For years Pakistan's telecom sector did not see any progress and was rather considered to be stagnant because of the monopoly that was created by the "Pakistan Telecommunication Company Limited (PTCL)". The telecommunication sector all around the world saw a radical change and a transformation from monopoly to open market competitive environment was seen. However, as time passed by and with the deregulation of the sector in 2003 followed by rapid growth in Information technology meant that the boom in the sector would not face any hindrance and a boom was inevitable.
Policy reforms and their correct implementation showed that the governments were keen to develop the sector and telecom was not considered to be lagging far behind the textile sector, the one considered to be the backbone of our economy. With liberalization, privatization and deregulation, the country was able to attract hefty sums of Foreign Direct Investment (FDI), which is the basis of this sector. Ever since liberation was implemented, a number of foreign companies showed interest and are now seen operating in Pakistan. With the governments keen to provide friendly environment to the investors and solid steps taken by the Pakistan Telecommunication Authority (PTA), the regulatory body for the telecom sector, the confidence of the investors largely increased and thus Pakistan was able to attract considerable investments. The satisfaction level on the party of investors was to such an extent that Pakistan was considered to be 19th out of 175 countries in attracting FDI. The table below gives a clear picture of the FDI that has taken place in the sector and has eventually contributed to the growth of telecom sector.
Foreign Direct Investment in Telecom Sector
FDI in Telecom
Total FDI
Telecom (%) Share
2003-04
207.1
949.4
21.8
2004-05
494.4
1,524.00
32.4
2005-06
1,905.10
3,521.00
54.1
2006-07
1,824.20
5,140.00
35.5
2007-08
1,438.60
5,410.00
26.6
2008-09
815.00
3,720.00
21.9
Jul - Dec 2009
181.72
1,012.24
17.95
With changes in trends, culture and low levels of service of PTCL, people in Pakistan have largely started to switch from fixed line to cellular phones and perhaps that is why we have seen many foreign cellular companies to show immense interest and make large sums of investments, such as Telenor, Warid, Zong.
Annual Fixed Local Line Subscribers
PTCL
NTC
Brain Limited
World Call
Union Communication
Naya Tel
Total
2003-04
4,428,900
73,330
-
4,501,171
2004-05
5,190,899
81,027
1,520
4,100
-
5,277,531
2005-06
5,128,442
92,163
5,880
13,327
200
5,240,012
2006-07
4,676,204
99,665
6,089
10,748
2,500
11,000
4,806,206
2007-08
4,273,548
103,991
7,376
11,502
3,500
16,500
4,416,417
2008-09
3,375,103
104,538
12,234
18,850
3,700
18,850
3,533,275
2009-10
3,268,642
104,819
11,267
9,874
3,700
19,500
3,417,802
The table above suggests that the number of subscribers over the years, particularly after 2005-06 has decreased. In comparison to this, the number of mobile phone subscribers has seen a sharp increase due to low tariffs, maximum coverage and relatively better services.
Annual Cellular Subscribers
2003-04
5,022,908
2004-05
12,771,203
2005-06
34,506,557
2006-07
63,159,857
2007-08
88,019,812
2008-09
94,342,030
2009-10
99,185,844
Currently the sector covers around 70% of the total population, with cellular phone subscribers increasing from 5million in 2003-04 to more than 99million in 2009-10. Mobile sector has shown an astonishing growth rate of 170% in 2006 and 80% in 2007, being exactly in line with the time when we attracted most of FDI. As Daily Times puts it this way "Head of Telenor Asia, Sigve Brekke, while meeting with Latif Khosa, informed the minister that Telenor Pakistan was the 2nd largest mobile operator in the country with largest data coverage and has invested over $2 billion and is willing to invest more in the country."
(http://www.dailytimes.com.pk/default.asp?page=2010\04\09\story_9-4-2010_pg5_7)
Role of Telecom Industry in Pakistan's Economy:
Pakistan's economy is largely dependent on the services sector for its GDP contribution. With the country not being a typically manufacturing one more than 75% of our GDP constitutes of services and agriculture sector combined. The composition is as follows:
(2009 estimate)
Agriculture: 20.8%
Industry: 24.3%
Services: 54.9%
Contribution to GDP by sector
Telecom sector plays a pivotal role in the country's economy. The sector is the fastest growing sector and its contribution to GDP growth rate is 0.5%. In 2006-2007, the sector constituted for 2% of the GDP growth out of total 7%. From once what we had negligible FDI we have attracted US $8 Billion worth of FDI and another US $4 Billion is expected. Apart from attracting tremendous FDI, the sector at the same time has contributed significantly towards providing employment and has yielded large sums of revenue. With more than Rs.200 million per annum on average, the most significant contribution comes from the cellular services that are responsible for approximately 50% of the total. The sector contributes 5% to the GDP of Pakistan, creating 220,000 jobs with healthy salary and generating about 6% of revenue for the Central Board of Revenue (CBR). Not only has this but the sector also made it possible for 1,367,000 people to get employed directly and indirectly. The following statistics highlights the importance the sector holds: ("Economic and Social Benefits of Mobile Services in Pakistan by Babar Bhatti.)
