Pakistan has finally witnessed the much-expected maiden merger deal in its telecom sector believed to have more mobile cellular operators than needed to serve customers while keeping the business afloat.
Pakistan has finally witnessed the much-expected maiden merger deal in its telecom sector believed to have more mobile cellular operators than needed to serve customers while keeping the business afloat.
Last week, Mobilink, owned by Cairo, Egypt-based Global Telecom Holding, and Warid, owned by Dhabi Group, announced a consolidation of their capital and operating expenditures of around $500 million.
With Mobilink’s leading customer base of 35.1 million and Warid’s 10.3 million, the telecom firms said they would together serve 45 million subscribers once the merger gets regulatory approvals, which are expected within the next six months.
Why this merger was obvious and prognosis telecom experts had been foreseeing for the last few years is because of the small products range every player is presently milking its revenue from.
Affordability is one of the main bottlenecks operators and customers trudge to offer and enjoy innovative and modern telecom services. That mobile-specific taxes as a percentage of total cost of ownership in Pakistan are highest 32 percent as compared to the global average of 15 percent is affecting the affordability of consumers.
Telecom specialist Amir Pasha at Ufone said there is a need for more value-added telecom products. The telecom regulator repeated the importance of new services several times.
An expert, who wished not to be named, said the real challenge for cellular mobile operators in Pakistan is to monetise their services in a pre-paid customers dominated market. They are trying to have an edge over the competitors with services having only a difference of paisas.
Pakistan has one of the world’s lowest average revenue per user for mobile companies.
Deputy Chief Executive Officer Niaz Malik at Zong said it’s not that value-added services are not there, “but, actually the uptake of these services is low in Pakistan because of the customer’s low buying power weakened by heavy taxes.”
“The government has to cut taxes to bolster weak buying power,” Malik said. “That can only make data services a viable business model for the telecom firms.”
Zong – a 100 percent subsidiary of Beijing, China-based China Mobile – claims to have a leading share in data market, offering mobile broadband services on the back of its super 3G/4G technologies through its 300,000 base transceiver station (BTS) towers.
Malik said the company has so far invested three billion dollars in the telecom sector.
Back in 2007, Zouhair Khaliq, ex-chief of Mobilink said the market could afford a maximum of three or four mobile cellular operators.
Pasha threw weight behind the notion, saying a merger is always needed.
“You might have noticed that no new international players had shown interest in spectrum auctions last year,” he said.
“See, everyone wants to get return on his investment,” he said, referring to heavily-taxed telecom services in Pakistan.
Be that as it may, telecom companies in Pakistan are yet to sail into the unchartered territory comprising of a huge digitally-disconnected population.
Mobile broadband penetration in Pakistan is one of the lowest in Asia at five percent, equal to Bangladesh; it is lower than India, Indonesia, Malaysia and Thailand, said a study published last week by the Groupe Speciale Mobile Association (GSMA), which tracked digital developments in six Asian countries, including Bangladesh.
The GSMA, representing 800 mobile operators and more than 250 other companies worldwide, said since fixed broadband penetration in Pakistan is hovering around one percent, mobile is “the only effective channel for connecting to the internet.”
“At the end of 2014, unique subscriber penetration in Pakistan stood at only 31 percent. This is less than unique subscriber penetration in peer countries and below Asia Pacific’s average of 45 percent,” it said.
“By 2020, 3G coverage is expected to reach 90 percent and mobile broadband is expected to reach 40 percent of the population.”
But, for that to happen, the GSMA advised that mobile operators, regulators and others in the broader mobile ecosystem have to work together.
Critics expressed concern over the consolidation deal, saying this may create a monopoly-like situation in the telecom sector.
They said Norway-based Telenor Group owns 33 percent shares in Amsterdam, Netherland-based VimpleCom that has 51.9 percent shareholdings in the Global Telecom Holding.
Considering this ownership pattern, they said Telenor and Mobilink-Warid may form a cartel.
Telenor Pakistan’s official Omar Moeen Malik refuted this assumption as baseless.
“There is a need to make a distinction between Telenor’s Pakistan and international operations,” Malik said. “Telenor Group has investment stakes in many ventures worldwide.”
He said consolidation brings synergies and hopefully it will be better for customers. Malik agreed that this may be the right move considering the profitability erosion.
“It is yet to be seen how this deal will be beneficial for both the customers and the industry,” he said. “Globally, most of the mergers and acquisitions have failed to deliver results due to flawed fusion process.”
He said in books the numbers may sound good, “but in reality there are no results.”
One thing is sure that Mobilink will strengthen its market leading position after this deal is materialised.
“Mobilink will be showered in spectrums…it’s already enjoying spectrum and tie-up with Warid will spice up its services,” Pasha said.
The merged companies are planning to boost their network and expand mobile financial services – a fact, which is indeed a wake-up call for Telenor that dominates the financial mobile services landscape in Pakistan.
Telenor is the leading provider of branchless banking services because of its wide network of agents across Pakistan. Unbanked population is using mobile phones for funds transfer and bills payment. The government is disbursing dole-outs and pensions to this segment of the society through branchless banking channels.
However, the branchless banking is yet to be transformed into a full-fledged mobile banking led by telecom firms. Absence of digital payment platforms is an impediment to the growth of digital economy.
This country’s telecom sector will be left with four operators following the merger. Remaining three, in order of their market shares, will be Telenor, Ufone – concern of Pakistan Telecommunication Company Limited in which Abu Dhabi-based Etisalat holds 26 percent shares – and Zong.
Cellular mobile companies are investing in the sector to earn revenue from the new data traffic business. They are collaborating to cut operational and capital costs by jointly investing in establishing and operating BTS sites.
Last year, they paid $1.12 billion to the government for the next-generation telecom spectrum licences. Only Zong got 4G spectrum licence, while Mobilink, Telenor and Ufone bought 3G licences.
The government has planned to auction more unsold spectrum for 3G and 4G services during the current fiscal year of 2015/16.
Mobilink may not be interested in the auction as it will have 4G long-term evolution technology of Warid.
Now, only two operators are in the field: one Ufone and second Telenor.
Since the government has major shareholdings in Ufone, the public money will be transferred back to the national treasury after Ufone gets 4G licence.
Industry experts said the government has to soften its tax structure in favour of telecom growth.
The writer is a staff member
