With the December numbers now in, the full-year CY22 analysis of the telecommunications sector does not tell a good story. While there are some yearly gains, mostly the sector is painting in deep red. Not that the negativity wasn’t a pre-existing condition in the sector! On the positive, growth front, as per the latest data from Pakistan Telecommunication Authority (PTA), mobile broadband subscriptions (3G and 4G connections combined) had reached 121.54 as of December 2022, increasing 12 percent year-on-year.
The entire mobile network operators (MNOs) put together added just over a million new mobile broadband subscriptions each month in 2022, on average. The pace of adding new data connections has declined, but it is still significant as the 4G network is covering below 60 percent of the population. There is potential for growth. Assuming every third user is holding two subscriptions, there are over 91 million unique mobile broadband subscribers. Moreover, and 44 percent of devices on Pakistan’s network are still 2G phones.
Between December 2021 and December 2022, some 34 percent of new mobile broadband subscriptions in the sector were attracted by Jazz, followed by 30 percent by Zong, 24 percent by Ufone, and 10 percent by Telenor. In terms of market share, at the end of December 2022, Jazz was leading with a 38 percent slice of the mobile broadband subscription pie, followed by Zong at 28 percent, Telenor Pakistan at 21 percent, and Ufone at 12 percent. Zong and Ufone have picked up slight market share from others.
Subscription growth this year is to be affected by a sharp decline in mobile phone imports. Based on data from the State Bank of Pakistan (SBP), handset imports stood at $903 million in CY22, cut down more than half from $1.89 a billion in CY21. Imports fell massively, especially after the machinery-import curtailment policy came into effect in 2022 summer. Monthly imports averaged $15 million/month in 2HCY22 ($154mn/month in 2HCY21) and just $5 million/monthin 4QCY22 (4QCY21: $167mn/per month).
As a result, the local assembly of mobile phones, which depends on imports of CKD/SKD kits, could not continue its growth momentum seen in prior years. As per the latest PTA data, mobile phone assemblers’ output stood at nearly 22 million in CY22, down 11 percent year-on-year compared to roughly 25 million units in CY21. Within the CY22 phone output, 60 percent were 2G cellphones and 40 percent were smartphones, with the share of smartphone assembly slightly decreasing compared to the previous year.
Over on the FDI front, the situation was even gloomier in 2022 compared to the previous years. Based on the latest central bank data, the telecom sector’s net foreign direct investment (net FDI: gross inflows minus outflows) was negative $151 million (net outflow) during CY22, compared to $173 million in net inflows seen in the previous year. It didn’t help FDI at all that the leftover spectrum (from the September 2021 auction) could not be put back up on sale again, amid the economic upheaval and political uncertainty.
Profit repatriation by the telecom sector stood at $118 million in CY22, down by 25 percent year-on-year, as per SBP data. The real squeeze on repatriation came in the second half of 2022, as telcos could only send home $4 million, compared to $52 million in 2HCY21. Amid PKR depreciation, the authorities’ go-slow policy has hurt sponsor returns. Hit by rising energy costs and expensive borrowing terms, the capital spending by MNOs saw a strong decline in 2022. Worse, there were reports of one of the MNOs planning to pack its bags. Can the year 2023 be quantitatively different for the sector? Let’s wait and see.
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