'PTCL to invest Rs 100 billion in the Pakistani market between 2011 and 2016'

Walid Irshaid is a telecom professional, who has spent over 30 years in the ICT industry in Middle East and North Africa; and he is regarded as an ICT expert for the region. Irshaid started his career with Emirates Telecom (Etisalat) in 1980, and worked in different ICT fields for 16 years. Between 1996 and 1998, Irshaid worked on various start-up operations in Lebanon, and later appointed as Managing Director of Palestine Telecom (Paltel) in Palestine.
In late 1998, Irshaid became associated with FLAG Telecom, an international company specialising in building and operating global fibre optic networks, as President for Middle East and Africa for eight years. In March 2007, Irshaid was again selected by Etisalat group, this time to take charge of the Pakistan Telecom Company Limited as Group President and CEO.
BR Research: PTCL has been under transition from a wholly government-owned, public sector organisation to one being led by a professional, private sector management. How has this experience been thus far?
Walid Irshaid: One has to understand that before PTCL's privatisation, it was a state-run company and it was a monopoly operator in key telecom segments. Moreover, it was perceived as "the telephone company of Pakistan". This was the case for nearly 60 years until the year 2005-06 when PTCL was privatised and the Emirates Telecom Co. (Etisalat) bought the strategic share.
When Etisalat took over PTCL's management, we started a "transformation" within the organisation to make it "THE telecom company of Pakistan", rather than managing the remaining "telephone company of Pakistan". The transformation process was very comprehensive, touching our people, our networks, our services and our revenues.
There were serious challenges for us from the beginning. One, PTCL was hugely over-staffed when it was privatised. And two, most of its services originated from the "Voice" business on fixed lines. We somehow solved the problem of over-staffing in an amicable, respectable and professional way. We were able to reduce our headcount from 64,000 people to just above 30,000. We imparted huge training into our employees and worked on changing the bureaucratic culture to become customer-centric. We said, look, we cannot just sit in offices and customer cannot line up for us. Now we have to go to their doors.
On the revenue side, we realised that we needed to diversify our revenue streams, and not become reliant on "Voice" alone. We wanted to become an integrated telecom company. Towards that end, we have made efforts to make our customers aware that PTCL can offer them much more on the same fixed lines. We're offering double play (voice and broadband) services, and we have also started offering triple play (voice, broadband and TV) services. Besides this, we are becoming more focused towards enterprise solutions for our corporate customers.
If the last five years were spent in "transformation", the coming five years are going to be the years of "consolidation".
BRR: There is a sea change between the dynamics of the telecom market now and five years ago. How did that impact PTCL?
WI: Interestingly, just before privatisation, two things happened: One, the government of Pakistan decided to liberalise the telecommunication sector in around 2004-05. This opened what I call the floodgates of competition, whereby more than 200 telecom licenses were issued between 2004 and 2006 in different telecom segments. Today there are some 40 active operators on the ground, all competing for the market.
Two, amid wire-line substitution to the wireless and declining voice tariffs; we were in a critical position as our revenues were predominantly voice-based. For instance, the overseas call terminating into Pakistan used to constitute roughly a quarter of PTCL's revenues, and we used to charge ten cents. Yet today, the tariff has reduced to one cent and foreign operators are now expecting us to terminate their calls for free here. This is the consequence of having 14 LDI operators making a mess of this business. So, it was a completely changed scenario for us.
BRR: But "voice" still remains your major source of revenue. Within that, how has the competition from mobile network operators affected your share?
WI: Competition has affected us in many ways. Voice tariffs have drastically fallen, even for domestic calls. You must know that voice tariffs in Pakistan are one of the lowest in the world. Although fixed line subscriptions have declined, the volume of minutes handled by PTCL today is much higher than it was five years ago. Without too many mobile network operators, our growth in volumes would perhaps have been ten times more. The mobile text messaging service also took its toll on voice business. If Pakistanis are generating one billion minutes in a day, PTCL is not taking 90 percent of it like it once used to.
BRR: What is the revenue mix at PTCL today?
WI: Today, voice is just one of the eight revenue streams for PTCL, and contributes roughly over 40 percent to our revenues. This is in sharp contrast to five years ago when it used to be over 90 percent of total revenues. The second-largest revenue contributor is broadband, which provides for 20 percent of our revenues. The corporate enterprise solution unit is contributing roughly eight to ten percent to the revenues, and it is the fastest growing revenue stream today. This unit is targeting businesses, like the banks in Pakistan who are relying on us for online banking, ATMs, connectivity, etc.
We soon realised we needed "home-grown" revenues, and could no more rely on international incoming calls. Diversifying our revenue streams was essential, and we are making great progress in this regard.
