Continuing with the theme of telecommunications sector’s performance this calendar year thus far (read: ‘On telco’s health,’ published November 16, 2022), the sector-wide indicators present a mixed picture for the mobile network operators (MNOs). The sector, which provides the connectivity base for the country’s digital economy and payments systems, seems to be running in an auto-pilot mode amidst a lack of new sector initiatives (e.g. spectrum auction) by the government and declining capital spending by operators.
First, the positive trend – it concerns the mobile broadband subscriptions (3G and 4G connections), which have been the main revenue drivers for MNOs since the 2014 mega spectrum auction. As per the latest data from Pakistan Telecommunication Authority (PTA), there were nearly 121 million mobile broadband subscriptions among all MNOs in the market as of September-end 2022. That’s a healthy addition of about 1.4 million new data subscriptions per month in the twelve months since September 2021.
As of September end, Jazz remained the market leader in mobile broadband segment with 38 percent of subscriptions, followed by Zong (28%), Telenor Pakistan (21%) and Ufone (12%). Since December 2021, about 13 million new data subscriptions were added by all operators in the nine months to September 2022. Within this subscription growth seen during 9MCY22, Jazz had a 34 percent share, followed by Zong with 27 percent share, Ufone with 23 percent share, and Telenor Pakistan with 15 percent share.
Going forward, the subscription growth may be impacted by the noticeable decline in imports of mobile phones. As per the latest data from the Pakistan Bureau of Statistics, the country’s mobile phone imports stood at $160 million in Jul-Sep quarter this year, down by 68 percent year-on-year over the same quarter last year. This decline was mainly driven by machinery-import related restrictions by authorities amidst declining forex reserves. Besides, demand-side also seems to have softened due to rising cost of living.
However, a positive development is the continuing trend local assembly of mobile handsets dominating commercial imports. Based on the latest PTA data, local players assembled 1.86 million mobile phones per month, on average, during 9MCY22, as opposed to imports of finished mobile phones averaging just 0.14 million units per month in the same period. While that is good, there is still a visible downtrend in local assembly of mobile phones this year compared to 2021. Besides, there are question marks over how soon the quality of locally-assembled smartphones can improve compared to imported alternatives.
Other than subscriptions, there is not much encouraging sectoral data about telecoms this year so far. Foreign direct investment (FDI), which was already dwindling in the sector, has nosedived this year. Based on latest data from the State Bank of Pakistan, the net FDI (inflows less outflows) in the telecommunications sector stood had dropped to negative $110 million during Jan-Sep 2022 period, as opposed to positive net FDI of $141 million in the same period last year.
The sharp slump in already-low net FDI came about asthe sector’s gross inflows almost halved to $108 million compared to 9MCY21. But the big blow to the net FDI was delivered by the sector’s outflows quadrupling to $218 million. As a result, one sees a decline in MNOs’ capital spending on expanding their networks, especially 4G sites. This is despite the need to grow the mobile broadband service footprint in under-served/un-served areas. In the current macroeconomic climate, perhaps riding out the storm is the immediate priority among operators. Can the government do anything to entice operators to invest more?
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