Impacts of Privatization On PTCL

Impacts of Privatization on PTCL
IMPACTS OF PRIVATIZATION ON PTCL
Submitted To:
Mr. Haroon Hussain
Submitted By:
Umair Ahmed
BBA (Hons.)7th
Roll No. 06-164
Session: 2006-2010
Department of Management Sciences

University of Education
Okara Campus
I
DEDICATION
My great mother
AND
Loving father whose prayers are great sources
Of Strength to me in every venture.
MY
Loving brother who supported me with lovely attitude and long
Passion for completing
My work and who’s sincere invoke success throughout my life.
AND
My teachers who helped me through out the process
AND
All of those who love and help me in this process
II
ACKNOWLEDGEMENT
In the name of ―Allah‖, the most beneficent and merciful who gave me strength and
knowledge to complete this report. This has proved to be a great experience. I would
like to express our gratitude to my supervisor Mr. Haroon Hussain ; who provide me
assistance to fulfill this report and all my friends who support me to accomplish this
research.
UMAIR AHMED
III
Table of Contents
EXECUTIVE SUMMARY................................................................................ 0
1. INTRODUCTION ……………………………………………......................... 1
1.1 Overview …………………………………………………………….. ..... 2
1.2 Problem Statement …………………………………………………...... 2
1.3 Research Question ……………………………………………………... 2
1.4 Goals of Research ……………………………………………………... 2
2. LITERATURE REVIEW ……………………………………………………… 3
2.1 What is Privatization?........................................................................ 4
2.2 Origin of Privatization........................................................................ 4
2.3 History of Privatization...................................................................... 4
2.4 Types of Privatization........................................................................ 4
2.4.1 Share Issue Privatization......................................................... 5
2.4.2 Asset Sale Privatization........................................................... 5
2.4.3 Voucher Privatization............................................................... 5
2.5 Points in Favor of Privatization......................................................... 5
2.6 Points in Favor of Anti-Privatization.................................................. 7
2.7 Alternatives to Total Privatization..................................................... 9
2.7.1 Public Utility............................................................................. 9
2.7.2 Non-Profit................................................................................ 10
2.7.3 Municipalization...................................................................... 10
2.7.4 Out sourcing or Sub-contracting............................................. 10
2.7.5 Partial ownership.................................................................... 10
2.8 Nationalization................................................................................. 10
2.8.1 Nationalization in Pakistan...................................................... 11
2.9 About PTCL..................................................................................... 12
2.11 History of PTCL............................................................................... 13
2.12 About Etisalat.................................................................................. 14
3. Analysis and Findings ........................................................................ 16
3.1 Privatization Process of PTCL........................................................ 17
3.2 Impacts of Privatization on PTCL................................................... . 18
3.2.1 Impact on Competition........................................................... 18
IV
3.2.2 Impact on Employment.......................................................... 19

3.2.3 Impact on Performance.......................................................... 20
3.3 Financial Highlights.......................................................................... 23
3.4 SWOT Analysis................................................................................ 27
3.4.1 Strength.................................................................................. 27
3.4.2 Weakness............................................................................... 29
3.4.3 Opportunity............................................................................. 30
3.4.4 Threat..................................................................................... 30
4. Conclusion And Recommendations.................................................... 31
4.1 Conclusion....................................................................................... 32
4.2 Recommendations........................................................................... 32
4.2.1 New Technology..................................................................... 32
4.2.2 Price Discrimination................................................................ 32
4.2.3 Customer Services.................................................................. 33
References.................................................................................................... 34
List of Figures and Tables

Table: 3.1 Liquidity of PTCL over the time..................................................... 21
Figure: 3.1 Liquidity of PTCL over the time.................................................... 21
Table: 3.2 Leverage of PTCL over the tome.................................................. 21
Figure: 3.2 Leverage of PTCL over the time.................................................. 22
Table: 3.3 Profitability of PTCL over the time................................................ 22
Figure 3.3 Profitability over the time.............................................................. 23
Figure: 3.4 EPS over the time....................................................................... 23
Table: 3.4 Financial Highlights...................................................................... 23
Figure: 3.5 Return on operating Assets & Equity.......................................... 25
Figure: 3.6 Revenue..................................................................................... 25
Figure: 3.7 Operating and Net Profit.............................................................. 26
Figure: 3.8 Dividend payout over the time.................................................... 26
Figure:3.9 Dividend Payout........................................................................... 27
Figure: 3.10 Market Share of Mobile Companies......................................... 28
V
EXECUTIVE SUMMARY
This research consists of complete privatization process and impacts on PTCL after
getting privatized.
For this purpose I have collect financial reports of PTCL of five years and some
journals to find the impacts of PTCL on the Performance (by calculating different kind
of financial ratios of the PTCL), competition and employment.
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1.1Overview
PTCL is the largest telecommunication company in Pakistan. This company provides
telephony services to the nation and still holds the status of backbone for country's
telecommunication infrastructure. The company consists of around 2000 telephone
exchanges across country providing largest fixed line network. GSM, CDMA and
Internet are other resources of PTCL, making it a gigantic organization.
The Privatization Commission, Government of Pakistan had planned to privatize 51
% shares of entity through bidding. In response, the government faced stirred
opposition from the employees of PTCL lead of employee’s parties and strike of
about 20 days lead the knees of government down, which re-scheduled the
mechanism and presented plan of privatizing 26 % of shares along with the
managerial powers in 2006 for some about US$ 2.6 billion to a Dubai based
Telecom Company Eitsalat.
PTCL was one of the Pakistan profits earning Telecom Company. After getting
Privatized PTCL is losing its base as its subscription declined from 5.12 million to
4.40 million in 2008. While the revenue declined from Rupees 69,085 million in 2006
to RS. 61,085 million in 2008. Similarly the Profit after tax in 2006 was some about
Rs 20,777 million while in 2008 there is a loss of Rs. 2,825 million. The financial
statement shows a continuous growth till 2006 while after privatization the company
is facing severe financial shortcomings (PTCL. limited).
1.2 Problem Statement

―After privatization a decline in the profitability of the PTCL is scene.‖
1.3 Research Question

―What is impact of privatization on PTCL?‖
1.4 Goals of Research

1 Impact on Performance
2 Impact on Competition
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2.1 What is Privatization?

