TELECOM SECTOR
The Government, through its sound policies, has
created a business friendly environment in the telecommunication sector of Pakistan. Since
effective deregulation in 2003-04, the Government has announced various
business centric policies, which take into account market demands and
challenges, are open and consistent, and have created an encouraging
environment for healthy business activities in the telecom sector. Competition
has now been introduced in each segment of the telecom sector including fixed
line, mobile and other value added telecom services. As a result, an
unprecedented growth has been witnessed in almost every segment and the
cellular phone sector in particular. Total teledensity in the country has
reached 52.94% (as of end December 2007 Table 1)
Table 1 Teledensities of
Regional Countries (%)
|
2002-03
|
2003-04
|
2004-05
|
2005-06
|
2006-07
|
Pakistan
|
4.3
|
6.3
|
11.9
|
26.2
|
52.9
|
Sri Lanka
|
12.2
|
16.6
|
23.4
|
29.0
|
37.0
|
India
|
7.1
|
8.9
|
11.5
|
12.8
|
15.4
|
Bangladesh
|
1.6
|
2.0
|
4.5
|
9.0
|
15.0
|
Nepal
|
1.8
|
2.0
|
3.0
|
3.5
|
6.5
|
Teledensity
includes fixed, WLL and mobile
As a result of strong growth in the sector the
revenues of the telecom companies reached Rs. 194 billion during 2005-06 and
registered revenues of Rs. 235 billion during 2006-07. Consequently, the
contribution of telecom sector in the government’s exchequer is 100 billion
during 2006-07. The success of the telecom sector in Pakistan is now globally recognized
and it has emerged as a role model for other emerging telecom markets.
i). Implementation of Cabinet Approved
Telecom Policies:
The Federal Cabinet approved the following three
telecom policies (formulated by Ministry of IT) for the development of telecom
sector:
- Deregulation Policy for the Telecommunication Sector, July
2003
- Mobile Cellular Policy, January 2004
- Broadband Policy, December 2004
Telecom wing has been actively engaged in activities
centered towards implementation of these policies and has produced the
following results.
Implementation of Deregulation Policy for the Telecommunication
Sector and its Impact:
The Deregulation Policy for the Telecommunication
Sector is prepared with the key objectives to improve infrastructure
development, increase capital investments and to harness local entrepreneurship
in the sector. It is focused to effectively increase quality and choice of
services for businesses and consumers, at affordable prices. It also aims to
protect national security interests, extend reach of telecommunications
services to under-served areas of the country; and promote fair competition
amongst licensees.
In view of the above, Ministry of Information
Technology is actively facilitating telecom operators to roll out and start
businesses in a befitting manner. For this purpose, Government of Pakistan has
granted 14 Long Distance International (LDI) and about 38 Local Loop (LL)
licenses. Out of these, thirteen LDIs have started their operations and have
established more than 94 gateways across the country. LDIs have increased their
Point of Presence (PoP) to 127 locations through out the length and breadth of
the country. Similarly 12 out of 38 LL companies have become operational while
others are actively planning their rollout. Due to the government’s supportive
measures, more and more operators are rolling out telecom networks in the
country and such measures are being witnessed to produce very encouraging
results from operators in terms of increased network accessibility, coverage
and quality of service. On the consumer side, the results include reduced call
rates, increased service alternatives and improved customer support.
Wireless local loop (WLL) services were introduced in Pakistan in
2004. For this purpose the Authority auctioned frequency for commercial
operations of WLL services and issued to 17 Local Loop Licensed companies, out
of which 5 WLL companies are currently fully operational. There has been
considerable growth in the sector over the last 2, 3 years and currently WLL
subscribers in Pakistan
have crossed over 2.2 million subscriber base.
Implementation of Mobile Cellular Policy and its Impact:
Mobile communications is a vital part of the telecom
sector. Liberal government policies in this sector have allowed for enormous mobile
industry growth in the country.
