Telecommunication is transmission of signals over a distance for the purpose of communication. In earlier times, this may have involved the use of smoke signals, drums, semaphore, flags or heliograph. In modern times, telecommunication typically involves the use of electronic devices such as the telephone, television, radio or computer. Early inventors in the field of telecommunication include Alexander Graham Bell, Guglielmo Marconi and John Logie Baird. Telecommunication is an important part of the world economy and the telecommunication industry's revenue was estimated to be $1.2 trillion in 2006.
Historical forms of communication:
New forms of communication:
* Local area network
* Wireless communication
HISTORY OF TELECOMMUNICATION IN PAKISTAN
Pakistan at the time of its inception in 1947 owned a meagre telecom base with just 14,000 operational telephone lines. Telecom service was meant just to meet the needs of country administration. The year 1962 saw the first sector change when Post Telegraph & Telephone services were separated by establishing independent T&T and Postal Departments. Since the mid-1980s, a number of countries including Pakistan overhauled telecommunications sector, to arrange mobilize additional capital, improve performance of operating enterprises and respond to rapidly growing pressures for more varied services. To begin, Pakistan in 1990 also started taking gradual sector reform measures within the existing legal and regulatory framework. In line with emerging trends, private sector participation and deregulation initiatives were taken between 1989-91.The Telegraph and Telephone (T&T) Department was converted into Pakistan Telecommunication Corporation on 15th December 1990 by delegating the powers to the Board of Directors for better functioning of the telecommunication system in the country. In 1994 in order to further liberalize and open the telecom industry and to transfer the telecommunication services to private sector and the matters connected thereto the Presidential Ordinance “Telecommunication Ordinance, 1994 (Ordinance LI of 1994)” was promulgated on 13th July 1994. To promote, maintain fair competition and regulate the telecom industry and telecom services the regulatory bodies “The Pakistan Telecommunication Authority (PTA)”, “Frequency Allocation Board (FAB) and “National Telecommunication Corporation (NTC)” were established.
The Pakistan Telecommunication Ordinance 1994 provides a legal framework for active participation of the private sector in the development of telecommunication services. The Act also provides a legal base for the establishment of the following :
1. Pakistan Telecommunication Authority -- (PTA) mandate was to regulate the telecom sector .
2. The Frequency Allocation Board (FAB) was made responsible for frequency spectrum management and its monitoring..
3. National Telecomm Corporation was set up to provide telecommunication services to public sector (Govt & Defence) organizations.
4. Pakistan Telecommunication Employees Trust (PTET) was created as a trust to takeover statutory function to disburse pension and other benefits to the employees of the PTCL.
5. Pakistan Telecommunication Company Limited (PTCL) was incorporated as a public limited company , with the objective of providing domestic and international telecommunication and related services. About 95% of the assets and liabilities of PTC, at net book value, were transferred to PTCL whereas the remaining 5% assets were vested in PTA, FAB, NTC and PTET. The vesting of assets to new entities took place with effect from 1st January 1996.
6. Pakistan Telecom Foundation [PTF] was formed in 1997 to defend the Data Network sector against private sector data network operators.
7. By 1999 PakNet / Pak Data Comm was split of from Pakistan Telecom Foundation to look after the pure Data Network sector and Pakistan Telecom Foundation was left with retired PTCL engineers to run more mundane and less specialized engineering of Laying Telecom Cables.
8. More recently [ 1994-2003 ]as Private cellular operators [ PakTel, Instaphone, Mobilink] raced ahead with Mobile Voice Networks [ both AMPS and GSM] , PTCL launched their private Mobile Network company Ufone.
9. More recently PTCL is trying to enter the area of Hybrid Fiber Cable [ HFC] -TV networks after the initial launch of WorldCall's HFC networks in Lahore and Karachi affluent suburbs. By first quarter of 2003 these payphones numbered 21,000.