―It is the process of selling government assets to private buyers.‖ (International
business by: Alan M.Rugman).
Privatization is the incidence or process of transferring ownership of a business,
enterprise, agency or public service from the public sector (government) to the
private sector (business). In a broader sense, privatization refers to transfer of any
government function to the private sector including governmental functions like
revenue collection and law enforcement.
2.2 Origin of Term

It has been claimed that the term was first used in the 1930s by The Economist in
covering Nazi German economic policy
2.3 History of Privatization

There is a long history of privatization dating from Ancient Greece when the
government contracted out almost everything to the private sector. In the Roman
Republic private individuals and companies performed the majority of services
including tax collection, army supplies, religious sacrifices and construction.
However, the Roman Empire also created state-owned enterprises — for example,
much of the grain was eventually produced on estates owned by the Emperor. Some
scholars suggest that the cost of bureaucracy was one of the reasons for the fall of
the Roman Empire.
In more recent times, Winston Churchill's government privatized the British steel
industry in the 1950s, and West Germany's government embarked on large-scale
privatization, including selling its majority stake in Volkswagen to small investors in a
[5]
public share offering in 1961 . In the 1970s General Pinochet implemented a
significant privatization program in Chile. However, it was in the 1980s under the
leaderships of Margaret Thatcher in the UK and Ronald Reagan in the USA, that
privatization gained worldwide momentum.
2.4 Types of Privatization

There are three main methods of privatization:
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2.4.1 Share Issue Privatization (SIP):

Selling shares on the stock market. Share issue privatisation is the most common
type of privatisation.
Share issues can broaden and deepen domestic capital markets, boosting liqui dity
and potentially economic growth, but if the capital markets are insufficiently
developed it may be difficult to find enough buyers, and transaction costs (e.g.
underpricing required) may be higher. For this reason, many governments elect for
listings in the more developed and liquid markets, for example Euronext, and the
London, New York and Hong Kong stock exchanges
2.4.2 Asset Sale Privatization:

Selling the entire firm or part of it to a strategic investor, usually by auction. As a
result of higher political and currency risk deterring foreign investors, asset sales are
more common in developing countries. A substantial benefit of asset sale
privatizations is that bidders compete to offer the highest price, creating income for
the state in addition to tax revenues.
2.4.3 Voucher Privatization:
Shares of ownership are distributed to all citizens, usually for free or at a very low
price.
2.5 Points In Favor of Privatization

1-Performance:
State-run industries tend to be bureaucratic. A political government may only be
motivated to improve a function when its poor performance becomes politically
sensitive, and such an improvement can be reversed easily by another regime.
2-Increased efficiency:
Private companies and firms have a greater incentive to produce more goods and
services for the sake of reaching a customer base and hence increasing profits. A
state-owned firm would not be as productive due to the lack of financing allocated by
the entire government's budget that must consider other areas of the economy.
3-Specialization:
A private business has the ability to focus all relevant human and financial resources
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onto specific functions. A state-owned firm does not have the necessary resources to
specialize its goods and services as a result of the general products provided to the
greatest number of people in the population.
4-Improvements:
Conversely, the government may put off improvements due to political sensitivity
and special interests — even in cases of companies that are run well and better
serve their customers' needs.
5-Accountability:
Managers of privately owned companies are accountable to their
owners/shareholders and to the consumer, and can only exist and thrive where
needs are met. Managers of publicly owned companies are required to be more
accountable to the broader community and to political "stakeholders". This can
reduce their ability to directly and specifically serve the needs of their customers, and
can bias investment decisions away from otherwise profitable areas.
6-Civil-liberty concerns:
A company controlled by the state may have access to information or assets which
may be used against dissidents or any individuals who disagree with their policies.
7-Goals:
A political government tends to run an industry or company for political goals rather
than economic ones.
8-Capital:
Privately held companies can sometimes more easily raise investment capital in the
financial markets when such local markets exist and are suitably liquid. While
interest rates for private companies are often higher than for government debt, this
can serve as a useful constraint to promote efficient investments by private
companies, instead of cross-subsidizing them with the overall credit-risk of the
country. Investment decisions are then governed by market interest rates. State-
owned industries have to compete with demands from other government
departments and special interests. In either case, for smaller markets, political risk
may add substantially to the cost of capital.
9-Natural monopolies:
The existence of natural monopolies does not mean that these sectors must be state
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owned. Governments can enact or are armed with anti-trust legislation and bodies to
deal with anti-competitive behavior of all companies public or private.
10-Concentration of wealth:
Ownership of and profits from successful enterprises tend to be dispersed and
diversified -particularly in voucher privatization. The availability of more investment
vehicles stimulates capital markets and promotes liquidity and job creation.
11-Profits:
Corporations exist to generate profits for their shareholders. Private companies
make a profit by enticing consumers to buy their products in preference to their
competitors' (or by increasing primary demand for their products, or by reducing
costs). Private corporations typically profit more if they serve the needs of their
clients well. Corporations of different sizes may target different market niches in
order to focus on marginal groups and satisfy their demand. A company with good
corporate governance will therefore be incentivized to meet the needs of its
customers efficiently.
12-Job gains:
As the economy becomes more efficient, more profits are obtained and no
government subsidies and less taxes are needed, there will be more private money
available for investments and consumption and more profitable and better-paid jobs
will be created than in the case of a more regulated economy.
2.6 Points In Favor of Anti-Privatization

