GROWTH IN TELECOM SECTOR

GROWTH IN TELECOM SECTOR

INTRODUCTION:

Since the inception of Pakistan, basic telecom services were being provided by a monopolist,
previously called as Telephone and Telegraph department (T&T). The department was being run
by the government and played multiple roles as regulator, policy maker, operator and service
provider in the country. The T&T department was later converted into a corporation. Although
the corporation was earning huge profits from the services, it was re-investing the same profits
into the sector for the provision of more telecom service but the investment was not enough.
Further, with the technological advancement, more and more telecom services were becoming
available but there was not enough money available with the corporation to install new telecom
systems for the provision of modern services. Resultantly, a digital divide prevailed in Pakistan
keeping it behind its neighbors and other comparable countries in terms of telecom access.
The unprecedented growth and development in the telecom sector in Pakistan is the result of
efficient regulation and policy-making on the part of the government and Pakistan
Telecommunication Authority (PTA), besides business friendly investment policy, favourable
environments and pressure free autonomous role in promotion of telecom services in the country.
Since its inception in 1996, the Authority has adhered to the effective policies. It has taken
quantum leaps, making spectacular scores by winning promising investments and honour at
home and from abroad. Under Telecom Reorganization Act 1996, Pakistan Telecommunication
Authority (PTA) was established in January 1997 to regulate the establishment, operation and
maintenance of telecommunication systems, and the provision of telecom services.
Cellular mobile services in Pakistan commenced in 90s when two cellular mobile telephone
licenses were awarded to Paktel and Pak Com (Instaphone) for provision of cellular mobile
telephony in Pakistan. Currently there are six cellular players in the market. There has been a
tremendous growth in Cellular market. By the end of 2007 cellular mobile services were
available in 7011 cities/towns and villages.

GROWTH OF TELECOM SECTOR IN PAKISTAN:

Although tremendous growth has taken place in the Pakistan telecom sector but most of it can be
attributed to the cellular growth. Fixed line is still awaiting a take off. Similarly Value Added
Services have grown but are still a drop in the bucket. Now that the competition has been
introduced in the telecom sector some very positive impact have been observed on the growth of
the sector in a short span of time which is expected to continue to grow for at least next five
years if the daring investors influx continue as in the last 3 years. A brief account of the growth
in telecom sector is given below.

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HISTORY OF MOBILE SECTOR IN PAKISTAN:

Cellular mobile services in Pakistan commenced in 90s when two cellular mobile telephone
licenses were awarded to Paktel and Pak Com (Instaphone) for provision of cellular mobile
telephony in Pakistan.
Four years ago, when the telecom sector was deregulated, Pakistan’s teledensity was only 4.3
percent, which now stands at 45.1 percent. This report casts a glance at the unprecedented
growth of the cellular sector in (July-June) fiscal year 2007 and envisages the future growth
prospects of this sector.
The number of cellular users grew by a massive 83 percent to 63 million in the country, making
Pakistan one of the world’s fastest growing telecom markets. Neighboring country India also had
a similar growth phenomenon as it witnessed 73 percent growth in cellular subscribers over the
year.
After the arrival of Warid and Telenor, a strong growth and a stressful competition has been seen
in the telecom industry. Telenor and Warid, registered 200 percent and 118 percent growth in
their subscriber base in FY07, respectively. They were followed by Ufone and Mobilink with 87
percent and 54 percent growth, respectively. On the other hand, the other two service providers
Paktel and Interphone remained laggard.
Currently there are six cellular players in the market. There has been a tremendous growth in
Cellular market. By the end of 2007 cellular mobile services were available in 7011 cities/towns
and villages.

MOBILE SECTOR:

Telecom industry has shown significant improvement since its liberalization was initiated in
January 2004, with an unprecedented growth in mobile sector.
Pakistan, over this period has remained fastest growing domestic market across Asia although
other regional countries are performing well but, Pakistan has been experiencing more than
150% continuous growth rate for last two years, which is unseen elsewhere.
Mobile sector which is now driven by lowest tariffs, maximum coverage, and relatively better
quality the Pakistan mobile market maintained rapid growth during 2007. The newly deregulated
mobile market is now working on sustaining the mobile boom that hit Pakistan 2 years back and
on the brink of adding Value Added Services to increase ARPU along with customer
satisfactions.
Currently, the mobile sector is undergoing intense competition among the six mobile operators.
In this scenario and in the best interest of their long term sustainability, mobile operators are now
forming strategies driven towards being at lowest cost, extensive network coverage and
connectivity, innovative products and segmentation. Value Added Services have become
important over last two years.

