What is Pakistan’s telecommuni cations future?

By Ahtasam Ahmad

Over the past few years, Pakistan’s Telecom industry has shown extraordinary growth on the back of an increased demand for connectivity as businesses and consumers spend more and more time digitally. Particularly, after Covid-19 pandemic, the country’s IT sector has picked up which has further propelled the demand for telecom services. Profit sat down with Irfan Wahab, the CEO of Telenor, to discuss the issues, opportunities and developments of the telecom sector and Telenor. The quality of service provided by the Mobile Service Operators in Pakistan is not upto the global standards. It is something that is acknowledged by all stakeholders. There is a perception that the big multinationals are just sticking around because they have too much skin in the game. “To be honest, we’re (Telenor) very proud of being part of this journey of telecom revolution in Pakistan. One can see that between 2004-2011 the Telecom sector brought in billions of dollars of FDIs, at times around 60% of the total figure. As a result there was an infrastructure and ecosystem developed for the industry including the nurturing of suitable IT talent” says Irfan. “But we see much bigger Opportunities. Telecom, just like any other industry, is evolving and transforming. If we look at global research, it is evident that returns on invested capital are squeezed or are squeezing for the industry. Reason is the sector being a very capital intensive one. Every few years the technology changes and then companies have to invest in that in addition to investing in increasing the network and capacity. Therefore, the cost of doing business for us is very high” he added.

He quoted the Murree snow blizzard incident as an example, saying that “When the catastrophe hit the city it resulted in us having to rush to restore our network as the power was cut off. Our people were actually carrying fuel to the mountaintop on foot, in their bags on their heads, basically walking through the snow to reach tower sites to make sure that service was restored.”

He further elaborated saying “in a country where there are infrastructural problems like electricity, stability and security challenges, fuel issues, the cost of operation will inevitably be very high.

Therefore, to run a sustainable business, these issues need to be addressed. You cannot change the quality of service just by having the regulatory direction change.

You need to really see how you create an investment friendly business environment. So, more companies can invest and because of (increased) competition, customers will automatically have more choices.”

The capital intensive nature of the Telecommunication industry leads to a bona fide problem of resource duplication and inefficiencies which ultimately lead to lower returns on investment. A solution to this problem, quoted by many industry experts, is increased synergies. The sector should be sharing infrastructure like tower sites, so that the industry might be optimized.

As per a GSMA report, Pakistan: progressing towards a fully fledged digital economy, Tower tenancy in the country is still significantly lower than the global average, with more than 60% of mobile operators’ towers within close proximity; operators should take advantage of the policy framework to share assets, which as per estimates could cut opex by 35–55%.

Addressing this issue, Irfan said, “When we were building most of our sites back in 2004-2008 period, there were no tower sharing

Source: Pakistan Telecommunication Authority

companies. Therefore, we had to build our own infrastructure but now we are sharing and we are sharing quite substantial numbers.

However, I suggest we should move on from passive sharing to more active sharing like in other countries where regulators and the policymakers are moved to the point that they allow for electronics and frequencies to be shared. Because that’s where the biggest synergy lies.”

“Unfortunately, in our country, we’re still waiting for a framework that was promised more than five years ago in the Policy.” He added

However, he also acknowledged the shortcomings from the industry’s side, “Looking back, the industry is also responsible. Initially when we were creating the infrastructure, there was not much sharing but now we need to focus, as all of us are responsible for shaping up the next decade of digital Pakistan.”

As per PACRA’s Telecommunication sector case study, 2021, Pakistan has a relatively low Average Revenue Per User (ARPU) and predominantly a prepaid subscription market where subscribers enjoy the flexibility of altering their usage patterns in response to any price fluctuations introduced by operators.

The ARPU is on a declining trend over the years as the customers adjust for inflationary pressures, while the taxation on the industry has also increased partly because of the government’s IMF ambitions. We asked Telenor’s Head honcho that amongst all the growing pressures, is the Telecommunication business in general and Mobile services business in particular, a sustainable venture?

