Factors hampering FDI identified

Fall in average revenue per user, cancellation of license of Pakcom and PTCL dispute with the government of Pakistan over legal transfer of land and property titles are hampering FDI flows to telecom sector in Pakistan, the State Bank of Pakistan report revealed. The SBP in its report analysed the factors behind decline in FDI in the telecom sector, which in the past was a major attraction for foreign investors.
The report said that the telecom was one of the most attractive sectors for foreign investors from FY05 to FY08 and the share of telecom in total FDI started to rise gradually and reached 45.0 percent in FY06. Privatisation of PTCL and investment of foreign cellular companies were dominant factors behind the sharp rise in FDI during FY05-FY08.
Following are the prominent factors that led to a drop in share of these companies. Pakistan Telecommunication Ltd (PTCL)'s 26 percent stake along with management control was sold to Etisalat for $2.8 billion in FY05. These proceeds helped in increasing the financial account surplus at that point of time; however, $800 million payment was held back by Etisalat due to a dispute with the government of Pakistan over legal transfer of land and property titles. If this issue is resolved the inflow of $800 million would definitely provide support to the financial account.
Another factor that led to disinvestment was the cancellation of license of Pakcom (Instaphone) by Pakistan Telecommunication Authority (PTA) because of Pakcom's failure to pay outstanding dues on account of license fee of $291.0 million for the next 15 years. After an unsuccessful legal battle, Pakcom started to disinvest FY10 onwards. Recently, the government has decided to auction the license of Instaphone, which could generate $291.0 million in the upcoming months.
The problem of falling average revenue per user (ARPU) is also a challenge for all the cellular operators. With growing competition and entrance of three foreign cellular companies during FY04-09; profits started to squeeze and ARPU/month declined from $3.2 in FY07 to $2.4 in FY09 onwards. Even the latest data of December 2010 shows that APRU/month is $2.5 only.5 Due to falling average revenues, the existing cellular companies are not only reluctant to bring new investment but one of the cellular company is continuously disinvesting from Pakistan.
Cellular teledensity reached 65 percent by the end of FY11, starting from only 3.0 percent in FY04; this reflects that the telecom sector is at the verge of saturation. This factor is also impeding fresh FDI in this sector. Furthermore, we believe that all the existing cellular companies suffered losses following the cancellation of 16 millions unregistered SIMs by PTA. These are the factors which are hampering FDI flows to telecom sector in Pakistan. However, upcoming auction of 3G licenses and expected release of PTCL privatisation proceeds by Etisalat may lead to some rebound in FDI, the report said.