Telecom Sector Dividends to Headquarters Decline By 53%

Despite heavy investment on the advancement and expansion of infrastructure in past few years, the telecom sector repatriation of dividends, which companies sent to their respective countries of headquarters, declined by 53 percent in the nine months of 2016-17.

According to the State Bank of Pakistan (SBP), companies under telecom sector including cellular and broadband operators have remitted out an amount of $54 million to their homelands during the period of July to March this year.

Their earnings were down by 53 percent compared to last year in which these companies sent more than $116 million during the same period in last financial year.

It seems the profitability of the telecom operators is under pressure in the local market due to the increasing capital and operational expenses throughout the current financial years.

During the period of nine month from July to March, telecom operators failed to send a single penny to their headquarters in four months. The month of March and February were comparatively good as operators were succeeded in making profit to send their investors.

In the month of March, companies remitted an amount of $26.4 million. In February, the amount stood at $15 million. The month of September was also better and $12.4 million was sent by telecom operators. In the recent two months, operators sent dividends of less than one million to homelands.

Profits/ Dividends Repatriation by Telecom Operators (millions)

Source: State Bank of Pakistan

Major Expenses

The telecom industry has been passing through a consolidation phase which is clear from the transformations seen in two major drivers of the market—PTCL and Mobilink.

The merger of Mobilink and Warid has been completed in the current financial year. This was led by expenses of rebranding and integration of the two networks and their resources.

Also, Mobilink and Warid announced VSS for 18,000 employees against a package that also cost it heavily in terms of expenses this year.

The telecom giant PTCL also announced its VSS to lay off 9,000 of its staff members in November 2016. This also hurt its profitability of the first quarter of 2017 by 31 percent.

The consolidation steps may bode well for the coming months and financial years after major telecom operators relinquished their recurring head of expenses on the balance sheets. These companies are likely to make profit against controlled expenses in future.

Re-investment of Earnings

A majority of the telecom operators have invested their income from the local market to meet the requirement of maintenance, up-gradation and expansion of network, and various other expenses.

Operators do chalk out yearly plans for investments and utilize their earnings of local market instead of getting it from their headquarters in term of Foreign Direct Investment (FDI).

Hence, the inflows of FDI in telecom sector were as impressive this year. The FDI inflows stood at $26.9 million during the period of July to March.

The net FDI of the sector stands at negative $46 million due to outflow of FDI with 73 million in the said period.

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