Good times for telcos

Pakistans mobile network operators (MNOs) should have less to complain about these days. In terms of both market penetration and financial health, they seem to have done well lately.

As per the latest statistics by the Pakistan Telecommunications Authority (PTA), cellular subscriptions 2G, 3G, and 4G have cumulatively added 4 million subscriptions in the seven months ended January 2017, reaching a tally of 137 million. Following the Warid acquisition, Jazz leads the pack with 51.5 million subscriptions, followed by 39.5 million for Telenor, 27.5 million for Zong, and 18.5 million for Ufone.

Beneath the surface, a shift from basic cellular connectivity (2G) to mobile broadband (3G and 4G) is taking place. The 2G subscriptions went down by roughly five million users in that period. In contrast, the 3G and 4G services added 9 million additional subscriptions since June 2016, taking the mobile broadband score to 38.3 million subscriptions as of January end 2017.

3G operators continue to add roughly a million new subscriptions every month. As of January, they were serving 34.8 million subscriptions. In this segment, too, Jazz is leading, with 11.9 million subscriptions. It is followed by Telenor (10.1 mn), Zong (7.5 mn), and Ufone (5.1 mn). In the 4G segment, there were roughly 3.5 million users as of January end. More than quadrupling its 4G base since June 2016, Zong leads the pack with 2.8 million subscriptions, followed by Warid/Jazz LTE at 0.7 million.

While expanding their market penetration, how are the firms doing financially? We estimate from the recent PTCL Group corporate results that Ufone was able to reduce its losses by about a quarter in CY16. While the Rs5 billion net loss is significant; it is reassuring that Ufone has been better monetizing its subscription base. During CY16, the operator grew its topline by roughly 7 percent year-on-year.

Telenor Pakistans financials, announced by its parent earlier this month, also had healthy signs. The company had grown its CY16 revenues by 10 percent in rupee terms to Rs109 billion and by 12 percent in Norwegian Krones (NOK) terms to 8.7 billion. Operating profit had also grown in double digits to NOK2.25 billion and in single digits to Rs28 billion.

Major boost seems to occur at Jazz, whose latest financials were announced by its parent, VimpelCom, earlier this week. Jazz, the combined entity made of Mobilink and Warid, earned revenues worth Rs 135.6 billion in CY16 up 15 percent year-on-year on an organic basis and up 30 percent taking into account Warid revenues.

The market leader showed strong growth in mobile data revenues; however, its ARPU stood at Rs229 per month, down 0.8 percent organically but up by a rupee when accounting for Warid users as well. Ebitda margin stood at 39.1 percent, up 1.3 percentage points organically. The firms mobile financial services revenues were also said to grow by 34 percent year-on-year.

While all this is good news for mobile broadband operators, the fate of an old behemoth is under a cloud. The 3G and 4G services continue to rattle wireless broadband territory, where PTCLs Evo services which were supposed to transition PTCL from a fixed-line operator to a modern broadband player keep showing negative growth.

Back in June 2014, around the time when 3G/4G services were being launched in Pakistan, PTCLs Evo subscriptions were 1.86 million. Two and a half years later, they are now more than halved to 0.87 million. Meanwhile, PTCLs DSL subscriptions have remained flat at 1.4 million during this period. The management needs to address this situation, as the firm continues to suffer from topline decline.