10. Arfeen which started with Instaphone Wireless and Supernet Data Networks [ Frame-Relay Networks ] has launched Telecard Pay phone initially using land lines from PTCL . In 2000 it launched fixed wireless [ using CDMA technologies] payphones in Karachi under the name "Foree Fone & Na Taar Na Intizzar" . By first quarter of 2003, these payphones were operating from Karachi , Lahore and Islamabad at a total number of 50,000.
11. By December 2003 PTCL obtained an extension of the De-Regulation of the Telecom sectior deadline set by WTO and March 2003 was the new deadline.
Once [ 1995] the Internet exploded onto the Global Telecom scenario, it was evident that the old Pakistan Telecom monopoly was no longer able to cope with the influx of new revolutionary technologies . As recently as 1994, trained basically in voice telecomm technologies , a Divisional Engineer at a PTCL city exchange could not believe that data could also be sent over a telephone line. By 1995 PTCL General Managers were being advised by private sector telecom companies that Voice Mail and Email should be added to the services offered by PTCL.
Finally the “Pakistan Telecommunication (Re-organization) Act, 1996 (XVII of 1996)” was passed on 17th October 1996.
Some of the salient features of the Act of 1996 are:
• Creation of Regulator
• Regulation of Telecommunication Industry and Services
• Transfer of telecommunication regime to private sector
• Powers of Federal Government to Issue Policy Directives
• Establishment of PTCL as Company under the Companies Ordinance, 1984
• Creation of National Telecommunication Corporation (NTC) to provide telecom services to armed forces, defence projects, federal government, provincial governments and local authorities etc.
• Formation of Frequency Allocation Board (FAB) with the responsibility of allotment and management of frequency spectrum. The FAB replaced the Pakistan Wireless Board established under “The Wireless Telegraphy Act, 1933” and took over the function of the Wireless Board.
• Creation of Pakistan Telecommunication Employees Trust with the object of to take care of the interests of the employees of the Company.
Post and telegraph dept established
Pak telegraph and telephone dept
Pak telecom corporation
Waiting list: 900000 expansion program of 900000 lines initiated (500000 by private sector participation 400000 linesPTC/GOP own resources)
About 5% of PTC shares transferred to PTA, FAB and NTC
PTCL formed listed on all stock exchange of Pakistan
Mobile and internet subsidiaries established
Telecom policy finalized
Telecom deregulation policy announced
TELECOM SECTOR REGULATOR: PAKISTAN TELECOMMUNICATIONS AUTHORITY
The telecommunication industry is regulated by the Pakistan Telecommunication Authority an autonomous body established under section 3 of the Pakistan Telecommunication Re-Organization Act, 1996, an Act of the Parliament to regulate the telecommunication industry in Pakistan, including matters relating to protecting consumers' interest, licensing regime, tariff regulation, type approval of equipment and interconnection arrangements. The Authority has the following major objectives and functions:
1. Regulate the establishment, operation and maintenance of telecommunication systems and the provision of telecommunication services in Pakistan.
2. Promote and protect the interests of users of telecommunication services in Pakistan;
3. Promote the availability of a wide range of high quality, efficient, cost effective and competitive telecommunication services throughout Pakistan;
4. Promote rapid modernization of telecommunication systems and telecommunication services;
5. Make recommendations to the Federal Government on policies in the telecommunication sector.
The Authority has been vested with the necessary powers by the federal government to effectively perform its functions.
FREQUENCY ALLOCATION BOARD (FAB): SPECTRUM MANAGEMENT
The FAB has the exclusive authority to allocate and assign portions of the radio frequency spectrum to the Government, providers of telecommunication services and systems, radio and television broadcasting operations, public and private wireless operators, and others. The FAB has an executive director, who is the vice chairman, devoting his full time to the business of the FAB. The objective of the FAB is the efficient management of the spectrum.
