by the majority of the nation, as aptly pointed out by Adil Najam. For me this struggle is about following the right path to achieve the right goals and not sacrificing principals for short-term and dubious reasons.

Bloggers have taken a lead role at reporting the situation. International media has mentioned that it is very hard to get information from Pakistan and outlets such as CNN are relying on bloggers to share information with them. WSJ mentioned many bloggers in another article today (see below).  

For those who would like to know more about the current situation here are some links from Pakistani bloggers.

1. Pakistaniat - On What Can Be Done
2. Teeth Maestro - Students protesting at LUMS (also covered at this LUMS blog, Lahore Metroblog, and shown at CNN Intl today)
3. Green&White - We Were All Hacked
4. Pakistan Spectator
5. Political Statements -Imran Khan’s Video
6. MicroPakistan

Pakistan’s smallest cellular phone company by subscriber numbers, Instaphone has may have been sold to SK Telecom of South Korea with management control and majority shares, according to unofficial sources.

This was first posted at TGP by Uzair Ahmed. See my previous coverage of this topic. The official notification and details from SK Telecom is yet to be made so this deal is not certain yet.

As reported in the local media.

We had news of SK Telecom biding for Pakcom, which operates with brand name of Insta Phone in Pakistan. The situation got clearer in recent days when the officials confirmed the news. And now we are in good position to quote that Instaphone has been sold to SK Telecom. The details of the agreement are not made public; however, the agreement confirmation has arrived from both sides.

Mr. Shahid Feroz, CEO Insta Phone Pakistan, commenting on the acquisition said that this would be the opening of another success chapter in Pakistan’s telecom market. However, he didn’t reveal the details of the contract, but he was optimistic that the final agreement will be duly signed with in one month’s time. Mr. Feroz disclosed some of SK Telecom’s plan for Pakistan market. He said that the company is willing to rollout country’s first 3G network. He also told that the management rights will also shift away to SK Telecom along with majority of shares in Pakcom.

Insta Phone, which started its service back in 1990, hold 350,000 customers in Pakistan, operates using TDMA technology. Sources have told that Assessment of Pakcom was prepared by Hongkong and Shanghai Banking Corporation Limited (HSBC) and Deutsche Bank of Germany.

SK Telecom revealed three key business areas to be concentrated on. These are the furtherance of their global reach by expanding internationally, developing the convergence of telecommunications and broadcasting, and searching for new business opportunities.

With an aim towards becoming a major player in information communication under an economic umbrella that will be over all of East Asia, SK is actively seeking multifaceted business opportunities in overseas markets.

Established in 1984, SK Telecom has a number of interesting networks under its belt including CDMA 2000, HSDPA etc. True to the uniqueness of South Korean market, the company offers a number of wired/wireless and application services.

Media is abuzz with news about reduction in force and restructuring at PTCL, which has 65000 employees. We have provided various views and news about PTCL at this blog before. Going through the time lines since last year, one can see that PTCL is at a critical junction. Depending on who you ask, PTCL is a management fiasco or a great opportunity. The stakeholders in this story include staff and workers (who have a union), Etisalat which manages PTCL with its 26% stake (and would like to get additional 25%) and the Pakistan government. The PTCL union leaders have announced their opposition to cut jobs. The state has not responded yet.

Significant questions have been raised by concerned public in media, blogs and online discusion forums about strategy and operations of PTCL. There are those who question the whole privatisation deal and whether it was good for Pakistan. Others point out to the hefty price paid by Etisalat and feel that this was the best possible option. Anyway, there is no going back to the days of state-owned monopolies in the telecom market of Pakistan.  It is clear that Etisalat is trying to turn around a big ship and it will face considerable difficulties on the way.  Even though job cuts are hard, in the long term there is no way around them. I want PTCL to get its act together and thrive in a fair and just manner.

According to Farhan Bokhari in the Gulf News:

As Etisalat moves to increase its stake in PTCL, it will inevitably be left with few options other than to work towards a robust plan for reforming the company with the ultimate objective of tackling its falling profits. Unless PTCL’s profits are not just lifted but turned into significant gains, the company’s long term outlook is likely to suffer.

While PTCL has been privatised for some time now, the Pakistani public is yet to witness the fruit of the change of management from public sector to private sector. Pakistani consumers may have seen the benefit of this change in ways such as much easier access to new telephone connections that once took several years to be provided.

