In these tough economic times, the status of the telecom industry is no better than many others. Perhaps, it's worse in many ways. The problem with the industry is that it's relatively new, wholly foreign investment-driven, and still perceived as a luxury – mainly by politicians. Pakistan's population is predominately young, and connectivity is necessary for youth. The sector has the potential to revamp the crippling education and health systems as well as many other industries; and has a great potential to enhance businesses' operational efficiencies.
Telecom is neither treated as a necessity – like food, water, and environment, nor as an industry – like textile, cement, fertilizer, and others. That policy level neglect and cutthroat competition in the industry has resulted in suboptimal investment in laying the basic infrastructure and expanding core and axillary services. Nevertheless, the industry still survived and thrived in the last two decades. It has made connectivity affordable and widespread and has a spillover impact on financial inclusion via JazzCash and Easypaisa. However, now it seems to be reaching an inflection point. That warrants serious attention from the policymakers and industry players.
There is some recognition of giving telecom an industrial status. However, still, it is to be made in letter and spirit, and the advantages of such a declaration are yet to be accorded by various involved agencies. There are disadvantages to tax treatment and adjustments. There are hindrances in electricity provisioning, and the rates are not comparable to other industries. There is no concessionary financing for the sector. The point is not to argue for making telecom a rent-seeking industry – like many others, but the industry needs a competitive environment—a fair demand.
Historically, the government has seen telecom as a luxury, and the interest is generating as much revenue as possible. Last year there was a proposal to impose a tax on data consumption, but due to public hue and cry, the cabinet back then rejected it. Then the finance ministry always looks at the spectrum auction from the lens of generating revenue. And particularly since the revenue from the spectrum is non-tax and stays within the remit of the Federal government, the government wants the industry to pay higher upfront and recurring sums in acquiring spectrum. This limits its ability to invest in infrastructure and innovation, impeding the achievement of digital inclusion objectives. The government should try to remove the asymmetry of dollar installments and rupee-based revenue by fixing installments in PKR by locking the currency rate at the time of license renewal.
Then attaining the right of way is another pain for the industry. Housing societies and other authorities have rules, and everyone wants to maximize their share of the telecom pie. There is no one policy for laying the basic infrastructure, and where there is, there are severe obstacles to implementation. Here telecom should be treated like other utilities – water, electricity, and gas, where the housing authorities run after the utility providers to lay the infra and to ensure the availability of that respective utility. However, since telecom is being treated as a luxury by some, there are difficulties. The sector must pay economic rents to get what is right. That all adds to unnecessary costs and hurdles that hinder the delivery of benefits that regular users and the broader economy deserve.
Lately, formal and informal import bans have arrested the growing balance of payment crisis. But, here again, telecom is being treated as a luxury. Whereas the industry is fully dependent on imported equipment for enhancing and maintaining the networks, requirement like pre-approval of the State Bank for opening import LCs, has seriously constrained even compliance with license conditions by the industry. That is further hampering the cash-strapped industry on days when the credit borrowing rates are at a multi-decade high.
The sector needs breathing space in days of growing costs to meet the growing requirement of the young population. Consumers' experience worsens as new consumers are getting in while the requisite investment to support higher numbers (and higher data capacity) is missing. The industry is struggling to survive, and a considerable opportunity cost is being paid by not having good services across the board.
Then the adoption of smartphones needs to be expedited. The rollover of smartphones has slightly picked up lately, but still, a huge gap exists. More than half of the consumers still own 2G (basic) handsets. Therefore, the policy should be pivoted towards wide-scale adoption of affordable smartphones and discourage the import and local production of basic 2G phones. The smartphone policy has encouraged the local production of the sets, but still, 2G phones make up the bulk of even the local production.
Here the industry, as well as other microfinance players, could use supporting regulatory help to increase demand for 4G handsets through innovative installment-based financing. In addition, the much-desired uptake of broadband and smart devices will further play its part in data usage there again; increasing traffic without network expansion could result in choking. And for network expansion, it is critically important that telecom should be treated as an industry providing necessary services.
There is increasing discourse about digital Pakistan and what's the best way to shape digital Pakistan for current and future requirements. That is good, and the conversation and adoption of measures to enable the vision require collective muscles. Lastly, as we celebrate 75 years of Pakistan this week, we must recognize that digitization will be at the heart of any progress that Pakistan aims for in the next few decades.
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