Currently, telecom sector is regarded as a sector where local and foreign investment rate has been highest. During last two years higher growth of this sector has set the course for a profitable business for investors and perpetual convenience for consumers. With the coming of new companies in this sector consumers are enjoying more facilities and accessibility. Healthy competitive environment of the cellular mobile phone sector has a very positive impact over the market. With the enactment of Deregulation policy, Pakistan Telecommunication Authority was assigned the job of its implementation. Thus after a transparent bidding process licenses have been issued to two new international cellular mobile phone companies including Telenor of Norway and Alwarid of UAE. Both of these companies have paid an amount of $ 291 Million and an investment of more than Rs. 2 Billion is expected over the next few months. Recently, an amount of more than Rs. 14 Billion has been invested in this sector through the issuance of the licenses for Long Distance International (LDI), Fixed Local Loop (FLL) and Wireless Local Loop (WLL) and a large number of reputed national and international companies participated in the auction for Wireless Local Loop. Pakistan Telecommunication Authority has successfully completed the first phase of telecom deregulation through a transparent and well-defined regime. During this phase total 265 licenses were issued including 12 LDI, 73 FLL and 180 WLL licenses. Now, as different companies have obtained their licenses, PTA in now making its best efforts to ensure that licensees may start their businesses as soon as possible so that a larger number of population may benefit from these modern sources of communication and particularly residents of rural and far-flung areas might be able to take the advantage of these state-of-the-art communication and information services.
Keeping in view the significant number of companies having licensed, it may be presumed that the entry of these companies will lead to a highly competitive market with an outcome of wide range of choice for customers. Similarly this huge investment will also create countless job opportunities.
Pakistan Telecommunication Authority is playing a pivotal role for the development of telecom sector and provision of better services to the users. Authority was established in January 1996 and its functions and responsibilities range from the establishment of telecommunications systems to the provision of telecom services and their maintenance. During the recent deregulation process Authority has performed its duties very well. Procedure adopted by PTA for auction of licenses is regarded as very transparent and
standardized. Role of Authority does not end with the issuance of licenses rather it is also responsible to provide a level playing field to the investors and to protect the rights of users.
It may be noted here that as for the penetration of telecommunication services, Pakistan is one of the under-developed countries of the world. At present tele-density in our country is 2.9%, however with the launching of these new companies it is expected to be doubled within the next financial year. According to the data compiled by PTA, at present concentration of fixed phone connection is 4.4 million in our country while 2.7 million applications for connections are under process. Number of cellular mobile phone users is 5.5 million. These statistics highlight a wide range of opportunities available in the telecommunication sector and a need for a facilitating environment for the success of these new investors, companies and groups. On the other hand increased competition among these numerous companies will lead to a direct benefit for customers and reduction in the prices of telecom services.
The deteriorating security situation in Pakistan pushed the regulator to take some major precautionary steps in order to assist Government of Pakistan in curbing the unsocial activities and security threats. In this regard a number of steps were taken including blocking of unregistered SIM, measures against elimination of gray traffic, preparing comprehensive plan for disaster management, monitoring and reconciliation of international telephony traffic and putting up system for activation of new SIM after verification.
In addition to this PTA carried out research work in different areas as a result of which several consultation papers were floated in the industry to get feedback.
Pakistan's Economy experienced slow economic growth ending at 2% rather than the target of 5.5% mainly due to the adverse effects of global financial crisis, however, telecom sector continued to grow positively in terms of subscription, revenue and teledensity.
As Pakistan provides lucrative investment environment for foreign investors in the telecom, it managed to attract US$ 815 million in 2008-09. However, as most of the operators are foreign, the pessimistic outlook of global economy compelled the telecom operators to curtail the infrastructure expansion plans still total investments in the sector stood at US$ 1.6 billion.
Telecom revenues showed positive growth rate of 18% generating Rs. 327.8 billion in 2008-09. In June 2008, Government of Pakistan raised the GST/FED on cellular industry to 21% from 15%, introduced import duty on mobile handsets @Rs 750 with activation tax @Rs 500 per new connection already in place. PTA immediately stepped into the scenario and took up the uphill task of convincing the Government of Pakistan to facilitate the sector by brining down the tax rates on telecom industry.