1-Performance:
A democratically elected government is accountable to the people through a
legislature, Congress or Parliament, and is motivated to safeguarding the assets of
the nation. The profit motive may be subordinated to social objectives.
2-Improvements:
The government is motivated to performance improvements as well run businesses
contribute to the State's revenues.
3-Accountability:
The public does not have any control or oversight of private companies.
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4-Civil-liberty concerns:
A democratically elected government is accountable to the people through a
parliament, and can intervene when civil liberties are threatened.
5-Goals:
The government may seek to use state companies as instruments to further social
goals for the benefit of the nation as a whole.
6-Capital:
Governments can raise money in the financial markets most cheaply to re-lend to
state-owned enterprises.
7-Lack of market discipline:
Governments have chosen to keep certain companies/industries under public
ownership because of their strategic importance or sensitive nature.
8-Cuts in essential services
If a government-owned company providing an essential service (such as the water
supply) to all citizens is privatised, its new owner(s) could lead to the abandoning of
the social obligation to those who are less able to pay, or to regions where this
service is unprofitable.
9-Natural monopolies:
Privatizations will not result in true competition if a natural monopoly exists.
10-Concentration of wealth:
Profits from successful enterprises end up in private, often foreign, hands instead of
being available for the common good.
11-Political influence:
Governments may more easily exert pressure on state-owned firms to help
implementing government policy.
12-Downsizing:
‖Private companies often face a conflict between profitability and service levels, and
could over-react to short-term events. A state-owned company might have a longer-
term view, and thus be less likely to cut back on maintenance or staff costs, training
etc, to stem short term losses. Many private companies have downsized while
making record profits.
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13-Profit:
Private companies do not have any goal other than to maximize profits. A private
company will serve the needs of those who are most willing (and able) to pay, as
opposed to the needs of the majority, and are thus anti-democratic. The more
necessary a good is, the lower the price elasticity of demand, as people will attempt
to buy it no matter the price. In the case of price elasticity of demand is zero;
demand part of supply and demand theories does not work.
14-Privatisation and Poverty:
It is acknowledged by many studies that there are winners and losers with
privatization. The number of losers which may add up to the size and severity of
poverty can be unexpectedly large if the method and process of privatization and
how it is implemented are seriously flawed (e.g. lack of transparency leading to
state-owned assets being appropriated at minuscule amounts by those with political
connections, absence of regulatory institutions leading to transfer of monopoly rents
from public to private sector, improper design and inadequate control of the
privatization process leading to asset stripping.
15-Job Loss:
Due to the additional financial burden placed on privatized companies to succeed
without any government help, unlike the public companies, jobs could be lost to keep
more money in the company.
2.7 Alternative to Total Privatization

2.7.1 Public Utility:
The enterprise can remain as a public utility.
2.7.2 Non-Profit:
The enterprise could be managed by a private non-profit organization.
2.7.3 Municipalization:
Transferring control to municipal government.
2.7.4 Outsourcing or Sub-contracting:
It is possible that national services may sub-contract or out-source functions to
private enterprises. A notable example of this is in the United Kingdom, where many
municipalities have contracted out their garbage collection or administration of
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parking fines to private companies. In addition, the British government has involved
the private sector more in the workings of the National Health Service principally
through outsourcing the construction and operation of new hospitals to private
companies. There are also moves to refer patients to private surgeries to ease the
load on existing NHS human resources, and covering the cost of this.
2.7.5 Partial ownership:
An enterprise may be privatized, with a number of shares in the company being
retained by the state.In Germany, the state privatized Deutsche Telekom in small
tranches, and still retains about a third of the company.
Partial privatization could be an alternative, it is more often a stepping stone to full
privatization. It can offer the business a smoother transition period during which it
can gradually adjust to market competition. Some state-owned companies are so
large that there is the risk of sucking liquidity from the rest of the market, even in the
most liquid marketplaces, and thus must be sold off bit by bit.
2.8 Nationalization
Nationalization is the act of taking an industry or assets into the public ownership of
a national government or state. Nationalization usually refers to private assets, but
may also mean assets owned by lower levels of government, such as municipalities,
being state operated or owned by the state. The opposite of nationalization is usually
privatization or de-nationalization, but may also be municipalization.
A renationalization occurs when state-owned assets are privatized and later
nationalized again, often when a different political party or faction is in power. A
renationalization process may also be called reverse privatization.
The motives for nationalization are political as well as economic. It is a central theme
of certain brands of 'state socialist' policy that the means of production, distribution
and exchange, should be owned by the state on behalf of the people to allow for
rational allocation and operation, and rational planning or control of the economy.
Many socialists believe that public ownership enables people to exercise full
democratic control over the means whereby they earn their living and provides an
effective means of redistributing wealth and income more equitably.
Nationalized industries, charged with operating in the public interest, may be under
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strong political and social pressures to give much more attention to externalities.
They may be obliged to operate some loss making activities where social benefits
are clearly greater than social costs - for example, rural, postal and transport
services. As an instance, the United States Postal Service is guaranteed its
nationalized status by the Constitution. The government has recognized these social
obligations and, in some cases, provides subsidies for such non-commercial
operations.
Since the nationalized industries are state owned, the government is responsible for
meeting any debts incurred by these industries. The nationalized industries do not
normally borrow from the domestic market other than for short-term borrowing.
However, if profitable, the profit is often used as a means to finance other state
services such as social programs and government research which can help lower
the tax burden.
2.8.1 Nationalization in Pakistan:

