The market leader among mobile network operators (MNO) continued its double-digit topline growth run in early 2023. Based on the Jan-Mar 2023 quarterly financials announced by its parent Veon last week, Pakistan Mobile Communications Limited (‘Jazz’) recorded 16 percent year-on-year increase in its ‘total revenue’ to Rs69.7 billion. At this pace, Jazz may exceed by this CY23-end the Rs262 billion topline it had achieved in CY22. The operating environment, however, is unlikely to get easier anytime soon.

The leading operator’s core ‘service revenue’ – which grew 17 percent year-on-year to reach Rs63.6 billion in 1QCY23 – continued to be supported by the growth in ‘data’ services. The MNO also took a price increase in the review period. The quarter’s data revenue rose 16 percent year-on-year to Rs28.6 billion, on the back of 17 percent yearly growth in 4G users to 43 million. The data revenue growth helped push the average revenue-per-user (ARPU) metric higher by 17 percent year-on-year to Rs285 per month.

At a time when Pakistan’s business climate has become increasingly challenging for telecoms (as well as for other sectors), the quest to preserve financial health and come out of this prolonged storm relatively unscathed is of paramount importance. Veon noted in its latest report that Jazz continued to “drive industry growth and gain market share despite a negative macroeconomic environment with 47% YoY currency depreciation, 8.3 p.p. YoY increase in interest rates and average inflation at c.31.5% in 1Q23”.

Due to higher spending growth relative to the topline growth, the EBITDA (earnings before interest, taxes, depreciation and amortization) had a lower (but still significant) increase of 12 percent year-on-year to reach Rs31.5 billion in 1QCY23. As a result, EBITDA margin (as % of total revenue) stood at 45.2 percent in the analysis period, showing a decline of 160 basis points relative to the same period last year.

While the topline growth and operational efficiencies have been a source of financial strength for the cellular behemoth, there appears to be some weakness gradually setting in. The 17 percent year-on-year growth rate in data revenue during 1QCY23 marked another quarter with declining growth in this key metric. It needs to improve for topline to perform better. Jazz data revenue equated 45 percent of core ‘service revenue’ – almost the same as in 1QCY22. This share going up rests on higher investments.

However, the capital spending nosedived at Jazz in early 2023. During 1QCY23, the capex stood at Rs3.7 billion, showing a sharp decline of 75 percent year-on-year. Recall that total CY22 capital expenditures had stayed almost flat at Rs52 billion. While Veon has attributed the 1QCY23 capex slump to “the regulator’s currency control measures”, it appears that downbeat investor sentiment and macroeconomic turbulence also dampened the case for maintaining even last year’s capital investments.