As a result, Government announced reduction in GST from 21% to 19.5%, reduction of activation tax from Rs 500 to Rs 250 and cutting down import duty from Rs 750 to Rs 250 in budget 2008-09. During the year, the sector contributed a total of Rs. 112 billion to national exchequer in the form of taxes.
Telecom teledensity remained on the positive side of the scale and stood at 62% showing a growth of 5.4% at the end of fiscal year 2008-09. All of these helping measures by the Authority and Govern-ment are balancing the impact of previously high taxes, low affordability and falling exchange rates as telecom imports also grew by 20% and reached US$ 1.7 billion in 2008-09.
During 2008-09, basic services showed a healthy revenue growth rate of 26% contributing Rs. 121 billion to the sector revenue which is around 36% of the total telecom sector revenue. With the declining fixed line teledensity reaching 2.2%, PTCL remained dominant in the sector despite the presence of many new FLL companies. There are a total of 3.5 million fixed-line subscribers in the country. There remains room for fiber deployment in rural areas of Pakistan.
Wireless local loop (WLL): has been able to sustain positive growth by winning the trust of customers. The WLL teledensity stands at 1.6% with 2.65 million subscribers across Pakistan. Wireless service providers have been able to penetrate the market by offering viable business solutions in the form of PCO's. Long Distance & International (LDI) operators have been in quandary for last few years due to high settlement rates and alarmingly high grey traffic.
Pakistan has been experiencing proliferation of Broadband in the past two years. Broadband subscriber base grew by 146% adding 245,727 subscribers during 2008-09. There are currently 413,809 Broadband subscribers in Pakistan as compared to 168,082 in 2008. PTCL, Wateen and WorldCall are major players in the Broadband market of Pakistan having a combined share of over 79%. As Broadband is still in its infancy in Pakistan, therefore, penetration level is relatively low i.e. 0.26 %. Broadband connection charges for 1Mbps connection dropped below Rs. 1000/- for the first time in history which is a great incentive for new customers.
DSL: ruled the Broadband market of Pakistan since 2007 due to an established fixed line infrastructure by PTCL. HFC, WiMax and EvDO broke the monopoly of DSL last year, however, the scenario changed completely when WiMax truly established itself as a viable wireless Broadband solution and EvDO made a promising start in the market in the reported year.
At the end of fiscal year 2008-09, total teledensity of AJK & NAs stands at 39.9% up from 33.1% last year. Cellular industry has been propagating at a remarkable pace since its arrival and total subscriber number has reached 1,973,742 by the end of June 2009. With such high number of mobile subscribers the mobile penetration reached 33% in just 2 years. Almost 82% population of the AJK & NAs is covered with mobile services.
With the current global and local political and financial situation, the telecom sector had to face tough challenges in the current year. However, being a Regulator PTA has worked diligently for the betterment of the sector so that consumers, investors and Government can all be benefited from it. As we have entered the new year, fruits of positive reforms by the Government and effective regulatory interventions of the Authority are already proving revolutionary the sector is showing signs of recovery. With all our efforts for uplift of the sector, it is expected that it would perform well and stand up to the expectations of all.
Cellular: PTA has at last issued cellular subscribers' stats for the month of August and September 2009. Stats reveal that Pakistan telecom industry is about to hit 96 million subscribers in the country - with 58.60 percent teledensity.
Mobilink has touched again 30 million mark being at the top, while Telenor is bagging the second slot with 21.65 million customers at the end of September 2009. Ufone is at 3rd slot with 19.1 million customer - thanks to heavy losses in previous two months. Warid and Zong are surfing nicely with smooth addition in subscribers. Mobilink and Telenor added most customers, while Ufone lost maximum numbers in the charts.