1972 On January 2, 1972, Zulfiqar Ali Bhutto, after the fall of East Pakistan,
announced the nationalisation of all major industries, including iron and steel, heavy
engineering, heavy electricals, petrochemicals, cement and public utilities.
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2.9 About PTCL
Name of Company: Pakistan Telecommunication Company Limited
Monogram:
Slogan: “Feel the Difference”
Industry: Telecommunication
Vision:
To be the leading Information and Communication Technology Service Provider in
the region by achieving customer satisfaction and maximizing shareholders' value'.
The future is unfolding around us. In times to come, we will be the link that allows
global communication. We are striving towards mobilizing the world for the future. By
becoming partners in innovation, we are ready to shape a future that offers telecom
services that bring us closer.
Mission:
To achieve our vision by having:
An organizational environment that fosters professionalism, motivation and

quality
An environment that is cost effective and quality conscious
Services that are based on the most optimum technology
"Quality" and "Time" conscious customer service
Sustained growth in earnings and profitability
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Core Value:
Professional Integrity
Customer Satisfaction
Teamwork
Company Loyalty
2.10 History of PTCL

When Pakistan came into being then it start with name of "Pakistan post & telegraph
Department" in 1947. As time passed and new technology developed communication
system has also developed. So in 1962 telephone and telegraph department was
established and Pakistan post was declared as separate department. Telephone
&Telegraph department has converted to Telecommunication Corporation in 1991
under Pakistan Telecommunication Corporation (PTC) ordinance of 1991.
With Pakistan Telecommunication Corporation Ordinance 1991 government open the
way for private competition and start awarding licenses for cellular phone and card
operated pay phones. With this liberalization 1991 government of Pakistan decided to
privatized PTC and use voucher method in 1994 for privatization that later were
convertible to shares, total number of voucher was six million that were equal to 600
million shares at the rate Rs. 10 per share. The telecom sector was liberalized but PTCL
was still the monopolist of the land line telephone services. In 1996 "Pakistan
Telecommunication Company" was formed and declared the monopoly for the basic
telephony of the country with "Pakistan Telecommunication (reorganization) Act 1996‖,
the same year the company has been listed on all stock markets in Pakistan.
In 2001 PTCL open two subsidiaries for mobile phone service and for internet
services called Ufone and PakNet respectively. Paknet was not that affective and
dissolved later, the recent DSL services are being directly supervised and operated
by PTCL (PTCL Internal Report), While Ufone is continue competing in the mobile
market and is able increasing its market share. In 2003 PTCL monopoly comes to an
end when government decided to completely liberalize the telecommunication
industry. In 2006 the company was completely privatize when government sold its
26% management share to Etisalat.
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2.11 About Etisalat
Name of Company: Etisalat
Monogram:
Our Vision:
A world where people’s reach is not limited by matter or distance.
People will effortlessly move around the world, staying in touch with family, making
new friends as they go, as well as developing new interests.
Businesses of all sizes, no longer limited by distance, will be able to reach new
markets. Innovative technologies will open up fresh opportunities across the globe,
allowing the supply of new goods and services to everyone who wants them.
Our Mission
To extend people’s reach.
At Etisalat, we are actively developing advanced networks that will enable people to
develop, to learn and to grow.
Our Values
Energy
We value and nurture the energy and dynamism needed to achieve the very best in
business. We look forward to future challenges and opportunities.
Openness
As a company, we are welcoming, sociable and friendly to customers, suppliers and
employees. We deal with people in a clear, direct way and are always honest and
fair in business dealings.
Enablement
Our aim is to open up opportunities and to actively help people reach their goals. We
always deliver what we say we will.
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The Future
A world in which technology extends our reach.
Already, music, books and services no longer have to have a physical format to be
sold online. Advanced networks will increasingly provide education, healthcare and
other services and goods. For instance, telemedicine already allows patients to seek
the best advice from doctors around the world; now robotic aids are beginning to
make remote surgery possible. As the pace of technological change increases,
Etisalat will extend its reach into new technologies, services and markets to create
opportunities for our customers.
International Investment of Etisalat:
 Thuraya
 Excelcomindo (XL) Indonesia
 Canar, Sudan
 Etisalat Nigeria (EMTS)
 PTCL , Pakistan
 Etisalat Misr (Egypt)
 Zantel, Tanzania
 Etisalat Afghanistan
 Etisalat Software Services Private Limited (ESSPL) - Technologia
 Atlantique Telecom (AT)
 Millicom Sri Lanka ―TIGO‖
 Etisalat International
 Etihad Etisalat ―Mobily‖ Saudi Arabia
 Etisalat DB Telecom India PVT LTD.
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3.1 Privatization Process of PTCL

