COMMENT: Cellular industry: beginning of the end? —Dr Irfan Zafar - Tuesday, April 19, 2011

The situation is extremely grim considering the fact that out of the five operators operating in the country, four are going in loss and are already looking for buyers and mergers to avoid total collapse 

The cellular industry of Pakistan has been at the forefront in contributing towards the national economy since its inception. It is the second largest tax contributor to the national exchequer, largest provider of Foreign Direct Investment (US $ 908 million for the year 2009-10) to the government of Pakistan and contributes an overall five percent to the GDP without having any subsidy being provided to cover its own operating and capital expenditures. In addition to this, the cellular industry is employing human capital of around 30,000 individuals directly and the indirect businesses associated with the cellular market are generating employment for another 20,000 people. However, there seems to be a huge gap between perceptions and reality, which is generally not visible to the common man and resultantly in due course of time will swallow up this industry if remedial steps are not taken.

Most of the operators have been facing losses for the last couple of years. The average revenue per user (ARPUs) has been going down primarily due to intense competition taking the price per minute down (it is actually one of the lowest in the world being less than $ 2 as compared to foreign operators around $ 10). Operators have been facing several critical issues for the past couple of years requiring immediate solution such as discriminatory tax burden, rising operational expenditures (OPEX) due to increase in fuel prices in lieu of electric power shortages, non-provision of industrial power tariff, increased cost of borrowing, revenue losses due to cell site closures on account of security reasons in the northern areas, etc. Due to the increased load-shedding, most of the cell sites run on diesel generators for 7-8 hours a day while the fuel prices have more than doubled in the said timeframe. All these financial burdens have given a major dent to the overall profitability of the operators as well as the future prospects in terms of foreign direct investment influx. Operators are bound to adopt severe cost cutting measures, including lay-offs in some cases. Similarly, talk about mergers/acquisitions is circulating while the industry has already lost a player in the shape of the closure of Instaphone’s operations in Pakistan.

In all the major cities of Pakistan, there is a considerable geographic area that comes under the jurisdiction of housing authorities and the cantonment boards, which on average cover around 30 to 40 percent of the major cities. The mobile operators are facing a lot of problems related to the cell sites being installed in these jurisdictions. Apart from the operational hindrances, the operators are being charged with hefty amounts as monthly rentals as well as NOC/antenna fees, etc., of the sites installed. While cellular penetration is on the increase and more sites need to be developed by the cellular operators to maintain their quality of service, such charges have increased 10 times the amount being charged a few years ago. Similarly, the operators have to face a lot of problems in the rollout of sites in these areas because of the delays caused. According to an estimate, the cellular industry is paying close to Rs 250 million annually to these housing authorities and the cantonment boards to keep the cell sites operational which, at times, are damaged intentionally.

Talking about the future technologies in Pakistan such as 3G/4G/LTE and their successful implementation by the operators, there exist a number of issues in terms of network rollouts. The 3G/4G deployment will be first carried out in the major cities because of the data-centric customers in these areas, adopting the new technology for higher data speeds. Unfortunately, within these major cities a large portion of such potential customers lives in geographic areas under housing authorities or cantonment boards. This problem will further aggravate when the next generation mobile technology related rollouts would be required. The delays caused by these bodies in granting cell phone sites approvals will severely impact the rollout obligation on the operators, which might end up in the form of a financial penalty by the regulator on the operators for not fulfilling the rollout obligations in the prescribed timeframe.

The above-mentioned are only some of the major issues the operators have been facing for quite some time. Considering the overall situation of the cellular industry of Pakistan, it is a misconception that the operators are minting money. The situation is extremely grim considering the fact that out of the five operators operating in the country, four are going in loss and are already looking for buyers and mergers to avoid total collapse. It will surely be the beginning of the end of the technological revolution in the country, which has touched so many lives in so many positive ways.

The writer is a social activist. He can be reached at

Source :\04\19\story_19-4-2011_pg3_6

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