Telecom Revenue Shrank by 4.1% While Indicators Going Up in FY21

The telecom industry recorded a decline in revenue stream by 4.1 percent to Rs. 541.4 billion in FY21 according to the State Bank of Pakistan (SBP).

The SBP in its Annual Report 2020-21 on the State of Pakistan’s Economy, stated that the communication subsector contracted during the fiscal year 2021, despite the improvement in telecom indicators.

It further stated that according to the Pakistan Telecommunication Authority (PTA) Annual Report 2020, telecom operators had cut prices to facilitate the public, which resulted in lower revenues. Moreover, it was also reported that many high-value enterprise users such as schools, universities, hotels, restaurants, and offices – requested a temporary suspension of services, rebates, discounts, or payment holidays, amid liquidity challenges due to Covid-19 pandemic.

Moreover, the saturation in the telecommunications sector also contributed to depressed demand for the flat-steel industry.

The telecom sector increased its long-term borrowings in the fiscal year 2021, albeit at a slower pace than last year. The sector’s borrowings were mainly concentrated in the last quarter of the fiscal year 2021, when two of the leading cellular firms operating in the country borrowed long-term loans for their network expansion.

Within Withholding Tax (WHT), major contributors were telecom services, imports, bank interest and securities and contracts. The increased usage of telecom services due to online educational activities and virtual meetings during the pandemic helped increase the collections from telecom services. Similarly, the rebound in construction activities increased saving deposits and a surge in imports shored up WHT receipts.

The report noted that Sindh’s revenue performance remained strong during the fiscal year 2021. The recovery in imports and the telecom sector mainly explains the increase in the collection from GST on services in Sindh during FY21.

Apart from these global factors, the lower foreign direct investment (FDI) inflows to Pakistan in FY21 also reflected some indigenous factors. First, in the wake of no major telecom spectrum issuance or license renewals, FDI into the telecom sector dropped quite sharply from last year’s elevated levels.

In FY20, the government had received license renewal fees from 3 major cellular service providers in the country. Telecom firms tend to take intercompany loans from their foreign sponsors to make such payments, and these loans had pushed up the FDI inflows into the telecom sector in FY20.

The FDI into Pakistan is lately being driven by sector-specific activity in a few segments of the economy for many years now, and is primarily dependent on progress on CPEC-related projects. For telecom, this includes spikes in FDI whenever the government conducts auctions of telecom spectrums or when license fees of cellular firms become due.

Meanwhile, since the advent of the China Pakistan Economic Corridor (CPEC) in FY16, sizable investments into the power sector have primarily originated from China. As such, there is a need to actively pursue the second phase of CPEC, while also utilizing the opportunities presented by the upcoming special economic zones to attract FDI from China.

In addition, a further enabling in the policy environment, including by simplifying and easing relevant regulations, may attract foreign investment into more dynamic sectors of the economy, such as Information and communication technology (ICT).