Pakistan’s Telecom Industry is in Deep Trouble [Part 2]

Continued from Part 1: Pakistan’s Telecom Industry is in Deep Trouble [Part 1]

Highlights from Part 1:

  • Telecom subscribers are growing, revenue isn’t
  • Telecom sector’s contribution to national exchequer has declined lately
  • Telecom ARPUs in Pakistan are one of the lowest in the region and globally
  • With rise of mobile apps, the once reliable voice and SMS revenues are declining
  • As a result:
    • With low ROI, telcos aren’t investing aggressively in Pakistan
    • They are outsourcing operations
    • There’s massive job insecurity in the market
    • Network expansion is slow
    • Network quality has decreased (as networks are allowed to reach beyond capacity before new deployments)

Indicators in 2008-09 had pointed where the telecom market was heading and that’s why telecom experts had foreseen the above scenario. However, they were hoping that auction of 3G and 4G licenses (that happened in 2014) would change the market direction for good.

Experts had hoped that data revenues would ultimately come to rescue the industry like it had elsewhere in world.

Good thing with data services is that it encompasses not just the communication needs but covers many other consumer segments including entertainment, education, common life utilities etc. and hence users tend to spend more on data services as compared to pure communication services (voice and SMS).

3G/4G Uptake in Pakistan

Pakistan started adopting 3G and 4G services relatively quickly, thanks to a lack of wired infrastructure leaving mobile internet as the only option for many to go online.

3G users reached 10 million mark in just a few months. Within 30 months of auction, with an average addition of over 1 million new 3G/4G subscription every month, there are over 34.5 million 3G and 4G user in Pakistan today (Soruce: PTA).

This was all very exciting, however, the ARPUs didn’t increase and for most operators they remained the same, if not decreased.

What Went Wrong with Data Market?

To put this in layman terms: the cost incurred to setup towers, maintain them, bandwidth cost and all other related costs, makes up a per MB cost for operators. Let’s call this per MB Production cost.

In Pakistan this product cost per MB for operators ranges from 25 cents to 40 cents (Cost per MB for bigger operators is less, while smaller operators bear higher per MB cost).

Data services, all around the world, are priced while keeping this production cost (which can very from operator to operator) in mind.

Now here’s what happened with per MB revenues of Pakistani operators:

  • Per MB data revenue for operators in Pakistan in 2014 was USD 55 cents.
  • Per MB data revenue for operators in Pakistan in Q1 2016 declined to USD 20 cents.
  • Data revenue per MB in Pakistan declined 63% during last two years

Just for reference, per MB revenues for operators in other markets are as following:

  • China: $4.80
  • Malaysia: $2.90
  • Nigeria: $2.80
  • Philippines: $2.10
  • Thailand: $1.90
  • India: $0.80

Data Revenue Per MB for Pakistan:

  • Pakistan (2014): $0.55
  • Pakistan (2015): $0.25
  • Pakistan (2016): $0.20

Clearly, the production cost of 3G/4G is higher than the price it is sold at, which is why it’s not sustainable.

For those who are thinking that data revenues of operators are growing, for instance Mobilink’s data revenue reached Rs. 4.6 billion in Q3 2016, up from just Rs. 2.2 billion from Q3 2015, this is because both users and data consumption is growing multifold.

For instance, data usage in Pakistan grew 1,631% during past two years, however, data revenues grew just 84% during the same time.

pta

Source: PTA

Not to mention, the production cost of data grew in proportion with the data consumption, while revenues didn’t follow the same pace.

With all this, currently operators are left with no option but to increase prices. But they aren’t doing it and here’s the reason: competition is so fierce that they just don’t dare to increase the prices for data services.

As a result, the infected market is going to die if not cured in time.

It won’t be out of place to mention that according to the Annual Audited Accounts (AAAs) submitted to PTA by mobile phone companies, three operators posted an increase (2% to 6%) in net revenues while other two operators reported decrease in revenues (-5.7% to -11%) for the Financial Year (FY) 2015 as compared to 2014.

Four out of five operators reported net losses during 2015, which illustrates just how bad the condition is for telecom operators.

