Despite background protestations by mobile network operators (MNOs), the government does not seem to be in a mood to take back the telecoms-related tax measures from the so-called mini budget. (For more on that, read “Mini-budget and Telecoms,” published January 6, 2022). In this backdrop, a critical question has again surfaced: can the country develop its digital economy with a tax-heavy approach?
The investment needed to provide equitable access to affordable broadband is considered too large for the government to continue down a course that thoroughly disenchants the private sector operators. Just a few months back, three leading MNOs had stayed away from the PTA’s mega spectrum auction. In recent years, the same three operators were made to jump through hoops to get their licenses renewed, and at a considerable cost. And fiscal imperatives have impacted sector development longer than that!
Over the past two decades, deliberate policy decisions have allowed wireless (cellular) connectivity to proliferate (with clear benefits), but it came at the cost of ignoring the wireline (fixed) infrastructure. In hindsight, it now looks somewhat smooth how mobile phone connectivity (voice & text services) had rapidly expanded in Pakistan, reaching even remote areas. Certainly easier compared with challenges around financial, human and technological capacity in scaling high-speed broadband to far-off regions!
Bad news is that investment inflows have already faded in the sector. Over the past decade, the strength of foreign direct investment (FDI) inflows in the telecoms sector, and its share in overall country FDI, has been influenced by spectrum auctions or license renewals. As the illustration shows, there were only three years over the past decade where net telecom FDI (inflows less outflows) exceeded $250 million – two of them (FY14 and FY16) were the years when government sold new spectrum. and one of them (FY20) was when significant proceeds came in as a result of contentious process of license renewals.
No wonder those large inflows, which materialized, essentially, due to government directives, were unsustainable. Now Pakistan requires a whole lot of investment in fiber optic networks, if un-served and under-served regions are to get high-speed broadband and if existing coverage quality in urban centers is to significantly improve. Government officials talking up 5G won’t do any good if infrastructure is not ready. And 5G, in most likelihood, will have more relevance in dense urban areas due to its use cases.
The government needs to treat broadband as an essential service and provide a radical roadmap to encourage infrastructure development in order to substantially scale-up digital connectivity, especially in areas with poor coverage. Considering that bulk of the capital spending has to come from the private sector, the least the government can do is follow a fair and predictable path on sector policies, auctions, taxes & duties. Else, operators are bound to cut corners, leaving users alone with the short end of the stick.