On telcos’ health

Just as other industries, it has been a difficult year thus far for the country’s mobile network operators (MNOs) as well. Rising fuel and utility prices, weakening PKR, inflation’s impact on communication spending, floods-related service disruptions, uncertainty over spectrum auction and regulatory changes (increase in WHT and decrease in mobile termination rates) produced an unfavorable mix that might have exacerbated pre-existing difficulties operating in this market. Let’s take stock of how MNOs have fared.

Let’s start from the market leader. During the nine-month period ended September 30, 2022, Jazz topline reached Rs188 billion, an increase of 11 percent year-on-year. This was thanks, in most part, to 23 percent yearly growth in its ‘data revenue,’ which reached Rs78 billion. However, cost pressures weighed on the top-ranked operator’s EBITDA (earnings before interest, taxes, depreciation and amortization), as this indicator grew proportionally lower by 8 percent year-on-year to Rs84 billion in the analysis period.

Jazz topline and EBITDA growth can arguably be classified as healthy in these times, but they were still negative in real terms (growth rate adjusted for inflation). Besides, the considerable rupee depreciation nullified local-currency growth in sponsor’s foreign currency. For Veon, which is Jazz parent, the growth from Pakistan operations in reported currency (USD) was negative in double digits: nearly 11 percent decline in topline and 12 percent drop in EBITDA in USD terms. The fact is that there is not much Jazz or other market players can do to minimize the impact of PKR volatility.

Meanwhile, other operators weren’t as lucky as Jazz to post double-digit topline growth in rupee terms. Telenor Pakistan, the number-two ranked operator, could raise its total revenues by just 4 percent year-on-year to Rs83 billion in 9MCY22. The topline growth in reported currency (Norwegian Krone) at its parent Telenor Group was -8 percent, due to the double-digit rupee depreciation in the analysis period.Thanks to a large impairment loss booked by its parent, Telenor Pakistan had significant operating loss of nearly Rs26 billion in 9MCY22, as opposed to operating profit of roughly Rs18 billion in 9MCY21.

Among the three operators for which financial information is publicly-available is Ufone, PTCL Group’s cellular arm. Based on data reported in the group’s latest financials, Ufone’s revenues grew by 5 percent year-on-yearin 9MCY22. This nominal growth wasn’t enough to avoid a large increase in net loss in this period. As discount rates have risen considerably compared to last year, Ufone’s ‘finance costs’ ballooned due to higher interest rate on its long-term bank loans taken to finance network expansion.

Overall, MNOs can still exercise their agency to raise basic voice/text/data tariffs and package/bundle prices (some have done so recently). But the largely price-sensitive user base is apparently conscious of its communication spending; they could cut back if presented with large price increases. Considering thee is little relief in macroeconomic or sectoral challenges, the ongoing final quarter of the year is expected to remain challenging for most of the operators, even as MNOs’ capital spending is on a decline.