Has Pakistani Telecom Market Reached a Breaking Point?

Based on lower than expected ROI, taxes, stiffening competition and lack of innovation, telecom companies have slowed down the pace for rolling out 3G networks in newer areas as compared to previous year, we have learned through recent interviews with multiple c-level executives of the mobile phone companies.

3G services from various operators reached 250 cities and towns during first 14 months of spectrum auction, however, during past three months not many new locations were added to 3G coverage and there are two main reasons for this strategic shift in roll-out policy of telecom operators:

  • New Internet Taxes
  • Low Returns
    • Due to Price War
    • Lack of Innovation and Diversification

This whole situation indicates that telecom operators, maybe for the first time in Pakistan’s history, have become over cautious to a point that they have given up their committed network roll-out plans.

Prevailing business conditions have pushed them to take extra-ordinary measures in reducing costs, maximizing profits and to take steps that were never considered in past.

Let’s see how we reached here and whether there’s a way out of this.

Internet Taxes

We have talked enough about how taxes are impacting the usage patterns and telco’s revenues, but just to put things in perspective, internet prices increased by one third after June 2015 due to these new internet taxes.

Naturally, while we don’t have factual data to prove this but if we consider basic rule of economics, internet usage in Pakistan must have dropped down by proportion the prices went up.

We have Halted 3G Roll outs: Telecom Operators

And that’s not all. Import duty on smartphone was doubled this year, there’s new 8% minimum tax introduced on services this year and then tax rates were increased from 5% to 25% on telecom equipment just last year, making it extremely hard for operators to keep up with their planned strategies.

One of the top two ranked Pakistani operators clearly told me that it has re-done its strategy for 3G rollout and newer cities will take a lot longer to get 3G services. “We have halted new roll-outs”, the company explicitly said.

Mobile_Phone_Pakistan

internet prices increased in Pakistan by one third after June 2015 due to new taxes and seemingly the usage must have dropped down by similar proportion

While explaining the reason a high-up of a telecom operator said that new investments are committed only after approvals from group level. With these new taxes, that are up to 33% of actual prices, holding groups are now reluctant to invest in Pakistan as their ROI from other markets — where they operate — is far more lucrative than Pakistan.

“Telecom industry is being surprised by the government with either new taxes or regulatory hiccups every six months or so for last few years and this is a not helping us at all in convincing our groups for allocating new investments for Pakistan”, said the official.

He explained that if you look at investors’ interest, when he has several offerings on his table from several markets including Pakistan where market is uncertain, high taxes and all sorts of political issues, he’s not going to risk his money in Pakistan.

“More than 50% of mobile operators’ revenues go into taxes, duties, license fee or other sur-charges, which shows that our revenues are cut half at the very beginning”, expressed anther c-level executive of mobile phone company, whom I can’t name because the conversation was off the record. He further added that remaining half of revenues are then used for operating expenses to keep the operations running to ultimately squeeze margins to some of the lowest in the world.

Low Returns Due to Price War

Other than taxes, Pakistani cellular industry is currently undergoing a bloodbath due to fierce competition and price war among each other to further deteriorate the margins to a level where existence of some operators is in danger in the long run.

Pakistani operators are in state of price war for over half a decade now, especially after Zong started its business in Pakistan. However, things weren’t as tough as they are now because price war in voice-dominant market started after several years, giving the operators enough time to settle down.

This time, however, mobile companies ran into combat with-in three months of 3G/4G auction and started betting on prices for data services right from the beginning.

Price war for data services is especially dangerous because it is not only lowering the ARPUs, that’s damaging, but what’s more damaging is the fact that consumers’ shift from conventional voice and SMS services to smartphone based apps is not being compensated through data revenues as telcos are selling GBs of data in just pennies.

Consumers’ shift from usual voice and SMS services to smartphone based apps is a global trend, which was bound to be followed here in Pakistan too. But what’s different here in Pakistan is that data rates are ridiculously low and hence the shift from conventional services to apps further is lowering the overall revenues of telecom companies.

Skype_Call

Because data rates in Pakistan are ridiculously low and hence the shift from conventional services to apps is lowering the overall revenues of telecom companies

Price war for data services is lowering the ARPUs, that’s damaging, but what’s more damaging is the fact that consumers’ shift from conventional voice and SMS services to smartphone based apps is not being compensated through data revenues as telcos are selling GBs of data in just pennies.

Hence, by simply assuming that usage-shift from SMS/voice to apps is a global trend and we will be doing okay as the west did is not entirely correct.

