Telcos in FY11: Not so run-of-the-mill

Stagnated should not be the adjective associated with the telecommunication sector of Pakistan, at least for FY11. After all, latest figures released by the Pakistan Telecommunication Authority (PTA) indicate that the sector had the best year in terms of market penetration since 2007-08, buoyed up by the mobile network operators (MNOs). Total teledensity - the sum of cellular, fixed local loop (FLL) and wireless local loop (WLL) teledensities - reached 69.0 percent in FY11 - an improvement of 7.64 percent over FY10. This growth comes on the heels of impressive cellular penetration. FLL operators, however, continued the declining run they have witnessed since 2005, due to mobile substitution. FLL teledensity declined to 1.9 percent in FY11 - a drop of over 12 percent since FY10. WLL operators added roughly 0.13 million subscribers in FY11, taking their subscriber base to 2.79 million. This helped the WLL teledensity to reach 1.7 percent in FY11 - a 6.25 percent increase since FY10. It is the MNOs whose heavy footprint on the telecommunication scene decides which way the pendulum swings. In terms of subscriber growth, FY11 was the best year for MNOs in last three years. They signed up 9.7 million additional subscribers in FY11 - a growth of 9.79 percent over FY10. The outgoing year was also special in that Pakistan reached the 100 million-subscriber milestone in July 2010. Higher subscriber acquisition is visible in the cellular teledensity figure, which shows penetration at 65.4 percent in FY11 compared to 60.4 percent in FY10. MNOs collectively acquired 9.7 million additional subscribers during FY11, primarily because of focusing on rural areas. Interestingly, the trend in acquisition of additional subscribers is in sharp contrast with the ranking (based on market share) of the mobile network operators (MNOs). Although the rankings of MNOs haven changed, their respective market shares are different from the previous year. Mobilink is still the market leader, yet its market share dropped by 1.82 percent in FY11. Zong is still trailing others, yet its market share improved by 3.28 percent to finally reach double figures in the same year. This trend in varying market shares is primarily due to their respective shares in the 9.7 million net additions over the year. Zong acquired 43.5 percent of additional subscribers in FY11; Telenor 29.5 percent; Mobilink 12.1 percent; Ufone 10.1 percent; and Warid 4.7 percent. While the FY11 performance of the telecom sector is not drab by any means, there are big question marks over next frontiers of growth. Cellular penetration had to slow down after all. Arresting the FLL telephony decline has been a difficult task so far. A discriminatory taxation regime is also weighing heavily on industry players. Enlarging the revenue stream would be critical. MNOs may be able to clinch another five to eight million new subscribers in FY12; however, that wouldn necessarily translate into higher toplines as MNOs margins are getting thin due to cheap tariffs and declining ARPUs. More rural penetration is a given. Value added services (VAS) have been here for a while; however a renewed focus - one that goes beyond cheap SMS bundles and inadequate internet buckets - can expand the revenue pie. Mobile financial services are another promising area the industry hasn shown much appetite for. Reaching out to the unbanked through the branchless banking platform is a tremendous opportunity still knocking at the door. Though costlier in the short run, new technologies like 3G or 4G will come in handy when the market is developed. Time is ripe for diversification.

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Cellular sector comparison (up till June 2011)
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                Market      Total  Subscribers
                 Share   Subscribers    added*
                   (%)        (mn)        (mn)
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1  Mobilink      30.65       33.38        1.18
2  Telenor       24.49       26.67        2.87
3  Ufone         18.86       20.53        0.98
4  Warid         15.97       17.39        0.46
5  Zong          10.04       10.93        4.22
                 Total      108.89        9.71
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Source: PTA * July 2010 to June 2011