Pakistan New Mobile Policy 2009 A Turning Point in the Future of Cellular Industry

by Teleco Analyst on January 25, 2009

WhenÂ Mobile Policy of Pakistan was approved in January 2004, Ministry of Information Technology (MOIT) set specific objectives to be achieved by the policy with major goals of increasing choice for customer at competitive & affordable prices, private investment and fair competition amongst mobile and fixed line operators.

When two new licenses were awarded in 2004, no one could imagine that deregulation of industry will bring such a radicalÂ changeÂ in telecom scenario of Pakistan. The market witnessed unprecedented growth in subscriptions by reaching 88 million in June 08 from 5 million in June 04. What is very interesting to highlight here is that during the preparation of mobile policy the experts had a setÂ goal to achieve as far as market size is concerned andÂ mentioned it in theÂ mobile policy of 2004:

â€œAssuming that future cellular coverage reaches 95% of all urban population and 30% of
rural population and taking into account the relative geography and population density
of each Province, there is a potential demand of approximately 25 million cellular
Subscriptions by 2018.â€

Source: Pakistan Mobile Cellular Policy 2004

In recognition of regulatorâ€™s role in the spectacular telecom sector growth, the Global System of Mobile (GSM) Association has awarded Pakistan “GSMA Government Award” and even this achievement was used by political government as major achievement during their term of governance.

It is really remarkable that one of the most critical players, who played important role in this achievement, has never been given its due share of recognition instead they have been portrayed as generating huge profits and taking advantage of the subscribers.

In reality the extraordinary growth was triggered by aggressive business models of cellular operators to capture maximum market and based on economy of scale strategy. It was because of these aggressive strategies of cellular operators that Pakistan witnessed foreign direct investment FDI of approximately US $ 8.4 billion (PTA: annual report 07-08), network coverage across the country with over 21,500 cell sites. Mobile industry has become one of the major revenue sources for the government with approx. Rs 79.3 billion collected during 2007-08.

Since the new government has taken power in start of 2008, they have given little importance to nurture the industry but rather took steps which have proved damaging to the industry such as continuation of activation tax of Rs 500/- per connection, increasing the GST from 15% to unprecedented 21% especially on cellular service and handset duty of Rs 750 per set. All these steps have made Pakistan cellular industry as the highest taxed in the world. The affects of those steps are becoming visible with industry grown merely by 1.9 million from June 08 to Dec 08. Considering the devaluation in currency experienced since mid of 08 and higher inflation rate & discount rates the telecom industry is facing huge challenges of survival in coming months. The valuation of these companies have been affected quite badly since early 2008 with increasing cost of capital and lower expected future cash flows.

Most of the experts are of view that cellular market has reached the saturation point and there is little expectation of major growth in market especially compared to growth witnessed in last 4 years.
The new telecom & mobile policy is expected to be implemented soon as existing one is expiring in January 09. Hopefully the government will learn from the mistakes made in last 6 months and will develop the new policies on nurturing the industry by focusing more towards maintaining it profitability of sectorÂ rather than aggressive market growth.