Salah and Ramiz Pakistan telecommunication report

8/9/2019 Salah and Ramiz Pakistan telecommunication report

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Group Members:Salah-Ud-Din OrakzaiRamiz khan

Course: Analysis of Pakistan industry

Submitted to: Sir Shahid hamid

Submission date: 12/07/2010


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Acknowledgment

This project Analysis of Telecom sector in Pakistan is assigned to us by our highly

regarded teacher of A.P.I Sir. Shahid Hamid. We have made our best efforts and had not

left even one stone unturned to complete this Report as proper and neat as we can. This

informative outcome is the result of hardworking of all members in a group formation. All

members have utilized their skills up to their optimal level, which result in such outcome.

Nevertheless it was a bit challenging task demanding a lot of commitment, hardworking and

expertise. We have faced so many obstacles while obtaining required information. We have

completed it by best of our expertise. There may be some flaws in this project but we have

utilized our expertise to their optimal level to generate something valuable for us and to

share with others.

In short all this is due to love, affection, care, and help of our parents and teachers who had

make us from scrap, a something valuable and to whom we are going to dedicate our

project.


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IntroductionSince the independence of Pakistan, basic telecom services were being provided by amonopolist, previously called as Telephone and Telegraph department (T&T). Thedepartment was being run by the government and played multiple roles as regulator, policymaker, operator and service provider in the country. The T& T department was laterconverted into a corporation. Although the corporation was earning huge profits from theservices, it was re-investing the same profits into the sector for the provision of moretelecom service but the investment was not enough.

Further, with the technological advancement, more and more telecom services werebecoming available but there was not enough money available with the corporation to installnew telecom systems for the provision of modern services. Resultantly, a digital divideprevailed in Pakistan keeping it behind its neighbors and other comparable countries interms of telecom access. Cellular mobile services in Pakistan commenced in 90s when twocellular mobile telephone licenses were awarded to Paktel and PakCom (Instaphone) forprovision of cellular mobile telephony in Pakistan. Currently there are six cellular players inthe market.The Telecom Sector has contributed 2 percent towards the overall GDP growthwith revenues of over PKR 235bn.

Telecom Industry after Deregulation

Pakistan followed a gradual approach to liberalize its telecom market. During 1990s, as a firststep, market was opened for value added services and competition was introduced in cellularmobile sector as four licenses were issued (Mobilink, PTML, Paktel and Instaphone). Thegovernment monopoly was retained in fixed line services, however, PTCL legal monopolyended w.e.f 31 December 2002. The government announced Telecom Deregulation Policyand Cellular Mobile Policy in 2003 and 2004 respectively. The telecom regulatory, issuednew licenses for Long distance International (LDI) and Local Loop Fixed (LL Fixed), WireLocal Loop (WLL) and Cellular Mobile. With the issuance of new licenses the market is nowopen for full competition in all segments of the sector.

Pakistans telecom sector has finally begun moving and looked set for an era of phenomenalgrowth. The sector has witnessed tremendous growth in recent years with Teledensitydepicting major expansion after deregulation. The primary purpose of deregulation of thesector was to encourage healthy competition while providing better quality products andservices to customers on lower prices as well providing best technology available worldwide.


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Current Teledensity in Pakistan has expanded exponentially from 4.3 percent in 2002-03 tostand at 48.4 percent in 2006-07 with currently standing at over 52 percent, with betterservices and competitive rates. Also, increasing inflow of foreign investment in the telecommsector has resulted in the introduction of new cut throat technologies for provision ofvarious telecom services including cellular, wireless and internet services. In recent times, the

focus has increasingly shifted from Fixed Lines to Cellular and Wireless Fixed Lines (WLL),with better portability and convenience. WLL has shown an improvement from 0.7 percentto 1.1 percent in 2006- 07 from last year with subscribers of 2 mn.

Cellular segment remained the vital player with increase in total Teledensity contributing 48percent. In the urban markets introduction of Broadband internet services by variousTelecomm giants such as PTCL, WorldCall and Wateen has further benefited the consumersto access timely information over the internet with competitive rates. The broadbandpenetration however has not depicted as much growth as expected growing with 3.5mnsubscribers in 2007 against 2.4mn subscribers in 2006. PTA estimates broadband subscribersto grow to over 5mn by 2010. WorldCall has initiated cable television services with PTCLexpected to follow suite by providing IPTV services through its Triple Play services,

ensuring diversification of products and services. Recent conducive environment provide byPTA has resulted in increased FDIs in the sector with investments of USD2.7 bn during thelast five years making it the largest recipient of highest FDI during the past few years. Thefuture for telephony lies amongst unexplored rural regions of Pakistan with all majortelecom operators looking forward to tap these markets with a major contribution by WLLand Cellular segments due to cheaper installation costs. With healthy competition instigatinglower local and international tariffs and availability of alternative services has progressivelybenefited the consumers overall.

Substitute products and services


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Low switching costs from fixed line to cellular and WLL has made prices competitive in thetelecom sector. Fixed Line subscribers have the options to make international and local callsfrom cellular line with Cheaper/Decreasing trends of Tariffs across the board.

