AIRLINK 61.80 Increased By ▲ 0.20 (0.32%)
BOP 6.32 Increased By ▲ 0.06 (0.96%)
CNERGY 4.09 Decreased By ▼ -0.04 (-0.97%)
DFML 15.85 Decreased By ▼ -0.35 (-2.16%)
DGKC 68.76 Increased By ▲ 1.11 (1.64%)
FCCL 17.95 Increased By ▲ 0.04 (0.22%)
FFBL 25.62 Increased By ▲ 0.02 (0.08%)
FFL 9.22 Decreased By ▼ -0.04 (-0.43%)
GGL 9.97 Decreased By ▼ -0.08 (-0.8%)
HBL 115.15 Increased By ▲ 0.35 (0.3%)
HUBC 112.30 Decreased By ▼ -0.20 (-0.18%)
HUMNL 6.56 Decreased By ▼ -0.09 (-1.35%)
KEL 4.56 Increased By ▲ 0.10 (2.24%)
KOSM 4.56 Increased By ▲ 0.01 (0.22%)
MLCF 38.20 Increased By ▲ 0.19 (0.5%)
OGDC 123.18 Decreased By ▼ -2.43 (-1.93%)
PAEL 22.05 Decreased By ▼ -0.47 (-2.09%)
PIAA 11.03 Decreased By ▼ -0.05 (-0.45%)
PIBTL 6.54 Increased By ▲ 0.07 (1.08%)
PPL 106.99 Decreased By ▼ -1.41 (-1.3%)
PRL 27.65 Decreased By ▼ -0.40 (-1.43%)
PTC 10.65 Decreased By ▼ -0.15 (-1.39%)
SEARL 52.30 Decreased By ▼ -0.50 (-0.95%)
SNGP 67.11 Increased By ▲ 0.31 (0.46%)
SSGC 11.45 Increased By ▲ 0.04 (0.35%)
TELE 7.15 Decreased By ▼ -0.05 (-0.69%)
TPLP 11.54 Decreased By ▼ -0.40 (-3.35%)
TRG 76.89 Decreased By ▼ -0.91 (-1.17%)
UNITY 21.34 Decreased By ▼ -0.35 (-1.61%)
WTL 1.27 Decreased By ▼ -0.05 (-3.79%)
BR100 6,493 Decreased By -6.3 (-0.1%)
BR30 22,173 Decreased By -93.6 (-0.42%)
KSE100 63,353 Increased By 47.5 (0.07%)
KSE30 21,324 Increased By 27.6 (0.13%)

The Telecom revolution in Pakistan took place in the early 2000s due to the deregulation of the industry. As a result, many private players ventured in, thousands of new jobs were created, and consumers benefited immensely in the form of low cost and better services. In addition, government revenues increased through taxes and spectrum auctions. The story is good for everyone, but the big telco players and their sponsors are facing the brunt of growing costs.

Earlier this week, the government approved the auction of a new spectrum in the 2,100-megahertz (MHz) band in 5MHz bandwidth for 10 years to fetch around $96 million from each sale. This followed the failed attempt to sell the same spectrum bands last September. The industry recommendations on spectrum design (rupee-based pricing, longer tenures, etc.) are often diametrically opposed to the government’s sole objective of earning as much revenue as possible. That is usually the case whenever there is a spectrum auction. The holistic picture of the opportunity cost (of high spectrum fee) for operators by not investing adequately in requisite infrastructure is never thought through.

The situation was not as worse in the past as it is today. The spectrum auctions are done in USD, while the companies’ revenues are in PKR. Companies’ margins are squeezing in days of sharp currency depreciation and growing energy cost. And at that time high price of spectrums could lead to underinvestment in the sector. The fiscal implication of inadequate infrastructure investment in forgone fiscal revenues in the medium term is much higher than revenues from the spectrum auction.

The industry’s average revenue per user (ARPU) used to be around $4 in the late 2000s, and now it is barely $1 and declining. The decline is both in USD and PKR. On the other hand, the spectrum, licencing, and other costs are increasing. For example, in 2004, licences were issued at $291 million, and 15 years later, these were renewed at $450 million.

In terms of PKR, the cost is three times. This, with falling ARPU (even in the PKR – from 238 in FY19 to 215 in FY21), is making the industry unhealthy. Overall industry bottom line is soon to be in red. This would elude much-needed expansion in networks and deprive the country of the proliferation of broadband.

The government needs to rethink its strategy. One way is to have the spectrum auction in PKR. The government usually pegs the base price on the previous auction. This is fine as long as starting base is PKR and adjusted for inflation. The global best practices also support using the local currency. There are examples worldwide where spectrum prices are set in local currencies – such as India, Thailand, Malaysia, Indonesia, and Mexico.

Right now, the industry is at a severe disadvantage over others. Telecom is a much-needed layer of essential infrastructure for the country. And that 98 percent of broadband comes to Pakistan via mobile phones. It is an industry with high capex, and it's a long-term player. The initial investment is the key. In other industries with high capex, such as independent power plants (IPPs), the revenues are indexed in USD, and other costs are pass-through items. There are talks about changing the cost structure in PKR. Some renegotiations with the IPPs were done in the last regime to move to PKR. This makes the case of having the spectrum costs in telecom in PKR stronger.

Otherwise, foreign players may think of exiting or merging. And the new investment is hard to come by, given the precarious balance of payment issues. For example, some telco companies invested in Pakistan when the PKR/USD parity was around 60. Today the currency is down by 3.5 times, and these companies are finding it extremely hard to make money for their foreign investors in USD. That is restricting the potential for future investment. Then the price war between the players is not conducive to investment in new and innovative products.

Then the tariff adjustments for bigger players (such as Jazz) need pre-approval from the regulator. This takes time and creates unnecessary approval hurdles. Lately, PTA has been supportive. The regulator has been approving tariff adjustments considering the high inflationary environment. However, the current facilitative measures may not be enough to prevent the onset of a digital emergency, given the gravity of the economic situation.


Comments are closed.

Sohail Shahzad Aug 05, 2022 06:26pm
Jazz is always remains the forefront player to cope the uncertain economic situation to facilitate its customers.
thumb_up Recommended (0)
Sohail Shahzad Aug 05, 2022 06:26pm
Jazz is always remains the forefront player to cope the uncertain economic situation to facilitate its customers.
thumb_up Recommended (0)
Mudassar Rehman Aug 05, 2022 06:38pm
Telecom sector is declaring a #digitalemergency and there is a good reason for that. Banning phone imports and imposing insane taxes is not a way to promote digital inclusion so maybe it's time to reevaluate our efforts for a #digitalpakistan
thumb_up Recommended (0)
Usman Aug 05, 2022 06:55pm
No doubt Musharraf Era was better in terms of Economic development in the country and Shaukat aziz policies of deregulation and Privatization.
thumb_up Recommended (0)
Khan Aug 06, 2022 07:08pm
So telcos will repatriate in USD, but want to invest in PKR. Tariffs adjustment is a separate thing and shouldn't be confused with new auctions.
thumb_up Recommended (0)