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Steady growth saw addition of more than two million mobile subscribers every month
throughout the last year. Network coverage of almost 90% of the total population of Pakistan has
made mobile industry even more attractive for foreign investment. Pakistan has emerged as one
of the fastest growing mobile markets among the developing nations. This year the sector grew
by 80% whereas average growth rate in last 4 years has been more than 100%. Today total
subscribers have reached 76.9 million (Dec 2007) whereas it was 34.5million in 2006 and
12.7million in 2005. Figure-11 shows the subscribers growth of different Cellular Mobile
Operators.

80 2.4

70 15.3
1
Million Subscribers

60 10.7 Paktel
16.4
Telenor
50
14
Ufone
40 13.4
1 10.6 Warid
3.6 0.3
30 7.5 0.3 Instaphone
4.9 Mobilink
20 0.3 30.9
26.3
10 17.2

0
Jun - 06 Jun - 07 Jan - 08

Figure-1
1 Cellular Subscribers Growth

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COVERAGE AREA BY MOBILE SEVICE PROVIDERS:

In Pakistan’s competitive and heated mobile market operator’s survival lies in getting into new
areas exploring new Value Added products, and providing better quality of services. This is only
possible by rolling out networks and be the first to reach untapped population of the country. Out
of 376 tehsils across Pakistan, almost 77 % are covered with mobile networks, bringing the
figure to 290.
All companies of mobile cellular industry are providing their services and product to the
different cities, towns, and villages of the Pakistan to generate revenue. Mobilink is covering the
most of the area of Pakistan having 7011 regions including cities, districts and tehseels in
Pakistan. Ufone is covering 2986 regions in Pakistan ufone is securing second rank according to
the coverage of suvices in Pakistan. Telenor is occupying 1252 cities and towns of the Pakistan.
Paktel, Warid, and Instaphone cover very small areas of Pakistan.

8000 7011
7000

6000
Mobilink
5000
Ufone
4000
2986 Telenor
3000
Paktel
2000 1252 Warid
1000 185 363 Instaphone
95
0

Figure
Figure-2
2 Cities/Towns/Villages covered by the company

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OPERATOR’s SHARE IN MOBILE SECTOR:

Mobilink continued to be market leader in terms of market share by subscriber in Dec 2007
although the company lost its share of 11% in the reporting year i.e. from 50% in 2006 to 39%
till Dec 2007. Warid acquired 3% market share in 2007 and has 17% of tot total
al mobile subscribers
in Pakistan at the end of 2007. Ufone and Telenor also gained some market share where
Instaphone lost its market during the year. Similarly in terms of revenue Mobilink maintained
highest market share in 2007 followed by Telenor, Ufon
Ufone and Warid
In 2007 the share of each company in mobile market exhibited a change, except for Ufone whose
subscriber share remained more or less the same.Mobilink kept on loosing its share for another
year in favour of Telenor and Warid despite its secursecuree subscriber base, whereas Paktel and
Instaphone share in the market also dropped as both companies are struggling with transitional
phase. Figure-33 depicts the Cellular mobile operators share in the telecommunication market.

Operator's Share

21%
39%
Mobilink
Ufone
Warid
17%
Telenor
Instaphone
20% Paktel
3%
0%

Figure
Figure-3
3 Share in Mobile Market by Operators (Jan-08)
(Jan

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FIXED LINE SECTOR:

The growth pattern followed by fixed line subscribers has been discouraging and disappointing
over the last couple of years. There was increasing trend in fixed line connection from 2001 to
2006 but dropped in 2007 in details after the deregulation imposed on telecom sector and the
emergence of mobile sector the fixed lines began to fall in early 2007 after having similar growth
enjoyed in 2006. In comparison of 2004 and 2005 the growth in 2005 shows very sharp trend by
having almost of 0.73 million profit in comparison of 2004.from 2002 to 2004 there was
increasing trend in growth but was slow but after that it increased and the time come when it
declined.

