ISLAMABAD, 14 June 2004 — Abu Dhabi Consortium’s Warid Telecom and Norway’s Telenor Mobile Communications have just become pioneers by moving into Pakistan’s telecom market.
Pakistan government has deregulated the telecom sector and projects private investment of $15 billion. The World Bank, meanwhile, estimates “investments amounting to $8 to $10 billion are expected after the deregulation of the telecom sector in Pakistan.”
Whatever the dollar number for projected investment, Pakistan’s market potential is huge as its population is nearing 150 million. It has a growing middle class. The potential can also be gauged from the fact that its teledensity, until recently, was only 2.7 per 100 persons. It plans to raise it to 6.0 per 100 persons in the next couple of years, under the government’s “Telephony for All” plan, compared to Asia’s average of 11 phones per 100 persons.
Telecom companies, a large number of them foreign and bringing in foreign direct investment, are eyeing the potential market. With Warid and Telenor entry — both winning bids for starting cellular phone services the highly competitive but, lucrative, mobile phone market - the trend is being set.
Both are upbeat about their new stake in Pakistan. Each one of them will pay an unprecedented $291 million license fee to Pakistan Telecom Authority (PTA), the telecom regulator, to launch the fifth and the sixth cellular phone service in Pakistan.
Warid Chairman Sheikh Nahayan Mabarak Al Nahayan, and Telenor President and Chief Executive Officer Jon Fredrik Baksaas, signed the respective agreements in the presence of President Pervez Musharraf. Musharraf assured both Sheikh Mabarak and Fredrik, about “continuity in the government’s telecom and economic policies,” and said he is looking forward to “their investment.”
PTA Chairman Shahzada Alam Malik said that the two companies will bring “a healthy competition, help improve service quality, reduce tariffs and create employment opportunities”.
Four cellular companies — Mobilink, Paktel, Instaphone and the state-owned U-Phone — are already serving more than four million mobile phone users in Pakistan.
At the signing of the agreement to start mobile phone service, Warid Telecom said, “With a goal of achieving excellence in high technology initiatives, the Abu Dhabi Consortium announces the launch of Warid Telecom, under the visionary and dynamic leadership of Sheikh Nahayan Mubarak Al Nahayan. Warid Telecom stands committed to creating new quality standards and innovative service differentials in the cellular communication industry of Pakistan. The enterprise is geared toward meeting new challenges and strategically redefining the service levels and customer orientation of mobile telephony in Pakistan.”
Telenor said it will start full customer service in April 2005, and is equally enthusiastic. Announcing the launch of their service, Telenor CEO Jon Fredrik said, it will “invest $1.0 billion in Pakistan in the next five to seven years.” Fredrik said, “Telenor is ready to launch network roll-out in the Pakistani environment, initially in the cities. Telenor has good experience of offering affordable services to attract new customers in countries with a fairly low mobile penetration. We hope to use this confidence with good features in Pakistan.”
Telenor already has mobile phone operations in 11 countries, including Bangladesh, Hungary, Malaysia, Russia, Thailand, and Ukraine, besides now in Pakistan. He said Telenor will also take part in future profitable Pakistani telecom license offers.
More expansion and business opportunities are opening up in the domestic Local Loop (LL) and Long Distance International (LDI) telephony, too. Investors’ interest is widespread. Ninety-five companies, for instance, have just applied to PTA for landline telephone operations. They include 23 for LDI and 72 for LL licenses. India’s telecom giant Reliance Technologies is one of the front-runners among the applicants.
Another applicant is state-owned Pakistan Telecom Company Ltd. (PTCL) that wishes to expand its operations further in futures’ deregulated market. The PTA will award LDI and LL licenses to foreign and private companies on June 29. It has collected 1.02 billion rupees as the initial license fee for these licenses.
The companies that get the award will have to pay $500,000 for each LDI and $10,000 for each LL license that will be valid for 20 years. Each LDI awardees will also provide $10 million performance bond. Private companies are required to pay 3.0 percent of their gross revenues for research and development (R&D) and Universal Service Fund (USF) to finance expansion of telecom services to remote areas of the country.
PTA will also hold bidding — in July and August — for frequency allocation in major cities, for grant of Wireless Local Loop (WLL) licenses.
Awais Ahmed Leghari, minister for Telecom and IT, says licenses now being awarded allow use of neutral technology like GSM and CDMA. The private companies’ rollout obligations include coverage of 70 percent towns (Tehsils) in four years. The two new companies will cover 300 cities and towns, and over 50 percent population, with a customer base of nearly 15 million.
He expects $1.5 billion new investment, 12,000-15,000 new jobs, and a rise in government’s telecom revenue collection from 3.4 billion rupees to 16.9 billion rupees in the form of General Sales Tax (GST), customs duties on imported equipment, and corporate tax. “A fair competition among the cellular companies will help customers by cutting down prices and better quality service,” Leghari said.
The four existing cellular companies, together, have made an estimated investment of $1.0 billion. They have made substantial profits during the early years of mobile phone service.
Although the profit prospects are considerable, the four existing cellular companies have criticized the PTA and the government for charging $291 million each, as the license fee, from to the two new companies — Warid and Telenor. They also are critical of PTA’s plans to charge similarly high license fees when the existing licenses of the four companies, already in business, expire. The state-owned U-fone’s license — for which it paid 50 million rupees as license fee — will be the last to expire. The license for Paktel and Instaphone will expire in 2005, and for Mobilink in 2007.
The other three companies — Paktel, Instaphone and Mobilink were charged no license fee as there was no such provision under the then telecom policies. “Imposing high license fees on the existing licensees will have undesirable consequences,” says Ian Williams, CEO of Mobilink. He also says, “it may lead to higher rates for mobile phone customers, delay or discourage infrastructure development, affect competition in both fixed-line and the mobile market and send negative signals to the investment community.”
