Telecom Sector’s Contribution to GDP Drops: SBP

Telecom sector’s contribution to GDP (Gross Domestic Product) declined in the outgoing financial year 2010-11 due to eroding profitability within sector on account of rising marketing expenditure in response to aggressive competition, said State Bank of Pakistan in its report “The State of Economy”.

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SBP report said that overall telecom sector revenues recorded 6.7 percent growth during FY11 as compared to the marginal 1.5 percent increase recorded in FY10.

The increase in operating costs has also tended to offset overall revenue growth witnessed in this sector consequently, both operating profits and margins of telecom companies registered declines in FY11.

Within the telecom sector, the growth in revenues of cellular mobile companies showed some stability in FY11 after recording successive declines for the past three years.

Part of this improvement is attributable to growth in Average Revenue per User (ARPUs) as well as the total cellular subscribers’ base. However, the revenues of Local Loop providers continued the falling trend observed since the past few years.

The cellular density in Pakistan has been increasing consistently, reaching 64.8 percent in April 2011 as compared to a level of 60.4 percent in June 2010.

However, this level of mobile phone penetration is lower than most other regional countries, suggesting that growth potential in this sector is still strong but it will require additional investments in infrastructure to increase the subscriber base further and tapping market’s potential, SBP report said.

Apparently telecom companies are more focused on expanding the range of services for improving revenues but his strategy has resulted in tough competition, leading to very high marketing costs and declining operating margins of the service providers.

The continuation of competitive trend is likely to increase market saturation and further weakening of profitability. Therefore, in the absence of increase in network coverage the growth in telecom sector is likely to decelerate further, SBP report further said.