BRR: How is Ufone, PTCL's mobile telephony subsidiary, been doing lately?
WI: Ufone has been in a relatively good shape. It has been around for many years. I always feel that they have done an excellent job. By not being in the rut, they have maintained their profitability. They have really managed to secure good position in what I call a "suicidal" market. One has to understand that providing service is something, and maintaining the quality of that service is something else.
BRR: How does the Etisalat group view the Pakistani market?
WI: As Group CEO in Pakistan, I want to tell you that the Etisalat group is here to create a profitable, world class telecom company. This is not a requirement or a slogan. This is a mandate from our investors and shareholders. The Etisalat group values this investment and they are very committed to this market. They are not here for the short-term gain or a hit and run operations. They are here for the long term, as the Pakistani market is of the highest priority for the group.
BRR: But Etisalat paid a price twice as much as other bidders for buying the management stake in PTCL in 2006. What did Etisalat see in the company (or in the market) which others could not see?
WI: The beauty lies in the eyes of the beholder, they say. The Etisalat group does not regret its decision. We're very committed to this market which we believe is still severely under-provided in terms of various ICT services. Pakistan is the sixth most populous country of the world with 180 million people and is in the middle of a youth bulge. Every year, at least 5 to 10 million become potential broadband users.
When we bought the strategic share in PTCL, we didn't look at yesterday, today or tomorrow. We looked at what would this market be like in 5 to 10 years. Today, there are more than 15 million Facebook users in Pakistan, and growing. We've seen that the average download in broadband in Pakistan is 25GB! Contrast this with the average global "unlimited" download of only 5GB. So the future for us is the promise this market holds out!
BRR: Regarding the privatisation deal, there are unresolved issues vis-à-vis the $800 million in outstanding payments owed by Etisalat to the GOP, for the over three years now. What is the update on that?
WI: This has to do with fulfilling the commitment in the original contract between the GOP and Etisalat group. The issue is that of the transfer of real estate belonging to the PTCL Company. Once the transfer of the properties is concluded, this issue will be resolved. The bilateral, brotherly, cordial relations between Pakistan and UAE are there, and nobody can undermine that. Yet Etisalat works on a commercial basis, and wants results. So things have to be viewed in the right perspective.
BRR: It has been reported that more than 90 percent of the properties have been transferred in PTCL's name, so why not deduct the value of remaining properties and settle the outstanding dues?
WI: This issue is not being contested by the PTCL Company. It's being discussed between GOP and Etisalat themselves. The issue, I personally believe, is not impossible to resolve. It's a contractual commitment which contains several milestones, and the last one has to be fulfilled. We're very close to it. Around 95 percent of the transfer has been made, but there are still some properties that need to be transferred. However, we should keep in mind that the real estate transfer is not for Etisalat or for any other entity; it is for the PTCL Company.
The value of the remaining properties is being discussed between the Ministry of Privatisation and Etisalat. They are actively engaging on this.
BRR: Do you have plans to divest some of the properties and invest the funds in the core business?
WI: Not really, no! But all options are open for us, and I don't rule out selling some of the real estate. However, first and foremost, the two parties have to settle the outstanding issue.
BRR: The broadband penetration is still abysmally low in Pakistan. Any plans for the broadband segment?
WI: Going forward, in the coming five years (including the running year, up till June 30, 2016), the PTCL group has made a commitment to invest a hundred billion rupees in this market. This is not a mere figure on the table; this represents a commitment for concise and focussed investment of over one billion dollar.
BRR: Where would the investment go?
WI: We have a clear-cut business plan to provide the highest quality broadband for up to 5 million outlets, households, and businesses. Each one of those 5 million customers will be provided broadband service with a minimum, guaranteed 10MB speed. We are not contemplating and thinking about it. Even as we speak, the wheels are already rolling!
Today, the 1MB users want more speed and download. You'll be shocked to know that folks in rural areas, who have bare access to basic facilities, are savvy internet users. And, that is why I do not underestimate the potential of broadband. If I did, I would be underestimating my company's potential.
We have to bring a different value for our customers. Voice is dirt-cheap, and a relic of the past! We want to go to the households, be a part of their lifestyles, and make sure that we provide them the services they want and when they want: be it the TV channels or broadband or basic voice. This is how I foresee the market. We'll provide a minimum, guaranteed 10MB bandwidth, reliable service and highest quality, so that our customers are satisfied. It'll be a plug and play solution.
BRR: What will be the financing arrangement for this investment?
WI: There is no worry about how to secure that investment. It is not something that we cannot arrange. It could be a debt to equity combination.
BRR: How do you see your company margins in 2016?