This impact of revenues drop from conventional services might not be visible as of now as 3G users’ number is currently low as compared to overall mobile phone users plus there’s not much awareness among the consumers, but don’t get surprised if data services start impacting telcos negatively in just few years from today.

How to Deal with This?

While every telecom company knows the problem, and they keep telling me that price-war has to end but its hard for them to take the initiative to set an example for others.

From previous track record of Pakistani operators we know that telcos can’t tackle the situation themselves. We know that they won’t learn the lesson, instead they will keep reducing the prices to ultimately put their futures on stake.

Pakistan Telecommunication Authority is probably an answer. In fact one of the operator once asked them to play a role but it appears that nothing much is being considered on regulator’s part.

PTA agrees that this price war should be put under some control, and there were some regulatory changes made in laws but nothing concrete has been done as of yet.

PTA has to play a decisive role in curbing price-war in telecom industry or there will be no industry

PTA, if you may allow me to speak frankly, thinks that price flooring will earn them a bad repute from customers, who are in millions. And they don’t want to get controversial for doing so.

But, in my opinion, PTA has to play a decisive role here. Since operators can’t deal with the situation themselves, its PTA’s responsibility to save the industry or there will be no industry.

Considering that PTA has to keep a balance between consumers and operators with a responsibility of safeguarding the interests of both of them, time has finally come to put a control on price to save operators.

Why Consumers Should Be Concerned About Price War?

End user is apparently the ultimate beneficiary of the price war as he is able to enjoy limitless calls or data for just few rupees, but there’s a compromise he/she is making against these low-rate calls and data in the long run. Keep reading to know further.

For example — with lower prices — you should expect lower quality of service, lack of new services and most importantly lesser number of 3G covered cities, especially in rural areas where 3G was required the most.

We need to understand that telecom companies are business entities and they won’t offer us something that’s commercially not viable for them.

While we may think of low prices as blessing, which they are, but such blessings are for short time only as ultimately we will have to pay the price in shape of lesser and degraded services.

We get emails from our readers, on daily basis, asking us that when 3G services will reach their areas, as a reference look at following email from Muhammad Asif:

   جناب عامر صاحب آپ اپنے ذرائع سے پوچھ کر یہ بتا سکتے ہیں کہ موبائل کمپنیوں کی تھری جی سروس گاؤں کی سطح پر کب شروع ہوگی اس سوال کا جواب کہیں سے بھی نہیں ملتا۔

عامر صاحب یہ سوال میں نہیں بلکہ پورے پاکستان کے 70% لوگ پوچھ رہے ہیں۔ براۓ مہربارنی پتہ کر کے بتاہیں۔

And unfortunately I don’t have an answer to such questions now. If you have 3G service in your area then imagine those who are waiting in the queue and now they will have to wait only longer to get their hands-on the 3G services.

This is the kind of cost we, as consumers, will have to pay because operators won’t invest until its not viable for them.

Lack of Diversification in Revenue Streams

Other day I was sitting with a top official of a mobile phone company and asked him if his company could come up with an online ecommerce store? He straight away said NO by explaining that his company isn’t experienced in e-commerce business and would rather stick to things they are good at.

Rather surprised, I asked a follow up question that you are in mobile financial business, which was not your area of expertise just a few years ago, then why not e-commerce business? He thought that there’s already too much on platter and things will only get complicated if we start another line of business.

While some may not agree but I think this kind of reluctance is costing telecom operators a big chunk of money.

Telecom companies in Pakistan compare themselves with global operators who are service providers and they don’t do much except than managing the networks, but market dynamics in Pakistan are different that require localized approach towards doing telecom business.

For instance returns in telecoms are low here, which could be the sole reason of getting into new relative businesses to discover new revenue streams. Such new ventures (such as e-commerce business, surveillance products, content generation, cable and TV services etc.) could be augmented through their core services and vice versa.

Proven and successful examples of business diversification for telecom companies are available in other markets too

Additionally, as compared to western markets, entrepreneurship and VCs in Pakistan are in its nascent stages, leaving a huge room for telecom players — with good pockets — to tap into unexplored segments. Good thing is that they can start slow and low and then keep pouring in money with time to expand their other-than-telecom businesses.

Just to back my argument, one can look at Ooredoo from Qatar that diversified its business by partnering with Rocket Internet and investing into startups with focus in growth markets.

Imagine if a telecom company had started a video-sharing service back in 2010, how big it could have gotten by now. Or say a game-studio or a news website or an ecommerce company by a telecom company few years ago could have built a solid alternative means of revenues for them by now.

Starting even now wouldn’t be a bad idea. Its just that they will have to get out of their corporate masks and adopt a startup like mindset to explore untapped Pakistani market that posses billions of dollars in potential business.