Historical Background and Development:Consequent to the Lord Mountbattens 3rd June 1947 Plan the Indian Independence Act,1947 was enacted by the British Parliament and Pakistan emerged on the world map as anIndependent & Sovereign Dominion. In terms of Section 18 (3) of the Act of 1947 theLaws of British India were applicable and continued as law of the Dominion (Pakistan)with necessary adaptations until the other provisions are made by the Legislature inPakistan. The then Governor General (Mountbatten of Burma) was empowered in Section9 (1) to carry into effect the operation of the Act of 1947 who accordingly issued ThePakistan (Adaptation of Existing Pakistan Laws) Order dated 14th August 1947 (G.G.O.No. 20 of 1947).Section 3 of the Order of 1947 read as As from the appointed day, all existing Pakistan

Laws shall, until repealed or altered or amended by a competent Legislature or othercompetent authority, in their application to Pakistan and any part or parts thereof, besubject to the adaptation directed in this Order. Through this legislative mechanismPakistan inherited plethora of colonial and other legislative instruments, hundreds ofwhich were repealed and the remaining were retained/adopted, adapted and extendedthrough various Acts, Ordinances promulgated in different phases of time by theLegislature in Pakistan.At the time of independence the laws in force in Pakistan relating to TelecommunicationwereThe Telegraph Act, 1885 (XIII of 1885)andThe Wireless Telegraphy Act,1933 (VII of 1933). These were extended and adapted in Pakistan throughTheAdaptation of Central Acts and Ordinances Order, 1949(G.G.O. No. 4 of 1949)andCentral Laws (Statute Reforms) Ordinance 1960(XXI of 1960).TheAct of 1885was the primary governing telecommunication statute. There was a jointDirector General of Posts, Telegraph & Telephone under the Act of 1885. The Actgranted exclusive privilege to Government (Posts, Telegraph & Telephone [PTT]Department to establish, maintain, working, licencing, regulating the Telegraph within orany part of Pakistan. The government was the governing and controlling authority oftelecom sector in Pakistan. Likewise, The Wireless Telegraphy Act was enacted in orderto regulate the possession of wireless telegraph apparatus.In 1962Posts and Telegraph (Amendment) Act, 1962(V of 1962) was enacted whichamended Telegraph Act, 1885,The Post Office Act, 1898andThe Wireless TelegraphyAct, 1933. The purpose of the Amending Act was to split up the Postal Department and

the Telegraph and Telephone Department. The PTT Department slumbered for about 30years with no active, substantial and innovative development in telecom sector.The arena of development, innovation and liberalization starts from 1990-1991. By 1991the scenario changes, ThePakistan Telecommunication Corporation Act, 1991 (ActXVIII of 1991) was promulgated which created the independent statutory corporationnamed Pakistan Telecommunication Corporation (PTC) and Telegraph & TelephoneDepartment was merged into PTC. The Corporation with perpetual succession took overall the assets and liabilities of the PTT Department. In pursuance to government


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competitive and liberalization policy in relation to telecom opened field to private sectorand PTC started out-sourcing few of its services i.e card payphones services and pre paidcalling card operations to private companies. Although in the Act of 1991 there was noregulator in its true sense but attributes of regulator, to some extent, were existent in PTC.The PTC was responsible in the field of telecommunication for development, research,

improvement in quality, advice to government and determination of tariff subject toapproval of government, maintain liaison with foreign government and other obligationsas any regulator performs.In 1994 in order to further liberalize and open the telecom industry and to transfer thetelecommunication services to private sector and the matters connected thereto thePresidential OrdinanceTelecommunication Ordinance, 1994 (Ordinance LI of1994)was promulgated on13th July 1994. To promote, maintain fair competition andregulate the telecom industry and telecom services the regulatory bodiesThe PakistanTelecommunication Authority (PTA), Frequency Allocation Board

(FAB)andNational Telecommunication Corporation (NTC) were established.The independent regulator (PTA) was established for the first time in the history oftelecommunication field in Pakistan under the 1994 Ordinance. The Ordinance alsocaused the federal government to incorporate the Pakistan TelecommunicationCompany Limited (PTCL) under the company ordinance, 1984 which replaced the PTC.The Company was provided the exclusivity to provide the basic telephone services inPakistan for a period of seven years.The Ordinance of 1994 repealed The Telegraph Act, 1885 (XIII of 1885) and certainsections of Pakistan Telecommunication Corporation Act, 1991. The 1994 Ordinance wasto face its constitutional death upon expiry of four month as declared in Article 89 of theConstitution of Islamic Republic of Pakistan 1973, therefore, before its constitutionalexpiry life was given to it afresh through anotherPresidential Ordinance No. LXXVII of1994dated7thNovember 1994. This Presidential Legislation under Article 89 of theConstitution continued until the Ordinance was presented in the Parliament. The

Presidential Ordinances are Ordinances Nos. (XXIII of 1995dated7th March, 1995),(LXIII of 1995dated5th July, 1995), (CIII of 1995dated30th October, 1995)andPakistan Telecommunication (Re-Organization) Ordinance, 1995 (CXV of1995) dated27thNovember, 1995. (XXX of 1996 dated7th March,1996)andOrdinance No. LXXVII of 1996 dated4th July, 1996. Every subsequentordinance repealed the previous one. Finally thePakistan Telecommunication (Re-organization) Act, 1996 (XVII of 1996)was passed on17th October 1996.Some of the salient features of the Act of 1996 are: Creation of Regulator Regulation of Telecommunication Industry and Services Transfer of telecommunication regime to private sector

Powers of Federal Government to Issue Policy Directives Licensing Establishment of PTCL as Company under the Companies Ordinance, 1984 Creation of National Telecommunication Corporation (NTC) to provide telecomservices to armed forces, defence projects, federal government, provincial governmentsand local authorities etc. Formation of Frequency Allocation Board (FAB) with the responsibility of allotmentand management of frequency spectrum. The FAB replaced the Pakistan Wireless Board


