LAHORE ( MEDIA REPORT )
The year 2015 was bad for the telecom industry of Pakistan as no new foreign direct investment (FDI) came in, all the cellular operators were struggling to increase their average revenue per user (ARPU) to become more competitive and coverage of 3G/4G services was to be expanded, but long-awaited merger was announced in the outgoing year.
Similarly, long-awaited telecom policy was also announced by the Pakistan Telecommunication Authority (PTA) at the end of the year, while Mobilink-Warid merger started the consolidation process in the industry. The News Lahore reported.
It was expected and after the successful merger a new merger is on the scene.
The PTA failed to announce the auction of the remaining available 4G spectrum. None of the existing operators may show interest in it even in the next year.
The finance ministry twice asked the PTA to do auction in order to create budgetary support of around Rs65 billion for the federal government.
The PTA allowed the mergers and acquisitions (along with allocated 100 percent frequency spectrum) even by the two existing operators, provided they have met all the licence obligations, including payment and rollout requirements.
According to the telecom policy, whether a merger or acquisition should be allowed to proceed is a competition matter, which is outside the jurisdiction of spectrum management, and legitimate mergers should not be impeded by an inability to transfer spectrum licences. Therefore, except where there are overriding technical reasons, or reasons arising out of the national interest, the spectrum rights and obligations of licences will be transferable to the merged or acquiring organisation.
PTA and Pakistan Electronic Media Regulatory Authority are required to intimate the Frequency Allocation Board (FAB) of any merger/acquisition.
Interestingly, the telecom policy was announced soon after the Mobilink-Warid merger news.
Market sources said both the companies had to get clearance from regulators, like Securities and Exchange Commission of Pakistan, Competition Commission of Pakistan (CCP) and others.
Zong and Ufone are expected to go for consolidation to remain competitive.
After the announcement of the merger, the total subscriber base of the Mobilink-Warid would reach 45 million. Telenor is second with 33 million, Zong 23 million and Ufone 19 million. ARPU of the telecom industry is Rs205.
The merger in the telecom industry was expected for the last five years. Warid had conducted due diligence with a number of local and international players for that.
Industry experts believed that the telecom sector in Pakistan is not too big for five operators; hence mergers in the industry were needed. More consolidations are expected within the next couple of years.
During 2015, good growth in the 3G subscriber base was recorded. Already two million subscribers have started using it, while 4G services subscribers stood at only 400,000. The main hindrance in adoption of 4G service is high cost of 4G-enabled handsets, while Zong, the only company, which acquired the licence of 4G was unable to get the added advantage of the licence.
Customers’ complaints regarding the cellular services increased as all the telecom operators were working on network improvement and integration project after the launch of 3G/4G.
The industry is expanding the network and expecting growth in data subscribers and services.
Impact of Biometric: Total number of mobile subscribers stood at 140 million when the telecom industry started biometric verification of the (subscriber identity module) SIM cards at the end of 2014 on the instructions of the federal government to curb the misuse of mobile phones in terrorism and other crimes.
The PTA data showed that the total mobile subscribers were 120 million by October 2015 after the completion of biometric verification process.
Telecom operators had to invest tremendous effort and resources in this nationwide activity owing to the security situation in the country in the beginning of 2015. However, this activity and investment of telecos seemed to be futile as a tragic incident of the Army Public School took place in which biometric verified SIMs were reported to be used by the attackers.
Fraudulent activities to deceive innocent public in the name of Benazir Income Support Programme stipend, along with many other text message frauds also continued. The authorities are still unable to check this. Interestingly, no such verification was ever done in any part of the world, even in Afghanistan, which has been in a state of war for over a decade and Saudi Arabia where millions of pilgrims visit every year.
Tax issues kept haunting the industry players. The government turned a deaf ear to their demands. The example was an imposition of 19.5 percent general sales tax on data services by the Punjab government. The Punjab government, however, withdrew the tax after six months of its imposition.
None of the operators had deducted this tax from their users in the six-month period (June-November 2015) to promote data usage in Pakistan.
Currently, taxes, applicable on telecom consumers, include sales tax on mobile phone (Rs150-500), international mobile equipment identity tax (Rs150-500), SIM issuance tax (Rs250), SIM activation tax (Rs250), federal excise duty/sales tax on calls and SMS (18.5 percent and 19.5 percent), advance tax (14 percent) and federal excise duty on branchless banking transfer (16 percent).
Overall, these taxes and levies are at least 40 percent, which is one of the highest tax rates in the world.
Among many other taxes, sales tax of 19.5 percent on telecommunication and data services is levied in Khyber Pakhtunkhwa and 18.5 percent in Sindh, which is impeding growth of much required broadband proliferation.
The industry has been so far unable to create local content for the data proliferation, while the data subscribers are mainly using data for emails, global social networking websites and chats.
The rapid data growth is possible only when the local language content will be created by the stakeholders in Pakistan or literacy rate is increased.
India is a successful example of data proliferation through local content development. The telecom industry is not in a mood for further investments due to declining ARPU, increasing taxes and slow growth of data.
A State Bank of Pakistan’s report said telecom companies are not reinvesting much and repatriating most of their earnings.
It is important to recall that the telecom sector had the second largest share in FDI in Pakistan after the financial sector.
Its contribution in profit repatriations has generally remained much less than other sectors, as stiff competition and heavy taxation never allowed firms to raise their profit margins. Revenues of the telecommunication companies are constantly declining.
The government policymakers need to revisit their priorities and create cushion for the once highest FDI attracting industry and one of the largest tax contributing sectors. Otherwise, it will be too late to decide and take measures.