The growth trend is further shown in F

Figure-4

6
5.23 5.24 5.24
4.8
5 4.5
4
3.7
4
Million

0
2002 2003 2004 2005 2006 2007 Dec 07

Figure-4
4 Fixed line subscribers

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TELEDENSITY COMPARISION OF PTCL, WLL AND CE

CELLULAR
LLULAR SERVICES:

Teledensity - The number of landline telephones in use for every 100 individuals living within
an area.
As WLL services were introduced in 2005 so till 2004 only fixed line telephony and cellular
services were in market and in these years on average cellular services were occupying 2.03% of
market and fixed line was occupying 2.71% of market after 2004 mobile mobil services grew
tremendously and currently it is having 48.96% of market. WLL services growing from 2005 till
now but very slow. Fixed line services grew till 2006 but during
uring 2007 fixed teledensity dropped
from 3.04% to 2.99%. WLL and Cellular teledensity is increasing which can be seen in Fig-5
Fig

60
1.39

50 1.1

40
Percentage

WLL
30 0.66
48.96 Cellular
40.1
Fixed
20
0.17 22.21
10 3.31
1.16 1.62 8.3
2.5 2.69 2.94 3.43 3.37 3.04 2.99
0
2002 2003 2004 2005 2006 2007 Jan 08

Figure-5
5 Teledensity of WLL/Cellular/Fixed Sector

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WIRELESS LOCAL LOOP (WLL) S

SECTOR:

The telecommunication landscape in Pakistan is interesting because of many reasons. For

one, after deregulation it allowed both GSM (for mobile service) and CDMA which was
described as an alternative to traditional copper line
line. To avoid direct competition and conflicts
about the license fee amounts, CDMA was confined to Limited Mobility.
CDMA operators started in Pakistan in 2004 when PTA auctioned four frequency spectrum sp
ranges - 450 MHz, 479 MHz, 1900 MHz, and 3.5 GHz for each of the 14 of licensed regions of
the country - with the necessity of providing services in Wireless Local Loop (WLL) standard.
As of this writing, there are 16 WLL license holders with licenses in different regions.
This led to some interesting scenarios. First the frequency allocations varied by region. For
example, Worldcall Telecom Ltd. won frequencies in all 14 regions, but in Karachi it received
the frequencies only in 450 MHz, in 10 regi regions
ons only in 479 MHz, in 10 other regions only in
1900 MHz, and in 9 regions only in 3.5 GHz. It was also thought that some of the companies just
wanted to get a license for future trading purpose and not with genuine intentions of using it.
Market Share & Outlook
After 3 years of introduction where is the market today with WLL? As of June 2007 there are
about 1.85 million WLL subscribers in Pakistan. Pakistan Telecommunication Company that
works under the trademark PTCL V is the leader with a market share off 59%. TeleCard (GO
CDMA) has 23% of the market. Worldcall Telecom has 15% share of the WLL subscribers. As
of the writing currently there are 2.1 million subscribers of WLL services which can be seen in
Fig-6.

WLL Subscribers
2,500,000

2,123,179
2,000,000

1,702,098
1,500,000

Subscribers
1,000,000 1,025,328

500,000
264,828
0 17,391
2003-04 2004
2004-05 2005-06 2006-07 Dec - 07

Figure-6
6 WLL Subscribers

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GOVERNMENT POLICIES TOWARDS TELECOM SECTOR:

The major policy which government implemented on the telecom sector is liberalization and
deregulation.

Impact of Deregulation on Telecom Growth

The impact of telecom deregulation on overall economy is quite obvious. Total revenue of Rs
235,613 million was generated by telecom industry in 2007. This contribution has major impact
on economy of Pakistan. The sector is currently contributing 2% GDP out of 7% to the
Government of Pakistan.
With the de-regulation in the fixed line and mobile sectors we expect considerable amount of
investment both locally and internationally. This will enhance local telecom infrastructure and
bring new telecom services in the country. It will bring state-of-the-art technologies and
innovations in the country at a much faster pace.
The real impact of deregulation on telecom growth is not visible at the moment. The immediate
impact is financial. Pakistan’s economy has been boosted by about 600 million dollars in
addition to 14515 million rupees through the auction of licenses/ spectrum for the provision of
cellular mobile telephony, wireless local loop and long distance/ international access. The
following discussion, however, may make us able to visualize the expected impact on the
telecom growth due to deregulation.
Deregulation would bring competition to new heights in the telecom industry. In order to protect
the customers and create new revenues, it would be critical that strategic, trusting relationships
are developed with customers. New technologies including the use of real-time business
intelligence solutions, integrated intelligent call centers and other emerging business
technologies would make a real difference in ensuring customer satisfaction. At the same time,
there would be a growing need to protect both customers and operators against all aspects of
fraud.
As the telecommunications are deregulated and long distance telephone service face increased
competition, rights of way are emerging as a new profit center and a new industry.

