Telecommunication Industry of Pakistan

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Submitted to:
Sir Nabeel-Ul-Haq
Submitted by group:
Shehmeen Ashraf
Class: BS (BA) 6th B
Date 13th July 2008

Report On
Telecommunication Industry,
Growth, Competition and its impact
on the economy of Pakistan

Topic
Executive Summary
What is Telecommunication?
Telecommunication industry in Pakistan
Pakistan Telecommunication Authority (PTA)
Sectors in telecommunication industry
1. Mobile Sector
I. Mobile Sector (Competitors)
II. Growth in March 08 Quarter
III. Cellular subscriber Growth
IV. Cities & Villages covered
V. Company-wise cell sites
VI. Cellular Penetration
2. Fixed Line Sector
I. Fixed Line subscribers (PTCL)
II. Comparison
3.

Wireless Local Loop Sector
I. WLL Market Share
II. Total Teledensity

4. Payphone Services
I. PCO Mobile share
5.

Internet Services
I. Broadband Subscribers

6. Voice over IP
Impact on Economy
1. Impact of Deregulation on Economy
2. Foreign Direct Investment (FDI)
3. Impact of Deregulation on Economy

4. Foreign Direct Investment (FDI)
Challenges for MPO’s
Conclusion
Bibliography

Executive summary
Pakistan telecom industry consist 6 sectors, Mobile Sector, Fixed Line Sector,
Wireless Local Loop Sector, Payphone Services, Internet Services, Voice over IP.
Telecom industry is booming throughout the country as two million mobile
subscribers were added every month throughout the last year.
Previous year the sector grew by 80 percent while average growth rate in last four
years has been more than 100 percent. As per March 2008 quarter report all
companies in total added about 5.7 million subscribers to mobile networks but PTCL
dropped in Dec 2007 bringing to a mere 4.8 million by 5.24 million across Pakistan,
2.1 million subscribers of WLL services. Payphone services had 471,410 subscribers
in Dec 2007; currently there are about 3.5 million internet subscribers all across in
Pakistan.
Network coverage of almost 90 percent of the total population of Pakistan has made
the industry even more attractive for foreign investment. Industry analysts said that
there is still a great margin of growth in this industry, in 2003-04 the sector was
offering 466,068 direct and indirect employments and now in 2006-07 it is more than
double at 1,366,698 employment opportunities. An intense competition is seen in the
telecom sector and all the companies are trying to take edge on each other, which is
helping the subscribers as they are getting advanced and new packages at low prices.
According to the Pakistan Telecommunication Authority (PTA) Industry Analysis
Report 2007, out of 376 tehsils across Pakistan, almost 77 percent are covered with
mobile networks, bringing the figure to 290.
In 2004 there were less than 2000 cell sites installed by all mobile operators for
provision of mobile services. Today total cell sites of all mobile operators are more
than 17,500. romail Kenneth.
During 2006-07, telecom sector has received above US$ 1,824 million FDI, which
was about 35% of total FDI in the country. A total of Rs.235, 613 million revenue was
generated by telecom industry in 2007.The sector is currently contributing 2% GDP
out of 7% to the Government of Pakistan

Telecommunication Industry, Growth,
Competition and its impact on the economy of
Pakistan
What is Telecommunication?
Telecommunication is the exchange of information over significant distances by
electronic means. A complete, single telecommunications circuit consists of two
stations, each equipped with a transmitter and a receiver. The transmitter and
receiver at any station may be combined into a single device called a transceiver.
The medium of signal transmission can be electrical wire or cable (also known as
"copper"), optical fiber or electromagnetic fields. The free-space transmission
and reception of data by means of electromagnetic fields is called wireless.
The simplest form of telecommunications takes place between two stations. However,
it is common for multiple transmitting and receiving stations to exchange data among
themselves. Such an arrangement is called a telecommunications network. The
Internet is the largest example.

Telecommunication industry in Pakistan:
Pakistan Telecommunication Authority (PTA):
Pakistan Telecommunication Authority (PTA) was created to regulate and promote
telecom services in the country as per provisions under the Pakistan
Telecommunication (Re-organization) Act 1996. When PTA started regulating the
telecommunication services, PTCL was providing basic telephony services whereas
Paktel, Instaphone & Mobilink were providing cellular mobile service. Internet was in
its infancy.