It should be noted that 668 SIM verification system was launched in October 2009, so let's not rule out chances of swift drop in cellular subscribers in coming couple of months (at least). There are un-confirmed reports that at least 1.5 million SIMs have been blocked and more to follow in coming months. If 668 campaign goes on for another two months, we should expect a slip of at least 2 million subscribers if not 3.
Cellular Subscriber August 2009 Telecom Subscriber Stats August, September 2009Cellular Subscriber Septembert 2009 Telecom Subscriber Stats August, September 2009
The GSM Association, a trade association of GSM mobile operators worldwide, has released the preliminary results of a study prepared by Deloitte, which estimates that the mobile industry has created 220,000 high-paying jobs in Pakistan and accounts for 5% of its Gross Domestic Product (GDP) and approximately 6% of the total taxes collected by the Central Board of Revenue. The study also found that Pakistan's economy and society is benefiting from rising mobile phone usage and low tariffs, which lowers the cost of doing business and improves productivity, while helping families and friends to connect to each other at home and abroad.
Deloitte estimates that over a period of 10 years the elimination of the activation tax would generate an additional 132 billion Rupees (US$2.17 billion) in total tax revenues through the positive impact on the mobile industry and its spill over into the broader economy, above what the government would obtain maintaining the tax. The study shows that tax collections from the mobile industry would grow consistently year on year in the period 2007-2017 due to increased penetration and higher revenues. Last year, mobile operators invested US$2 billion in Pakistan, 54% of the total foreign direct investment in the country, according to the Pakistan Telecommunications Authority.
GOVERNMENT POLICIES TOWARDS TELECOM SECTOR:
The major policy which government implemented on the telecom sector is liberalization and deregulation.
The policy is designed to achieve the following objectives:
a. Increase service choice for customers of telecommunication services at competitive and affordable rates
b. Promote infrastructure development, especially infrastructure that will increase teledensity and the spread of telecommunication services in all market segments (including voice, data and cellular etc)
c. Increase private investment in the telecommunication sector and encourage local telecom manufacturing / service industry
d. Recognizing the challenge to incumbent, minimize exposure to the Government's revenue base in the short term
e. Accelerate expansion of telecommunication infrastructure to extend telecommunication services to un-served and under-served areas
f. Liberalize the telecommunication sector by encouraging fair competition amongst service providers
g. Maintain an effective and well defined regulatory regime that is consistent with international best practices, and;
h. Maintain consistency with Pakistan's IT and Internet promotion policy of low prices for bandwidth to make Internet access affordable.
i. Safeguard Pakistan's national and security interests
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.
PTCL had the exclusive right over basic telephony in Pakistan till 2003. Cellular mobile services in Pakistan commenced in 1990s when two cellular mobile telephone licenses were granted to Paktel and Pak Com (Instaphone) for provision of cellular mobile telephony in the country. Now there are four cellular players M/s Mobilink, Ufone, Paktel and Instafone in the market. Pakistan Telecommunication Authority (PTA) extended number of incentives to these companies for the growth of mobile phone sector which include drastic cut in royalty and introduction of CPP regime.
In view of growing worldwide trend of liberalization, Pakistan government realized to deregularize the telecom sector and introduce full competition both in fixed line and cellular sectors. It was felt that successful shift from monopolistic telecom market to a competitive one required impartial and independent regulator. Accordingly, an independent regulatory body, Pakistan Telecommunication Authority (PTA) was established, which, laid the foundation for rapid development of telecom sector. To reap the benefits of liberalized telecom sector, the government formally announced deregulation policies both for cellular and fixed line in 2003. PTA was made responsible to implement these policies and award licenses to private parties.