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established under The Wireless Telegraphy Act, 1933 and took over the function of theWireless Board. Creation of Pakistan Telecommunication Employees Trust with the object of to takecare of the interests of the employees of the Company.Deregulation Policy 2003:Section 8 of the Act of 1996 empowers the federal government to issue policy directivesand PTA is under obligation to adhere and comply with the directives. Deregulationimplies the removal of control of the government. It also implies the liberalization of thetelecom market.The exclusivity of Pakistan Telecommunication Company Limited (PTCL) to providebasic telephone services under the Act of 1996 expired on 31st December 2002. In July2003 the Government of Pakistan (GoP) announced Deregulation Policy for theTelecommunication Sector. The Policy sets out the following objectives : To increase service choice for customers of telecommunication services at competitiveand affordable rates; To promote infrastructure development, especially infrastructure that will increaseteledensity and the spread of telecommunication services in all market segments. To increase private investment in private sector. To encourage local telecom manufacturing/service industry. Recognizing the challenge to incumbent, PTCL. Accelerate expansion of telecom infrastructure to extend services to un-served andunder-served areas. Liberalize the telecommunication sector by encouraging fair competition amongstservice provider. Maintain and effective well defined regulatory regime that is consistent with bestinternational practice. Maintain consistency with Pakistans IT and Interconnect promotion policy of lowprices for bandwidth to make internet access affordable.

Safeguard Pakistans national and security interest.

New Competitors:Deregulation of Telecomm Sector has resulted in increased competition amongst varioustelecom operators. High Capital Requirements due to high investment intelecommunications equipment requirements has been enormous. Interest of globalinvestors in the telecomm sector is on the rise with China Mobile being the latest entrantwith purchase of Paktel while Warid and Telenor started operations during the last few years.Recently, Omantel acquired further stake in WorldCall Telecom after Etisalat won thebidding for a 26 percent share in PTCL in April 2006.


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Competitive RivalryDeregulation of the telecom industry has increased rivalry amongst competitors. Highnumber of operators/competitors have emerged post deregulation backed by high growthrate owing of lower prices. Diversity of Competitors has increased as various telecommcompanies have started providing various telecomm services thinking beyond the basictelephony and cellular services concentrating more on broadband and value added services.

Growth of Telecom Sector in Pakistan after Deregulation

Although tremendous growth has taken place in the Pakistan telecom sector but most of itcan be attributed to the cellular growth. Fixed line is still awaiting a take off. Similarly ValueAdded Services have grown but are still a drop in the bucket. Now that the competition hasbeen introduced in the telecom sector some very positive impact have been observed on thegrowth of the sector in a short span of time which is expected to continue to grow for atleast next years. A brief account of the growth after deregulation in telecom sector is givenbelow.

Impact of Deregulation on Mobile SectorDriven by lowest tariffs, maximum coverage, and relatively better quality the Pakistan mobilemarket maintained rapid growth during 2007. The newly deregulated mobile market is nowworking on sustaining the mobile boom that hit Pakistan 2 years back and on the brink ofadding Value Added along with customer satisfactions.

Steady growth saw addition of more than two million mobile subscribers every monththroughout the last year. Network coverage of almost 90% of the total population ofPakistan has made mobile industry even more attractive for foreign investment. Pakistan hasemerged as one of the fastest growing mobile markets among the developing nations. Thisyear the sector grew by 80% whereas average growth rate in last 4 years has been more than100%. Today total subscribers have reached 76.9 million (Dec 2007) whereas it was34.5million in 2006 and 12.7million in 2005. Figure-1 shows the subscribers growth ofdifferent Cellular Mobile Operators.


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In Pakistans competitive and heated mobile market operators survival lies in getting into

new areas exploring new Value Added products, and providing better quality of services.This is only possible by rolling out networks and be the first to reach untapped populationof the country. Out of 376 tehsils across Pakistan, almost 77 % are covered with mobilenetworks, bringing the figure to 290.

In 2004 there were less than 2000 cell sites erected by all mobile operators all together forprovision of mobile services. Today total cell sites of all mobile operators are more than17,500.

In 2007 the share of each company in mobile market exhibited a change, except for Ufone

whose subscriber share remained more or less the same. Mobilink kept on loosing its sharefor another year in favors of Telenor and Warid despite its secure subscriber base, whereasPaktel and Instaphone share in the market also dropped as both companies are strugglingwith transitional phase. Figure-4 depicts the Cellular mobile operators share in thetelecommunication market.


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Impact of Deregulation on Fixed Line Sector

The growth pattern followed by fixed line subscribers has been discouraging anddisappointing over the last couple of years. There was increasing trend in fixed lineconnection from 2001 to 2006 but dropped in 2007 bringing the ALIS to a mere 4.8 millionacross Pakistan.Figure-5 depicts the fixed line Subscribers position

During 2007 fixed Teledensity dropped from 3.04% to 2.99%. WLL and Cellular Teledensity

is increasing which can be seen in Fig-6

Wireless Local Loop (WLL) Sector


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Wireless Local Loop services were introduced in Pakistan after deregulation of local loopsector in 2004.17 WLL licenses were issued out of which PTCL, World call, Telecard, GreatBear, Burraq, Mytel and Wateen are operational. WLL customer base has shone rapidgrowth since 2003. There are 2.1 million subscribers of WLL services which can be seen inFig-7.

Payphone Services

Card payphone services in Pakistan were deregulated in 1990s. Telecard is the first tointroduce this service in Pakistan. Growth of fixed line PCOs remained impressive till 2004-05 where it was going at an outstanding pace. PTA allowed mobile companies to establishtheir PCOs. After 2004-05 growth trend of fixed line PCO declined but wireless PCOservices flourished in Pakistan.