Sectors in telecommunication industry:
1. Mobile Sector
2. Fixed Line Sector
3. Wireless Local Loop Sector
4. Payphone Services
5. Internet Services
6. Voice over IP

1.

Mobile Sector (Competitors):

In Pakistan, currently we have five cellular mobile operators i.e.


Telenor Pakistan



Pakistan Mobile Communication Limited (PMCL/Mobilink)



PTML (Ufone)



Warid Telecom



China Mobile Pakistan (CM Pak / Paktel)

Are providing services using GSM technology whereas the sixth operator i.e.
• Instaphone is providing services using AMPS (Advanced Mobile phone
system) technology
Here’s a brief description of the top mobile companies in Pakistan.
At the top is Mobilink, the Pakistani unit of Egypt-based telecom
company Orascom. It has been operating in Pakistan since 1994.
Ufone, a wholly owned subsidiary of Pakistan Telecommunication Co. Ltd
(PTCL), is now under the control of Etisalat group of UAE. For
those in Pakistan it is the one company where they can easily invest
locally. It has been operating in Pakistan since 2001.
Warid, owned by the Abu Dhabi group of the United Arab mirates
and sister of Wateen group is number 3. It has been operating in
Pakistan since 2006.
Norway’s Telenor, a recent entrant with about a billion US dollar
investment in Pakistan has been doing well, based on its recent

earning report. Telenor stock is listed in the Oslo stock market (TEL) and in
US(TELNY.PK). It has been operating in Pakistan since 2005.
CMPak, formerly Paktel, is the latest target of foreign
acquisition. After it got acquired by China Mobile it is in the process
of rebranding. It has been operating in Pakistan since 1991.
Instaphone, a cellular business of Luxembourg’s Millicom, in the first ever sale
of a mobile business in Pakistan by a foreign
company. It has 0.3 million subscribers.It has been operating in Pakistan since
1991.
Growth in March 08 Quarter:


As per March 2008 quarter report all companies in total added about 5.7
million subscribers to their networks



Total subscribers reached at 82.5 million during this period



During Jan-Mar 08 Quarter
-Telenor added 2 million subscribers
- Mobilink and Warid added 1.2 million subscribers
-Ufone added 1 million subscribers on their network.
-Zong added only 161,878 subscribers however,

During the month of April it has reported one million additions in Zong's numbers
which is quiet impressive.

-Insta's performance remained unstable

Cellular subscriber
Growth
Pakistan is on 4th number in
cellular subscriber growth
in industry, number 1 is
china, which is due to its
large population. The rate
of growth of Telenor
subscribers (or SIMs) has
been faster than Ufone.

Cities & Villages covered
These are areas in Pakistan
cities, towns and villages

covered by mobile services providers, where either they have their infrastructure or
providing services. In 2008 Instaphone has covered 95 locations, Warid has 183,
Paktel has 362, Telenor has 1,252, Ufone has 2,986, and market leader Mobilink has
covered 7,011 location all over the Pakistan.
Company-wise cell sites
Cell sites are towers which transfers signals. This graph is comparing data of March
2007 with March 2008.

Cellular Penetration
Cellular penetration is areas covered by mobile services providers Industry wise in
Pakistan. This graph is
comparing cellular penetration
of 2007 with 2008 provincial
wise by the whole mobile
sector. Last year ufone was
operating just 7 cities as
compare to now they are
operating in 41 cities which is
highest among competition in
Balochistan, that means ufone
is market leader in Balochistan.

