As telco’s commence reporting their latest financial results, it is time to see how the country’s telecom sector performed in the so-called corona quarter (Apr-Jun). The expectation previously was that the sector would survive the brunt of the Covid-19 lockdowns, for it was the ICT services that kept the country running. But the picture that is emerging seems like a case of glass half-full, half-empty.
First came the PTCL Group results last week, where Ufone continued to show losses but that is something not out of the blue for the last-ranked operator. (For more on that, read: “PTCL: back to profit,” published July 16, 2020). Over the weekend, the Telenor Group also announced its second quarter results, which also show a mixed picture for Telenor Pakistan.
In the second quarter ending June 30, 2020, total revenues for Telenor Pakistan declined by 8 percent year-on-year to Rs24 billion. This is because the company’s subscription and traffic revenues – which are heavily reliant on pre-paid users – declined in double digits. As lockdowns continued in that period, to varying degrees, the prepaid sales were impacted due to closure of franchises and difficulties in consumer uptake.
Looked another way, though, the single-digit topline decline in perhaps the toughest quarter in recent memory isn’t exactly catastrophic. In addition, the decline is slightly less bad than the 10 percent yearly fall seen in 1QCY20, when the total revenues came in at Rs25.5 billion.
However, it should be a bit worrying for the operator to see a gradual erosion of its average revenue per users (ARPU). During 2QCY20, the ARPU came down to Rs170 per month, a drop of 11 percent year-on-year. Earlier, the ARPU had also declined by 14 percent year-on-year in 1QCY20, to Rs181 per month. While the loss of “service fee” last summer on account of the apex court verdict is apparently still hurting, that alone cannot explain the double-digit ARPU slide in recent quarters.
Some solace as the operator turned in a 3 percent yearly growth in EBITDA, which stood at Rs13.5 billion. Cost savings accrued, thanks to declining fuel prices and controlled administrative overheads and marketing activities in the lockdown quarter. Hence, EBITDA margin increased to 56 percent in 2QCY20, from 50 percent in same period last year. However, due to markedly higher depreciation and amortization booked in the period, the operating profit slid 16 percent year-on-year to Rs5 billion.
Meanwhile, the issue of license renewal still lingers. In the latest quarterly report, Telenor Group hasn’t signaled progress on a final resolution vis-à-vis the renewal of Telenor Pakistan license that expired in May last year. “In the second quarter, Telenor Pakistan paid an instalment of approximately NOK 0.6 billion for the deposit related to the licence renewal,” the report notes. (That’s about $60 mn or Rs10 bn).
Going further, limited investment in core business and reduced economic activity will be a drag on growth. (Telenor Pakistan’s capex had declined to around Rs3.7 billion in the quarter, about half of what it was in 2QCY19). Resilience is built into telecom networks to ride out difficult operating conditions, but it’s still a tough economic environment to operate in. To accumulate a better sense of the whole sector’s situation, all eyes are now on Veon (Jazz parent), which will announce its latest quarterly results August 6.
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