Declining Cellular ARPU in Pakistan and its Impact on Economy! [Part 1]

Growth in number of subscribers and Average Revenue per User (ARPU) are indicators of how fast telecom revenues are growing in a market relative to subscribers. In Pakistan, like most emerging markets, the subscriber base grew exponentially however the revenues of telecom operators didn’t go up in same proportion. Keep reading to know why!

Pakistan’s telecom market, in past 4-5 years at least, is largely relying on subscribers’ growth to stretch its revenues. Despite all the efforts the situation isn’t very pleasing for the investors as far as returns and profits are concerned, amid depleting value of Pakistani currency, worsening ARPU and tough economic conditions on top of energy crisis.

Naturally, the subscribers’ growth has been arrested in recent past due to attainment of sufficient saturation, which leaves operators with not many new sales (as compared to yester years). ARPU on the other hand was never worked upon by the operators and hence the growth in revenues is in shackles. Double figure growth in operators’ profit has become a rare scene to witness.

This is no rocket-science for anyone to understand that ARPU (Average Revenue Per User) in Pakistan’s telecom market (cellular market to be more specific) has crossed the bread limits to hit new lows in the region.

If we study the ARPU trends for past few years then we might be able to understand the factors that hit the ARPU standings. Before we start our discussion, let’s have a look at ARPUs for past few years:

Pakistan Telecom ARPU

Clearly the ARPU has dropped from whopping USD 8.30 in 2004-05 to USD 2.42 in 2011-12, which is expected to go only downwards in future if current market dynamics remain consistent.

There are mainly five factors that have impacted cellular ARPUs:

  • Arguably, Pakistan’s telecom market isn’t that huge to accommodate six operators
  • Regulator’s inability to control tariffs
  • Unequal focus from operators on sales only
  • Immensely large size of subscribers having multiple SIMs
  • And Zong, which has pushed the price war to its new heights

Market Size and its Impact on ARPUs:

Biggest culprit, for industry’s down fall, is usually the regulator. Who, in regular circumstances, is suppose to envision the on-going dynamics to determine the flaws and then shapes the future by properly regulating the laws and procedures.

Pakistan Telecommunication Authority, arguably, sold too many licenses in a market which had not enough juice to make all players contented. Let me quote Mr. Walid Irshaid, CEO and President of PTCL, as saying following in October 2011:

Pakistan cellular rates are the cheapest in the world. This can’t continue. This market has to consolidate, otherwise this will be a losing proposition for every operator.

Mr. Irshaid wasn’t the first and only top official from industry to express such feelings. There were more voices echoing the same dilemma. In an interview from 2010, Rashid Khan, CEO of Mobilink was asked following question:

A: Do you think the consolidation is inevitable?

Rashid Khan: We believe that there are too many players. Based on the low prices and high operating expenses, it’s a natural evolution.

In 2010-11 there were efforts made for the consolidation in market, which didn’t go through due to falling stock values of cellular companies and rationally high demands from exiting operators. In short, the idea of consolidation didn’t work and market remains with 5 operators with Instaphone becoming the target of cruel economics.

I am not trying to be skeptical, but these statements from top industry officials raise a serious question on government’s decision of bringing six players into Pakistani telecom market. If so, who is to be held responsible? and how to reverse this remains a question mark?

PTA’s Role in Regulating Prices:

Pakistan Telecommunication Authority relies on Significant Market Player (SMP) rule to regulate tariffs. Regulator claims to have kept a watch on SMP’s pricing to make sure that tariffs in cellular market remains balanced. Otherwise regulator doesn’t interfere at all in pricing of cellular plans.

This rule of SMP is still in practice when practically all operators are catching up the SMP (Mobilink in this case) in terms of subscribers’ market share. See below market-share chart for illustration:

market-share

Even worse, the provision of regulating SMP’s tariff also remains a question mark. Mobilink rarely asks for PTA’s prior approval before launching any offer.

Currently, the market is moving without any sort of cap on pricing. Every operator is free to set prices of its comfort and will.

Pakistan Telecommunication Authority needs to revisit the cellular policy, which is by the way expired and must be appended to meet ever-changing market needs of today.

Unequal Focus From Operators on Sales Only

Sales has remained the major, if not the only, gauge of success for Pakistani telecom operators and regulator. Cellular operators vigorously added the customers to their base, without considering any other business factor. For this, they went to any and every level to bring new customers. Read this article to know a little about cellular companies’ act of selling SIMs through every possible channel, for which they not only compromised with their futures but also our national security was put on risk.

In this race for acquisition of new customers, the subscriber retention was largely over looked that resulted into lower ARPU.

Subscribers with Multiple SIMs

All above factors forced customers to have multiple SIMs. Imagine a customer who has a spending power of Rs. 500 on communication services and he has (let’s suppose) four SIMs in total – that are used for different packages, networks. In such situation he’s translating into ARPU of Rs. 125 per SIM, instead of ideally an ARPU of Rs. 500 per subscriber.

Industry ARPU has been hurt by this phenomenon a lot. Customers often tend to have more than one cellular SIMs, impacting the over all industry ARPU.

Zong: Pushing the Price War to New Heights

In 2008, when CMPak started its operations in Pakistan under the brand name of Zong, cellular ARPU was hovering around USD 3 or above. However, soon after Zong came into play it relied on pricing to compete with humongous rival operators having over 15-20 million customers and network reach of thousands of towns in the country.

Naturally, Zong had no other way to survive but to push the prices further down to beat the competition. Older operators, on the other hand, instead of capitalizing their coverage, subscribers and service advantage, started competing with Zong.

