Admirably, the PML-N government moved fast on long-stalled telco issues, like holding spectrum auctions and revising the telecom policy. Still, foreign direct investment (FDI) in telecoms didn’t show much promise. As per SBP data, the sector’s net FDI (inflows less outflows) peaked at $430 million in FY14 – the year of mega 3G/4G spectrum auctions. In FY17, and so far in FY18, the sector has recorded net outflows (see illustration).
It pains comparing things of late to the FDI galore post-2004 deregulation. Those were the years! Consider, between FY04 and FY08, telecoms net FDI totaled a mammoth $5.87 billion. Even such large figure was 35 percent of overall FDI Pakistan received in those years, signifying an overall boom. The subsequent decade, with all its fits and starts for the sector, couldn’t beat that tally under two separate governments.
The PPP years (FY09-FY13) were a real letdown for the sector. Telecoms’ net FDI in that era dropped to just half a billion dollars, or 5 percent of the overall net FDI in the period. Surprisingly, the PML-N scorecard hasn’t been much different. Net FDI in its four and a half years thus far summates to $600 million – or 7 percent of the overall FDI obtained in this tenure. And as mentioned before, net outflows are mounting a comeback. In 1HFY18, the net outflow stood at $52 million.
What’s more, overall telecom investment – which is FDI plus local investment component – has also been on a decline, indicating saturation in the sector. After years of dim figures, overall investment received a jolt in FY14, thanks to the 3G/4G spectrum auction. But in the subsequent years it lost that vigour. Besides falling investment, there are more signals suggesting the sector has entered saturation territory post-3G/4G network rollouts.
PTA data shows that mobile broadband (MB) subscriptions have increased exponentially in recent years, but now look stuck around 50 million. Overall telecom revenues – some Rs464 billion in FY17 – were only slightly more than the figure recorded in FY14, highlighting negative real growth. During this period, the revenue gains achieved by cellular operators – who did receive a shot in the arm through MB, a new revenue stream – were almost wiped out by the top line drops suffered by local loop and LDI operators.
Where will the next telecom wave come from? This is critical, considering that telecom connectivity – especially mobile broadband – is becoming a commodity, with little in the name of service differentiation. Customers take broadband for granted now but court service providers in the realms of social media (e.g. Facebook/Twitter and WhatsApp/Snapchat) and online economy (e.g. Daraz, Careem/Uber and Food Panda).
No wonder, telco’s are wasting no time to team up with techies, in order to stay relevant with the times. But the prospects of FDI revival look dim, even after accounting for potential investments in the local ICT startup scene. Another mega spectrum auction doesn’t look likely soon. Operators would like to first milk their existing 3G & 4G investments. Besides, the next proposition (5G) is still some years away from passing threshold of commercial viability in low average-revenue-per-user markets.
FDI may receive some succor in case there is further consolidation in the sector. But expectations for a three-player cellular market may materialize only if Ufone is put up for sale by Etisalat executives. Another potential FDI source is tower business. After Jazz’s sale of its tower infrastructure to edotco PK, more investment may come in third-party tower operations, as more telco’s may look to drive operational efficiencies. Be that as it may, the era of multibillion dollar telecom investments is long gone now.