The number of Cellular Mobile Subscribers has
increased over 65.65 million users at the end of July, 2007 as compared to 34.5
million in 2006. Net increase in Cellular Mobile subscribers during the year
2004-05 has been around 7.7 million, about 21.8 million during the year 2005-06
and approximately 27.8 million during 2006-07. Since, the total cellular
subscribers have crossed the figure of 65 million in July 07. Moreover, by the
end of December 2007 the total number of cellular subscribers has crossed 76 million
users bringing the total cellular penetration of approximately 48.61% in the
country.
Implementation
of Broadband Policy and its Impact:
Another important policy formulated by the Ministry of
Information Technology is the Broadband Policy for Pakistan. This policy was prepared
and approved in Dec.2004 by the Government of Pakistan. The policy is aimed to
support the proliferation of IT and IT enabled services in the country. The
Ministry of Information Technology is facilitating penetration of Broadband/ICT
services throughout the country though active measures. Rates of international
bandwidth have been reduced tremendously to facilitate the broadband service
users. MoIT, PTA and Industry Stakeholders have worked jointly to come up with
a comprehensive licensing framework of broadband service providers. Simplified
procedures and harmonization of the licensing framework concerning new
ISPs/DNOPs (Internet Service Providers/Data Network Operators) have contributed
in the proliferation of broadband service in Pakistan.
Telecom Sector Growth
Telecom sector has attracted $654.30 million Foreign
Direct Investment that has been 32.64 percent of the total FDI injected into Pakistan’s
economy during the first half of current fiscal year. The dramatic growth in
the telecom sector has been supported by prudent government policies. Total
number of mobile subscribers in Pakistan
has crossed 76 million by end December 2007, whereby mobile density has hit 48.61%,
far surpassing the fixed line teledensity at 4.33 % with total working
connections of 5.2 million. The wireless users have increased to 2.2 million in
2007 from 1.1 million in 2006 against 4.9 million fixed line phones. Similarly,
value added services, such as payphones and Internet usage are also on the
rise. There are 387,490 PCOs working across Pakistan, more than 6.5 million
registered Internet subscribers and estimated 12 million Internet users. Internet
Dialup subscribers are 3.5 million, whereas estimated DSL subscribers are 0.7
million at Dec 2007.
(Table – 2) Teledensity of Pakistan (%)
Year
|
Fixed Line Density
|
WLL Density
|
Total Fixed Teledensity
|
Mobile Teledensity
|
2000
|
2.18
|
|
2.18
|
0.22
|
2001
|
2.28
|
|
2.28
|
0.52
|
2002
|
2.49
|
|
2.49
|
1.16
|
2003
|
2.7
|
|
2.7
|
1.61
|
2004
|
2.95
|
|
2.95
|
3.29
|
2005
|
3.43
|
0.17
|
3.6
|
8.3
|
2006
|
3.39
|
0.66
|
4.05
|
22.21
|
Dec-07
|
2.99<
|
1.34
|
4.33
|
48.61
|
Jan-08
|
3.06
|
1.39
|
4.45
|
48.96
|
a). Cellular
Mobile
The cellular operators have been pumping money into
the sector to expand network and exploit its full potential. They have been
adding subscribers in huge numbers to their network every month. The growing
competition in the vibrant cellular market of Pakistan has compelled the
operators to offer quality services at competitive prices. All of the GSM
operators namely Mobilink, Warid, Telenore, Ufone and CMPak performed well
during the last year exhibiting tremendous growth in their subscriber base and
provided the market with new, innovative and value added services. Added
competition from Telenor and Warid has provided real momentum for the growth of
Pakistani mobile market. These two companies have given an impetus in the
industry for lower tariffs, expanded networks, customized packages and high
tech services. During the year, mobile companies have continued to expand their
network and subscribers exponentially. Today, mobile segment of telecom sector
is considered to be the most thriving one. On average, approximately 2.7 million
subscribers have been added on cellular mobile networks each month in Pakistan. This
is an exemplary growth in relation to the population of any country in Asian
region.