Concluding Remarks

Pakistani telecom market has huge potential, it has a chance of becoming top 10 global markets in terms of internet users with-in few years. But this is a decisive time today. All stakeholders (government, regulator, revenue boards, operators, vendors) will have to prepare themselves for the years to come.

Decisions made today will define how we perform during the decades to come. And since telecom industry is at the core of all innovations, it has a responsibility towards the people and economy of the country, for which government, regulators and operators will have to work jointly for the betterment of everyone.

It’s critical times, we must act now

According to one CEO of a company, if taxes are not dealt wisely and if price war isn’t tackled amicably then at least one telecom company will get out of business with-in just next three years. While others will squeeze their costs and operations so much that an employee won’t be sure about his job while going to office in the morning, which is literally the case already.

It’s critical times, we must act now.

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


  • First and the most important thing is the removal of taxes. Pakistan is the only country after another (dnt knw man) who have put taxes on the internet package. This is extremely pathetic by our government and instead of going forward… We are actually going backward..

    Aur dou shair ko votes… Aur dekho phr yeh mulk kesei tabah hota hai

  • nice effort amir bhai leken ik baat batayen tax to ham pay kartayn hain to yeh operators ko kia loss horha hai..

    • Operator either (1) Absorbs the taxes to increase/retain the subscriptions and per user revenues & usage OR (2) Try to reduce the tariff to make the package in the range of the subscriber to minimize the tax effects – In both cases, margins squeezes and the operators who simply pass the tax to consumer experience churn of hard earned customer — Eventually all that happens that is reflected in this post :(

  • On a serious note the writer should be more concerned about pakistan, because i am not even sure of the existence of pakistan in the next three years keeping in view that there exist ZOMBIES(READ JAYLAS) and PATWARIS(READ SHER) in pakistan. VERY UNFORTUNATE

  • There was a time when I used to be envious of my relatives in Pakistan enjoying such low prices for telecom services…now it’s the other way round.

    As far as taxes go, Pakistan’s telecom sector is severly over-taxes…As a point of comparison, the only tax on telecoms services in Australia is 10% GST, and that is already part of the prices we pay, not charged on top.

  • The government is running on taxes merely, they are taking debts to pay debts, exports are declining, foreign investment is decreasing, businessmen are taking their business out of Pakistan. The government is good at only one thing and that is lobbying using media, using it they show us contrary to the actual situation on ground.

  • as a former telecom employee, i am also worried about the decreasing salaries in telecom sector. For example less than 200$ a month for call center employees who take more than 200 hundred calls a day.
    companies are also charging people for services that are free else where in the world.
    please write about these issues as well

  • well, they have to do what coca-cola and pepsi has done in the past, mutual agreement on price and that is the only way to survive.

  • Isnt internet access a part of empowering and modernizing the society, although this government, who has still banned entire youtube, instead of just the controversial video, it regularly blocks total internet access and blocks particular services like viber and skype as it pleases.
    imagine the fate of small entrepreneurs running IT based start ups that rely on these services … also my friend in pak told me that phone operators are now charging extra for whatsapp calling