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INVESTMENTS IN TELECOM SECTOR:

With increasing levels of mobile penetration, coupled with increasing levels of demand for
technologies such as VoIP and satellite access technologies, Pakistan is fast evolving as one of
the telecom sector's key investment prospects.
Continued market liberalization is reshaping the regulatory environment, creating a more
investment friendly climate in telecom sector of Pakistan.
Last year has observed a high economic activity in the telecom sector of Pakistan when a number
of licenses have been issued to private companies at exorbitant prices. It also brought a major
chunk of foreign investment in the country. It has also created euphoria among economic
managers of the country who expect further investment and employment in this sector.
China mobile has invested $704 million in Pakistan during 2006-07 for expansion of CMPAK
network. China Mobile Communication Corporation which is owned by the Chinese government
is the most valuable telecom company over the globe is listed in Hong Kong and New York
stock exchange. The PTA has facilitated China Mobile for smooth takeover of Paktel further
providing the company with temporary frequencies for expansion of their network – at present
has been given the license to operate mobile cellular services in AJK and Northern Areas.

Foreign Direct Investment

FDI: The telecom sector’s contribution to the national economy is a singular accomplishment. It
has contributed 8 billion rupees to the national exchequer while the FDI into the sector during
2006-07 was over $1.8 billion which is a record. This being the only sector of the national
economy to attract such a plethora. It goes without saying that the government and stakeholders
are also getting their due benefits. Direct contribution of the sector alone in GDP is about 2 per
cent while in all other sectors of the economy this share is carried to about 5 per cent. Telecom
sector’s revenue mark reached Rs236 billion in 2006-07 and a total investment of $1824 million
becoming about 35 per cent of the total FDI in the country. It is worth mentioning here that
telecom companies’ investments, particularly the mobile segment made during the last four years
have reached $8 billion.

FDI in Telecom Sector

(US$ million)
Total FDI FDI in Telecom Telecom Share (%)
2001-02 484.7 6.1 1.3
2002-03 798.0 13.5 1.7
2003-04 949.4 207.1 21.8
2004-05 1,524.0 494.4 32.4
2005-06 3,521.0 1,905.1 54.1
Source: State Bank of Pakistan

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REVENUES GENERATED BY TELECOM SECTOR:

Industry profitability may be significantly affected by the intense competition derived from the
market liberalization. The companies will try to gain market share even at the expense of their
margins and launch aggressive marketing campaigns to enlarge their customer bases, aiming to
achieve important economies of scale and position themselves as the market leaders.
Looking at the financial side of the growth, revenues of existing mobile operators are showing
extraordinary growth whereas only Mobilink?s revenue expected to be doubled in year 2004
which was only PKR 12.2 billion in 2003. Similarly government taxes in terms of general sales
tax and withholding tax increased considerably during the last year. GST that was collected by
the government from mobile and fixed line operators only is more than PKR 7 billion in last 5
months.

Total Telecom Revenues

(Rs. Million)
Services/Company 2003-04 2004-05 2005-06
Cellular 27,840 48,880 90,057
PTCL & NTC 78,356 79,658 71,581
LDI/LL/WLL 1,336 5,536 17,160
VAS 10,056 12,570 13,827
Grand Total 117,588 146,645 192,626
*PTCL Data for the year 2005-06 estimated based on 9 months Data while NTC Data estimated on average of last
two year

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AFFECTS OF TELECOM SECTOR ON ECONOMY:

Telecom sector has contributed substantially to the country’s thriving economy and especially in
the telecom sphere during the last five years.
In 2004-05, the government of Pakistan collected Rs20.4 billion as GST/CED from this sector
while PTA deposited Rs.17.7 billion to the national kitty. Similarly, almost 436,213 employment
opportunities were also created.
Job creation: According to the PTA report 2007, over one million job opportunities have been
created since 2003 when the sector was liberalized. The reason being a tremendous
metamorphosis which took place in the sector following the award of two new mobile licenses
FLL and WLL licenses and privatization of Pakistan Telecommunication Company Limited
(PTCL). Formidable competition among the operators to prevail in the market prompted the
players to roll out their infrastructure thus creating abundant job opportunities. The government
is working on a plan to offer opportunities for manufacture of cellular mobile handsets and
equipment in Pakistan in view of cheap labor and facilities. According to the PTA Report 2007,
this consideration is on the anvil because of increase in sector’s imports. During 2006-07 about
4.2 per cent imports took place as compared to 2.4 per cent in 2003-04.
The mobile operators had over 9500 employees in 2006-07; telecom sector (Mobile and fixed
line) had about 84000 employees in 2006-07. The sector has extensive link network with other
sectors, hence generating sizeable job opportunities like civil works for installation of towers,
support service providers, SIM and handset retailers, and employment in fixed line and network
equipment suppliers.
According to Deloitte so far about 212,000 (direct and indirect) jobs have been created in the
country by the mobile sector alone. Another survey by TEACH a study organization reveals that
cellular mobile sector has generated about 743,025 job opportunities including direct, indirect
and induced employment in linked sectors of the economy. TEACH also discloses that about
260,000 employment opportunities have been generated by other segments of the telecom sector
including WLL, LDI, Card Payphones and other new operators.