(Fig – 1)
Fig – 1: Cellular Mobile Subscribers
The entry of Warid and Telenor in 2005 resulted in
significant changes in the market; one of which was market structure with
respect to subscribers’ share. These two companies started attracting
customers, which reduced the market share of the dominant player, Mobilink from
64 percent in June 2004 to 40 percent in December 2007. The two companies now
have a combined share of over 32 percent (As of March 2007) of the market share
which is very healthy development with regard to competition and maturity in
the market. Herfindahl Index, also known as Herfindahl-Hirschman Index (HHI, is
a measure of the size of the firms in relationship to the industry an indicator
to the amount of competition among them) a widely used measure of the industry
concentration, also shows an improvement in Pakistan’s mobile market
competition, particularly during the last one year (Fig – 2 & Fig 3).
Socio-economic impact of mobile phone is also detailed in box 1.
Fig – 2 Cellular Market
Share (June 07)
Fig – 3 Cellular Market
Share (December 07)
Box – 1
Socio – Economic Impact of Mobile Phone Growth
Pakistan Telecommunication Authority conducted an independent study to
assess the socioeconomic impact of mobile growth in Pakistan. A survey of 1,269 mobile
phone users was conducted during March 2007 in all four provinces AJK and NAs.
The study found that the use of mobile has created socio-economic awareness
among the users changing their life style, in improvement of their business and
related activities, saving time on inter-city trips and local visits and
ultimately in saving money and increase in their sales and income. The use of
mobile phone on average made 35 percent increase in the sales of individual
businessmen included in the survey.
Use of mobile has also increased the access to medical, financial and
other services. According to the survey results, more than 52 percent
respondents reported that the use of mobile has improved their access to
doctors and health personnel. It has also improved their family cohesion and
elevated women’s role and say in family and society.
Employment Generation
The study also analyzed the business outlook and the value chain model
of the mobile sector in the country. It estimated current employment level of
354,042 employees engaged in the telecom sector at various levels of value
chain including employment at Telecom Companies, vendors, tower businesses and
cell phone shops. It was projected that 58,009 direct and indirect employment
opportunities would be created in 2007-08.
Fixed
Line Services
In the Long-distance and International (LDI) segment,
13 companies are operational out of the total 14 LDI licensees. PTA also
awarded licenses to 38 Fixed Local Loop (FLL) companies for their operations in
various telecom regions. So far, 4 companies have launched their services, with
limited network coverage in some cities of Punjab
and Sindh. Few other companies like Nayatel, Multinet Broadband and Stanlay are
at their rollout stage; however, their coverage is limited with low capacity. There
are 4.9 million fixed line subscribers in Dec 07 and 98% of whom constitute the
subscriber base of the incumbent operator, PTCL (Fig-4)
Fig – 4 Fixed Line
Subscribers
c). Wireless
Local Loop
WLL technology was introduced in Pakistan in
2004 with the objective to bridge the digital divide between the rural and
urban areas as the deployment of WLL services is much easier than the fixed
line. The total WLL subscribers have reached 2.2 million which are now 30
percent of the fixed line subscribers. WLL density has also increased to 1.06
percent. Currently, 5 WLL operators are providing their services in the
country. The coverage extended by PTCL for WLL services has reached over 1,080
cities/towns of Pakistan.
(Fig-5)
Fig – 5 WLL Subscribers
iii). Sector
Accomplishment
a). FDI in
Telecom Sector
The total FDI inflow was $2.14 billion during first
half of current fiscal year and telecom sector stood the major contributor with
$654.3 million. Telecom Economic Indicators of the first two quarters revealed
total inflow of $962.5 million FDI in July-September 2007 and $1051.10 million
in October-December 2007. Whereas the telecom sector contributed $363.9 million
in the first quarter, July-September 2007 and $290.4 second quarter,
October-December 2007. Thus contribution of telecom sector to the total FDI was
32.64 percent in the first half of current fiscal year. In the last 2-3 years
telecom sector has attracted record inflows of FDI. During 2006-07, telecom
sector received over US$ 1824.3 million FDI and emerged as the single largest
sector attracting FDI. In 2005-06, telecom sector received US$1905.1 million FDI
and emerged as main sector of the economy with 54.11 % share in the total FDI. (Fig-6).