  • محترم جناب عامر صاحب! آپ نے گھنٹوں کی محنت کے بعد اپنی تمام تر صلاحیتوں کو بروئے کار لاتے ہوئے یہ پوسٹ مرتب کی اور پاکستان ٹیلی کام آپریٹرز کے مسائل اور مشکلات کو بہت اچھے انداز میں بیان کیا۔ اس کے ساتھ ساتھ انڈسٹری کے ملکی معشیت پر سیاہ اثرات کو بھی بیان کیا۔
    یقیناً ہر ملک میں معشیت کو بہت سی مشکلا ت کا سامنا کرنا پڑتا ہے اور ملکی معشیت میں سب سے بڑی رکاوٹ امراء کی جانب سے درست ٹیکس کی عدم ادائیگی ہے جس کی وجہ سے ہماری گورنمنٹ کو ایسے ہتھکنڈے استعمال کرنے پڑھ رپے ہیں جس سے عام آدمی زیادہ متاثر ہوا ہے۔
    میں پاکستانی گورنمنٹ کے ٹیلی کام سیکٹر پر بے جاء ٹیکس کی بھرپور مذمت کرتا ہوں ۔
    مگر آپ کی اس پوسٹ میں بہت سے ایسے سوالات ہیں جن کے جوابات بھی یقیناً بہت کڑوے ہیں۔
    پاکستان میں ہر آدمی کو مہنگائی کا مسئلہ دوچار ہے جبکہ اس کے برعکس اُس کی آمدنی میں کوئی خاطر خواہ آضافہ دیکھنے میں نہ آیا ہے ۔ ہر آدمی اپنی استاعت کے مطابق اپنی ضروریات زندگی کی اشیاء خرید سکتا ہے جس کی وجہ سے ہر عام آدمی اپنے وسائل کے مطابق ہر چیز پر مخصوص رقم ہی خرچ کر سکتا ہے۔
    ٹیلی کام انڈسٹریز یہ بات جان چکی ہیں کہ اب اُن کی یہ کارٹل کی حکمت عملی مستقبل میں کارآمد ہوتی دکھائی نہیں دے رہی اور ان کے منافع پہلے جیسے نہیں رہیں گے اور انہیں آپس میں سخت مقابلے کی ضرورت ہے ۔
    میری ناقص سوچ کے مطابق گورنمنٹ کی جانب سے ٹیلی کام انڈسٹری کو کوئی مثبت رویہ ہرگز متوقع نہیں اور ان ٹیلی کام آپریٹرز کو بھی اپنی حکمت عملی پر از سر نو جائزہ لینا ہوگا۔ اس کا ایک واضع ثبوت حالیہ دنوں میں موبائل انڈسٹری کی جانب سے کالز یا ایس ایم ایس پلان کی ٹیکس شامل شدہ قیمتیں ہیں جو کہ قابل ستائش ہیں۔
    اگر ان آپریٹرز کو آپس میں مقابلہ کرنے دیا جائے تو کوئی مذایقہ نہ ہو گا اور آپ کا اور ہمارا ایسی پوسٹ لکھنے اور پڑھنے میں قیمتی وقت بھی بجے گا۔
    شکریہ
    محمد طیب رمضان

  • telecom companies still can make lot of profit by giving quality service to customers..lot of signal issues lot of speed issues..sometime i feel like this is 2g…zong has good speed but has signal issues..not experienced warid..
    note:- when i get 100kbs download speed(day time)..i feel lucky

    • You are still lucky man. Here in Saudia, 4G speed is rarely good even for video calls or sometime audio calls. And the price, price is like 10 times I used to pay in PK.

  • aik banda 4 4 sim rakh k phir rha ha to ARPU to kmm ho ga he. hr koi ultimate consumer (awam) to lutnay may laga hua chahay wo telecom companies he q na ho. ab companies na bhe fashion bana lia ha (awam k baad) k humain kuch nhe bachta. 6 months non-used sim ko system sy nikal dyna chaheyah phir ARPU count krna chaheyah.

  • This is a brilliant piece…..and I feel things are going to get even worse before govt. Takes its head out of its ass and does something about it….we should impose less taxes on sectors that are of utmost importance for technological advancement of the country inorder to encourage them to invest and innovate

  • ASALAM WALIKUM bhaio
    Ye batt 100% right hai. Ki gwon ki sathh pir 3g kab start hogha….ager ik company start bi koya hai.iska kya hall hai dikoo .neet speed hi pir nahi hai pir….hamare Area city mai nahi.Gawon mai hai.Kpk mardan Mian khan
    Yaha

    3g ka din mai speed

    zyada se zyada ho to 50 kb/s hai.normal speed 3g ka din mai 15kb/s hai

    Ratt ka speed

    Zyada se zyada 160kb/s

    App logg soch rahi honge ye itna slow speed
    Ab mai iska masala batata
    hon

    1….. telenor 3g only available
    2 ……dsl not available
    3 ……no other telecom coumpani 3g
    4…… no wifi
    5 ……no ptcl
    6…… tower telenor 3g ka 1 hai.awer 3 gawon is por 2g/3g hai. Seef hamare Area mai 18000 users hai telenor 3g ka. Awer bagii 2 gawon msi takreenan 300000 tak 2g/3g users hai.
    To bataw 1 towrr ka speed kitna hogha.
    1 user kili pass speed kya hogha ap sucho

    Afer aggyy barrna hai to …. پ ب ا per amal karna hai.
    Thanks amir
    Thanks all

  • “Because data rates in Pakistan are ridiculously low and hence the shift from conventional services to apps is lowering the overall ….” It’s contradicting when we say taxes hurting and then in same breath we say data rates are so low

    • Its not contradicting, its doubly saddening that apart from high taxes, data rates are ridiculously low. Here in Saudia, most economical package, 110 SAR for 5Gb a month. Holy shi.et!

  • I don’t understand why amir first insists due to taxes internet usage has dropped then says price war is not good. Bhai jab itna tax ho ga to price war to ho gi na.. Secondly most profit cellular carriers make is sent abroad as none of the company is owned by Pakistanis. Dar and shareefs will soon turn this country into tar ..