But the quality of service by PTCL’s staff in areas such as dealing with complaints from subscribers still remains of simply pathetic quality. Stories such as subscribers waiting for several days before the PTCL staff were able to deal with out-of-order phone lines in rain drenched neighbourhoods still make the rounds across Pakistan.

Read on for more background.

Read more »

The recent boom in Pakistan’s technology sector has brought in a number of changes in the way businesses conduct their operations. However one thing which I have observed is that till recently Pakistan had lacked good quality market research. Yes, there were some research companies like AC Nielsen but their skills, reach and approach were rather limited. When it came to telecom and technology research, there was almost no local firm with this special skill set. Things are about to change. To fill this gap, Arif Hussain, a former Lucent executive, has launched SourceOne, a US company with an office in Karachi.

SourceOne aims to deliver, for the first time in Pakistan , unbiased market based intelligence, insight and a strategic perspective for the communications industry. The Communications Practice of SourceOne offers a portfolio of market-focused services, each built around high-value, high-impact market analysis. There is a sample report, ARPU Strategies for Mobile Operators in Pakistan, available on the website. A flagship Newsletter “The Source” will also be available to subscribers.

According to my discussions with SourceOne leadership, their market intelligence services are different from others because their thoroughly researched market reports are built on data from primary and secondary sources. I think this is a key factor, as most analyst reports I have seen depend on assumptions which are removed from ground realities. One has to be embedded in the local environment in order to add real value. 

Of course a highly sought after service is that of customized reports for specific client needs such as outsourcing and doing business in Pakistan. “We offer a high degree of customization in terms of reports that can be tailored to the individual needs of clients. Potential clients that can best benefit from our services are Service Providers (fixed – wired or wireless and mobile), Vendors and Investors. We underscore everything we do with a total commitment to quality, accuracy and attention to detail”, said Arif Hussain, CEO of SourceOne.

This is a welcome addition and I am certain that a large number of local and foreign companies and investors will benefit from the professional services of SourceOne.

Daily Times has reported this interesting statement. As we have been discussing, Etisalat’s last transaction (26% shares and management control) is under scrutiny these days in Pakistan. Now Etisalat is thinking about taking its stake to 51% to get full control. How will the market react to this? And how much will this lift up the PTCL stock?

The news item adds:

The state-owned United Arab Emirates company is now considering whether to increase that to 51 percent by buying more stock from the government, Etisalat Chairman Mohammed Hassan Omran said in a telephone interview with Reuters in Dubai.

“We are evaluating that option and once we’ve arrived at the decision that this is positive, we will talk to the government,” Omran said, declining to give further details.

Pakistan, the world’s third-fastest growing market for mobile phone users, has a moratorium on the sale of new mobile licences. The only way for international companies to enter the world’s sixth-most populous nation is by buying into existing operators.

“We are already in Pakistan, so if we have an additional share this will add to our array of operations,” Omran said. Etisalat has no immediate plans to spend on PTCL’s infrastructure, Omran added.

An article in Wall Street Journal today talks about the Pakistan economy, entrepreneurs and money from aborad in the forms of aid, remittances and expat investments. The title is “In Turbulent Pakistan, Start-Ups Drive a Boom” and it talks about the apparent paradox: Pakistan’s political scene is growing more clouded, but a clear demonstration of confidence in the country’s future is coming from an emerging economic force: Entrepreneurs. Since 1999, Pakistan has become one of Asia’s fastest-growing economies, the article mentions.

The article briefly mentions the growth in Telecom but does not go in the details of how the growth in telecom has provided additional jobs and opportunities for the public. I think more details on Telecom’s contribution to Pakistan’s economic growth would have been an interesting point in this article. A separate study estimated that the mobile industry has created 220,000 high-paying jobs in Pakistan and accounts for 5% of its Gross Domestic Product (GDP) and approximately 6% of the total taxes collected by the Central Board of Revenue.

Some excerpts are given below. I disagree with the ‘credit-friendly banks’ line - the banks in Pakistan have acted as aggressive loan pushers and have made tremendous fortunes at the expense of common people. However the point about the importance of younger generation is very true and businesses - including telecom companies - seem to be aware of this market segment.

Pakistan now permits 100% foreign ownership of its banks, prompting more consumer-friendly lending for home mortgages and cars. Meanwhile, a telecommunications monopoly has been broken up and policies have been tweaked to reduce user fees. Cellular subscribers have expanded 94% a year since 1999.