PCO service is functional in all four provinces and majority of them are wireless. Overallgrowth of the PCOs remained 10% in the year 2006-07 which was 26% in the year 2005-06.PTA allowed mobile companies to establish their PCOs. Mobilink was the first to start itsPCO service and has about 57,936 PCOs.


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Internet Services

Internet service is becoming an integral part of life in Pakistan particularly in urban areaswhere large portion of the businesses are using it for different purposes. Most of thedomestic Air Lines including PIA and Air Blue have started e-ticketing through internet toprovide better and efficient services to its customers. According to estimates of ISPAK

(Association of Pakistani ISPs), currently there are about 3.5 million internet subscribers allacross in Pakistan whereas total users crossed 17 million mark. Currently around 3,002 cities

are connected to internet.

Pakistans Broadband market has been slow despite the fact that services have been availablesince almost five years. Broadband services can be offered with the help of varioustechnologies such as DSL, Cable Modem, and Fiber to the Home (FTTH), Wimax(worldwide interoperability for microwave access). Cost of service is the major reasonbehind this slow growth. PTA is striving hard to bring down the cost of providingBroadband service in order to facilitate low income groups. The new E1 bandwidth rates forKarachi areUS$1000 (reduction of 37%). PTCL has also dropped copper loop charges for

DSL service providers from Rs. 217 to Rs. 150 per month. It is believed that this reductionwill help in proliferation of the broadband market.

A major development for broadband market is the introduction of broadband services bythe incumbent (PTCL) itself. PTCL has started offering its DSL services since June 2007 inmajor cities for home users with free installationservices. It is expected that stepstaken byPTA in collaboration with Industry will ensure better and economical broadband services in


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Pakistan. As of the writing of this report a Broadband connection is available in Pakistan foras low as Rs. 1200 for a 512Kbps connection with unlimited download.

Telecom Imports

Government of Pakistan is striving hard to decelerate total imports of Paksitan.Imports for2006-07 were targeted to decline by 2.1%, however the total imports registered at the end of2007 were 667.8 million USD.The exponential growth in the telecom sector is burdening theoverall imports of Pakistan where sector requires spending of about US$ 1 billion just on theimport of Cellular mobile handsets annually, which puts burden on our foreign reserves andincreases the trade gap.

Government of Pakistan is offering incentives to manufacturers of telecom network andCPE equipment to consider manufacturing of cellular mobile handsets and other CPE inPakistan where cheap skilled and unskilled labor is available along with a huge populationbase for consumption. According to an estimate cellular mobile companies have access toonly 61% of the target market in Pakistan and they can still access the remaining 39%.

Employment in Telecom Sector

The telecommunication sector in Pakistan has undergone considerable transformationsfollowing the award of two new mobile licenses, FLL & WLL licenses and privatization of


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PTCL, the incumbent. Stiff competition among operators to grab the market share hascompelled operators to roll out their infrastructure rapidly, which has created hugeemployment opportunities (direct and indirect). The telecom sector has vast linkages with allother sectors where it is producing large employment opportunities such as civil work forinstallation of towers, support service providers, SIM and handset retailers etc

It has estimated that so far about 212,000 employment opportunities have been generatedcountrywide by the mobile sector Mobile sector has generated about 743,025 employmentopportunities which include direct, indirect and induced employment in linked sectors of theeconomy 260,000 employment opportunities have been generated by other segments oftelecom sector including WLL,LDI and card payphones.

Taxes on Telecom Sector

Telecom sector is a major contributor in generating revenues for the Government in theform of taxes, duties and regulatory charges. To generate adequate level of revenuesgovernment is undergoing large tax reforms which include broad based tax policy and taxadministrative reforms which aimed to reduce indirect taxes that are considered regressivetaxes.


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During 2006-07 total revenue collected by the Government in the form of taxes andRegulatory fee was more than Rs. 100 billion which is about 30% higher than the last year.Indirect tax in the form of GST/CED has the major share in total government collectionfrom telecom sector which was Rs. 26 billion in 2005-06 and its share in total was 34%. In2006-07 Government collected Rs. 36.3 billion GST from the telecom sector and its share intotal telecom taxes has increased to 36%. The increase in these government revenues areattributed to increased Teledensity and increase in the usage of telephony for voice & data.


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Impact of Deregulation on Economy

The impact of telecom deregulation on overall economy is quite obvious. A total of Rs235,613 million revenue was generated by telecom industry in 2007. This contribution hasmajor impact on economy of Pakistan. The sector is currently contributing 2% GDP out of

7% to the Government of Pakistan. Foreign Direct Investment (FDI).

Foreign Direct Investment is considered an important source of economic growth in thisglobalize world. PTA has created a conducive and investor friendly environment in thetelecom sector by awarding licenses in a fair and transparent manner. In the last 2-3 years thetelecom sector has attracted record inflows of FDI. During 2005-06, telecom sector receivedover US$ 1.8 billion FDI and emerged as the only sector of the economy to attract suchhuge investment where its share in total FDI crossed 54%. During 2006-07, telecom sectorhas received above US$ 1,824 million FDI, which was about 35% of total FDI in thecountry.

It is expected that the trend of investment may continue in the next 5 years because largepotential market still exists in Pakistan and all operators intend to grab their share. China

Mobile acquired Paktel which has contracted out US$ 500 million worth of project torenowned companies like Ericsson, ZTE and Alcatel to roll out their networks. SimilarlyMobilink also plan to invest US$ 500 million in 2007-08 for improving and expanding itsquality of service.