Fig – 6 FDI in Telecom
Sector
b). Contribution
to National Exchequer
Telecom sector is a major contributor to government
revenue. During 2005-06 total revenue collected by the government in the form
of taxes and PTA deposits was more than Rs. 77 billion. The government
collected total GST/CED of Rs. 8.9 billion in 2001-02 on telecom services,
which increased to Rs. 36.30 billion by 2006-07. Total GoP receipts from
telecom sector through taxes, deposits and other sources amounted to Rs. 100
billion in 2006-07. It is expected that the contribution of telecom sector in
total GST/CED collected by CBR will grow in the coming years. The government
also collects activation tax on new mobile connections at the rate of Rs. 500.
iv). Reduction
in Telecom Services Tariff
Significant reduction has been witnessed in the
tariffs of almost all the telecom services over the last two to three years.
The national and international long distance tariffs which were Rs. 34 and Rs.
70 per minute in 1996 respectively, have reduced significantly to as low as Rs.
0.67 and Rs. 0.79 per minute, respectively through calling cards. The incumbent
operator PTCL has also reduced its NWD and international tariff drastically. In
addition, the new local loop operators are also offering zero line rental
packages and free local call packages to telecom subscribers. Similarly tariffs
of mobile services have also reduced. The minimum prepaid on-net tariffs which
were Rs. 5.75 per minute in 2003-04 have reduced to Rs. 1.50 per minute. The
international long distance tariffs from cellular mobile have also reduced and
are as low as Rs. 1.95 per minute. The cellular mobile operators are also offering
friends and family packages in which the tariff is as low as Rs. 0.90 per
minute. The cellular mobile operators are offing per second, per 30 second and
per minute billing to their subscribers.
v). International
Recognition of Telecom Policies
a). Establishment of International Coordination Unit:
To facilitate international coordination and liaison, MoIT
has established the International Coordination Unit in April 2007. The unit is
actively involved in coordination and liaison activities with international
organizations like ITU, APT, CTO and many others. The goal of the unit is to
ensure that Pakistan
stays ahead in international collaboration in telecom sector while actively
participating in international forums for ICT and Telecommunications matters.
MoIT benefited itself and telecom sector including
PTCL, PTA, NTC, SCO, FAB from various training opportunities offered by ITU,
APT and CTO. These trainings have helped enhance the HR profiles, and expertise
available in telecom sector within the country. MoIT also participated in ITU Council
Sessions, WTDC, WRC, various APT meetings and have actively contributed in ITU
events like WSIS, World Telecom Development Conferences (WTDC). One of the Pakistan
proposals on disaster relief assistance was given a global status in World
Telecommunication Conference in Doha
in 2006. Pakistan
also contested for ITU Council and Radio Regulation Board seats during ITU
Plenipotentiary Conference in November 2006 and through active efforts of
Ministry of IT, it is now an active member of these esteemed forums.
b). ITU
Asia Pacific
Center of Excellence ((PTA
node for Policy and Regulations) :
In the first stakeholders meeting of the International
Telecommunications Union Asian-Pacific Region Center of Excellence (ITU ASP CoE)
in Bangkok, Thailand on the 19th to 20th
October 2006, Pakistan
was selected and given the mandate to become the CoE node in the Asia Pacific
Region for Policy & Regulations. Accordingly Ministry of Information
Technology, MoIT (IT&T Division) assigned the task to PTA for the
establishment of ITU Regional Center of Excellence (CoE) Node in Pakistan.
Therefore, the Node for Policy and Regulations was
established in Pakistan
in 2007. This center offers various training courses each year in collaboration
with ITU on issues related to Telecom Policy & Regulations. These courses
will be attended by the countries from the Asia
& the Pacific Region.