2. Fixed Line subscribers (PTCL)
PTCL fixed line telephones holders called fixed line subscribers.
HISTORY:- From the humble beginnings of Posts & Telegraph Department in 1947
and establishment of Pakistan Telephone & Telegraph Department in 1962, PTCL has
been a major player in telecommunication in Pakistan. Pakistan Telecommunication
Corporation (PTC) took over operations and functions from Pakistan Telephone and
Telegraph Department under Pakistan Telecommunication Corporation Act 1991. This
coincided with the Government's competitive policy, encouraging private sector
participation and resulting in award of licenses for cellular, card-operated pay-phones,
paging and, lately, data communication services
Pursuing a progressive policy, the Government in 1991, announced its plans to
privatize PTC, and in 1994 issued six million vouchers exchangeable into 600 million
shares of the would-be PTCL in two separate placements. Each had a par value of Rs.
10 per share. These vouchers were converted into PTCL shares in mid-1996.
PTCL launched its mobile and data services subsideries in 2001 by the name of Ufone
and PakNet respectively. None of the brands made it to the top slots in the respective
competitions. Lately, however, Ufone had increased its market share in the cellular
sector. The PakNet brand has effectively dissolved over the period of time. Recent
DSL services launched by PTCL reflect this by the introduction of a new brand name
and operations of the service being directly supervised by PTCL instead of Paknet.
Last Year, in middle of 2005 Government of Pakistan had decided to sell at least 26
percent of this company to some private agency. There were three participants in the
bet for privatization of PTCL. Etisalat, a Dubai based company was able to get the
shares with a large margin in the bet.

Many big change events are happening in PTCL at the moment after its privatization.
these include the VSS (Voluntary Separation Scheme for its employees), ERP (SAP
based), restructuring, B& CC (Billing and Customer Care Software) etc. Another
seemingly minor change was change of brand identity (logo) that will present PTCL's
new face after privatization, with greater focus on customer satisfaction and bringing
about of new advancements in telecom for Pakistani consumers.
Historical Background


1947 Posts & Telegraph Dept established



1961 Pakistan Telegraph & Telephone Deptt.



1990-91 Pakistan Telecom Corporation



1995 About 5% of PTC assets transferred to PTA, FAB & NTC.



1996 PTCL Formed listed on all Stock Exchanges of Pakistan.



1998 Mobile(Ufone)& Internet(PakNet)subsidiaries established.



2000 Telecom Policy Finalized



2003 Telecom Deregulation Policy Announced



2006 Etisalat Takes Over PTCL

Facts and figures since 2002-Dec2007:
PTCL enjoys high profits because it earns monopoly rents as a single provider of
fixed telephony in the country. Comparison with other telecoms in developing
countries shows that it is not due to the efficiency of PTCL that it is showing good
financial results and paying dividends.
This graph is in
millions in
numbers,
composing data of
2002 to Dec
2007.There was
increasing trend in
fixed line
connection from
2001 to 2006, in

2007 it remain same, but dropped in Dec 2007 bringing to a mere 4.8 million across
Pakistan.
Comparison
Mobile sector continues to be major share holder in terms of Teledensity, which is
adding more than 2.3 million subscribers per month However, fixed Teledensity
dropped from 3.04% to 2.99%, but it is expected to rise in light of the newly launched
WLL services. PTCL has 48 lacks subscriber nation wide and sharing number of
employees with ufone 40 thousand. Where as ufone has 16million 1 Koror 60 lacks
subscriber and have 1500 employees. PTCL staff reduced because of offering Golden
hand shakes.

3.

Wireless Local Loop Sector (WLL)

Wireless Local Loop services were introduced in Pakistan after deregulation of local
loop sector in 2004. Wireless local loop services are based on CDMA and are
considered an alternative to copper lines. Recently re-branded Vfone service by PTCL
is the market leader and
recently there have been
many interesting
marketing and pricing
moves. Now 17 WLL
licenses were issued out of
which PTCL, World call,
Telecard, Great Bear,
Burraq, Mytel and Wateen
are operational. WLL customer base has shown rapid growth since 2003. As of the

writing there are 2.1 million subscribers of WLL services. The entire industry in
growing that can be judge from increasing number of subscribers.
WLL Market Share
Maximum market share is
covered by PTCL with
58.7% share of the whole
WLL market and having
1,384,009 subscribers, than
come worldcarll with 18%
market share and having
423,738 subscribers all
over the Pakistan.
Total Teledensity:
Teledensity: when we
compare the number of subscribers, so out of the sample of 100 people, the number of
subscriber of any operator is called Teledensity of that operator.
Tele density under PTCL monopoly is quite low - only three percent compared to
seven per cent in India. Another more efficient operator in the private sector would
have generated twice the current level of PTCL profits through better cost controls
and higher penetration rates.