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FDI Continues flowing in

The first two quarter of FY08 has already witnessed an investment of USD1.1bn byTelecom operators. Major Cellular Service providers have committed at investments of overthe next few years. Record inflows of FDI have been witnessed in the last couple of years

with the sector contributing 35.6 percent in the 2006-07, with the sector requiring highinvestments in the telecom equipment and network infrastructure with other playersreducing dependency on the incumbent, PTCL by laying their own OFANs (Optical FiberAccess Networks) requiring huge financial support from the foreign entities. Recent, globaltelecom players have entered the local market recently with Omantel being the newestentrant through the purchase of stake in World Call. Recent additions include the cellularoperators, Warid from Abu Dhabi and Telenor Group from Norway.

Still room for more

Furthermore, investment opportunities exist with the current Teledensity standing at 52percent with the countrys population statistics predicting a 100 million people below the age

of 25 out of the total population of 165 mn people. With substantial reduction in tariffs hasconsistently attracted large urban markets, with majority of Pakistans population living inthe rural areas the telecom sector has the potential to focus on this untapped market both incellular and rural segments.

Looking Forward

y Cellular to remain juggernaut:We expect cellular to achieve remain juggernaut in FY08. Although subscriber additionseems to have slowed down marginally from 2.4mn subs/mo in FY07 to 2.3mnsubs/mo in FY08, overall growth will remain robust.

y Fixed line attrition:In line with the global telecom scenario, fixed to mobile substitution is expected tocontinue in 2008, leading to further attrition in the fixed line subscriber base. We expecta decline for FY08, reducing industry subs to 4.3mn. At this point a fixed line revival is

possible only through more attractive call packages and an improvement in VAS.However, we expect fixed line to be unsuccessful in making any significant headway inthe market moving forward.

y WLL to grow rapidly but remain niche:


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While WLLs low base has enabled it to grow quickly in the past few years, we believethe trend will slow down this year. WLL operators face significant challenges inincreasing penetration as they move to capture subscribers from rural areas wherecellular mobile companies are already entrenched. By our estimates, WLL lines shouldoutstrip fixed lines in the coming years.

y Broadband next big growth area:PTA remains focused on pushing for greater broadband proliferation but the numbersremain low. In the broadband arena, DSL and cable comprise 57% and 37% marketshare, respectively. Cable is largely provided by WorldCall but is limited to Lahore andKarachi. However, with PTCL now offering DSL services and having access to theentire country, we expect broadband penetration to pick up moving forward.

2008 was one of the worst years in the history of PTCL. PTCL has been losing its fixedline subscribers, number declined from 4.597 million in December 2007 to 4.405 millionin March 2008, according to Pakistan Telecommunication Authority (PTA). Employeesof PTCL are the real pain for the company. The profit falls at 20 percent in the firstquarter of the year. Voluntary Separation Scheme (VSS) or I would rather say Forced(VSS) costs PTCL fortune of Rs. 35 billion, resultant laid off more than 28,000

employees (Case is pending in the Court).Another case is in The Supreme Court of Pakistan, in which through a constitutionalpetition, highest court was moved against the privatization of the PTCL and several othersteps taken by the Etisalat Group, the buyer of the company. The Auditor General ofPakistan pointed out that PTCL's value deliberately dropped from $8 billion to $2 billion.The PTCLs workers end their long period strike after the issuance of notifications toregularize contractual employees on the New Compensation Pay Grade and increment of35% in the salaries.


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The PTA has received over 14,000 complaints against the PTCL, which is an over 20 percent increase from the previous year. According to PTA, the main concern of most of thesubscribers was the staff behavior and poor complaint handling CRM issues. The othercomplaints were related to poor or no response to requests for new telephone

connections, overbilling and malfunctioning of remote area exchanges. PTA once

decided to take severe action against PTCL, but nothing happened. The charges werePakistan Package, free nationwide calling packages etc.PTCL launched its DSL service in May 2007 in around 13 cities with the brand nameBroadband Pakistan, now they have extended this service to 108 cities. The service isgrowing at around 5,000 subscribers / month excluding churn rate with the customer baseof more 100,000 customers. Entertainment portal was launched for its broadbandsubscribers in the end of May free of cost. New broadband packages were introduced inthe first quarter of the year, where PTCL doubled the speed but kept the same price slots,and another 30% discount for students on every package.PTCL started its Smart TV service in four metros in May. This service is free to itscustomers till date. Most recent package is 1 month free broadband and 6 months free

IPtv.Soft launch of wireless broadband (EVDO) with unlimited downloading is in progress,services is currently offered in 4 metros and only given to customers on referral bases.Enmasse commercial launch will take another 6 months.Other activities in 2008 included:

PTCL invested $50 million in submarine cable project. Introduced Local Call Package offered a landline to landline call, charged at Rs

4.60 (Rs3.99 plus 15 per cent tax) whether user talks for one minute or one hourbetween 4pm and 8am.

Offers free Dialup Internet. PTCL launches three new customized calling packages Pakistan Plus, Value

Plus and Basic Plus PTCL will deploy fibretothehome (FTTH) technology, announcing that pilotprojects will take place in KLI. The pilot networks are already being deployed.

Call from UK to Pakistan (fixed & mobile): 6 pence / minute: PTCL direct is aninternational prepaid calling service from PTCL.

PTCL introduce plus Call Package, cost 1,000 for 1,200 minutes for internationaloutgoing calls.

