After navigating a challenging year that was 2020, the country’s telecom operators seem to have fared somewhat better in the early months of 2021. Among the operators whose financial statements are publicly available, latest financial results for the quarter ended March 31, 2021 suggest some amelioration, albeit risks remain to topline growth, considering that the pandemic is still active and impacting the economy.

Market leader Jazz (Pakistan Mobile Communications Limited) actually had a blockbuster quarter. It scored an all-time-high quarterly revenue of Rs55 billion during 1QCY21, at a brisk growth of 12 percent year-on-year. The Average Revenue per User (ARPU) was marginally down at Rs246 per month, amid “overall softness in revenues due to the impact of Covid-19”. However, Jazz is actively monetizing its data services, as revenues from 29 million 4G users reached Rs20 billion in the quarter (28% YoY growth).

Telenor Pakistan had a rather quiet quarter, as its topline grew by just 2 percent year-on-year to Rs26 billion in the Jan-Mar 2021 period under review. An indication of a sector-wide problem, the second-ranked operator is also struggling with growing its ARPU, which also came in marginally lower at Rs174 per month in the quarter. The management’s emphasis also remains on growing data revenues, but it appears that there is room for higher growth in data users.

Ufone (Pak Telecom Mobile Limited, a subsidiary of the PTCL Group) also had a steady quarter. As per latest quarterly report of the PTCL Group, “cellular and other wireless services” had reached Rs12.8 billion in the quarter, reflecting a nominal growth of 1 percent year-on-year. As per the management, Ufone revenues have “remained stable despite stiff competition in the cellular market”. Ufone had 10.6 million mobile broadband (3G and 4G) subscribers as of March 2021, according to PTA sector data.

The EBITDA margin has seen some erosion for the operators, as rising energy prices and general increase in operations and maintenance costs weighed heavier. On this key metric, Telenor Pakistan was leading with an EBITDA margin at 53 percent of revenues (down 2.4 percentage points over 1QCY20). Jazz managed an EBITDA margin of 45 percent in the quarter (down 1.5 percentage points). As for Ufone, it is no longer making operating losses, and its net loss has narrowed recently.

Jazz seems to have done better than the rest of the operators, a reflection of its bigger “scale” after amalgamation of Warid Telecom a few years ago and the ensuing operational synergies. But it pays to spend in this sector. Capital spending by Jazz amounted to Rs15 billion (or 27% of revenues) during 1QCY21 (up 38% YoY), whereas Telenor Pakistan’s capex stood at Rs6 billion (or 23% of revenues) in the quarter (up 2% YoY). Operators need more investment in 4G networks to improve their ARPU.

While government is planning a spectrum auction next month, the situation is abysmal on investment front. As per SBP data, FDI in the telecoms sector was a net outflow of $63 million during 9MFY21, a sharp reversal from decent net inflows of $465 million during 9MFY20. The upcoming budget is an opportunity for the government to restore investor confidence by providing some relief under long-sought demands of lower taxes and duties on broadband usage, smartphone imports and network equipment.