The corporate income tax, sales tax and other taxes collected from the new licensees
would exceed the total taxes paid by the PTCL at present as the aggregate profits of
the industry would rise due to higher teledensity and higher penetration rates.
With the induction of new licencees, the teledensity of Pakistan is estimated to double
in the next two years to eight million subscribers. Public Sector monopoly could reach
only four million in 57 years.
Teledensity (Fixed + WLL + Mobile)

4.

Years

Total Teledensity (%)

2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
July-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07*
Jan-08
Feb-08
Mar-08
Apr-08
May-08

2.80
3.66
4.31
6.25
11.89
26.26
44.06
45.91
46.91
47.84
48.75
50.88
52.94
53.41
55.26
56.70
57.43
58.2

Payphone Services
Payphone services are companies provided license by PTA, to provide PCO sets
to the retailers.
Growth of fixed line PCO’s remained impressive till 2004-05 where it was going at an
outstanding pace. PTA allowed mobile companies to establish their PCO’s. After
2004-05 growth trend of fixed line PCO declined but wireless PCO services
flourished in Pakistan. In 2003 there were 127,910 subscribers but it grows and
reaches at 471,410 subscribers in Dec 2007.

PCO Mobile share
Fixed provided by PTCL has 32% share, than mobile PCOs like Mobilink and Warid
has 12%, than we have WLL has 56%.

5.

Internet Subscribers

According to
estimates of ISPAK
(Association of
Pakistani ISPs),
currently there are
about 3.5 million
internet subscribers
all across in Pakistan

whereas total users crossed 17 million marks. Currently around 3,002 cities are
connected to internet.
Broadband Subscribers
It is very costly service that’s why having fewer subscribers than any other services.
Pakistan’s Broadband market has been slow despite the fact that services have been
available since almost five years. Broadband services can be offered with the help of
various technologies such as DSL, Cable Modem, Fiber to the Home (FTTH), Wimax
(worldwide interoperability for microwave access). Cost of service is the major reason
behind this slow growth.

6.

Voice over IP:
Companies providing VOIP and call forwarding services. In other words:
International calls, local rates. The following list of companies are those that
providing voice over IP:


Vonics (more about Vonic’s Pakistan Plan)



BRAIN TEL (Lahore only)



CallPakistanDirect



Rebetel - not specific to Pakistan



FreeCallPlanet - not specific to Pakistan.

Impact on Economy
5. Impact of Deregulation on Economy
The impact of telecom deregulation on overall economy is quite obvious. A total of
Rs. 235,613 million revenue 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.
Since the market structure has been deregulated, the PTCL monopoly broken and new
private sector operators given licenses to compete, it would be extremely difficult for
PTCL to show such performance in the future despite its dominant market power.
6. Foreign Direct Investment (FDI)
In the last 2-3 years the telecom sector has attracted record inflows of FDI.
 During 2005-06, telecom sector received over US$ 1.8 billion FDI out of
US$3 billion FDI and emerged as the only sector of the economy to attract
such huge investment where its share in total FDI crossed 54%.
 During 2006-07, telecom sector has received above US$ 1,824 million FDI,
which was about 35% of total FDI in the country.

Years

Total FDI

FDI in Telecom
Sector

Contribution in
Total FDI (%)

2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
July-Sep 07
Oct-Dec 07

484.7
798
979.9
1524
3521.0
5124.9
962.5
1052.1

6.1
13.5
207.1
494.4
1905.1
1824.3
363.9
290.4

1.26
1.69
21.13
32.44
54.11
35.60
37.71
27.6

Jan-Mar 08

982.5

156.6

15.9

It is expected that the trend of investment may continue in the next 5 years because
large potential market still exists in Pakistan and all operators intend to grab their
share. China Mobile acquired Paktel which has contracted out US$ 500 million worth
of project to renowned companies like Ericsson, ZTE and Alcatel to roll out their

networks. Similarly Mobilink also plan to invest US$ 500 million in 2007-08 for
improving and expanding its quality of service.

Investment by Operators

7. Financial
$2 Billion revenue generated during the first 9 months of the fiscal year 2007-08 (i.e.
from July 07 to March 08).