Naqi Senior Executive Vice President Corporate Development said that PTCL isalso planning to introduce WiMAX technology nationwide very soon includingAJK and Northern Areas as well. "

PTCL selects AlcatelLucent to deliver broadband access solution. AlcatelLucentwill also provide network integration services including project management,application/software integration, installation, deployment, and testing

ZTE wins WDM deal in Pakistan PTCL will provide the Skylink satellite communication solution to enable

backhaul of GSM traffic from Telenor Pakistan

PTCL signs agreement with witribe Pakistan limited to offer METRoWay(r)Services


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The LMKR and PTCL recently signed an agreement for the deployment of aturnkey GIS solution

PTCL and the Universal Service Fund (USF) have signed an agreement of Rs 324million to provide fixed line telephone connections in the remote areas ofBaluchistan

PTCL won the Best Banking Technology Award and the Best Stall Award at thePakistan Banking Expo 2008

Ufone - the cellular subsidiary

Having a high retention rate of employees, Ufone is becoming number one choice forprofessionals to work. Not only that they are a good pay masters, give you sufficientworkload but also work related environment. Adding second highest subscribers base,Ufone is able to create hype through their advertisement on electronic media. The moralof the story:To penetrate and grab hold of the market and increase the base of more satisfied anddelightedexternal customers, one has to first delight its internal customers.Ufone is involved in certain activities including:Introduces mobile internet USB with 6 months free unlimited high speed Internet accessAnnounced to open new job opportunities in 2009 for over 900 young graduates throughits newly established, state of the art three million USD IP based contact centreLaunched UExcel, a program for undergrad students in collaboration with the School ofLeadership (SoL). This program consists of a series of sessions whereby special teamsfrom SoL and Ufone will visit 18 different universities in Karachi, Lahore and IslamabadSelf Service Kiosks are launched initially in the four main cities but will soon beexpanded to all other cities as wellLaunched "Quran on Mobile" along with translations in English and Urdu through theirmobile phonesLaunched "Video News ServiceTo spend 200 million dollars on network expansion in PakistanLaunches BlackBerry serviceUfone and Warid sign an agreement for infrastructure sharingLaunched a new product "Ur Number." Through this service, customers will be able totranslate their names, nicks, email ids etcUfone has signed Rs 4.5 billion Syndicated Term Loan Facility agreement with NationalBank of Pakistan (NBP) and Habib Bank Limited (HBL)

The question arises if Ufone is going so strong based upon its customer base, customerretention both internal and external and tailored marketing tactics, why isnt Ufone notfinancially strong? To me the very reason is poor strategic management and a typicalpublic sector approach. The direction might be correct but financial spending decisionsare not balanced according to earnings, same situation like rest of the government sector,with PIA and Pakistan Railway being another out of scope but very relevant examples.I would like to quote one example here on how the creative agencies in Pakistan trap the

companies to get the maximum dollar out of them, creating a winwin situation, but


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believe me in the end the winners are these creative agencies. The concept for the print adundoubtly clicks and successfully creates hype across the board, but the heavy amountwhich Ufone is paying, does not seem appropriate. This sort of ATL requires heavyspending and is not advisable especially when the life cycle of the industry is beyondmaturity.

Since Jon Eddy Abdullah joined as CEO replacing Tore Johnsen, Telenor is mainlyfocusing on cost cutting. En masse Telenor is going good and Pakistani market broughtfortunes as they have reached at number 2 in Pakistan and at number 7 in the World.With the highest ARPU in the industry in Pakistan, Telenor almost doubled the revenueto Rs. 45.1 billion. It has invested as much as $1.8bn in Pakistan till 2007, and ready toinvest $2.5bn more if gets a 3G license.

Once against 3G services in Pakistan, Telenor is now ready to hit the road. Trails for thistechnology have been completed in Islamabad and they are only waiting when PTA willopen this auction. Till date they have not found any activity which leads TP to startwireless broadband service in Pakistan.Telenor was involved in the activities during the whole year:Selects Nokia Siemens Networks to enrich customer experience; it can also give valuableinsight into users behaviorGoing to acquire Tameer Microfinance Bank Limited with an investment of Rs onebillionChosen for this award by Voice & Data which is the leading magazine in SAARC thattraces the business, technology and regulatory aspect of telecom and networking

Become the part of Pakistan IPv6 Core Project i.e. *6Core. Also it is reachable to IPv6Internet

installed solarbased BTSIntegrated with Facebook! Now upload pictures to Facebook accounts directly from yourmobile phonesSigned a contract with Huawei Technologies to deploy Caller Ring Back Tone (CRBT)system platform, Huawei has also deployed Home Location Register (HLR) solution forTelenor Pakistan in Islamabad, Karachi and LahorePakistans Universal Service Fund (USF) and Telenor have signed an agreement for thelatter to provide basic telephony and data services in the Bahawalpur regionTelenor Pakistan and the Initiator Human Development Foundation (IHDF) joined hands

to launch emergency phone service, where children in distress can call and seek experthelpTelenor Pakistan in collaboration with AeroMobile has commercially launched the

worlds first inflight mobile service

Telenors teledoctor services received high criticism, in the first hand Telenor should notstart this service if she will not be liable for any loss or damage caused to any subscriberor any other party as a result thereof. Above all Telenor is claiming not to accountable for


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the malpractices, genuineness or authenticity of the advice/information given through thisservice or for the credentials of the medical experts giving the information/advice.

ZONG:

China Mobile is the worlds largest telecom operator. Zong is the first international brand of China Mobile being launched

in Pakistan. CMPak has invested more than US$ 800 million till the end of the

year 2008. Zong serves more than 6.48 million subscribers, representing a market

share of 6.8% (as of July 09).