In December 1990 "Pakistan Telecommunication Corporation" was established to
replace the "Pakistan Telephone and Telegraph Department". In 1991 government of
Pakistan show its intention for the privatization of PTC to meet the need of the
country and also for esteem growth of economy. A consortium was hired for this
purpose to see the feasibility and on the bases of his report government decided to
sell out the 26 % share capital with management rights and to convert it to limited
company. As decided in the "privatization session of 1991-1992" 12% shares of
Pakistan Telecommunication have been divested during 1994. One million
exchangeable vouchers has been issued in august 1994 these were equal to 100
million shares each has a value of Rs 10. In September 1994 five million vouchers
has been issued to international 31 investors. The value of these issues were $900
million from international and Rs.3 billion from domestic issue while the values of the
voucher in first and second issues were Rs.3000 and 5500 respectively. While the
issues of 26 % management share was still a controversy, the Government was
continue with its mission by issuing Notes with 150 million US dollar worth to
international investor in 1997. The Notes were convertible to fully paid "A" class
ordinary shares of PTCL and these were 3.3 % of the total share capital issued. In
august 1997 foreign receivable has been securitized successfully obtaining 250
million US dollar to GOP. In 1995 a new financial advisor was hired by Privatization
commission for the implementation of strategic sale (26% management shares) but
the new governments suspended the services of the financial advisor, and in 1998
hire the M/S Goldman Sachs International to provide advisory services on PTCL
privatization.
The Financial Advisor has start working and established a data room at the head
quarter of PTCL where all possible information that is related to PTCL were available
to facilitate the team. Government approved the proposed policy and decided to
complete the Re-regulation by December 2003, major steps has been taken on legal
and regulatory measures, PTA granted license to PTML (Ufone) and proposed DSI
regulation for tariff and licensing has also been accepted.
At last in April 2006 control of the Pakistan Telecommunication corporation was
handed over to Etisalat(UAE based company), Etisalat assume the control of the
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company by paying 2.6 billion US dollar to buy 26% share with management right in
PTCL. With the control of PTCL Etisalat also assume the control of Ufone, one the
top class mobile service provider subsidiary of PTCL.
This privatization has bring in great technological change and innovation, as we can
now connect to internet through mobile from all around the country, telenor is
providing TV coverage, MMS and GPRS are the services available on all the mobile
operator.
PTCL also signed a contract with Emaar to provide information and
telecommunication technology services to household in Karachi and Islamabad.
After this agreement PTCL is the only services provider that offer ICT to two big
project of Emaar Pakistan, every household and office will be connected through
fiber optics.
3.2 Impacts of Privatization on PTCL

 Impact on Competition
 Impact on Employment
 Impact on Performance
3.2.1 Impact on Competition:

With the privatization of PTCL many Competitors have entered in Pakistani
market. Paktel and Instaphone were entered in Pakistan telecom industry in 1990
and in 1994 Mobilink started its function. In 2001, Ufone, a supplementary part of
PTCL entered in the market and in 2005 both Warid and Telenor one by one
started their services. From the year 2000 there is tremendous increase in the
cellular users. Mobilink is the largest cellular company with the highest number of
users, compare to Ufone. Currently 79% population in Punjab have mobile phones,
75% in Sindh, 34% in Baluchistan, 63% in N.W.F.P. and overall 73.3% of population
in Pakistan enjoying this facility.
Zong (previously Paktel) has great share in the cellular market. Latest data from PTA
shows that Telenor rise to number two and Warid telecom is becoming more popular
and capturing market share with the high pace as compare to other traditional rivals.
Within 4 year of time Telenor has reached to the second largest cellular mobile
company after Mobilink with Subscribers of approx. 19 million.
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3.2.2 Impact on Employment:

PTCL has approx. 65000 employees before privatization. The main workforce of the
PTCL is unqualified and unskilled. About 50% employees are under graduate. After
privatization of PTCL the new management has realized that company spent huge
amount on employees in respect of salary and other different remunerations. In order
to reduce the operational cost of the organization, to make it more effective and
profitable, PTCL need to layoff these unskilled employees. PTCL has launched a
scheme called VSS (Voluntarily separated scheme). Under this scheme PTCL has to
pay a lump sum amount to the employee who is willing to leave PTCL. The VSS
scheme cost Rs. 34.94 billion to PTCL for the period 2007 and 2008, assuming that
60 percent of the employees avail this package.
PTCL HR wing stepped forward to facilitate the emergence of new Corporate Culture
by becoming Equal opportunity employer, inducting fresh blood from the market,
improving the way PTCL runs and reducing the number of employees having
outdated skill set. The Training & Development wing of the HR Department also
organized a comprehensive six months ―Urgent Training Needs‖ program in
technical and managerial fields to enhance soft skills.
Healthy improvements have been made in the area of Recruitment and Retention as
the whole recruitment process has been redefined to cope with the changing
business requirements. Detailed facilitation programs have been initiated for the
orientation of newly hired employees. PTCL employees have been provided
excellent international placement opportunities across various Etisalat International
Business Operations.
Training and Development

The role of training and development in a service involved organization is many
times more in comparison with what it has in a manufacturing involved organization.
This role becomes more significant in a situation where the need to transform
organizational culture is identified as the most glaring problem and the most difficult
impediment on the way to organizational growth. PTCL employees are a great asset
not only for the company but also for the country. Their marvelous potential is yet to
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be exploited. Their skills need to be developed, their expertise need to be updated

for which training and development department is at their disposal to cater to their
training needs.
At PTCL, training and development team would never miss an opportunity to
contribute towards the betterment of the company. Training and Developments is
playing an essential role in changing PTCL from a government sector organization to
corporate sector company. PTCL consider every employee of the company as our
customer and firmly believe that meeting their expectation would help us achieve
customer satisfaction. We look forward to your input for making our endeavors more
effective. The Training and Development has a clear road map of activities and is
committed to provide high quality trainings for the development of every single
employee.
3.2.3 Impact on Performance:
Liquidity Ratio:
Liquidity: A firm’s ability to satisfy its short-term obligatons‖, (Lawrence J. Gitman;
Principles of Managerial Finance).
Liquidity refers to the solvency of the firm’s overall financial position, the ease with
which it can pay its bills. Because a common precursor to financial distress and
bankruptcy is low or decilinig liquidity, these ratios can provide early sign of cash
flow problems and implementing business failures. The two basic measures of
liquidity are current and quick ratios.
Generally, the higher the current ratio, the more liquid the firm is considered to be.
Years 2009 2008 2007 2006 2005 2004