Low-paying, and hard to retain, customer from market rushed fast to Zong due to low pricing strategy. However, company struggled with retaining customers amid coverage and service issues. This all resulted into a situation where Zong had no high-end customer and it had to keep relying on low-pricing to meet its revenue targets.

Just to mention here, Zong has around 15,000 postpaid customers out of its total 17 million subscriber base, which is way below the industry standards. In addition, Zong’s ARPU is around Rs. 156 (confirmed reliably through sources) compared to average ARPU of Rs. 230 for other four operators in Pakistan (i.e. Mobilink, Telenor, Ufone, Warid).

Current market dynamics suggest that Zong will keep struggling with customer retention and hence it will further lower the prices to gain its share of revenue. Which is a short-sighted strategy that will not only de-value Zong as a brand but will damage the whole market.

Pakistan, which is standing at the verge of 3G spectrum auction, can not afford this to continue. Regulator and cellular operators need to revisit their policies if they really want telecoms businesses to keep running in the long run to keep supporting the national economy and hundred of thousands of families associated with this business.

At this point of time we are pretty much determined about the factors that played part in lowering ARPUs, in next part of this multi-part post, we will try to calculate the impact of ARPU on Pakistan’s economy in general and on telecom industry in specific. Keep watching this space for more on this.

Tech reporter with over 10 years of experience, founder of ProPakistani.PK


  • Amir Malik

    Excellent article … Well done

  • Nice article Aamir, Its time PTA should make some changes to their policy.

  • Ghareeb Awam

    The dilema is getting worse with the invasion of more customers and the companies still focussing on the sales growth without any long term planning, as all the head of the companies are on the oppurtunity to be on the board of any other company as their growth are on top.
    They never planned for long term policy due to the incentives attached to their short term growth.

  • SSH

    29.5% Tax we r paying to the Govt which is a handsome amount (collective)
    As far as economy is concerned, INTERNALLY WAR WITH OWN PEOPLE , WITH 0% political stability.Definately it will will decline.Bring technological advancement it wil shoot up.

    • SSH

      Zong is doing Low cost Leadership to survive.In pakistan there are many other ways to reduce your operation cost.IF Reviewed by the telcos and PTA. i m sure prices will go up or MR. Rehman Malik will issue Fatwa of 1 sim to save ARPU. :p

  • good one

  • tayyab

    There is a economic term called ” Barrier to Exit” That’s what happening in Pakistan Telecom Industry. Zong or any other telecom company can’t give up after making a huge investment. They have to keep doing some thing to survive.
    As far as Mobilink is concerned They’ve done ”Market Skimming”. Skimming results in a slow rate of stuff diffusion
    and adaptation. This results in a high level of untapped demand. This
    gives competitors time to either imitate the product or leap frog it
    with a innovation. If competitors do this, the window of opportunity
    will have been lost.

  • zain

    you must also right on how its affecting employees in telecom sector. salaries are decreasing day by day instead of increase

  • Arslan Tariq

    Excellent Post Nice Work

  • Ahmed

    We also have probably the highest tax rates in the world on telecom sector, noone speaks about that.

    Also this is a market where majority users are of the category who get a 40 Rs “easyload” a month. An ARPU of just over 2$ is a blessing i guess!!

  • Nauman

    do you have monthly market share for all telcos in Pakistan from June onwards?

  • Waqas

    Mobile operators in Pakistan should facilitate more to post paid customers to increase their ARPU. Or just like in developed countries (UK and USA) mobile operators should start contract based packages to boost their ARPU. I think these both will help.

  • geo_pak

    Its soo true_……… But then we have silly NGOs who are asking for audits and alleging concealment of revenues by cell coys based on crazy calculations.

  • zain

    i don’t agree with you at all on the fact much for that 6 operators are too much for a country big like Pakistan
    rest is ok

  • Muhammad Khalid

    @aamir attaa
    pls do a review on Qmobile Noir A8

  • Furqan Saeed

    In free open
    market ARPU is not controlled through forced tariff restrictions but floats as
    per market scenario. Whatever is the business model of any network operator,
    maintaining QOS, and subscriber retention is an important element to grow in
    future. Current country conditions when a huge amount of currency value slips
    in just couple of months also dented network operator in terms on ARPU and
    running costs because most loans are taken in USDs. Presently the only way forward
    is subletting technical and marketing human resources and change of running
    business model to survive in this tough environment.

  • H.

    Few points/observations:
    – Perhaps you might already have done the correct calculation, but I wouldn’t be surprised if Pakistan’s base is 20-30% less than what is officially communicated, whereby the ARPU figure should automatically go up
    – Although still important, I think that today, ARPU is not the best measure to gauge the industry. Perhaps an indicator that shows profit (as percentage) would be more meaningful
    – Declining ARPU is a natural phenomenon, considering that the networks have expanded from metropolitan areas (high-ARPU) to villages. But let’s not forget that these expansions have brought economies of scale
    – One other big aspect of low profitability is the growing cost of doing business, most specifically the infrastructure (fuel for generators!)

  • Kashif

    Aamir! Seems you are so much confused, and just want to put your words to read.
    On one end you are blaming PTA for awarding too many licenses, and on other hand blaming operators for price reductions. So, eventually who are the stakeholders and who are Beneficiaries.
    .

  • Khurram

    Aamir – did you ever write the next part of this article?

    • aamir7

      ahhh — Please accept appologies. I will write soon.