2008 brought problems for Warid as she is in seriouscrisis, downsizing has started, and other strategic decisions have to be taken to survive inthis competitive market. Lets see can $250 million save Warid?The problem of Warid Telecom is the HR of the company itself related to unnecessarymanpower induction, without a JD and absence of a post induction appraisal systembased on merit, which are all big question marks. Marketing strategy is the amalgamationof all other telecos of Pakistan, and heavily playing on price without much of a result, asit is not being tailored according to Warids Vision. Most of the Middle East Companysfavorite strategy is the price war, and the only positioning they know is cheaper rates.Warid Telecom was involved throughout the year in the activities below:Planning to expand its coverage to approximately 250 more cities. No timeframe has

been announced for the expansion, but Warid has said it aims to include remote and ruralareas, focusing on the Northern Areas (NA), Azzad Jammu and Kashmir (AJK) andBaluchistan, which came to me as a surprise, as such areas have already not been coveredand why?The GM marketing of Warid has resigned from the company fearing questioning oflapsing 80% of the total marketing budget in just 3 months.


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Total investment in Pakistan will touch $1.5 billion by the end of this year while thecompany will further increase its investment in the telecom sector by $1 billion by theend of 2009.One good thing which came concrete this year is change of companys logo to somethingmore 3D.

Started its commercial launch of in

flight connectivity with AeroMobile.Ericsson signs pact of $300 million to expand its GSM network, including its Core,Radio, Transmission network equipment and VAS platformsLaunched in collaboration with AMES the entertainment and digital media portal inPakistanDeployed a solar powered BTS site using Huaweis Solar Powered Macro Base Station(BTS)Launched a new Public Call Office (PCO) scheme in ZEM Pocket PCOLaunched Location Based Services. Service enabled subscribers to locate thewhereabouts of their family members, friends or colleagues.

Wateen, sister concern company of Warid telecom and abusiness unit of Abu Dhabi Consortium, had once beaten the drum of establishing theWorlds largest WiMAX network, is in serious trouble too, sounded truly unprofessionalin such a cut throat competitive World.Wateen is not been able to mainly solve her technical issues and issues with CRM.Wateen has the highest churn rate and customers place their complaints on different blogs


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on the Qos. They have been accused of hiring writers to post comment spam on localblogs and use unethical tactics to promote their services. They have changed their entirepackage line twice but nothing goes in favor of the company. My advice to Wateen:Please hire a new CEO and a new team of people having true work related experienceinstead of opening newer projects and creating niches of the same product / project.

The activities of the firm throughout the year are: Wateen won the award for the most Challenging and Interesting Work at ThePSHRM HR Awards 2008. Entered into an agreement with Motorola to expand the companys WiMAX network inPakistan, enable the company to double the capacity of the network which covers apopulation of 30 million across 22 cities in Pakistan. start services for business users, services include:Managed SolutionsContact CenterData CenterSecurity & Surveillance

Placed order for IP

based telecom devices and Consumer Premises Devices to add to itsnationwide deployment of the WiMAX network

wtribe is an emerging telecom operator offering wireless broadband services in the

MENA region. Jordan was the first country where witribe launched its services in 2008.Pakistan and Philippines will be coming online in 2009 followed by many other countriesin the future.witribe Pakistan has already established an LDI network with POPs in 15 cities,

involved in activities:Signed a multiyear WiMAX contract with Motorola to deploy the network in the3.5GHz spectrum, with a commercial launch during 2009Start their services in 2009

TeleCard is rolling out infrastructure in Karachi for WiMAX Service through Huawei.The company has chosen Augere as the principal contractor to design and build thenetwork. The equipment deployment for the initial phase has already commenced and the

company expects the service to be commercially ready by the 2nd quarter of 2009.Telecard Limited appointed Syed Aamir Hussain as the COO of their Wireless LocalLoop (WLL) Business.

Strenghts:

Exponential growth.


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Strong communication process.

Availability of infrastructure, fiber optic setup connects different cities ofPakistan.

Favorable policies (to some extent) and regulator.

Strong international brand names.

Education

WEAKNESSES:

Quality of Service.

Security Issues.

Misuse of technology.

Job switching.

Opportunities:

Huge market size.

Adopt latest technologies.

High Profits.

Making technology accessible to all (e.g. broadband)

THREATS: Political instability Competition High rate of taxes

RECOMMENDATIONS


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y We hold positive stance on the telecom sector of Pakistan. Increase in Teledensity levels,network rollouts of cellular and wireless services in rural areas, induction and expansionof broadband services, continuous increase in inflows of foreign investments anddeployment of newer technologies are some of the reasons upon which we are positiveon this sector.

y The sector has attracted enormous amount of Foreign Direct Investment (FDI) owingto increasing foreign interest cultivated by the recent deregulation by the PakistanTelecom Authority (PTA), now contributing around 35 percent of total FDIs in thecountry.

y We are also positive on local telecom giant PTCL. Our value of stock is PKR47.60 based on DCF method. Though we do not expect any

dividend in FY08 due to one time impact of VSS costs, the stock anyhow hold areasonable dividend yield of 4-5 percent on a longer term horizon. Based on our

rationales,we recommend BUY at current level of PKR45.40 Our value of stock is PKR 60 based on FCFF method. Based on our rationales,we

recommend BUY at current level of PKR45.40

Our value of stock is PKR 56.70 Based on our rationales,we recommend BUY atcurrent level of PKR45.40

y Our rationales are supported by enormous and continuous increase in PakistansTeledensity, which has surged beyond 52 percent. Even with this massive improvement,most of rural population still remains unsnapped, giving the operators vast room forfurther growth.