  • aap muluk ke sath ho ya companies ke sath … ha ha ha … hum ko 3G nahi chahya hum waise hee khush hai … thora muluk ka socho … humko tex mangta hai baby …

  • So internet taxes are paid by the consumers. …..the operaters just add the taxes to their existing package. ….operators now want no taxes and no price war meaning monopolies ,more expensive packages…..without even taxes on it ….in both situation
    The end consumer is at loss since taxes are collected from their pockets not from telecos … ..and no price war mean …mutual benefits of companies without benefiting consumer…

    • No wonder we have people like you in government, and the very reason we are at number last in the world for so many things.

      • Ahmad you have presented the right argument. Aamir Bhai Price war is healthy for sake of general masses although monopolistic telecom organizations even want more juice (profit) from the people of Pakistan. We are facing a lot security issues and terrorism. Government is already expending a lot of budget on law and enforcement agencies. There are three types of societies in Pakistan (Rich, Middle Class and poor). Rich are not paying tax and authorities are failed to collect the estimated tax.

        Although there is too much burden on this industry. It still has so much potential that they can carry on with such huge profits.
        The worrying situation seems that the future of industry because of price war don’t seem such splendid.
        You are propagating that price war is not fair for industry and it’s development and growth.
        If they want to increase the prices of internet packages than they can. A normal man can easily afford Rs 100 to 200 on internet. High prices of internet packages is not affordable to a common man.

  • Market survey revealed the followings.

    1-Taxes on voice calls and on internet use is being increased time to time by the -Government.

    2-Tariff rates have been increased, however data downloading limits has been decreased.

    3-Market competition is another cause of low revenue yelled.

    4-Financial Burden is increasing on the poor customer, especially on students.

    5-Voice business has almost matured and now only data business is running the market.

    6-Low & slow browsing specially in CDMA & WIMAX has become permanent headache because common men can’t afford 3G high price.

    Conclusion

    1-Mobile & internet expenses of common men are much more than their food cost.

    2- Due to low profitability companies has reduced the commission of Franchises.
    3-Franchise business is not remained profitable and high sale targets constrained Franchisee to quit the business or produce fake data to satisfy the company higher authorities.
    4-More than 90% of Franchisees are ready to sale their outlets. WHY?????????
    Alarming facts and figures

  • very useless post, why only tax always discus here, show companies rates, Telecom sector always got profit, it’s just topi drama, we need new operator, then these company do work will, i think now many rural area have no better internet services. and here i got Mobilink, Telenor, and some time Zong 3G signals, and now in broad band PTCL we have fiber optical line means we can use any service cable, net, telephone.

  • It is a pressure tactics by the telecom companies. Rates in Pakistan are the lowest despite tax hike hue and cry.The companies are not going in loss. They have scaled down the manpower and their pay. Look at the amount of profit being remitted abroad. Despite taxes, Pakistanis are are increasing the usage of internet. If I am correct , about 30 million internet users are there in Pakistan and they are increasing by 20 to 30 per cent annually. Look at the remittances from the call centers and software houses. There are no taxes on sms. More than 1billion sms are being sent daily. Govt should charge at least 10 per cent on each sms. Pakistan has the lowest sms rates than the entire world.

  • میری سمجھ میں نہیں اتا کہ گاوں کے لوگو ں کو انٹر نیٹ کی کیا ضرورت ہے

    • Q intenet serf city kili
      hai.kya
      Bhai ye har kise ka haqq
      hai.oIsek baty na kiya karo.ap hud ik samaj dar insan hai.har koye net galat kili istemal nahi karta.Tek tak kamo mai bi istemal karta hsi logg.
      Ageger koye banda ghalat kili istemal kare to serf ik time hogha.pir kya kare gha us ki badd bhsi nrt har kise ka haqq hai.hwan city hon ya gawon

      • sorry ap ko mazaq ko dil pa la ga ……………..yeh muntiq ma na hakomat ki zahan sa likhi thi hamari hukomat aisa sochti ha

    • مجھے بھی یہ سمجھ نہیں آتا کہ گاؤں کے لوگ زندہ ہی کیوں ہیں. بیوقوف آدمی.

  • well done PTA .Dear All u know that what these companies do with their pakistani employes .I think PTA has to restrict them and Gov should impose more and more tax on them .

  • these foreign companies are the same who earned unrealistic & huge revenue in past from people of Pakistan. Now Govt have rights to get taxes that they require for fulfillment of national exchequer.

  • We Pakistanis do not pay our income tax so govt has to go for all sort of indirect taxes. there is no other option.


  • >