Telecom Operators Pull Out FDI from Pakistan

pakistan-telecomTelecom sector witnessed an outflow of US $ 253.3 million Foreign Direct Investment (FDI) in eight months of the current financial year 2011-12 as a result of closure and curtailment of their businesses and operations in the country.

According to the State Bank of Pakistan’s statistics, the de-investment in the telecom sector, one of the leading contributors of FDI in Pakistan, was recorded 364 percent in Jul-Feb compared with FDI landing US$ 96 million in the corresponding period of the previous financial year.

Different telephony service providers including GSM, LDI, Wireless, Car Tracking Services (Class Value Added Services) have limited their businesses because of tough competition environment and high operational cost whereas few of the companies have winded up their business afterwards Pakistan Telecommunication Authority (PTA) suspended their licenses on different grounds.

Another prominent factor that led to a drop in share of the sector was the stuck up privatization proceeding of US$ 800 million payment by Etisalat due to a dispute with the government of Pakistan over legal transfer of land and property titles.

Besides, the growing competition and entrance of three foreign cellular companies during 2005-09, the profits started to squeeze and ARPU/month declined from US$ 3.2 in 2007 to US$ 2.4 in 2009 onwards.

Due to falling average revenues, the existing cellular companies are not only reluctant to bring new investment but one of the cellular company is continuously disinvesting from Pakistan, SBP stated.

However, the upcoming auction of 3G licenses and expected release of PTCL privatization proceeds by Etisalat may lead to some rebound in FDI sector as if the trend of past, the central bank reported.

The telecom was one of the most attractive sectors for foreign investors from 2005 to 2008. Its share in total FDI started to rise gradually and reached 45 percent in financial year 2006-07.

The privatization of PTCL and investment of foreign cellular companies, initially Telenor and Warid and then later China Mobile were dominant factors behind the sharp rise in FDI during 2005-08. One obvious reason for the sharp jump in FDI in the telecom sector was the privatization of PTCL.

Within the telecom sector, FDI inflows were largely due to five companies (PTCL, Telenor, Warid, Mobilink and China Mobile). Foreign investment in these companies stood at 95 percent of FDI (on average) in telecom sector during 2004-2010. However, the share of these five companies declined sharply in 2010-11, SBP mentioned in its recent report “The State of Pakistan Economy.”

The share of companies providing broadband internet services such as Qubee (subsidiary of Augere), Wateen and Wi-tribe increased in financial year 2010-11.