y Trading at a discount but troubled year ahead:. PTC launched its VoluntarySeparation Scheme (VSS) in November 2007 with the intention of scaling back 40% ofits workforce or about 25,000 employees. A recent press release by the companyrevealed that this target had been achieved. Consequently, we believe that FY08 is likelyto be a difficult year for PTC in terms of earnings growth as the company will book amajor portion of the VSS charge.

y EBITDA margins remain strong:The past two years have been difficult for PTC withrising competition and falling tariffs eating into its profitable fixed line business.However, EBITDA margins remain strong and are expected to improve movingforward. While EBITDA margins dropped to 50.5% in FY07 from 57.3% in FY06, thisis primarily attributed to higher bad debt provisioning of PKR 6.3bn. Looking ahead,provisioning is expected to normalize and remain about PKR 1.3bn/yr, as a result of

which we expect EBITDA margins to improve in FY08E and FY09E, respectively.y Cellular and broadband growth remain key for future profitability:We believe

that the future of PTC remains as a consolidated story with cellular and broadbandsegments driving growth. Consolidated earnings growth is expected to occur at a 4yrCAGR of 13.4%. Ufone currently commands the cellular markets second largestshare of 21.1% or 16.2mn subscribers although its market share of net additionalsubscribers has fallen over the last few months in part due to a selective strategy ofpursuing only high ARPU subscribers. Ufones ARPU of USD 2.8 which is lower


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that the industry average of USD 3.1 remains a concern; however the company islaunching several initiatives to deal with the issue, including the introduction ofBlackberry services and upgrade of its GPRS network to EDGE. Also, the companyhas launched an aggressive marketing strategy for broadband but we await officialstatistics before incorporating broadband into our valuation.

yLooking to land holdings for a valuation upgrade:We foresee significant upsidein our valuation from the sale or development of PTCLs numerous property assets.Currently, 480 properties out of an estimated 3,400 are awaiting a transfer of titlefrom the government to the company. Management has indicated that it plans topursue the development route although a time line on the project is yet to beestablished.

LIMITATIONS

y Higher/ lower than expected decline in the company's fixed line voice telephonybusiness should pose risk to our existing valuations.

y During FY07, the company posted bad debt provisioning worth PkR6.3bn,significantly higher than its historical average of PkR1.5bn. The provisioningcontinued during 1HFY08 as well when the company booked provisioning ofPkR2.6bn. Any possible reversal in the provisioning in case of recovery of debtsshould result in a one time gain.

y Impact of IPTV is not measurable at the moment and continuous delay in the launchhas kept us away from including it in our base case valuations. Significantdevelopment on this front should warrant a rating.

y Lower than expected growth in Ufone's subscriber base owing to overall slowdownin the economy or any other regulatory changes will compel us to reassess our

existing growth assumptionsy Revaluation of land is immeasurable at the moment. Therefore, it is not included in

our base case valuations. However, revaluation, which is on the cards, shouldincrease the company's book value. Further, development of land resulting inrevenue generation should potentially increase our existing fair value.

Disclaimer:

This disclaimer forms an integral part of this report. This report is for information purposeonly and does not constitute an offer, or invitation to make an offer, to buy or sell any

securities. All facts and figures have been taken from the sources that are considered reliable.

Conclusion:Human nature seems to prevail a little more for us, as we dont tend to learn lessons fromour mistakes. Mistakes made in 2008 by telecom sector are bound to be repeated by thecompanies this year as well. I feel, that there has to be someone who should stand a little


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away from the tree to look into the woods and caste a picture, more like a birds eye viewand then make strategic decisions for all of us, rather than living the life as it comes,because it is coming dirty these days.Economic slump, new SIM verification system and who knows verification of already issued

SIMs through the same mechanism, lower customer and corporate buying power, increasing

advertisement budgets and in turn increasing product cost or an unaffordable productaltogether, all are leading towards the same great depression, a mistake which was made by

the western world through its financial system and an adhoc approach, but we are still so

reluctant to superimpose any image of the same on our industry and make a change. In

Pakistan most of the companies are not even following GO GREEN policy, let alone any

other contribution towards mankind, and seems to be least of the priorities if at all, by the

governmental authorities.

For 2009 I think:

PTA will not be able to auction any 3G license in this year owing to its high price and market

saturation, not through customer density or governmental policies but simply due to

inability of the company to sell such a high priced product, while keeping it market

competitive in terms of prices.Cellular subscribers will decrease like the stock market

Companies will cut their marketing budgets, and will and should focus on customer

retention rather than new customers, coming at comparatively lower cost.

If same trends are projected, I feel that by Q4 2009 heavy downsizing in most of the

telecom organizations will start leading to unemployment and hiring people at a lower

payroll. This will follow the beloved rule of GODZILLA

Telenor will be the most beneficiary in 2009

Broadband will take flight and people start taking interest in these services

Bibliography

For successful completion of this project we have utilize different available resources,from which we have obtain required data. These resources lie in both digital and analogform. Most of the information is obtain from Internet, while a visit to company is alsomade to get further information. We are thankful to company management who hadwelcome and cooperate with us. Resources which are consulted discussed below:

Digital Resources

Company website (ptcl.com.pk) Magazine Business Economist Google.com


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Economic survey of Pakistan Businessrecorder.com PTA

Salah and Ramiz Pakistan telecommunication report

Documents

Transcript of Salah and Ramiz Pakistan telecommunication report