Mixed trend for old telecom stars

It may not seem as flashy as wireless networks, but fixed-line networks are the backbone of modern telecommunications infrastructure that power the digital economy. In Pakistan, however, fixed-line could itself get a boost. Fixed-line operators (of which PTCL is the dominant entity) made revenues of Rs13.4 billion in FY21 (corresponding to year-on-year growth of 18 percent), as per the recent industry data made available in the latest annual report published by the Pakistan Telecommunication Authority (PTA).

On the positive side, the fixed-line revenues have nearly doubled in the five years to FY21. However, the share of fixed-line sales in Pakistan’s overall telecom market revenues of Rs644 billion continues to stand at a meek 2 percent. Having previously stabilized around the 3 million level in the last decade, the number of fixed-line subscriptions has been under pressure in recent years. The current tally stands around the 2.5 million mark. It is not clear if subscribers are done cutting the cord yet.

In terms of population, the fixed-line subscriptions are at a very low level. As per the World Bank, there was 1 fixed-line connection for every 100 people in Pakistan, as of 2020, lower than 3 percent average seen in lower-middle-income peer-group which Pakistan belongs to. Simiarly, in terms of fixed broadband subscriptions, the density is almost at the same low level and the peer-group gap also holds consistent. It’s a question of billions of dollars(!) in fresh capital investments to raise the fixed coverage significantly.

It was previously suggested by industry leaders that rising investments in fixed broadband infrastructure (DSL, Fiber-to-the-Home, and HFC services) would boost the prospects of fixed-line telephony as well. But it appears that the bet on fixed broadband is yet to pay off, even as mobile broadband subscriptions have crossed 110 million lately. Fixed broadband subscriptions stood around 2.1 million, as of November 2021 data from the PTA. Gains are slow, as it is a painstaking process to lay down new fiber in the cities.

Meanwhile, the Long-distance & International (LDI) telephony continues to thrive despite stiff competition from free (financially, at least) global communication services that are afforded by over-the-top apps such as WhatsApp and the like. As per the latest PTA annual report, the LDI revenues had reached Rs45 billion in FY21, showing a yearly growth of 22 percent. As of April 2021, there were 16 LDI operators in Pakistan, including those that are owned by fixed-line operators as well as mobile network operators.

In recent years, it was observed by many experts that the LDI business would be badly hurt by the growing popularity of OTT apps. However, it is remarkable to see that LDI revenues in Pakistan have almost doubled between FY17 and FY21. As a result, LDI telephony’s share in total telecom revneues had reached 7 percent by FY21, compared to 4 percent five years ago. In the past five years, the LDI sector received investment totaling $177 million and paid taxes of nearly Rs24 billion, PTA data show.

It must be noted, however, that main beneficiaries of rising LDI revenues are presumably the LDI entities owned by mobile network operators rather than LDI businesses run by fixed-line operators, as the former carry the bulk of voice traffic in and out of the country. This situation suggests that operating environment is not getting any easier for the fixed-line players. Further investments into fixed broadband – which is faster and more reliable than mobile broadband – depend on financial viability of fixed-line players.