In a follow-up to the apex court’s restoration of upfront taxes on mobile recharge, it is worth exploring how the move could affect the cellular operators. (For a background, read: “Top-up to lose,” published April 29, 2019). An analysis of recent data show that operators did rather well in the period when the SC’s May 2018 order to suspend telco-specific taxes was in effect.

Now, it will be a stretch to link telcos’ performance to a court ruling alone. However, that fiscal relief, which was seemingly meant entirely for ordinary customers, also helped operators, who suddenly started pocketing more of the customers’ re-charge value. Let’s have a look under the hood and see how the operators have done in the period under review.

A glance at the official PTA data shows that operators added over 10 million subscriptions between June 2018 and March 2019 – the period of tax suspension. Subscription growth was concentrated in the next-generation mobile services (3G & 4G), which crossed 66 million subs by March end 2019. Zong, Jazz and Telenor added millions more 4G subscribers, while Ufone upped its 3G subscription tally in the period.

So the tax move didn’t hurt new subscriber acquisition – in fact, it slightly accelerated the process, compared to prior periods. But subscription numbers alone do not tell the whole story. What those subscriptions are worth is the question. Comparison of financial performance in Jan-Mar 2019 (when tax was suspended) with Jan-Mar 2018 (no tax suspension) somewhat helps in identifying the likely impact of tax suspension.

Let’s take Ufone, which is the cellular arm of the PTCL Group (PSX: PTC). The operator has exhibited double-digit yearly growth in its top-line for the quarter ended March 31, 2019. (Dedicated Ufone results are not published by the group). A run of top-line growth in recent quarters has helped Ufone return to operating profits; at this pace, the last-ranked 3G operator may start returning net profits in the coming quarters. (For more, read “PTC: buoyed by subsidiaries,” published April 18, 2019).

Then there is Telenor Pakistan, whose recent performance can be found in its parent Telenor Group’s latest quarterly report that was published earlier this week. Telenor Pakistan’s operating profit stood at 525 million Norwegian Krones (NOK) in 1QCY19, up roughly 40 percent compared to the Jan-Mar 2018 quarter. Adjusted for PKR fluctuations, Telenor Pakistan’s Ebitda grew a healthy 14 percent in 1QCY19.

It is significant that Telenor recorded operating profitability growth in NOK terms despite a weakening PKR and higher operating expenses on account of energy prices and costs of maintaining a growing network. The operator managed to significantly grow its PKR top-line in the period under review – thanks to i) subscriptions rising 4 percent year-on-year to reach 44.3 million by March-end and ii) the average revenue per user (ARPU) growing 6 percent year-on-year to reach Rs209.

While the going so far looks smooth, the rest of 2019 may go differently for telcos. With steep fiscal adjustments in the offing, operating costs are set to grow as utility/fuel prices rise and set off inflationary pressures in the rest of the economy. More PKR weakness will further erode USD/NOK/AED margins for telco sponsors. In this context, imposing further taxes on telecom users in the budget may mean less money for users to spend on airtime/Internet as well as less money for operators to earn a return on.