At a time when the telecom industry has caught flu, Pakistan Mobile Communications Limited, or in local parley Jazz, seems to be doing fine. As per latest financial results from Veon Ltd, which is the parent company of Jazz, the top-ranked cellular operator closed the year ended December 31, 2010 with a nearly 8 percent topline growth in rupee terms and a 5 percent growth in operating income in dollar terms.
During CY19, a combination of depressed consumer economy and regulatory hiccups affected the telecom sector deeply. Perhaps, the biggest blow came last July when the Supreme Court in July 2019 barred telecom operators from deducting 10 percent of airtime recharge/top-up as service or maintenance fees. This has affected all the operators, albeit the impact is of varying degrees.
All this while, a depreciating PKR sapped the spirits at HQ’s of major telco’s as dollar-based returns dipped. (Jazz’s dollar topline declined 12 percent year-on-year to come down to $1.32 billion in CY19). Then there was the litigation over license renewals for Telenor and Jazz’s Warid license. (For more on that, read: “Telecoms: renewal saga isn’t over,” published November 13, 2019). Also, regulatory crackdown on smartphones in the grey-market indirectly hurt the operators’ subscriber growth.
But thanks to its scale and strategy, Jazz survived a difficult year. The operator boosted its mobile subscription base by 8 percent to reach 60.5 customers. The “digital focus” seems to be paying off, as the operator focuses on acquiring high-value customers.
During CY19, Jazz’s mobile data revenues reached Rs55.5 billion, up 45 percent over CY18. Moreover, mobile data revenues have grown their concentration in the topline, reaching a share of 28 percent, up from 21 percent the previous year.
While usage of call “minutes” declined, the operator’s data usage had almost doubled during the year to 2.5GBs per month per subscriber. The latest annual report by Veon attributes the data surge to achieving higher number of data users, continued conversion to 4G users, data network expansion, and growing usage of data bundles among subscribers. As a result, the rupee-based average revenue per user (ARPU) jumped 3 percent in the year to reach Rs259 per month.
It was a tough operating environment for all operators, as the hike in prices of petrol, electricity and other inputs, along with PKR depreciation, drove the expenditures up north. However, Jazz recorded EBITDA growth of 15 percent over CY18, more than topline growth, which suggests operational synergies were hard at work. In the end, despite PKR depreciation, Jazz delivered a 5 percent yearly growth in USD-based operating profits, which clocked $430 million in CY19.
Be that as it may, rupee-based ARPU has been showing weakness lately, as it was down both 14 percent in 3QCY19 and 2 percent in 4QCY19. This mainly owes to apex-court’s decision that put stop to lucrative service fee. The sharp lower revenue growth in recent periods is a reversal from the double-digit topline growth seen in prior four successive quarters. However, it helps Jazz that it has a strong financial services business, where revenues grew 10 percent year-on-year to reach close to Rs14 billion in CY19.
Meanwhile, the license renewal saga continues. While Veon gave no indication that it would settle or further litigate the matter with the government, the adjudication process seems slow, as the report noted that the “Islamabad High Court has not yet scheduled a hearing date”. However, there was no word on local authorities’ finding fault with the 2016 merger. (For more on that, read: “On Mobilink-Warid merger,” published February 3, 2020). The sooner such dark clouds disappear, the better it will be for the sector.