By Thomas Wilson
http://www.fatpipeonline.com/features.php?feature_id=48
Just as the Pakistan sun rises from the east over India in the early morning’s dawn, the same can be said about the rising telecommunications industry in this very interesting representative Phoenix of the Southern Asia region. There is a growth outbreak ofindustry and financial resources and, along with this activity, the infrastructure of the country also is making its way toward much more developed and successful days.
Indeed, investors are flocking to Pakistan. As of the middle of 2004, the telecommunications market place in Pakistan has seen unprecedented growth in interest. What’s more, the Chairman of the Pakistan Telecommunications Authority (PTA), Mian Mohammad Javed, has aggressively worked with the IT and Telecom Ministry toward deregulation of the telecommunications sector.
As Jamshed Massood, Director of Telecom at the Ministry at 2 Sir Agha Khan Road in Islamabad, so passionately puts it, “We anticipate great things for Pakistan’s consumers and look forward to working with all the new players to bring new technology and competition to Pakistan.”
Impetus for Growth Pakistan is a nation of about 140 million people, with its primary population centers in Karachi, Lehore, Peshawar, Faisalabad, Quetta and Islamabad, where the chief regulatory body, the PTA, is located. The Ministry of Information Technology heads the telecom sector and is led by Awais Ahmad Khan Leghari. Islamabad, as the capital and the chief hub of most telecommunications companies in Pakistan, is one of the new burgeoning centers of activity. The telecom market is red hot, no question about it. Companies are finding it difficult to find engineers in telecommunications fields, due to such unprecedented growth in job opportunities in the telecom sector.
In May of 2004, applications were accepted by the PTA for several license types. One class license is called Local Loop (LL), while another is Long Distance International (LDI). There was no lack of interest, as 93 applicants applied. The applications process was done, in part, to offset illegal fraud operations. The country’s ministries have set upon avenues to introduce additional revenue channels to the legal operators in Pakistan, while also producing methodologies to reduce illegal and fraudulent activities that were sapping the country’s accounting
coffers.
Pakistan is a diverse market. There is a strong local university system within the country, and many people also study abroad and bring home to Pakistan graduate
degrees from the very best universities in both the United States and the United Kingdom. There appears to be no shortage of people who are trained and willing
to work. In the past two years, for example, Pakistan has produced a small and fledging, but very high growth, call center business sector.
Danish Iqbal, the director and owner of Mindbridge, a business process outsourcing oriented call center with operations in Islamabad and in Lahore, has invested just less than $1 million (USD) into his centers. Iqbal, for one, is very upbeat on the industry and what is in store for Pakistan. “The future is very
bright for Pakistan, due to economic conditions and the ability to leverage networking technologies available to us today, along with lower labor costs,”
he says.
Carrier Partner Opportunities
The opportunity for international network-based carriers is large. Carriers based in the U.S., European Union and Asia may be able to find opportunities to increase revenue and potential profits. The licensee winners in Pakistan, for the most part, are a distinct but diverse group. Many of these new licensees bought and paid for their licenses but are looking for international operator partners, be it local loop via hard fiber lines or wireless local loops and/or international and domestic long
distance services in Pakistan. The door for opportunity in Pakistan is wide open, and participants are sincerely interested in developing strategic partnerships with knowledgeable and technological savvy carriers wanting to partner in Pakistan.
Fortunately, officials in Pakistan have used a few competitive markets as a compass not to follow. For example, the once mighty AT&T is now greatly weakened.The regional Bell operating companies, for the most part, now are much larger than what was thought to be the result of such deregulation back in 1984. SBC and Verizon have swallowed up other smaller-sized operators.
The way Pakistani officials see it, this type of action is caused by inadequate deregulation of the local loop, and creation of competition in this segment is what Pakistan wants to develop. Of course, they do have an advantage, given that the experiment of deregulation and privatization was already tested by earlier actions in the U.K., U.S., Australia and many other markets.
Growth in Pakistan During 2002 and 2003, the telecommunications industry of Pakistan began increasing and clearly exhibited growth in all segments, especially in the cellular mobile segment of the country. Overall, market penetration of tele-density is close to 6 percent. This number is very small and presents, in itself, a huge opportunity for network operators in Pakistan to thrive.
