3G in 2011: Cellular Operators Already Backing Off?

As the regulator and Government seem pumped up for 3G license auction (latter in 2011), it looks that cellular companies in Pakistan are now looking for ways to escape the expedition.

Reasons are apparent,

• Cellular companies are in no mood of further investment (that too in huge size)
• Industry has its reservations for high licensee fee. (Industry segments predict that 3G license fee would be over or around 105 million US dollars)
• And if we talk about target audience, it seems not very potential to them. As we recently mentioned, Only 4% or so are GPRS/EDGE users; that means approximate 4 to 5 million mobile users have access to internet over their devices.

Now, the cellular companies are lobbying through media to make sure that government/PTA’s campaign for 3G gets hampered. In a story produced today in ‘The News’ has plenty of evidences of what I just said.

Here is how the news item starts:

Telecom operators in Pakistan may choose not to introduce 3G, the third generation mobile services, at least for now because of a limited subscribers’ base, high cost of investment involved and an unfavorable investment climate in the country, cellular operators said.

Just to mention here, this is not the first time cellular operators have opposed the idea of 3G in media. But the thing is that they go unnamed or via sources in the papers. None of the cellular companies have dared so far to publicly mention their reservations, probably due to their respective corporate profile.

“For the cellular industry of Pakistan, the time is not ripe to venture into the high-cost technology,” Chief Financial Officer (CFO) of a cellular company said, on the condition of anonymity. “The actual active subscribers are not more than 70 million against Pakistan Telecommunication Authority’s (PTA) claim of 100 million.”

Here comes another problem, the claim of 100 million subscriber mark, which is used as main tactical weapon for 3G transition is not approved by the industry.

The News further writes on PTA’s claim of 100 million subscriber as following:

Another top official of a cellular company rejected the PTA’s claim of over 56 percent mobile penetration in a population of 177 million. He said the actual number of active customers was far less than the figures quoted by the regulator.

“The actual subscribers’ base is not above 65 million. You can’t gauge the number of users through connections for many Pakistanis have multiple connections which they seldom use,” he added.

The official claimed that up to 40 percent users keep more than one connection, which is why the mobile penetration in Pakistan is highly inflated. People having three connections at a time are also huge in number, he said.

He further explains the ARPU levels due to multiple SIMs and how they are hindering investment coming into the country as following:

He said average revenue per user has decreased just because of many people bearing multiple connections and the same revenue is being divided amongst a larger customer base.

Current average revenue per user of the industry, he said, looks just over Rs200, however this number is actually more than Rs360. “This sends a very negative message to the investors who see a low return on their investments,” he added.

According to the official, this situation directly impacts PTA’s own efforts to attract further investment in 3G services.

“When investors see high mobile penetration and low average revenue per user, low return on investment pissed them off.”