Pakistan Telecommunications Report Q3 2008

Much has been made about the apparent slowdown of mobile growth in Pakistan. This, in BMIs view, is not terminal, and with penetration still only at around the 50% mark, is merely a blip. However, we do need to note that the first three months of 2008 resulted in fewer than 6mn net additions for the first time in two years. There is a clear reason to this, and has nothing to do with saturation, and is all to do with the regulators insistence that consumers need to register ownership of their handsets. The fact that many have still not registered has meant the blocking of approximately 1.4mn SIM cards. And so, by the end of March 2008, there were 82.5mn mobile subscribers in Pakistan.

However, Pakistans telecoms market (and especially the mobile sector) remains vibrant and competitive.

Some of the worlds best known emerging market investors have an established presence in Pakistan Orascom, Telenor and Etisalat, to name a few and all are ramping up their investment plans and strategies.

Any escalation in political uncertainty could yet negatively impact a sector that is so dependent on foreign direct investment (FDI), but as long as consumer interest in communications is high, we see no detrimental effect on FDI. It is important, however, that the government remains committed to low tariffs and supporting 100% foreign equity, and that it takes a look at rising taxation levels on mobile services, something that is concerning Pakistans mobile network operators. A recent announcement by the Pakistan Telecommunications Authority (PTA) that it plans to reduce mobile termination rates by up to 30% until the end of 2010 should certainly quell any immediate concerns from key investors.

Orascom-owned Mobilink remains far and away Pakistans largest mobile operator with a 38.5% share, but this represents a sustained decline in its market share, as it faces further pressure from two of the countrys newer investors Telenor and Warid Telecom. So well has Telenor performed over the last three years that BMI is confident the Norwegian operator (currently with 20% market share) will overhaul Ufone and become the second-largest mobile operator in the next few months.

Traditional fixed-line telephony in Pakistan is stagnant in terms of customer numbers as mobile substitution has taken over, but there is some movement in Pakistans WLL market, which witnessed 11% growth during the first quarter of the year. The fact that PTCL is facing more intense competition from alternative operators such as World Call and Telecard is important. However, there is very little movement in Pakistans internet and broadband markets. This is likely to remain the case as long as tariffs remain high and competition remains limited. The PTA may have to step in to encourage more rapid acceleration in these important markets.