8. Revenue collected by Govt.
GST/CED is Rs.500 per sim that is paid to government by the mobile services
providers.
1. During 2006-07 total revenue collected by the Government Rs. 100 billion
(about 30% higher than the last year).
2. GST/CED collected by Govt was Rs. 26 billion in 2005-06.
3. In 2006-07 Government collected Rs. 36.3 billion GST from the telecom
sector and its share in total telecom taxes has increased to 36%.
4. The increase in these government revenues are attributed to increased
Teledensity and increase in the usage of telephony for voice & data.
GST/CED Collection from Telecom Sector (Rs. in billion)

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Mobile
Basic
Telephony*
Others**
Total

July - Oct - Dec Jan - Mar
Sep 07
07
08

2.0

3.3

5.2

9.9

18.8

28.2

8.64

8.89

8.89

6.9

8.2

6.9

9.7

7.7

7.9

1.82

1.59

1.7

-

-

-

0.9

0.3

0.2

0.14

0.21

0.25

8.9

11.5

12.1

20.5

26.8

36.3

10.6

10.69

10.85

Reduction in Revenue Share License Fee
Cellular phones have already jumped almost threefold to seven million subscribers
during the last one year due to competition among the four players and have
contributed to increased tax collection. Government would still receive all the taxes
from PTCL and 65 percent of all the dividends that hopefully will be higher under
private management.
State enterprises have an inherent disadvantage that their procedures, clearances, and
lengthy approval processes do not permit the managers to make timely decisions to
respond to the business opportunities.
Pakistan
% age of revenue

Sri Lanka
%age

Regulatory
charges
Service tax, GST
GST
VAT
License Fee
0.5% + 0.5% R & 0.3% turnover (t.o.) + 1%
D
of capital invested (inv)
Spectrum Charge
Cost recovery
~1.1% to t..o
USO

1.5%

Nil (only on ISD calls)

Total Regulatory 2.5% +GST+ cost 1.3% t.o.+1% inv+VAT
charges
recovery

China
% age of
revenue
3%
Nil

India
% age of
revenue
10% + GST
5 – 10%

~0.5%*
(China
Mobile)
Nil

2 ~ 6%**

0.5%+3%
(Tax)

Incl in
license fees
17%~26%
+ GST

5. Telecom Imports
The exponential growth in the telecom sector is burdening the overall imports of
Pakistan where sector requires spending of about US$ 1 billion just on the import of
Cellular mobile handsets annually, which puts burden on our foreign reserves and

increases the trade gap.

6. Employment in Telecom sector
The alarm of employment losses after privatization is also largely misplaced and
rhetorical. Telecom sector has generated, after deregulation, hundreds of thousands of
new jobs through public call offices, calling cards and pre-paid card companies,
Internet Service providers, mobile phone companies, broad band services, and other
value added services under the private sector.
The losses of redundant jobs in PTCL, if any, will be more than offset by new
productive jobs in the Local Loop, Wireless Loop and LDI companies being set up in
the private sector and new infrastructure facilities.
Industry estimates that 100,000 new jobs will be added during next 3-5 years. The
substitution of unskilled jobs in the PTCL by the skilled jobs in the telecom industry
as a whole will raise the productivity of the sector as well as that of the user
companies and institutions. Those among the unskilled who can be retained or re
deployed could be retained minimizing the overall loss within the PTCL itself.

Challenges for MPO’s
1. Rising operational & maintenance cost
2. Increasing tariff costs
3. Increasing marketing costs
4. Cut throat competition
5. Strict policies adopted by PTA regarding the sale of new connections
6. Internet telephony and VOIP
7. Broadband & WLL services
8. Technological advancements
9. Increase in Govt. Taxes
Years

%age share of GDP

2000-01
2001-02
2002-03
2003-04
2004-05
2005-06

1.6
1.6
1.7
1.7
1.9
2.0

Conclusion

1. 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%
2. It is expected that fixed as well as wireless sectors will grow considerably in
next future years. Broadband in the last mile, Value added products and
content development are rather barely explored markets and offer a great deal
to an aggressive investor
3. Increase in GST from 15% to 21% will result in more revenue for the Govt. It
might have minor impact on the growth of Cell phone industry but this
remains to be seen

Bibliography
All the facts and figures quoted in this presentation have been taken from
1. Information of providers from PTA site www.pta.gov.pk
2. Mobile phone tariffs available at this PTA page.
http://www.pta.gov.pk/index.php?
option=com_content&task=view&id=542&Itemd=566
3. Wikipedia http://en.wikipedia.org/wiki/communication_in_pakistan

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