This platform provides an opportunity to the countries
of Asia Pacific Region to share expertise on highly specialized issues related
to telecommunication. 49 ITU Member countries from the Asia
& the Pacific region will be benefited from the programs offered through
these CoE Nodes.
vi). Regulatory
Measures
After successful deregulation of the telecom sector, government
is endeavoring for higher telecom growth in the country. Prudent and
transparent policies are also in place to achieve this objective and PTA has
taken several measures for the uplift of the sector including Mobile Number
Portability (MNP), simplified licensing, telecom liberalization in AJK and NAs,
International Mobile Equipment Identity (IMEI) System to counter mobile handset
theft, rural telecom development, quality of service and consumer protection.
a). Licensing
of Telecom Services
Issuance of licenses for the telecom services in Pakistan is one
of the core functions of PTA. In this regard, transparent and simple procedures
have been adopted and till now, PTA has issued 6 cellular mobile licenses and
92 WLL licenses for operations in different telecom regions. Similarly, a total
of 76 licenses have been issued for the provision of Fixed Local Loop services.
Also, PTA has issued 14 licenses to 14 telecom companies for the provision of
Long Distance and International services in the country. In addition, 720
licenses have been issued for value added services.
The Class Value Added Services (CVAS) Regime was
implemented in October 2005. So far 221 CVAS licenses have been awarded. This
new regime is more simplified under which more than 15 different individual
license categories i.e., Data type and Voice type. Under the existing value
added service, old licenses are also being converted into new CVAS licenses.
b). Telecom
Developments in AJ&K and NAs
Keeping in view the rising demand of AJK and NAs for
advanced telecom facilities, telecom sector liberalization has also been in these
areas after the mutual decision of the Governments of Pakistan and AJ&K to
open the telecom facilities in the region. In this regard, licensing for
cellular mobile took place in June 2006 in Islamabad, where Mobilink, Warid, Ufone and
Telenor were awarded licenses to operate services in AJ&K and NAs.
Similarly, licensing for fixed line and wireless local loop is also underway.
c). Payphones
Concessions and Facilitation
To make payphone business sustainable, PTA has
announced a substantial reduction in the Annual License Fee (ALF) of Card Pay
Phone Operators (CPPO) i.e., PTA will now charge only 0.1 percent ALF from Card
Pay Phone Operators on their gross revenue with effect from 1st July 2006
instead of 1.5 percent. Further, the Authority also rescheduled the Annual
License fee outstanding up to June
30, 2005 for all payphone licensees. The ALF is payable in 6 equal
installments on a bimonthly basis starting from December 16, 2006.
The business of Fixed Line CPPO segment which had a
mushroom growth in the last few years is shrinking due to growth of mobile
PCOs. Due to this reason as well as for economy of scale, consolidation of some
businesses is expected in future. In this regard, the operators’ requested and
PTA assured the operators that it will facilitate Mergers and Acquisitions of
Payphone Operators/Companies. Payphone operators will submit specific proposals
to PTA for consideration of mergers. Mobile operators have been asked to
facilitate Payphone operators by offering discount on Mobile Termination Rates
and to consider offering better packages to licensed payphone operators. PTCL
was also asked to revise its tariffs for the payphone industry.
vii) Implementation
of Broadband Policy and its Impact:
As of June 2007, there are 45,153 DSL subscribers,
over 28,800 cable subscribers and over 5,000 on fixed wireless and other
technologies in the country. Total broadband subscribers are around 115,000 by
the end of 2007. (Fig 7, Fig 8)
Through proactive initiatives of the Ministry of IT,
broadband is currently available @ Pak. Rs.999 per month in major cities of
country. This has resulted with activities of key broadband operators, service
providers and O&M contractors to quickly capture the most market share of
this highly attractive market. On the other hand, such initiatives of Ministry
of Information Technology are beneficial for compliance with the directives of
WSIS declaration plan of Geneva
for furthering spread of ICT services and information society development in
the country.
Nevertheless, Pakistan's broadband market has
remained sluggish in 2007 despite the fact that services have been available
since almost five years. Currently there are 71,000 Broadband subscribers and
65% of Pakistani broadband users enjoy DSL Broadband technology. Major DSL
operators in Pakistan
are Micronet, Dancom, CyberNet, MultiNet and PTCL. Almost 70 companies are
providing Internet service all across the country with total Internet subscribers
having crossed 3 million and total users crossed 17 million marks in 2007. Currently, there are 144,023 PCOs working on
fixed line networks of PTCL
Deregulation of telecommunication sector of AJK and
NAs that was finalized in 2006-07 resulted in the award of licenses to both
fixed and mobile operators. Today there are 912,227 mobile subscribers and
149,029 fixed lines and WLL connections in AJK and NAs. The teledensity is now 20.1%, which was only
3% in 2006. With deregulation of telecommunication in AJK their Telecom
infrastructure will grow, teledensity will increase and general standard of
living will improve.
