Telenor Group, which is the parent of Telenor Pakistan, has reportedly agreed to merge its Thailand business with a leading Thai conglomerate. This doesn’t affect Pakistan as such. But a comment by the Telenor Group President to Reuters – that “Telenor will continue to look for merger opportunities in Asia, including in Pakistan and on a regional basis” – has encouraged merger talk here at home.
C-suite executives generally avoid talking in public about a merger, because they know that such talk, even if premature, can set alight markets and analysts. In this particular instance, there is perhaps not much to read, as the comment may have been presented out of context. Or it could be an attempt to project strength and put competitors on notice. Or, considering that Telenor Group has chosen to give up majority control in its Thailand business, it may be aiming to reduce its presence in Pakistan.
Whatever the case, merger talks have been revived.
BR Research’s background discussions with industry executives continue to give this impression that Pakistan’s low-revenue telecom market is more appropriate for a troika – a group of three players carrying the market – rather than four operators. The introduction of mobile broadband (3G and 4G) since 2014 has impacted operators’ growth and profitability differently. There is only a finite supply of well-paying data customers. And low investments in recent years have exposed quality of service.
Case for a merger exists because organic growth is hard to come by in the face of stiff competition for data customers. Besides, effective cost management in the context of rising utilities’ prices requires optimum scale and operational synergies. Despite sector-wide challenging circumstances, Jazz, the market leader, has been doing comparatively better than the rest, partly due to its strategic decision to acquire Warid back in 2015-16. Jazz has the firepower to attract more and more data customers.
The target of a potential merger could be the oft-mentioned Ufone, which is at the bottom of the mobile broadband subscription ladder. Future viability of mobile network operators depends on the mass of their data subscriptions. As of September 2021, PTA statistics show, Ufone had collected 10.5 million mobile broadband subscriptions, which constituted 10 percent of the 105 million pie. Back in CY20, Ufone recorded topline of Rs50 billion, as per data from latest PTCL Group annual report.
Should Telenor Pakistan merge with Ufone, the combined entity’s data subscription share will jump from 22 percent to 32 percent. This can assist Telenor Pakistan to not only overtake Zong at the second position (mobile broadband subscription share: 27%), but also come closer to Jazz (mobile broadband subscription share: 39%). If it is Zong that one day decided to acquire Ufone, Telenor Pakistan could be relegated to the last spot. That’s not the place it should want to be downgraded to.
But wait! Is Ufone even willing and available to be courted at this stage? After all, this operator has just acquired pricey new spectrum, with which it aims to turbo-charge its ability to attract and retain data customers. The new corporate strategy, under a new Group President and CEO, needs time to make good on the investment. Besides, there are reportedly some legal issues in selling Ufone (which is majority-owned by government) to a private operator. Let’s see how things shape up in the future.
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