Current Times 1.50 1.81 2.19 1.66 1.89 2.78
Quick Times 1.36 1.58 2.03 1.54 1.73 2.67
Table: 3.1 Liquidity of PTCL over the time
Interpretation:
The above figures shows that the firm had more liquid before privatization, company
has privatized in 2006 and above table shows more favorable figures before 2006,
which shows that the liquidity of PTCL has decreased after privatization.
- 20 -
Figure: 3.1 Liquidity of PTCL over the time
2.5
1.5 Current
Quick
1
0.5
0
2004 2005 2006 2007 2008 2009
Le
verage Ratio:
By using a combination of assets, debt, equity, and interest payments, leverage
ratio's are used to understand a company's ability to meet it long term financial
obligations. Leverage ratios measure the degree of protection of suppliers of long
term funds. The level of leverage depends on a lot of factors such as availability of
collateral, strength of operating cash flow and tax treatments.
Years 2009 2008 2007 2006 2005 2004

Debt : Equity Ratio 16:84 15:85 14:86 14:86 13:87 13:87
The Interest Earned Times 15.43 (5.26) 46.54 92.07 86.35 64.34
Table: 3.2 Leverage of PTCL over the tome
Interpretation:
Debt equity ratio shows that PTCL after privatization use more aggressive financing
for its operations, and its debts continuously increases after privatization which
owner’s investment more risky.
In case of Interest Earned Ratio, the ability to pay its interest payments before
privatization continuously improving but after privatization it shows decline, even that
in 2008 it shows negative or unfavorable result which is (5.26) Times.
Figure: 3.2 Leverage of PTCL over the time
- 21 -
100
80
60
40 The Time Interest Earned

Rstio
20
-20
2004 2005 2006 2007 2008 2009
Profitability Ratio:
There are many measures of profitability. As a group, these measures enable the
analyst to evaluate the firm’s profits with respect to given level of sale, a certain level
of assets, or the owner’s investment. With out profit a firms could not attract the
outside capital. Owners, creditors and management pay close attention to boosting
profits because of the great importance placed on the earning in the marketplace.
Years 2009 2008 2007 2006 2005 2004

Operating Profit Margin % 18.15 24.67 26.33 35.50 41.63 51.37
Net Margin % 15.45 (4.26) 22.01 26.16 30.46 35.73
Return On Equity % 9.28 (2.71) 14.45 20.22 25.45 28.20
Earnings per share Rs 1.79 (0.55) 3.07 4.07 5.22 5.72
Table: 3.3 Profitability of PTCL over the time
Interpretation:
Operating Profit Margin of PTCL before privatization is above 40% of sales and in
2004 it is 51.37%, but after privatization is constantly decreases and in 2009 it is only
18.15% of sales.
Figure 3.3 Profitability over the time
- 22 -
60.00%
50.00%
40.00%
30.00% Operating Profit Margin
20.00% Net Margin
Return on Equity
10.00%
0.00%
-10.00%
2004 2005 2006 2007 2008 2009
Fig
ure: 3.4 EPS over the time
7
6
5
4
3 EPS
2
1
0
-1 2004 2005 2006 2007 2008 2009
3.3 Financial Highlights
Year ended June 2009 2008 2007 2006 2005 2004

30
Operating
Operating Profit % 18.15 24.67 26.33 35.50 41.63 51.37
Margin
EBIT Margin % 25.20 (5.45) 34.13 39.43 45.50 53.94
Net Margin % 15.45 (4.26) 22.01 26.16 30.46 35.73
Performance
Return on Operating % 10.96 (3.34) 18.76 25.53 34083 38.46
Assets
Debtor’s Turnover times 4.9 5.35 4.87 4.76 5.35 5.14
Return On Equity % 9.28 (2.71) 14.45 20.22 25.45 28.20
Leverage
- 23 -
Debt : Equity Ratio 16:84 15:85 14:86 14:86 13:87 13:87