First of all, PTA undertook the task of granting licenses to new cell phone companies. As a result of bidding, licenses were issued to M/s Telenor and M/s Warid, which are going to launch their operations in the coming months. Each license fetched hefty amount of US $ 291 million. Thereafter, the task of awarding Local Loop (LL), Long Distance International (LDI) and Wireless Local Loop (WLL) licenses was initiated. Because of the importance of WLL technology in developing economies, having socio economic conditions similar to Pakistan, the Authority decided to promote this technology. As spectrum is a scarce source, PTA tried its best to accommodate maximum operators in the available resources. An open bidding for allocation of spectrum was held from August 11-19, 2004. Resultantly, PTA awarded 12 LDI, 76 FLL licenses to 34 companies and 92 WLL licenses to 17 companies for 14 telecom regions of the country. The whole process generated revenue of Rs. 14.121 billion.
Deregulation has opened up a number of economic benefits in terms of huge foreign investment as approximately 400,000 job opportunities are expected to be created shortly. The share of telecom sector in the GDP is likely to increase from 1.9 to 3 percent in the next five years. Foreign direct investment (FDI) is projected from 5 to 8 billion dollars within next 3-5 years. Above all, PTA?s transparent license issuing process has led to gaining trust and confidence of the foreign investors in the consistent policies of the government.
Despite massive improvement, there is still room for development. Average tele-density of the world is estimated to be approximately 17.2 percent with a distribution that varies from 52 percent in high-income countries to 1.5 percent in low-income countries. Currently, fixed tele-density in Pakistan of 3.13 percent is low compared to our region and especially rural and urban disparity in accessibility is a stark reality as it ranges from 6.08 percent in urban localities to as low as 0.87 percent in rural 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 percent while in all other sectors of the economy this share is carried to about 5 percent. 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.
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.
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.
Analysis of New Taxes on Telecom Industry in Pakistan Budget 2009-10
Pakistan telecommunication industry is one of the major source of revenues for the government of Pakistan. The annual contribution by the industry in the form of taxes is approx Rs. 65 billion (in USD $812 million). The industry also contributed Rs. 120 billion (in USD $1.5 billion) in the form of Foreign Direct Investment (FDI) in the last calendar year. Not only this, the industry directly and indirectly employs around 2.5 lakh people. It is such industries, which are the considered very important by the governments and the governments protect them all around the globe. Alas things are not same in Pakistan where such fast growing industries are highly taxed to milk them to the maximum and bring them to a stand still just like majority of the other industries of Pakistan.
The budgeted presented by the government of Pakistan for 2009-10 is not very encouraging for the telecommunication sector. The government introduced some good measures like the reduction of GST from 21% to 19%, the reduction of Rs. 250 in the import of mobile handsets as well as the reduction of activation tax by Rs. 250. These are good measures but we should keep it in mind that that the GST for the whole country stands at 16% while it is only the telecommunication sector which is facing the discriminatory taxation in the form of GST. Generally, industries providing basic services to the people are taxed lower then the the general public but things are totally opposite in Pakistan. The reduction in activation tax will not benefit the industry since the industry has already reached its maturity and hence the addition of new subscribers has greatly reduced. It is evident from the subscribers addition numbers shown on the website of Pakistan Telecommunication Authority (PTA). The total subscriber stands at 92 million i.e around approx 60% penetration ratio. It is not expected to go much higher then this and hence the reduction in activation tax will not be a major benefit to the industry. The reduction in taxes on the import of handsets will also not make any big difference since 90% of the cell phones are imported in the country through illegal channels. The illegal import witnessed a major increase last year when the government introduced a straight tax of Rs. 750 on all the handsets imported in the country. Therefore, the reduction in the handset tax will only result in decreasing the illegal import of handsets and will not contribute much to the exchequer.
Now lets move to the new taxes imposed on cellular industry in the Budget of Pakistan 2009-2010. The government introduced a very innovative tax of Rs. 0.2 per sms. Generally 40 billion sms are sent in Pakistan every year by the subscriber of cellular phones. With a tax of Rs 0.2 per sms, the government expects to earn Rs 8 billion per annum (in USD $100 million). The imposition of this new tax will discourage the users from using such an important mode of communication. Since bulk sms deals will become very difficult to operate, the telecom industry is expected to curtail them from the current levels. This will further result in decrease in the sms usage and hence reduce the revenue generation for the government. Imposition of a further turnover tax of 0.5% is another move beyond the understanding of common sense.
