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Future challenges in Pakistan’s telecom sector

Future challenges in Pakistan’s telecom sector

According to the Pakistan Telecommunication Authority (PTA), the resilient telecom sector has led to the new normal in an even more connected world. Transitioning from an enabler of keeping governments, capital markets, and societies connected, the sector has cleared a stress test to become a cross-cutting catalyst of change and development across all sectors.

Experts said that the world is witnessing the foundation of future networks, where disruptive innovations and technologies like 5G, Internet of Things (IoT), Artificial Intelligence (AI), Virtual Reality (VR), blockchain, and mobile edge computing are being embedded in economies, causing massive digitalization.

The role of the regulator in the emerging environment has become more challenging because of considerations such as speed of transition, accessibility, quality, competition, consumer protection, data privacy, and the need to bridge the digital divide. It is also said that the government of Pakistan was focused on improving the penetration of 4G technology in Pakistan. It is said that 4G penetration was growing every month.

Across the country, the government was building a network of fiber cables. In addition, experts said also that the Government of Pakistan would select 4 megacities in the country to introduce 5G technology. Furthermore, the government had removed the challenges faced by local mobile phone manufacturers regarding the opening of LCs.

The government had planned to launch 5G technology in Pakistan by March 2023. However, this launch has been delayed by around three months because of political changes in the country. The telecom operators according to the statistics, faced this loss in the terms of towers, equipment, optical fiber cable, access network, etc. Generators, routers, and cables including other equipment at telecom sites have also been damaged due to standing rainwater due to floods. Furthermore, the telecom operators also faced revenue because of the shutdown of telecom sites and networks in flood-hit areas.

According to the Ministry of IT and Telecom, greater than 3,800 telecom sites were affected because of the floods, and all the sites have been restored. In the world, Pakistan has historically been a hyper-competitive telecom market with cellular mobile operators driving the country’s digital inclusion objectives by offering one of the lowest tariffs. The Average monthly data usage per customer has grown from 2 GBs to over 7 GBs during the previous 5-year, prompting a proportionate rise in capital and operational cost to serve this growth in usage.

However, experts also recorded that the average revenue per user (ARPU) has fallen to less than a dollar from $9 in 2003-04 with just 2G services. On the other hand, the Global ARPU average is over $8 whereas in countries like the US, Canada, and Bahrain it is much higher: $46, $41 and $39 respectively. As per GSMA Intelligence, in terms of ARPU, Pakistan ranks at 267th position out of 269 telecom markets monitored globally.

Presently, the industry is now in an existential crisis because of an unprecedented rise in operating costs mainly fuel, electricity, interest rate and local currency devaluation. Statistics showed that mobile operators invested approximately $3.5 billion during the last five years in network expansion and upgradation. During the same period, the telecom sector contributed over Rs 963 billion to the national exchequer in terms of income tax, customs duty, withholding and other taxes. In addition, mobile operators also contributed approximately Rs 45 billion to the Universal Service Fund to bridge the digital divide and to support the startup ecosystem development through Ignite.

Given the capital-intensive nature of the telecom sector, even a single-point rise in interest rate translates into an additional financial burden of Rs 1.5 billion for the industry and there has been an eight-percentage-point increase in interest rate compared to the last year. With the ongoing macroeconomic situation showing no sign of stability, it is projected that by 2023 the industry will cumulatively run into the red zone.

Furthermore, the telecom sector sought to include the removal of prior approval requirements imposed by the State Bank of Pakistan (SBP) for telecom equipment import and a reduction in withholding tax from 15 percent to 8 percent on essential telecom services.

Experts said that there are vast investment opportunities in the fields of e-health, e-education, e-agriculture and e-commerce in Pakistan. No doubt, healthy competition in the telecom sector is essential for offering better connectivity to consumers. Therefore, resolving the hurdles of the sector is a top priority.

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