Pak telecom shoots up

Dubai - Industry yields big taxes, pushes the economy to expand

Telecom business in Pakistan has shot up yielding big taxes for the government, pushing the economy to expand and offering big opportunities to investors.

The telecom sector is doing good and prospering business after travelling a bumpy road a year ago. It was the time when government launched an anti-terrorism campaign to cancel millions of suspected SIM cards. Due to loss of millions of these cellular subscribers after BVS Re-verification process, intense competition and low tariffs and a declining trend in revenues of the telecom sector were observed since last year. Inspite of the last year's difficulties - July-March FY-16 - revenues of the telecom sector totalled at Rs333.2 billion.

The Ministry of Finance and Pakistan Telecommunication Authority (PTA) reported that during the last five years - FY-11 to FY-15 - the telecom sector has contributed Rs744.6 billion to the national exchequer in the form of various taxes and duties. In the first three quarters - July-March of FY-16 - alone, the sector contributed Rs105.9 billion. Reduction in tax rates, as well as, "rationalisation of taxes on telecom sector can result into better sector growth, and, consequently, better collection for the government in the long run," PTA and the telecom industry believe. But, will the high rates and a huge volume of cash collected by the government as taxes and duties on telecoms, let the government yield and reduce them?

"These telecom revenues are a big, golden apple in the government's budget. It yields more cash than several big industries. So, I doubt, if a major cut is on the cards," an official of the ministry of finance, told Khaleej Times.

Investment in the telecom sector in its boom period of FY-13 to March FY-16 totalled $4 billion, according to PTA. It included investment in cellular, LDI, and WLL sectors of telecom business.

The period saw the number of cellular subscriber rise to 131.4 million out of an officially estimated population of 180 million - and it is still rising.

At the end of March 2016, the number of 3G and 4G LTE subscribers was 27.87 million - up from 13.49 million as of June 2015. It indicates that the subscribers have been added by more than one million a year. "More coverage and a tariff reduction has increased, and will continue to increase, the number of subscribers with the uptake of 3G and $G LTE subscriptions.

The broadband subscriber base showed a strong growth. At the end of March 2016, their number stood at 30.99 million, up from 16.89 million as on June 30 FY-15. Most of the broadband subscribers belong to mobile broadband, launched in June 2014. The number collectively forms almost 90 per cent of the total broadband subscribers as at now.   

The local loop segment increased to 3.50 million at end-March, 2016. The operators of Long Distance and International (LDI) services have been given big incentives by the government's Telecom Policy. They were given the right to bring and deliver any international traffic to and from Pakistan. Market forces determine the dynamics of their operations, which have been deregulated by PTA.

That led to the big growth of the segment. The total international traffic, including incoming and outgoing, rose to 14,545 million minutes during July-March FY-16, up from 5,643 million minutes in the like period of FY-15 showing a 158 per cent growth. It is a big break, high profits and better user satisfaction in the LDI segment of the industry. Its traffic split indicates, the incoming international minutes were 13,125 million minutes in July-March period of FY-16 - compared to 4,169 million minutes in the like period of FY-15.

At the same time, the total outgoing international traffic was 1,424 million minutes in July-Mach FY-16, down from 1,474 million minutes in the like period of FY-15. The decline is attribute to "the rising trend in using Over-the-Top services for international calls such as Skype, Whatsapp, Viber, Facetime, Line etc," PTA reported.

Telecoms, IT and mobile telephones and the group of other modern means of communications is one of the top three or four industries which are in a boom mode. This is how it appears at a time when most of the industry and businesses have slowed down. They are hit by prolonged energy shortages and shutdowns, low domestic and export demand. Khawja Muhammad Asif, Minister for Water and Power and the World Bank estimate, the energy crisis has eaten up to two per cent of Pakistan's annual GDP growth for the last several years.

But, in this story of gloom and doom, the telecoms have stood up and showed not only its own growth but has helped the economy expand by larger foreign and domestic investment taking its services and facilities to 74.4 per cent of the population, providing jobs and expanding exports of telecom services. This is significant because this was the period when even the overall exports stagnated at the volume of $21-$23 billion annually.  
Dr Syed Ismail Shah, chairman of PTA said: "Innovation and growth opportunities were opened up in the telecom sector after the launch of next generation mobile services, commonly known as 3G and 4G LTE services, in FY-15 were introduced. These are now picking up, pace as the cellular mobile operators continue to invest in the modernisation and expansion of their network and services. Keeping the ICT development agenda on priority, PTA reinvigorated the discourse on the way forward for smart Pakistan. Expansion of broadband services and development of applications in Pakistan is now taking place. During the first three quarters of FY-16, the overall tele-density has increased and the subscriber base is consistently reviving in the cellular sector as due to blocking of SIMs during biometric re-verification last year."

As the sector grows, it should be remembered that telecoms have been attracting "the second largest share in FDI inflows, these years," State Bank of Pakistan reported. The growth of the sector is also confirmed by the ever-rising imports of mobile phones.
"The mobile phone imports rose 6.5 per cent to $ 573.282 million in FY-16 as compared to FY-15, especially after introduction of 3G and 4G in more than 20 Pakistani cities.

The Ministry of IT is currently engaged with international phone and phone equipment manufacturers inviting them to establish their manufacturing and assembling factories in Pakistan. We hope these talks will prove fruitful shortly," a spokesman of ministry said. It means the market is big, and wide open for investors and manufacturers.

Views expressed by the author are his own and do not reflect the newspaper's policy.

• Pakistan