Not all are convinced the economic traction is sustainable, though. While Pakistan has seen an unprecedented consumer boom, 7.9% inflation and a sluggish job market have undercut modest income gains, contends ABN Amro’s senior economist in Islamabad, Sakib Sherani. In luring new industries and cultivating a broad-based business class that will keep the economy globally competitive, Pakistan lags behind countries such as Vietnam, as well as China and India, Mr. Sherani says.

Many critics also contend that substantial amounts of U.S. assistance — estimated at more than $1 billion a year — may be the biggest underlying reason why Pakistan’s economy is doing well. But the economy is also sprouting from the bottom, thanks to seed capital from abroad and more credit-friendly banks. Last fiscal year, Pakistan received a record $5.1 billion in foreign direct investment, the government says. Overseas remittances, which are what Pakistanis are returning from bank accounts overseas, hit $5.5 billion in the same period, also a record.

By sheer demographic weight, the younger generation will determine Pakistan’s direction. Of its 160 million people, 100 million are under the age of 25. Many are rural, poor and unprepared for a role in the global economy. But fast economic growth has also drawn more men and women to the cities, propelling some up the income ladder through education and new jobs.

Source: WSJ  (subscription required)

The fall of corporate giants like ENRON and WORLDCOM left many learning impressions for both public and private sector enterprises besides stakeholders including governments, employees, Board of Directors and strategic partners. In both of the above mentioned historical cases, the core reason was fraudulent conduct by the corporate level management. The top officers consistently kept hiding the true financial facts and figures bearing losses and public reports kept displaying healthy financial results and profitability, which strengthened the trust of shareholders and partners to keep investing besides helping the share price to grow further in the stock market.

Unfortunately, we might have another big financial scandal in Pakistan in upcoming days – this is about privatization of PTCL. As you may recall Etisalat acquired a 26% strategic stake along with management control in 2006 after months of deals and bargaining on the actual value of the deal. Now the scandal reported in the papers claims that PTCL was worth a lot more. PTCL no doubt is one of the strongest corporate enterprises not only in Pakistan but also in the continent known as Asia. Therefore, if the news story becomes true, it will have a devastating effect on the Pakistan’s Telecom market, Economy and Pakistan’s political stability. Pakistan’s image, which already is in crisis, will be hurt further. The business schools around the world surely will have another good case study.

Jang, one of leading Urdu newspaper in Pakistan, has highlighted news on the secret contract over privatization of PTCL as shown above. An ex-Senior Vice President has claimed the privatization as Pakistan’s Biggest Financial Scandal. PTCL former official further commented that the deal was closed on 2.6 billion dollars including U-fone & Paknet, however only U-fone had enterprise value of more than 6 billion dollars which does not include assets of U-fone. Moreover, pricing decisions were made through old records instead of determining current market value, which means, it was like Buy One Get 2 Free offer. It has been reported further that in September 2006, when Etisalat had refused to honor the deal, they were offered a secret price discount of 394 million dollars along with commitment to lay off 20,000 employees and to bear the 50% cost of layout. Supreme Court of Pakistan has already given decision against the privatization of PSO and Pakistan Steel and if PTCL’s privatization gets challenged on true facts, it will bring horrifying results.

Read more »

2007 continues to be THE year of acquisitions for telecommunication companies in Pakistan. According to media reports, after months of talks, the deal has been officially announced: Omantel is to buy 65 percent of Pakistan’s Worldcall for $156 million. See our previous related coverage and detailed analysis here and here.

Oman Telecommunications expects to conclude a deal to buy 65 percent of Pakistan’s Worldcall by the end of the month, its chief executive said on Sunday. The deal would be worth 9.43 billion Pakistan rupees ($156 million) at the stock’s closing price of 19.3 rupees on Friday.

“It is a 65 percent stake,” Mohammed al-Wohaibi told Reuters by telephone. Omantel had initially expected to conclude the purchase of a majority stake in the Pakistan-based wireless local loop operator in June, without saying the size of the stake it was seeking or how much it would pay. “We expect to conclude the deal before the end of the month. There were procedural delays,” Wohaibi said.

Omantel, the country’s second-largest firm by market value, is bracing for the end of its fixed-line monopoly this year, two years after the government opened the mobile business to competition.

Shares of the state-controlled company, which reported a 13 percent rise in second-quarter profit on Sunday, have risen more than 3 percent this month.