Possible Solution

PTA should come and play a role. Chairman PTA, Dr. Ismail Shah, has said this time and again that unregulated market is far better than a regulated space. Alongside, in one of his speeches, he said that operators should play freely but sensibly to remain viable in the long run.

This didn’t happen as operators in Pakistan are competing on prices only. In fact bigger operators are more inexpensive than the smaller ones, for example Ufone is most expensive while Mobilink is least expensive for per MB data rates.

Check below table for per MB prices of Pakistani operators:

pta_2

Source: PTA

And while everyone acknowledges that there is a problem and it must get fixed, no one is willing to take the initiative.

This leaves PTA with no other option but to intervene and regulate prices. It has in fact already floated a consultation paper asking industry’s input price flooring for conventional and data services.

You can share your thoughts in below comments, while we prepare next part of this series.

 

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


  • Reliance Jio data packs will start at Rs 50 for 1GB, which comes down to 5 paise per MB. According to Ambani, 1GB data at Rs 50 is the lowest data tariff in the world.

  • I really am unable to understand the Netwton’s logic behind Ufone’s move to charge hell 99 rupees for a single night and that too for only 1GB. Will someone please enlighten this heck?

    • Yeh is Motu say poocho jis nay yeh post dali hai……………..isko bahut shauk hai……………telecom ka roona ronay ka.

    • i personally discourage ufone for changing this package…many people switched their network..it will not only caused the loss of customers but they also faced decline in revenue…there was a big market share using this package…god knows what brings them to make such changes..!

    • I think Aamir Atta is a Telecom Engineer who didn’t get any job.(But, seriously that was good thing for him).

  • The solution to everything is not government intervention. Let the telcos compete and may the best telco win the market.

  • Can Pro Pakistani tell us how much money the Teleco send abroad in 2015 or 2016……. (State Bank surely will have the figures).
    The data is just the start .. there are many additional ways to make money, not just on Mb……

  • What you’re suggesting is not only short-sighted but is utter rubbish. The solution here is simple, reduce costs.

    Why is it that the so-called “small players” are incurring higher cost per MB? Ufone being a subsidiary of PTCL – the monopoly – has access to least costs per MB as they’re able to get favorable bandwidth rates. If they’re not able to achieve that, it simply means they’re a company rife with corruption in both infrastructure and bandwidth acquisition.

    Further, let’s just assume there’s no corruption and for some reason they’re at disadvantage. Now that’s what free market is. If you so incompetent to believe that the competition is only on price, then you have no business running a business. Pack up and leave – you deserve to. Consider ufone as an example, price isn’t the only thing that they get wrong – the quality is pathetic, and the clueless promotional efforts.

  • People talking about 3G 4G, talking about infrastructure, talking about costs per MB. What the heck is going on here. Just turn on your mobile data connection you will see BIG H or 3G or 4G connection but when your browse or do something you get the pathetic snail level speed for which they charge in MBs and allocate GB limits.. lolzzzz.. 3G and 4G services are just a joke in Pakistan “not all areas are fully covered”, “not everyone is satisfied with the service”, “not everyone is aware of the packages and offers”. Whats happening is an explicit idiocy with 3G and 4G services. If you really wana check that out, book a flight to Dubai, purchase DU or Etisalat SIM at the airport, they will give you some free MBs and then check that out.. thats what I call ingenious 3G/4G. Whats here is nothing compared to that..

    !..A BITTER TRUTH..!

    • Bhai kahir essi be baat nahi ha im using warid and LTE speeds may not be the best but you can stream 4K video with out buffering aur browsing ki to baat he na karo.
      Warid 100 rs main 500mb de raha ha. Service theek ha yar. Ap to ghusa he kar gay ho.

  • Utter load of rubbish. The author doesn’t really understand a free market economy. Price isn’t everything. Customers look at quality and related factors as well. There is a reason why Warid, despite being a small player, has the highest ARPU in the business.