(Fig 7)
(Fig 8)
viii) Operational
Arrangements of USF and R&D Funds:
To serve the un-served and under-served areas of
country and to promote research and development activities, Universal Service
Fund (USF) and National ICT Research and Development Funds have been created
respectively, through contributions from telecom operators. Carriers (including
mobile operators) pay PTA an annual fee not exceeding 1.5% of the previous
year’s gross revenue less inter-operator and related PTA payments, to the
Universal Service Fund and pay 1% (0.5% for mobile operators) to the Research
and Development Fund. The Universal Service Fund (USF) and National ICT R&D
Fund are controlled by the Ministry of Information Technology.
a). Establishment
of National ICT R&D Fund (NIRDF) Company:
National ICT RDF was incorporated in November 2006 as
public limited company by guarantee and funded through contributions from fixed
line and mobile operators in the country. The board of directors of the company
comprises of representatives of telecom companies, Academia and Government to
ensure transparency and effective utilization of funds. The NIRDF, funded mainly
by prescribed licensee’s contributions, finances prescribed research and
development domains in priority areas of information and communications
technology e.g., market and product development.
This fund also caters for HR requirements of the
telecom sector. For this purpose a comprehensive Outreach Scholarship Program
(OSP) has been devised by the company.
Salient features of the Outreach Scholarship Program
are as follows:
Training Imparted to Teachers and Students:
Years
|
Teachers Trained
|
Students Trained
|
2006
|
182
|
2,500
|
2007
|
700
|
6,100
|
Total
|
882
|
8,600
|
Scholarship awarded and Distribution:
Years
|
FAST-NU
|
NUST-NIIT
|
GIKI
|
Total
|
2006
|
200
|
N/A
|
N/A
|
200
|
2007
|
300
|
50
|
40
|
390
|
Total
|
500
|
50
|
40
|
590
|
This fund will also cater for HR requirements of the
telecom sector. For this purpose a comprehensive Outreach Scholarship Program
(OSP) is devised by the company.
In subsequent years, given the incremental number of
scholarships i.e. 1000 in 5 years, other universities, preferably public sector
engineering, science & technology universities will also be included in
this program through ICT Centric University Excellence Program under National
ICT R&D Fund Company.
b). Establishment
of Universal Service Fund (USF) Company:
In order to spread the benefits of the telecom revolution
to all corners of Pakistan,
USF was established in 2006 by Ministry of IT. USF aims to promote development
of telecommunication services in under-served areas throughout the length and
breadth of the country, to make available affordable voice telephony and basic
data services to progressively greater proportions of the country’s population
at their home locations. Universal Service Fund (USF) is funded through
contributions from fixed line and mobile operators in the country. The board of
directors of the company is comprised of representatives of telecom companies
to ensure transparency and effective utilization of funds.
The USF is the only company with focus to provide
access to telecommunications services in remote and un-served (or under-served)
rural areas. It is to be funded mainly by prescribed licensee contributions.
USF goals are to be achieved by 2010 that is to provide access of 85% (95% by
2015) of the population to desired services, bring total rural teledensity of
5%, and to establish at least one telecenter for every 10,000 people (Universal
Service Fund Policy, 2006). Provision of USF services is to be auctioned among
licensed operators according to the lowest subsidy bid, and will be allowed to
earn a “reasonable” return. USF has prioritized lots for auction. First pilot
lot, Telenor has won the bidding for commissioning of services in Malakand
Division. Total bid cost was Rs 1.5 billion with a subsidy of Rs 310 million.
The signing ceremony of pilot lot between USF and Telenor was held on 4th October, 2007.