Currently, landline market share of Pakistan Telecommunications Company Limited (PCTL) is about 2.4 percent. Mobile market penetration is at 2.3 percent and is expected to better landline tele-density this quarter. Considering the population of Pakistan is roughly 140 million people, and that approximately 6 million individuals are currently served, market expansion scenarios are huge.
Pakistan’s current network, where deployed, is nearly 100-percent digital. Where available, the network works well. Service delays are not the norm, and the service quality is relatively good. The service acquisition of bandwidth and lines in the Evacuee Trust Building in Islamabad for Teralight, for example, went relatively flawlessly. PSEB (Pakistan Software Export Board) Internet bandwidth is provided
via fiber and was installed very quickly. Revenue & Assets of Mobile Companies (Currency rupees in millions; one USD equals about 59 rupees)
Company Annual Gross Revenue % Increase Assets % Increase
2001-2002 2002-2003 2001-2002 2002-2003
Mobilelink 4084.39 6828.59 67.00 8868.66 13400.35 51.10
U-fone 1159.18 2709.77 134.00 6535.72 9843.75 50.61
Instaphone 1561.28 1864.77 19.00 4084.73 4383.73 7.32
Paktel 1375.22 1010.96 (26.00) 2838.34 2837.63 (0.02)
TOTAL 8180.07 12414.10 52.00 22327.44 31465.45 36.45
In fact, an order was issued as of November 1 of last year to automate all procurement processes in all corporations and departments that are a part of the IT Ministry. In other words, Pakistan is going to great lengths to become quite e-commerce based, and it shows. Elsewhere, mobile market penetration will overtake landline market share this year. The current operators include Mobilelink, U-fone, Instaphone and Paktel.
They use a mix of different frequencies and technology types, from amps to CDMA to GSM. The growth rate for cellular services for the past two years was 147.25
percent and 52 percent, respectively. Two new entrants into the mobile sector were awarded new GSM licenses, along with licenses to operate long distance (domestic and international) and wireless local loop operations. The license cost to the two new operators was $291 million (USD). They also have to pay an amount equal to 2.5 percent of annual gross revenue as an additional fee. The licenses issued cover the operation of GSM, GPRS and EDGE technology for the respective networks.
Primary Opportunities
Immediately on the Horizon in Pakistan Partner with current LDI licensee for international network opportunity Purchase either an LDI or an LL license in Pakistan, based on district served Market hardware and software to emerging telecom sector Provide consulting services to new licensee owners and
operators Work closely with PTTs to help operators alleviate loss of market share
Terminate legal network services to operator or licensee in Pakistan Telnor Pakistan is one licensee, and they have chosen Siemens and Nokia as their chief infrastructure vendors for their new operations. The second license winner is Warid Telecom, an Abu Dhabi, UAE group led by the UAE Sheikh Nahayan Mabarak Al Nahayan. Ericsson is its chief technology vendor.The older operators are very diverse. The current market share leader is Mobilelink, which is largely owned by Orascom of Egypt. Other operators are gaining, and with the entrance of the new players, the market conditions for short messaging services, voice and International voice in Pakistan will be very turbulent with price reductions and new service offerings.
Overall, the market climate in the telecommunications sector in Pakistan is much like what it was in the late 1980s and early 1990s in the U.S. and U.K. Network conditions are good, with the roll out of fiber network connections taking place during the last five years. The country has access to Flag Telecom’s global network, now owned by Reliance of India. The cable head is near Karachi and is linked throughout by PTCL. Pakistan’s minister-level leaders are wondering why Pakistan was not included in the recent announcement by the owners of Flag’s new fiber network called Falcon. Falcon will connect the Gulf Cooperation Council (GCC) countries such as Kuwait, Qatar, Bahrain, UAE, Saudi Arabia and Oman to the Flag cable, connecting Karachi to Fujeirah, UAE to Karachi. The reliability of the Flag connection has been excellent, but redundancy is more a concern than
anything right now.
PTCL, whose current market penetration is approximately 2.4 percent of the 140 million people domiciled in Pakistan, has plans to aggressively pursue local line growth but chiefly through new wireless local loop (WLL) technology. PTCL wants to install 2 million new lines via WLL in the next year. The company certainly sees new competition coming and is working hard to alleviate the pain from such new
market participants. The Minister for Privatization and Investment, Abdul Hafeez Shaikh, along with the Minister for IT’s Leghari and the PTA’s Javed, released a decision on November 2, 2004 that an additional 26 percent of the shares of the company, along with management transfer, would be moved to a fast track, most likely within a six-month period. Previously, 12 percent of ownership of PTCL that was held by the government was sold to private Pakistani investors. Currently, 88 percent of PTCL is government owned.