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MAJOR ACHIEVEMENTS 2006-07:

1. Overall teledensity of Pakistan reached 52.8% in December 2007.

2. During 2006-07 total telecom revenue was Rs 236 billion.
3. Total telecom investment during the year was US $ 4.12 billion and the share of
telecommunication sector in GDP was 2.0%.
4. Telecom companies have invested over US$ 8 billion during the last four years, mobile
sector investment share accounts for 66% of the total investment.
5. During 2006-07 the revenue of mobile industry was Rs.133 billion, an increase of 48%
from pervious year.
6. China Mobile investment is US$ 704 million during 2006-07 for expansion of CMPak
networks.
7. Mobile Sector paid approximately Rs. 63 billion taxes to the National Exchequer during
the year 2006-07.
8. December 2007 cellular subscribers in Pakistan reached 76.6 million.
9. On average 2.3 million subscribers were added every month during 2006-07.
10. Today mobile network coverage is reaching to almost 90% of the total population
11. The telecom sector received above US$ 1.8 billion FDI, 35% of the total FDI.
12. Telecom sector contributed Rs. 100 billion in the national exchequer in terms of taxes
and regulatory fee which was 32% higher than the previous year.
13. Over one million jobs have been created since the deregulation of the telecom sector
14. Total investment in the LDI sector grew upto US$ 603 million in 2007.
15. New LDI sector revenue stood at Rs. 15.3 billion.
16. At the end of 2006-07 total fixed line connections stood at 4.8 million where as the
teledensity is 3.04%.
17. Out of 17 WLL licensed companies, 5 are fully operational whereas two companies
(Wateen and Mytel) have been issued commencement of service certificates.
18. At the end of December 2007, WLL subscribers reached 2.1 million in Pakistan and
teledensity stands at 1.34%.

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Conclusion:

Telecom sector is growing at an outstanding pace where all stakeholders are getting due benefit
out of it. PTA is fully abreast of the rapidly developing technological advancements at the global
telecom scene. The aim of the Pakistani regulator is to foresee and be proactive in providing
conductive environment for the operators in order to facilitate them and introduce state of the art
telecom facilities in the country. Telecom sector is contributing about 2% in GDP directly and if
we include its indirect contribution in other sectors this share comes to about 5%. It is expected
that fixed as well as wireless sectors will grow considerably in next future years.

New operators: Due to flourishing mobile services and developing industry in Pakistan, more
international telecom players are showing interest to join. Besides China mobile which is already
in the field, Singtel, Omantel and Qtel are also expected to enter Pakistan. PTA has won another
extollation from International Telecommunication Union (ITU) by choosing the former for the
establishment of its centre of Excellence Node on Policy and Regulation at the PTA. While
dilating on China mobile entry into Pakistan telecom market it should be known that it ranks first
in the World in respect of network scale and the customers base.

Subscribers – a record: A cursory glance at the market potential shows that out of a total 161
million population there are 78.2 million mobile and fixed line subscribers-an unprecedented
trend and ever increasing number. This flabbergasting growth is quite perplexing to economists
as even people seemingly living below the poverty line are seen with the wonder gadget in their
hands. Analysts conclude after careful estimates that in view of the ongoing trend a potential
target market of about 97 million people could be met.

Gleaming current figures and magnified future forecasts are supportive of mobile cellular boom
in Pakistan. There is a possibility that the on going speedy expansion in the sector might slow
down.

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REFRENCES:

www.pta.gov.pk
www.dailytimes.com.pk
www.pakboi.gov.pk
www.jang.com.pk
www.telecompk.net
www.zawya.com

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