WI: Promising! Our bargain chips are placed on better revenue figures in the future. By FY16, I am optimistic that our revenues would be double the FY11 figures. Going forward, I foresee PTCL in a much better and sound financial position. Of course, we have to ensure that we deliver, as the investment will not come for free. We have to improve our revenues and bring them to a higher level. It is only by trying to diversify more and ensuring that when we go to the customer, we deliver a reliable and high quality experience, consisting of all the triple play services, ie, video, internet and voice.
BRR: There are already five active players in the mobile telephony market, and now there is a possibility of a potentially sixth active participant in this market. As group CEO, how long do you think such a competitive structure can sustain itself?
WI: This is not conducive to the operators and the country to have another active MNO. There is no need for further bleeding. Since the auction is also open for existing MNOs, I think there is a chance that one of the existing operators may acquire this cellular license and get more frequency spectrum. The existing operators can also go and collectively buy this spectrum to prevent the sixth operator from entering the market.
No, I do not expect to see five mobile operators in the medium to long term. If these five can consolidate into three, it would be better for everyone.
BRR: What do you think about the prospects of the third-generation (3G) data network technology in Pakistan? Would Ufone participate in the auction?
WI: The deployment of infrastructure for 3G operations is much more expensive as 3G technology is more about transporting data than voice. A lot of investment would be required from the sponsors of the 3G operators. It is going to be really difficult for the 2G "leftover" operators in the post-3G environment, because high revenue-generating subscribers would switch over to 3G networks. Voice services would have even lower ARPUs later on, so it will be difficult for the 2G operators to survive for long in a market like Pakistan. There will be a clear case for consolidation.
As group CEO, I am reasonably confident that Ufone would be one of the three 3G licensees. Ufone is going to be a strong contender for the 3G spectrum in Pakistan and will fight to win!
BRR: There is a clear case for mergers and acquisitions in the local telecom sector. Would you be willing to shop for one?
WI: I have told you that the five coming years would be the years of consolidation for us, following the last five years of transformation. We are going ahead with our plans, and our reliance would be on indigenous, home-grown revenues. So far, we have been focusing on organic growth. However, I don't rule out any inorganic growth if need be at any point in time.
BRR: The "branchless banking" market in Pakistan has revealed its potential in the last two years. While other major MNOs are seriously looking at the market, why is there reluctance from Ufone?
WI: I think that Ufone is not going to be left out. This area is being discussed at the group level at Etisalat, for bringing in more synergies between various group entities vis-à-vis mobile money transfer, mobile banking, and payment systems. The remittance flow from UAE to Pakistan is the second-largest after KSA, so that is one huge opportunity among many. Who would be in a better position than Etisalat and Ufone to tap into this market? We must admit that we are late, but we are not out! The market is there. We're looking at both money transfers and payments.
BRR: Telecommunication is among the most-heavily taxed sectors in Pakistan. How does such an exorbitant taxation regime impact your business model? Are you taking up this issue with the relevant authorities?
WI: One has to keep the whole economic situation of Pakistan in mind: the country is going through a tough period of fiscal crunch. It is really up to the government to decide what ecosystem they want to provide to the investors and businesses.
I don't want to exaggerate the taxation issue. What bothers me the most is not taxation - it's the power outages that present the real challenge to PTCL more than anything else! Running our operations for eighteen hours a day on fuel oil is a logistical and security nightmare. Not only that it has to be on a continuous basis, the equipment wares out, batteries have to be replaced every six months, and fire incidents happen in the diesel generators.
It is extremely difficult to maintain the quality of service 99.9 out of 100 times in such an environment. So, if the government keeps this taxation regime but provides a constant, certain supply of electricity, the business would be in far better position.
BRR: Why not share the infrastructure to alleviate some of these costs?
WI: The idea of a "Tower Holding Co." is still relevant. On the facility sharing, PTA does not stop the operators. I foresee there will be more sharing among MNOs in the future. It is just not feasible to have 5 towers within a small range of ten to twenty kilometres. On a side note, as a telecom professional I find this really strange that MNOs in Pakistan have not allowed national roaming among themselves. Under these distressful conditions, they should do that. That can greatly reduce the running costs and environmental issues. The regulator should force national roaming as a regime.
BRR: USF has been around for the last four years during which it has contracted and subsidised a number of projects for ICT development in the un-served and under-served areas of Pakistan. How much has the telecommunication sector benefited (so far) from the USF-funded projects, keeping in view their contributions to the funds?
WI: USF has done a good job in Pakistan. It has slowed down a little bit over last one year. I am hoping that USF will be back on its feet as a new management has now taken charge. PTCL has been an active participant in USF projects in various ICT areas and will continue its participation.