For over a decade now, telecom-sector executives and analysts have argued that Pakistan’s price-sensitive telecommunications market is financially-unviable for large number of mobile network operators (MNOs). Over five years ago, the five-player market officially became a quartet when Mobilink acquired Warid and re-branded the new entity as Jazz. Of late, there has been growing talk about Telenor Pakistan, which holds a quarter of cellular subscriptions, looking for an exit from this market. (To understand the background, read “Telenor’s turn to go?” published in this space on December 8, 2022).

If all went fine and the Telenor Group found a party to merge with or sell its Pakistan operations to, there will finally be a trio of MNOs, divvying up subscribers up and down the country. A three-player market wouldn’t necessarily lead to a sharp improvement in sector fundamentals (e.g. Average Revenue per User), network expansion or quality of service. And there will, of course, be potential concerns around market dominance, something which the good folks at the CCP may need to carefully consider, along with the need to restore the sector’s financial health.

While speculations in some form have been doing the rounds for at least a year, Telenor has kept mum over any behind-the-scene talks or due-diligence activity. And there is good reason to hold back: it is better to talk when a deal is done. That said, a change in Telenor Pakistan’s ownership seems a bit premature at this stage, despite the fact that the Norway-based telecoms major has been busy rationalizing its Asian market footprint in recent years (for instance in Malaysia, Thailand, Myanmar, as well as India previously).

Looking at the sector, does one see the stars aligning? Market leader Jazz may have the financial capacity to pull off a large deal, but then it might never happen – the combined entity would control nearly two-thirds of cellular subscriptions, becoming too big for regulators. A similar scenario might apply to Zong, whose subscription share would reach half of the market if it took the plunge. Besides, Zong seems content and patiently growing its share organically, especially in mobile broadband. That leaves the PTCL Group’s Ufone, the last-ranked among four major operators, having 12 percent of cellular subscriptions.

Absorbing Telenor Pakistan would catapult Ufone to the number-two spot, just a percentage point shy of Jazz subscription share of 39 percent. That is enticing, but the catch is that Ufone already sits on a large amount of debt which it took up last year to finance its 4G spectrum purchase. Interest payments have become heavier since the steep rise in discount rates after that decision. Unless Etisalat (which holds a management-control stake in the PTCL Group) comes in with big bucks, it’s hard to see a deal here. The fact that Ufone is part of a majority-government-owned entity also makes things a bit complicated.

The worsening economic conditions also militate against the possibility of a buyer entering a deal anytime soon. Capital does not come cheap anymore, as the cost of borrowing, both at home and abroad, has become increasingly forbidding. The local economy itself is in the midst of a painful macroeconomic crisis, characterized by elevated inflation, currency woes, demand suppression, import restrictions, and even concerns about the sovereign’s solvency. None of that augurs well for firm valuation. If an operator is still eager to bolt in such circumstances; it will likely get cents on the dollar. Who wants a fire sale?

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