It’s a tough time to be a telco in Pakistan. Unless the top-line grows in double digits, operating profits would be hit hard by rising cost of doing business. So is the case with Telenor Pakistan. As per latest half-yearly results announced by its parent, the Telenor Group, a couple of days back, Telenor Pakistan also suffered from the deepening economic slowdown, contributing little to group financials’ growth.

The results are reported in Norwegian Krones (NOK) terms, and there is across the board decline in all key indicators like core revenues (subscription and traffic), average revenue per user (ARPU), Ebitda and operating profits. While most of the decline in NOK terms is due to rupee depreciation, for the sake of local business analysis, the NOK figures are converted into rupee terms.

For the first half ended June 30, 2019, Telenor Pakistan managed to grow its top-line by 3.4 percent year-on-year to Rs55.2 billion. In real terms, adjusted for inflation, this is negative growth. The main revenue source – subscription and traffic revenues – grew by about 7 percent, thanks to growth in subscriptions. Pulling the top-line down were inter-connected and non-mobile services segments, which declined nominally.

Critically, the company’s monthly ARPU did not grow in rupee terms. It stood at Rs199 per month in 1HCY19, a double-digit decline in real terms from Rs201 per month back in 1HCY18. This indicator would likely remain stable or see a marginal decline in coming months, unless prepaid subscribers are made to pay more for their 3G and 4G data plans.

Meanwhile, the firm’s operating expenditures increased by 10 percent year-on-year to reach Rs21 billion. In Pakistan, higher electricity tariffs and rising prices of petrol and other operating inputs take a direct toll on a Telco’s operating budget. However, Telenor Pakistan did well to post an 8 percent yearly growth in its operating profits despite a lower growth in top-line, suggesting that cost of services (core costs) were kept in check.

In the end, thanks to higher opex and lower revenues, the Ebitda margin came down to 46.7 percent, from 49.4 percent in 1HCY18. The firm is trying to bring in more operational efficiency by investing in network expansion and cell site upgrades. Telenor Pakistan spent roughly Rs13.5 billion on capex in 1HCY19, almost double the Rs7 billion spent in the same period last year.

Going forward, the firm could use have better monetization of its data services through price revisions, but it will be risky in a price-conscious market. The loss of 10 percent “service fee” is already a setback for ARPU. And the top-line cannot grow in double digits through subscription growth alone. High energy costs along with rupee deprecation will keep the Ebitda margin in check. To achieve an Ebitda growth in NOK terms, cost-cutting drives are in order for operating expenditures.