Leverage % 35.66 27.48 27.92 31.28 25.65 23.91
The Interest Earned Times 15.43 (5.26) 46.54 92.07 86.35 64.34
Liquidity
Current Times 1.50 1.81 2.19 1.66 1.89 2.78
Quick Times 1.36 1.58 2.03 1.54 1.73 2.67
Valuation
(pre tax)
Breakup value per Rs 19.49 19.19 21.75 20.68 19.61 21.39
share
Payout Ratio (after % 83.60 - 65.22 122.73 38.34 87.42
tax)
Market Price to Times 0.88 2.01 2.62 1.96 3.58 1.97
Breakup Value
Dividend per share Rs 1.50 - 2.00 5.00 2.00 5.00
Market value per Rs 17.24 38.64 57.00 46.40 70.25 42.15
share (as on June
30)
Market Rs.(m) 87,924 197,064 290,700 207,060 358,275 241,965
Capitalization
Historical Trends
Operating Results
Revenue Rs.(m) 59,239 66,336 71,068 69,085 87,356 81,633
Profit/ (loss) before Rs.(m) 14,021 (4,463) 23,744 30,974 39,296 43,360
Tax
Profit/ (loss) after Rs.(m) 9,151 (2,825) 15,639 20,777 26,606 29,170
Tax
Dividend declared Rs. (m) 7,650 – 10,200 25,500 10,200 25,500
Financial position
Paid up Share Rs.(m) 51,000 51,000 51,000 51,000 51,000 51,000
Capital
Reserves Rs. (m) 32,183 32,183 32,249 31,992 32,008 32,000
Shareholders’ Rs.(m) 99,390 97,888 110,913 105,475 100,014 109,100
Equity
Current Assets Rs.(m) 54,220 39,603 53,561 50,168 39,269 48,294
Non Current Rs.(m) 18,572 17,646 17,460 16,489 15,258 15,126
- 24 -
Liabilities
Table: 3.4 Financial Highlights
Figure: 3.5 Return on operating Assets & Equity
Figure: 3.6 Revenue
- 25 -
Figure: 3.7 Operating and Net Profit
Dividends
Financial aspects show PTCL has had a history of paying out significant portion of its
earnings to its shareholders. However, with huge cash requirement for Voluntary
Separation Scheme, PTCL is unlikely to announce any cash payout during FY08.
VSS is explained in Impact on Employment.
Figure: 3.8 Dividend payout over the time
30000
25000
20000
15000 Dividend
10000
5000
0
2004 2005 2006 2007 2008 2009
- 26 -
Figure:3.9 Dividend Payout
3.4 SWOT Analysis

The above discussion illustrates different impact of Re-regulation and privatization in
detail. But to know about the current internal situation ―strength and weakness‖ of
PTCL and the external environmental condition ―opportunities and threats‖ in the
telecom market we need to conduct SWOT analysis. This will off course help us to
suggest a suitable strategy to PTCL.
3.4.1 Strength
 Largest operational network and infrastructure within ICT (Information &
Communication Technologies) segment.
 Market leadership in Local loop, Wireless local loop (WLL) and Fixed
telephony.
 Competitors still depend on PTCL network either directly or indirectly
 About 2000 exchanges all around the country and leader for landline network.
 Internet facility on basic telephone line and both Dialup and DSL.
 With the brand name "Vfone" using CDMA based "wireless local loop" to
provide services of fixed line and has a largest network across the country. It
has around 1,250,000 Vfone customers. The service is both for household
- 27 -
and businesses; Vfone has a largest wireless local loop network and provide
services in 10,000 rural and urban areas.
 "Ufone", PTCL subsidiary for mobile communication, is the country's third
largest mobile phone operator with 21.5% market share, and about 20 million
subscribers.
Figure: 3.10 Market Shares of Mobile Companies
 Ufone has the top class technology and services in mobile telecom
sector; it is continue expanding its coverage and customer base and as one
of the leading services provider in Pakistani cellular market.
 Ufone have its own 21 sales and customer service center and about 250
franchisees all around the country, its customer service center is known
for efficiency and friendliness, and they have innovative solutions and a
"Web Based Franchise management system".
 There is a consortium of the three ―Submarine Communication Cable"
networks called "I-ME-WE, SEA-ME-WE 3 and SEA-ME-WE 4" and PTCL is
part of the consortium. SMW-3 has a "Landing Station" at Karachi and
connects 33 countries from 4 continents; it has a total length of 39,000km and
a world longest system with 39 landing station. SMW-4 connect 14 countries
and has 16 landing station within Asia, Middle East, and Europe, SMW-4 uses
Terabyte DWDM technology, it connect two destinations by STM-1. "SMW-4
is designed for relatively higher traffic volumes". The third one IMEWE cable
has a terabyte capacity and connects Europe to India through going through
Middle East. It has 10 landing station in 8 countries and a 13,000 km long
- 28 -
cable.
 In Pakistan PTCL has a fastest growing and largest network of broadband
services. Within a short time after its services launch (2years) it acquires more
than 150,000 subscribers from 150 towns and cities across the country.
 PTCL offer "digital interactive television" services with the highest digital
quality picture. More than hundred TV channels are offer in big cities like
Lahore, Karachi and Rawalpindi and Islamabad by PTCL Smart TV.
3.4.2 Weakness
 Not been able to nurture its growth around customer services oriented
strategy
 Internal organizational and business processes issues
 Monopolistic culture has further added to its complexities
 PTCL-V, the fixed wireless phone service is poor
 Over employment & low productivity.
 Slow decision making including external interferences.
 PTCL has a continuous downward trend in its revenue since 2005, where
PTCL has Rs.75,972 million revenue and the year Ended June, 2008 it has
Rs.61,086 million, when it comes to after tax loss of 2825 million Rupees.
 Continuous decline in the number of subscriber from 5million in 2006 to
3.5million till late 2008. .
 Employees are unaware of work ethics, and are irresponsible especially those
working in the rural areas.
 Slow pace in adopting the latest technology.
 Telephonic complaint will rarely complete, customer need to go physically to
the offices for making complaints.
 PTCL has no Research and Development.
3.4.3 Opportunity
 Have vast infrastructure and real estate assets which can be leveraged
further.
 Global connectivity reliability has been improved. PTCL is expanding the long
- 29 -
distance and infrastructure side through spreading out two sea-me-we

