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Heading into 2020, it is time to reflect on how the current year has fared for the leading sectors. For the telecoms sector, 2019 was a mixed bag. On the positive side, the number of mobile broadband subscriptions (3G and 4G) had expanded to 73 million (as of October), a penetration rate of 35 percent. Sectoral FDI was also significantly up this calendar year, along with profit repatriations to the sponsors.

On several other counts, however, it was arguably a tough year for the local telco’s. For one, the saga of telecom license renewal is still alive. The three operators, Jazz, Telenor, and now Zong, have paid up 50 percent of their license renewal fee as per the court order. But the fate of remaining 50 percent of the amount – a sum in excess of Rs100 billion – as well as a fair licensing regime hangs in the balance.

The government, which hasn’t yet come up with a new roadmap to expand broadband access to un-served and under-served areas, seems optimistic about resolution of this dispute before June 2020. After all, much is riding on the “non-tax revenues” sources, for the government has to close FY20 with a primary fiscal balance as per IMF agreement. But signals from telco’s suggest they may not back down. (For more on this lingering dispute, read: “Telecoms: renewal saga isn’t over,” published November 13).

Meanwhile, financial results of leading telco’s suggest a topline under fatigue amid the serious economic stabilization. The average revenue per user is going down in rupee terms, as per latest financial data, seriously affecting the sector profitability. (For more on latest operator results, read: “Jazz: it hurts without service charge,” published November 6; also read: “Telenor: facing headwinds,” published October 29).

Other regulatory changes, besides the license renewal fracas, also hurt the telco’s case during the year. A major hit came when the apex court ruled with finality earlier this year that the operators could no longer deduct 10 percent of customer re-charge as upfront service/administrative/maintenance fees. What further affected the topline was the re-imposition of the 12.5 percent advance income tax, which meant that consumers had that much less to spend on airtime and operators that much less to pocket.

Adding to the ado, the decline in PKR until July 2019 continued to make local returns and valuations less lucrative for the HQs of leading players. Amid macroeconomic woes and regulatory hiccups, the telco’s tried their hand at controlling their costs and expenditures, at a time when network costs were increasing, utility and fuel prices were rising, and imported machinery and apparatus were getting costlier thanks to PKR depreciation and import duties. But only the largest entity could weather the storm better.

On face value, the net FDI into the sector, which came in at $340 million in Jan-Nov 2019 as opposed to negative 7 million in same period last year (as per SBP data), looks great. But it is thanks mainly to inflows from Telenor HQ into Pakistan to settle partial license-renewal payment. Hence, FDI surge cannot be attributed to great expectations about local business environment. The roughly 60 percent hike in profit repatriation ($271 mn, for Jan-Oct period) seems to be triggered by a rapidly falling rupee in May-June.

Meanwhile, the ray of hope for the sector is that mobile data users are still growing along with even higher growth in data usage, as well as growth in mobile financial services revenues. Over time, telco’s are hoping to convert bulk of their users to mobile broadband and then monetize their data offerings better. However, it is hard for the players to raise prices of data bundles, as the competition is high and the market is largely price-conscious in nature. Let’s see if 2020 turns out any different than 2019.