Whether its a mobile operator, fixed line service provider, or internet service company in Pakistan, all share the same story of shrinking profit margins. The main villain in their story is none other than he growing competition in the telecom industry that has been forcing service providers to offer their products and packages at throwaway prices.
To ensure their sustainability, with many telecom providers nursing negative bottom-line, telecom companies, such as Wateen Telecom, WorldCall Telecom Limited (WTL), PTCL and other mobile operators are currently raising their stakes.
This can be gauged from WTLs request to its parent company Oman Telecommu-nications (Omantel), which owned 56.8 percent stake, to fund $70 million (Rs6 billion).
Out of this fresh injection, WTL will use $27 million (Rs2.3 billion) to meet its capital expenditure requirements and the rest to refinance its existing liabilities. Similarly, earlier this year, Wateen also injected liquidity into its company through the issuance of shares worth Rs2 billion.
It seems that growing demand for telecom products in Pakistan has been enough to convince Omantel to chip in funds, as it has lately decided to seek its shareholders approval for providing a guarantee to a third party to obtain loan facility for its subsidiary..
"The company has the potential to improve, subject to the availability of funding of $70 million to finance its capex requirement, restructure expensive debt and meeting other financial obligations," as per Omantels notice posted on Muscat Securities Market last week.
The move follows the assessment by Mirabud (Middle East) Ltd, an investment banking advisor appointed by Omantel to access a range of financing alternatives, which has recommended Omantel to provide half of the financing amount through the issuance of convertible bond, and half by way of guaranteeing a bank facility.
WTL faces tough competition in the fixed line and wireless segment, but it has achieved tremendous growth in its revenue stream in CY09, reaching around Rs8.4 billion compared to around Rs3 billion in CY08, contributed mainly by data segment and LDI.
In the fixed line segment, WTLs subscribers base fell by nearly half to around 9,874 subscribers in FY10, while in the wireless local loop service segment, the company has been successful in protecting its market share, currently hovering around 22 percent.
With around Rs6 billion debt on the companys balance sheet, debt restructuring would help WTL in reducing its financing cost. But higher depreciation expenses, on account of growing capital expenditure, would continue to put pressure on the companys bottom line.
However, negative EBIT during the first nine month of 2010 suggest that company would need to look harder into cost cutting techniques and to further streamline its operations to withstand competition.