The sale of this 26 percent would reduce government holdings of PTCL to 62 percent. However, PTCL will not be broken up in this sale but instead would be sold as is, in one entity, including U-fone, the Internet service provider Paknet and, of course, PTCL. Other subsidiaries of PTCL (Telephone Industries of Pakistan
and Carrier Telephone Industries, a joint venture with Siemens) are already under way for privatization separately and are not part of this future transaction.
As part of the planned $15 billion investment expansion in Pakistan, the privatization of PTCL has been planned for the past year or so. IT Minister Leghari has directed this since the middle of 2003, and the process actually began with the Telecommunications Act of 1996 in Pakistan, when PTCL was given a seven-year reprieve from competition until December 31, 2002.
As part of the privatization process, there have been several suitors for shares in PTCL, including short-listed bidders such as Saudi Oger Limited, Orascom Telecom, Menara Telecom Consortium, Turkish Telecom Ministry and Singtel of Singapore. Some of these participants are no doubt more interested than others, but there is no lack of interested parties in the acquisition of the planned 26 percent share of
PTCL.
Other Primary Players As the number two operator in Pakistan, in terms of telephone lines, National Telecommunications Corporation (NTC) is based in Islamabad and serves the government sector in Pakistan. As of 2003, it had upward of 72,000 phone lines. NTC has a very strong and effective management team and plans to grow exponentially during the next few years, bringing in next-generation network technologies (currently underbid), extensive new fiber network capabilities and very strong new network management and billing technologies.
WorldCall Communication Limited also is a major player today in Pakistani telecom. It started as a public payphones network operator and is currently building a
new national fiber network, to connect its new local loop licensee operations and additional long distance capabilities.
TeleCard is another major payphone operator and was the first to start payphone operations in the country in a deal with the Quaid-e-Azam International Airport
in Karachi. In May of 1993, the first-ever Card Pay Phone license was issued. As of June 2003, the PTA in Pakistan issued more than 180 licenses for payphone services. There are more than 175 payphone operators other than Telecard and WorldCall; some notables names include TELIPS, TF Payphones, Dancom, Global Telecom, Voice Teletech and Telefast. Many of these companies have obtained licenses for LDI and LL, along with others. Teralight Ltd. can assist in locating and
contacting such companies in Pakistan.
Manufacturers and Technology
The telecom equipment manufacturing sector of Pakistan was very small until the recent decade. With the inception of companies under joint ventures like ZTE, Alcatel, Siemens and Comcept, the financial size of the manufacturing sector has greatly increased. Teralight Ltd. itself is bringing new leading-edge technology and companies to Pakistan. Siemens is a partner with the government through an
operation named CTI and has been since 1969. ZTE and Huawei both have made substantial infrastructure investments within the last decade. ZTE has enjoyed
great success within the market, selling switching and fiber networking gear. Ericsson generally is the base infrastructure provider for Warid’s brand new
GSM-based wireless network, while Nokia and Siemens both are the vendors of choice for the Telenor-Pakistan GSM wireless network.
In the end, it seems as if Pakistan and many other countries have learned from the mistakes made in the U.S. and other nations with regard to deregulation.
The competition on the local level should immediately help generate true consumer benefits, as well as lower pricing for commercial and enterprise markets.
Opportunities abound for carriers worldwide to partner with firms in Pakistan.
It is, as always, no pain, no gain. There most certainly will be a period of agony, including consistent migraines for both the new and the older operators. One can bet on multiple failures over a period of time, for a good percentage of the newly
licensed operators in the Pakistan market. But, with that said, it is most assuredly going to be an interesting ride for all involved and, in the end, a great success for the Pakistan nation and its people.
FAT
Tom Wilson is the CEO and founder of Teralight Ltd., a multi-disciplined telecommunications management services company located in Dubai, with offices in Islamabad, Hong Kong and Phoenix, Ariz. He can be
reached at [email=“[email protected]”][email protected].
More power to her…Ms. Bidness WOman!!! 
Also, give around $5M, we can do a PIPE into one of these through a convertible and warrants and then retire to Valhalla