submarine cables.
 Large unmet market with total population of 150million
 PTCL has the opportunity to utilize its sources namely submarine cable
system and satellite communication system for low cost long distance
communication.
 There is no strong competition in the landline market.
3.4.4 Threats
 Increased competition in long distance continues to exert pressure.
 Exposure to market competition
 Migration to Cellular Networks
 Ability to Attract & Retain Quality Professionals
 Reduction in International Settlement Rates
 There is continues price war between telecom operator in Pakistan.
- 30 -
- 31 -
4.1 Conclusion:
Privatization of PTCL have both positive and negative impacts but the
negative impacts are more then its positive impacts.
Some negative impacts are:
 The numbers of subscribers are decreases year to year because of
poor customer services, poor quality of service, old technology and
higher prices then major telecom competitors.
 PTCL is in the process of layoff and provides a huge some for this
purpose while competitors have skilled Personnel and offers attractive
packages.
 Due to competition the revenue of the PTCL is decreases.
Besides these negative impacts PTCL also have some positive impacts:
 PTCL introduced new technology in some areas.
 Improve customer service
 Improve
4.2 Recommendations:
I suggest PTCL to improve quality of service, and introducing new products and
emerging services to satisfy specific market segment needs besides consolidating its
leadership position in fixed line business. The customer interfaces will be fully
empowered to achieve corporate objectives. Automation and simplification of internal
process, optimization of operational expenditure, enhancement of national backbone
infrastructure. Some are as under:
4.2.1 New Technology

Prior to the start of the competition, PTCL should be well equipped with new
technologies, billing, marketing & customer care infrastructure, skilled trained
professionals with focus to win business and earn customer loyalty.
4.2.2 Price Discrimination
In order to retain and even expand the market share, PTCL can resort to price
discrimination. This can be between users of own network and other operators
networks. For example PTCL may fix different rates for intra-network calls and inter-
- 32 -
network calls. Lower rates of intra-network calls will be strong temptation for
customers to remain stuck with PTCL instead of switching over to other choice
operators. This practice will be a restraint for other operators, hence will be
considered anticompetitive.
4.2.3 Customer Services
I have found that customer service of PTCL is not competitive. The complains of
customers are rarely solved out on their on their phone calls. It is very rare that your
call connect to operator of customer services.
In case of damage of communication wire, two to three weeks are needed to repair
it.
- 33 -
References:
Ahmed Nawaz Hakro and Muhammad Akram
Pre-Post Performance Assessment of Privatization Process in Pakistan,
International Review of Business Research Papers Vol.5 No. 1 January 2009
Pp. 70-86.
Alan M. Rugman and Richard M. Hodgetts
International Business, Third Edition
Balance Sheet Analysis
BSA of Joint Stock companies listed in KSE (2003-08).
Lawrence J. Gitman
Principles of Managerial Finance, Eleventh Edition
Khair uz Zaman, Shumaila Hashim and Zhid Awan
Impact of Regulatory Reforms on the Effectiveness & Efficiency of Telecom
Sector in Pakistan.
Khan
Is Privatization In Pakistan Purposeful?
James C. Van Horne, John M. Wachowicz, JR.
Fundamentals of Financial Managenment, Twelfth Edition.
Syed Anwar-ul-Hasan Bokhari
History And Evolution Of Privatization In Pakistan.
Websites
PTCL financial reports and company information
www.ptcl.com.pk
About Etisalat
www.etisalat.com
PTA, Telecom sector Current Situation
www.PTA.gov.pk
SBP, Balance Sheet Analysis
www.sbp.org.pk
- 34 -

Impacts of Privatization On PTCL

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Impacts of Privatization on PTCL

IMPACTS OF PRIVATIZATION ON PTCL

Department of Management Sciences

3.2.2 Impact on Employment.......................................................... 19

List of Figures and Tables

1.2 Problem Statement

1.3 Research Question

1.4 Goals of Research

2.1 What is Privatization?

2.2 Origin of Term

2.3 History of Privatization

2.4 Types of Privatization

2.4.1 Share Issue Privatization (SIP):

2.4.2 Asset Sale Privatization:

2.5 Points In Favor of Privatization

2.6 Points In Favor of Anti-Privatization

2.7 Alternative to Total Privatization

2.8.1 Nationalization in Pakistan:

2.9 About PTCL

Name of Company: Pakistan Telecommunication Company Limited

Slogan: “Feel the Difference”

An organizational environment that fosters professionalism, motivation and

An environment that is cost effective and quality conscious

Services that are based on the most optimum technology

"Quality" and "Time" conscious customer service

Sustained growth in earnings and profitability

2.10 History of PTCL

2.11 About Etisalat

Name of Company: Etisalat

International Investment of Etisalat:

3.1 Privatization Process of PTCL

3.2 Impacts of Privatization on PTCL

3.2.1 Impact on Competition:

3.2.2 Impact on Employment:

Training and Development

be exploited. Their skills need to be developed, their expertise need to be updated

3.2.3 Impact on Performance:

Years 2009 2008 2007 2006 2005 2004

Figure: 3.1 Liquidity of PTCL over the time

Years 2009 2008 2007 2006 2005 2004

Figure: 3.2 Leverage of PTCL over the time

40 The Time Interest Earned

Years 2009 2008 2007 2006 2005 2004

3.3 Financial Highlights

Year ended June 2009 2008 2007 2006 2005 2004

Debt : Equity Ratio 16:84 15:85 14:86 14:86 13:87 13:87

Figure: 3.5 Return on operating Assets & Equity

Figure: 3.6 Revenue

Figure: 3.7 Operating and Net Profit

Figure: 3.8 Dividend payout over the time

Figure:3.9 Dividend Payout

3.4 SWOT Analysis

distance and infrastructure side through spreading out two sea-me-we

4.2.1 New Technology

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