Telco’s in 2020

Dubbed as “a year like no other,” 2020 was also an unprecedented year for connectivity providers. Amidst a raging pandemic, providing uninterrupted service was a challenge for telco’s in Pakistan (just as elsewhere). But with no known reports of widespread network failure yet, up and running digital transactions and interactions helped save the year from turning into a complete nightmare. Being digital-facing firms, telco’s found it easier to migrate to touch-free networks. Previous lessons from operating in Pakistan during a number of crises (floods, earthquakes and terrorism) also helped operators.

The digital system came through, albeit mainly for those regions and demographics who already had access to mobile phone and Internet connectivity. This exposé of digital inequality hasn’t caught policy attention yet, with implications for remote learning, tele health and financial inclusion. The closest the government came to supporting the digital ecosystem was mandating the financial institutions to waive fees on online banking transactions. Meanwhile, ICT services continued to be taxed at a high level.

On to the sector fundamentals, it is remarkable that fixed broadband subscriptions did not grow at all during the peak pandemic period. The latest data available from PTA show that DSL subscriptions in August 2020 stood at 1.57 million, marginally lower than 1.58 million in the pre-crisis month of February 2020. The sluggishness in fixed broadband is a pre-crisis phenomenon, but given the need for a high-quality residential Internet connection to cope with the pandemic times, this lack of growth is stunning.

So the pandemic didn't change the dynamics in favor of mobile-based Internet. Since February, mobile broadband subscriptions (3G and 4G) grew by 5.3 million, or 5 percent, to reach 84.8 million in August. However, the crisis has affected hitherto-healthy growth, as subscriptions took a hit in April and May. Jazz accounted for half of this gain, followed by Telenor (27%) and Zong (22%). With 31 million subscriptions as of August, Jazz was the market leader with a 37 percent share, reflecting the fruits of scale. This is followed by 29 percent market share for Zong, 22 percent for Telenor and 11 percent for Ufone.

While the subscription growth in mobile broadband came down in 2020, there is a surge in handset imports. In the Jan-Nov period this year, mobile phone imports had reached $1.4 billion, as per SBP data – an increase of 101 percent over the same period last year. These imports are also significantly higher than $625 million average seen in analysis period over past five years. While the PTA’s DIRBS system seems to have helped formalize mobile phone imports, the rising import bill is a cause for concern.

Turning to topline, latest revenue figures are not available for the whole sector, but financial statements of operators’ holding firms reveal mixed blessings during the year. Key topline indicator – average revenue per user (ARPU) – continues to decline for Telenor Pakistan, but it showed growth at Jazz. Meanwhile, Ufone has shown strength in recent quarter. Overall, operators posted EBITDA growth in a difficult business environment (on top of loss of ‘service fee’ last year) by cutting down on operating expenses.

The sector’s investment numbers looked disappointing during the year. Calculations from SBP data show that gross FDI inflows in the telecom sector, for the period Jan-Nov 2020, had dropped by 29 percent, compared with the same period last year, to $387 million. To make it worse, outflows had increased in the period by 15 percent year-on-year to $173 million. In the end, the net FDI (inflows less outflows) totaled $214 million, down 45 percent from $393 million in Jan-Nov 2019 period.

While FDI inflows were hurt by limitations on active capital spending in a year marked by mobility restrictions and cash flow prioritization, the pandemic can only partly explain reversal in FDI fortunes. Higher outflows could reflect an unpredictable regulatory environment faced by telco’s. After all, the license renewal saga remains mired in a litigation, to the dissatisfaction of telco’s sponsors. In addition, taxman’s overreach, evident in sealing of Jazz HQ in late October, has dampened investor sentiment. Meanwhile, government is preparing to auction fresh spectrum amid perceived uncertainty over policies.