Jazz during Covid

The leading mobile network operator is the last to announce its latest quarterly results. But the performance is in line with other operators in the so-called corona quarter (Apr-Jun 2020). As per fresh financials issued by Veon, the parent of Pakistan Mobile Communications Limited (Jazz), their Pakistan operations posted a topline decline of 8 percent year-on-year in the quarter ended June 30, 2020. Recall Telenor Pakistan quarterly topline fell similarly (read: “Telenor: mixed signals,” published July 20, 2020).

Within Rs47 billion in overall revenues accrued in the quarter, Jazz’s revenue slide is mainly led by the “mobile service revenues” – the flagship segment for operator. In that segment, the 9 percent sales decline to Rs43 billion has come despite a healthy 11 percent growth in “data users” to 41 million, amid data usage almost doubling to 3.6GB per user. Mind you, data users tend to pay considerably more than non-data users. And data users delivered, as data revenues grew 28 percent year-on-year to Rs16 billion.

But the 2QCY20 revenue slide is mainly affected due to the apex-court-mandated loss of 10 percent “service fee” last summer on airtime purchase. And that is a sector-wide issue affecting all operators. As a result, average revenue per user (ARPU) for Jazz had declined to Rs231 per month in 2QCY20, down significantly from Rs268 per month in the same period last year.

Jazz may be the highest grossing operator on ARPU count, but it turns out that Covid-related lockdowns – which affected the sales of prepaid airtime, devices and Sims – affected the operator in equal measure just as the rest of the sector. Otherwise, topline decline would have been minimal.

The “digital financial services” segment showed a 15 percent yearly decline, on account of lockdown-induced economic slowdown and the regulatory measure to waive fees on mobile transfers. But users still flocked to the service, as JazzCash monthly active mobile wallets had crossed 8 million in the quarter, up 41 percent year-on-year. Similarly, JazzWorld app’s monthly active users quadrupled to 6 million in the period.

Cost pressures were prominent despite a receding topline, as Ebitda declined by a fifth to come down to Rs22 billion. Also dragging Ebitda down is the fact that the operator is treating “amortization” of recent payment ($57 mn paid in May 2020) related to the disputed process of Warid license renewal as a “service cost” As a result, Ebitda margin shrunk by over seven percentage points over last year to settle at 46 percent.

Despite the troublesome quarter, growth was still on Jazz mind as it pumped Rs14 billion in capex (excluding license fees) in 2QCY20 – almost 50 percent more than the same period last year. Even after accounting for declining PKR in the quarter, the fresh investment, meant for 4G-related capacity enhancements and network rollouts – stands out. Going forward, Jazz should be able to grow its topline, as taxation impact of last summer normalizes and remaining Covid-related restrictions gradually ease.