Telenor: topline slowdown

Since achieving positive topline growth in CY21 (after a gap of two years) to have revenues reach Rs106 billion, Telenor Pakistan has had a bit of a slow start in the early part of 2022. As per the latest financial results released by the Telenor Group recently, its Pakistan subsidiary posted total revenues of Rs26.3 billion in the three-month period ended March 31, 2022, with growth slowing down to just 1 percent year-on-year. In real terms, adjusting for inflation, this would qualify as negative growth, in double digits.

The main revenue indicator – the average revenue per user (ARPU) – for the second-ranked mobile network operator (MNO) stood at Rs171 per month in the quarter under review, down 2 percent year-on-year compared to Rs174 per month in 1QCY21. The ARPU decline, however, is not unique to Telenor Pakistan, as other operators have also been affected by it in a price-competitive market despite higher mobile broadband penetration. The mini-budget’s increase in WHT on airtime recharge hasn’t helped.

The pace of subscriber acquisition is visibly slowing down. During the quarter under review, Telenor Pakistan added 134,000 subscriptions, which was significantly lower than 1.27 million connections added during 1QCY21. By March 2022 end, the operator had total 49.2 million subscriptions on its network. A relatively bright spot for the Norwegian-origin MNO was that its service revenues increased by 4 percent year-on-year to Rs22.2 billion during 1QCY22, thanks to strong double-digit growth in data revenues.

The impact of rising input costs (especially fuel and utilities) is visible in the operator’s EBITDA going down by 4 percent year-on-year to Rs13.2 billion in 1QCY22. The EBITDA margin, therefore, declined to equate 50 percent of topline in the quarter, compared to 53 percent back in 1QCY21. Operating profit was down by a much bigger proportion, by12 percent year-on-year, to settle at Rs4.9 billion in 1QCY22, as there was a double-digit rise in operating expenditures for the operator.

Capital spending has slowed, too. Telenor Pakistan booked Rs4.3 billion under capex (excluding license and spectrum fees), down 18 percent year-on-year. Operators investing more in this declining-ARPU market is a function of improving operating cash flows and higher returns. Not easy to pull off in the current volatile macroeconomic situation amidst higher incidence of telecom taxes on users! Let’s see if the cash-starved new government is forced to raise taxes on telecom services and devices in the budget.