In 2006 the sector contributed a total of PKR312 billion to the economy, over 5% of GDP
Mobile sector employed 210,000 Pakistanis in 2006
Gain in productivity. PKR94 billion of value add to domestic economy in 2006
Consumer surplus increased by PRKR42 billion between 2003-06
Pakistan has one of the highest tax burdens on mobile services in Asia Pacific.
Telecom Revenues
(Rs. Million)
Cellular
Local Loop
LDI
WLL
VAS (Estimated)
Total
2003-04
27,840
76,444
1,336
1,152
10,056
116,827
2004-05
48,880
78,828
3,672
275
12,570
144,226
2005-06
89,896
71,186
7,199
12,453
13,827
194,562
2006-07
133,132
68,368
15,567
2,645
15,901
235,613
2007-08
182,122
63,693
21,983
2,703
8,048
278,509
2008-09
212,423
62,568
47,969
2,670
8,179
333,882
Jul 09 - Dec 09
113,456
31,196
16,149
1,610
4,591
167,001
In addition to this, telecom sector is a major contributor in revenue generation for the government in the form of taxes, duties and regulatory charges. An overview of such contribution may be seen in the chart.
Concept of Teledensity:
The number of landline telephones in use for every 100 individuals living within an area. A teledensity greater than 100 means there are more telephones than people. Third-world countries may have a teledensity of less than 10.
Year
Total Teledensity (%)
2002-03
4.31
2003-04
6.25
2004-05
11.89
2005-06
26.26
2006-07
44.06
2007-08
58.90
2008-09
62.0
2009-10
64.16
The above table clearly suggests that over the years the teledensity percentage has increased which is a clear sign that the access to telecom per 100 individuals has risen, thus indicating the growth the industry has seen.
ANALYSIS OF THE SECTOR IN LIGHT OF MICHAEL PORTER'S DIAMOND MODEL:
According to Michael Porter true competitiveness may only be achieved through higher productivity. Higher productivity may only be achieved through innovation and that innovation can be attained through Research and Development (R & D). There are four principles that he underlined:
In most of the industries that we have, much importance is given to the fact that Pakistan has cheap labor that is further enhanced by the fact that it holds an important strategic location. Whether be it the textile sector much famous due to cheap labor or the Cement sector that witnessed tremendous growth when a lot of construction work took place in China, largely a result of our strategic location. However, this sector saw much of its growth because of the steps that the government took including deregulating or privatization. Perhaps the most important factor that has contributed to the exponential growth of Telecom sector is the Foreign Direct Investment (FDI). It must be taken care of that such hefty FDI was attracted by our country due to the friendly environment that it provides to foreign companies and accompanied by the changing trends in the usage of telecom all around the world, in particular our region. These factors eventually led to the fact that the fixed line users increased rapidly alongside the phenomenal growth in the cellular users. However, there still prevail a few infrastructure problems such as the fact that most of the lines are in urban areas whereas 70% population of Pakistan lives in the rural areas. Moreover, with the entrance of many foreign companies, the sector has also emerged as an area that has attracted many students and telecommunication has developed as a career pursuing field, creating different job opportunities and at the same time is an encouragement for further investment as not only the government has provided policies that are suitable and act as a catalyst but also with the education in the sector and the industry developing as a specialized one would make sure that there is presence of skilled labour pool in the country which eventually would mean that not only would the sector witness further FDI but also different local companies might enter the industry.
Demand forms the basis of any industry to flourish and what accounts for the most important part is the local demand. Undoubtedly, the statistics given in the significance section of this chapter highlights the healthy local demand that the sector has witnessed. With the trend changing all over the world and same trend being observed in our country, it has certainly helped the industry to establish itself firmly. Healthy local demand has made sure that the different companies that are operating within the country innovate and try to be competitive. An example of such innovation is the different packages that cellular service companies come up with. Not only have such companies exploited the urban areas but have also made sure to reach the greater side of the population. In order to meet the local demand in a better way than the other, the companies have and will keep on trying different strategies that would make sure that they stand competitive within the sector, while the telecom sector is expected to keep on growing. Since demand of such service is not confined to urban areas only, therefore, different companies try their best to reach the rural areas with as much conviction as possible.
In order to be competitive, an organization needs to make sure that it adopts cultural proximity with the region within which it is operating. In this regard, it is seen that every Ramzan cellular companies come up with different services such as Sehri/Iftari timings, Naat etc, thus aiming to adopt the culture of our country. Moving on, local rivalry played a crucial role and that is the reason why we come across a new offer (package) or advertisement about every two weeks. Local rivalry is so important because then the marketing increases, knowledge on part of consumers increases, price cuts, buying power goes up thus local demand for the product rises. The scenario in Pakistan's telecom sector is no different than this and can eventually lead to the development of specialized factors.
Earlier most of the cellular handsets used to be manufactured in Hungary but in recent times, mobile sets have started coming from China as well, hence it relates to the fact that close location plays an important role in gaining competitiveness. Over the years, a number of mobile handset companies have come up with many different types of cellular phones such as Nokia, Sony Ericsson, Samsung.etc. Also it can be noted that these companies have established its office in the country and that also has contributed to employee generation. Not only have these companies developed cheaper cell phones particularly catering to our market but also the sector has seen different local companies entering the sector such as Qmobile.
