The telecom FDI numbers are falling fast. As per SBP data, there was a net outflow of about $150 million in 7MFY19, compared to net outflow of $16 million in same period last year. The telecom industry needs a new reason to invest. It is mostly dominated by the mobile network operators (MNOs), who pour hundreds of millions of dollars only when a major license auction takes place. Meanwhile, a segment that can provide investment impetus but is in need of policy focus is “fixed broadband” (DSL Internet).

As per PTA data, DSL subscriptions were 1.6 million as of January 2019. For assumption’s sake, if each household is to have one fixed broadband connection, and given there are over 30 million households in Pakistan, the DSL penetration currently stands at a mere 5 percent of households – lagging the region. A widely-accepted measure of DSL density – fixed broadband subscriptions per 100 inhabitants – also shows Pakistan lagging behind the immediate region and the developing world at large (see the chart).

Throughout the last decade, just over a million new subscriptions were added by Pakistan’s fixed broadband players. From just 1 percent of households in 2009, DSL is present now in 5 percent of households. In a recent interview, the outgoing PTCL President told BR Research that the DSL penetration level could easily be taken to 20 percent of households. But is it really that easy?

As per telecom industry sources, customer-demand is not an issue in the way of expanding the usage of fixed broadband. It is the supply side that is constraining the growth of this segment. A mix of factors has limited the growth of DSL in the last decade, despite the fact that DSL is a relatively more reliable and high-quality source of Internet, telephony and television (triple play).

First is the policy focus. To grow Internet users in this low-income market, telecom authorities naturally tilted towards MNOs who have been deploying mobile broadband (3G & 4G) services in the country since the summer of 2014. Being “mobile” and “accessible,” the 3G and 4G networks continue to enjoy popularity (as per PTA data, there were 63 mn subscriptions as of Jan. 2019). The mobile broadband operators have also been selling dongles, which have further hurt the DSL penetration.

Second is the lingering set of issues on the supply side of DSL. In other developing countries, it has been seen that households tend to prefer a fixed broadband connection at home, despite having 3G and 4G subscriptions, because DSL is cheaper and offers multiple nodes at a higher speed. But in Pakistan, the subpar quality of the DSL players’ fixed infrastructure has provided an open field for wireless carriers.

And third, fixing the fixed infrastructure is a mammoth exercise. It not only needs a large capex spending sustained over several years, it is a logistical and human challenge as well. On top of that, persistent issues with the “right of way” – in terms of gaining affordable access to upgrading a telecom licensee’s fixed infrastructure in any area across the country – make time and cost overruns a costly norm for the industry.

There is a realization in the industry to fix those issues. PTCL, being the market leader, has a lot riding on improving its fixed network. Under the outgoing CEO, a massive Network Transformation Programme (NTP) was undertaken, to fix the quality of network at top 100 exchanges across the country. Latest company results show that NTP exchanges have delivered double growth for DSL compared to non-NTP exchanges. Other operators have also been seen expanding their network, albeit on a limited scale.

The federal government must work with the provincial and local governments to make it easier for the fixed broadband providers to lay down new fiber and copper lines and upgrade the existing ones. More, it should incentivize the provision of quality fixed broadband. Because it is this segment which can supply better and reliable connectivity, which is essential for corporate businesses, especially in the fields of software development, business process outsourcing and call centers.