The increase in fuel prices will also be a major source of concern for all the cellular companies who rely on diesel powered generators to run their cellular towers since electricity is a rare commodity in Pakistan. If that was not enough, even a new tax has been imposed on the advertising sector which will pass it on to the customers. Since telecom industry is one major customer of all big advertising companies of Pakistan, it will also have a serious negative impact on the advertisement spend of the cellular industry.
FORWARD AND BACKWARD LINKAGES
* Power Generation Plants
* Wire & Cables
* Rubber Industry
* Copper Industry
* Silicon Industry
* Almost every business requires telecom services these days Pakistan Cellular Industry Strengths, Weaknesses, Opportunities, and Threats
In the past, Pakistan has been termed as fastest growing telecom industry in the world. This was the reason that World's strongest and most successful telecom players (China Mobile, Etisialat, Singtel, Orascom and Telenor) invested their money in Pakistani market.
This shows the strength that Pakistani market offers to the investors. Even after the boom era, Pakistani telecom industry has got very healthy competition with all these successful players already well settled in the market.
Another good thing about Pakistani telecom industry is that idea of Significant Market Player is diluting with each passing day. Even the newcomers are betting hard and competing well with same enthusiasm and force.
Expected 3G license will take Pakistani Telecom industry to next level, with latest technology coming into the country. This will not only bring additional foreign direct investment, but the telecom standards of common person will shoot up significantly.
During all this process, Pakistan Telecommunication Authority has played its positive role, throughout. They not only encouraged foreign direct investment by allowing 100 percent foreign ownership, but also kept the race very smooth, fair and transparent. Regulator, not only cautioned the operators when they were wrong, but also facilitated them by taking initiatives, such as Mobile Number Portability, an un-ending potential for them.
Pakistan Telecom industry has primarily 2 issues,
1 - High Taxes:
Tax is something that is in government's hands. Despite the fact that in latest budget, taxes on Telecom industry were lowered, but still the move was not enough to bring down the taxes at a considerable level.
2 - Low ARPU:
Competitive tariffs, low spending capabilities of Pakistani subscriber, and higher amount of taxes when compared to tariffs are major factors of lower ARPU. Because of lower ARPU, cellular companies were forced to impose service charges, such as 5 percent service charges, call center call charges and so on.
Lower prices on SMS are another factor for lower ARPU, when masses are allowed (incentivized) to communicate at Rs. 3 for a whole day, don't expect higher ARPU in such a market.
More number of heads means more business. With almost 45 percent heads still not in telecom loop, the opportunities lies naked for telecom operators to bread their profits.
Value added services, such as Mobile Banking, Mobile Internet etc are some of the fronts that are yet to be fully explored by cellular companies. This way, they can not only fetch new subscribers, but can also make their existing subscriber use these services to increase ARPU level.
Network quality and capacity issues should be top priority for telecom operators. With increasing base (though not at high rate now), can create troubles for the operators if they not cope with the capacity and quality of their network.
Price war is hitting its lower limits; regulator must step in at this point of time to guide and confines cellular companies at a certain level.
Pakistan Telecom Sector despite going through a major structural shift, has grown and developed in the last few years. Telecom Sector shares 3.7 percent of GDP. Internet use expanded. Charges of making domestic and international calls dropped. Taxes are high so they need to review by Government. Globally, the telecom sector has been one of the most promising sectors. Companies have been sinking in huge sums of money to develop cutting-edge technology that would deliver everything from Internet over mobile phones to telephone services over cable TV. The future will belong to companies who adapt themselves quickly to changes in technologies. Operators will have to look at value-added services to improve revenue streams. Customers will be benefited substantially with increase in competition.