  • i hav been in africa europe and china..the data and voice calls are to much expensive than in pk..if pk telco want to survive they hav to increase there voice and data cost asap. currently they are doing cost cutting by releasing there employees even techncian level guys jobs whos salary not more than 20k are on stake…i am afraid if operators do not increase the rates lots of people attached with telco industry will lost there jobs. PTA should intervine in this regard.

    • PTA should drop all that nooish taxes they have put on every thing.
      100 ka card load karo 74 rs attay hai.
      Phir call pe tax, phir sms pe tax even delivery reports pe tax. Sms packages pe tax call packages pe tax phir internet pe tax per mb wale pe be tax monthly waley pe be tax.
      Ab goverment Paad (Gas) marney pe be tax na laga de ?

  • In my opinion its not a well-researched article/news. Maybe the info is outdated or intentionally modified. Anyways news to news hota hai chaye outdated ho ya nai. lol

  • I believe its all telcos fault. They can reduce Tower cost by tower sharing.
    And this was bound to happen when except one company all telecom opeartors underestimated Pakistani data market and went only for 5/10 MHz of 3G only and left 4G. Now look Zong is getting so much revenue from data services and its PPMB is lowest among all.
    In competitive market some times companies have to reinvest its revenue for sometime to acheive a favourable position in Market. Thats where some companies lacked in last few years.

  • Dear Aamir Bhai? what kind of costing methods u r using. In accounting sense ur accounting terms are now out dated. Every macro finance is now adopting JIT environment. Just in Time. Operators are not producing any kind of MBs. Infact they are charging us for bandwidths which we bought from our money. Everything which is being offered by telecom industry is being charged for money. Tell me any country name where operators where networks are charging their customers on card recharge on the name of service charges (admin charges) while there is no services offered on card recharge?
    While u dial any number u have to pay Rs on airtime charges alongwith call setup charges.
    There are charges on balance inquiry remaining resources inquiries.
    Infact everything has been charged despite their is very tax rate too.

    U are advocating Telcoms for ur money. U have been paid to publish this article.
    U are not thinking of end users.

  • مسلے تو ہر جگہ ہوتے ہیں مگر زیادہ تر
    موبائل کمپنیز پاکستان میں بوہت مزے میں ہیں
    ابھی اسی مہینے میں زونگ نے پانچ ارب کماے
    خراب سروس کے باوجود کسی کمپنی کو کبھی جرمانہ نہیں ہوتا
    یورپ امریکا میں کمپنیز کو اربوں کے جرمانے ہونا نارمل بات ہے
    دس فیصد تو یہ لوگ سروس چارج لیتے ہیں جو شاید ہی دنیا میں کہیں ہوتا ہو
    بنیادی سروسز جیسے بیلنس تک فری نہیں
    ٹیلی کام سیکٹر میں سوا ٹاپ مینجمنٹ کے تنخوا بوہت کم دی جا رہی ہے
    بوہت ہی کم

  • Well, what’s pathetic about Ufone is that they have so much money for marketing but can’t improve their QOS. I switched to Mobilink 8 months ago and for the QOS they provide, I am ready to pay double.
    e.g Mobilink’s 1GB package doubled to 2GB for Rs140, then they made it 1.5GB from 2GB, and now they are increasing rate to Rs 160. But I have no issues with it as long as I get 3G access anytime I need, anywhere. Unlike in Ufone, where getting 3G is as probable as getting 6,6,5 in ludo.

      • Actually brother is in mobilink he told me to get it ported so that he may activate employee package on it since merger is not yet completed so it wasn’t possible being on warid… used it for more than 10 years… not happy with mobilink so far…poor indoor coverage

  • Increase per MB Price to the Intl marketing rate . Most of the users in Pakistan spoil themselves on Social media flirting or watching seasons/Movies and Porn. For Education or training purposes almost 5% of ppl are using Internet.

  • The reason is that the telcos are in the lust of getting more and more subscribers on board. For this purpose, huge SIM activation targets are given to Franchises every month and they are forced to achieve it by hook or by crook. This activity does, on one hand, show a climbing trend of activation, but on the other hand, Churn ratio is also increasing, hence the net additions remains on the lower side. Revenue has also faced decline due to this.

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