“Let’s be very clear, we want more predictability on the direction of taxes and how they’re evolved, and we want a level playing field in regards to taxes.

The taxes were reduced in budget 2021 and there was a direction given that it would reduce further in 2022. But when we entered the new year, the regime was revised with increased taxation for the customers and that changed the pattern going forward which impacts business predictability.

Secondly, if we consider the sustainability of business, our key cost elements are in U.S. dollars which is insane for a country like ours. It made sense back in 2004 when we entered into the market as an international investor, but now we are a player here. We are earning here. Our customers are paying us in rupees.

You cannot pay your annual license fees and your spectrum fees in dollars, specially, in an environment, where the dollar has rapidly devalued. All our equipment which we need to procure has to come from international markets in dollars. So if we could buy, say, ten base stations earlier, now we can only afford eight because of that.”

The latest spectrum auction held in September 2021 failed badly as only one player participated (State owned Ufone). The government which aimed to raise $1 Billion from the auction only managed to rack in $279 Million. The industry cited pricing as a primary reason for not participating in the auction actively. Also, the market players were vocal about lack of inclusivity in the process of decision making by the regulator.

“I firmly believe that this kind of thing should be discussed. There has to be a consultative process. Aklay Kul koi bhi nhi ho sakta. So we need to engage with each other, hear each other’s perspectives and find out a converging point based on the ground realities. One of the roles of the regulator is also to protect the investors and to make sure they have a decent return. To ensure sustainability of the businesses. So I hope we hear each other out, otherwise the results won’t be much different.” Irfan said.

Profit in its earlier addition covered the problem of lack of infrastructure to grow broadband penetration both mobile and fixed. We also highlighted the lack of a policy framework on the matter.

Commenting on the Broadband Policy, Ifran said, “Our expectation is that everything cannot be accepted. But at least, the perspective of the industry should be heard and where possible, rectifications should be made because we all have a common objective.

In the case of the concerned policy (Draft Broadband Policy 2021), even objectives weren’t defined. I firmly believe that policy frameworks are the starting point of bringing in investments to the industry and if that isn’t established properly, then what would be the roadmap for the industry going forward?”

He further added, “So I hope that sanity prevails, and again an industry wide engagement should take place.”

Last year, in December, a delegation of the US-based global satellite broadband provider, Starlink, had called on the Minister of IT & Telecom to discuss the policy and operation model. If such companies open shop in Pakistan, the existing Telecom market will be disrupted as a big chunk of their Mobile Broadband customers will shift to the presumably better service. So are players like Telenor ready for this challenge?

“I believe in competition. I believe in choices for customers, we welcome any other intervention which helps us as a country and as a society. More options means an improvement in services. I personally welcome that increased competition. It has to make sense obviously for

the country and for our consumers so I’ll just say that.” Irfan replied.

Rumors were making rounds that Telenor is looking to exit the market which were later denied by the company. However, such rumors are not new for the market as the experts have regularly emphasised that the Industry, as of now, is crowded and some players will have to leave or merge eventually.

“I will only say mergers and consolidations are a regular feature of any industry and Telecom is no different. There’s a huge degree of mergers and consolidation which has happened in every major market. When I was working in the US, there were 15-16 GSM operators and now there are only three.

Also, look at our neighboring countries like China, a market which has so many resources. They are adamant on not rolling out more than 2 networks on 5G. So you need scale in this industry and that’s why I think consolidation is important for any healthy market.” Irfan said.

He further added, “If a country like the US agrees on three operators and they feel that three is the right size or even if you look at much larger markets, they have settled with a number less than four, Why should Pakistan be an exception?”

In the last few years, Telenor Microfinance Bank, which is also the force behind Easypaisa , has made losses mainly attributed to provisions set aside for credit irregularities which also include fraud. So what has the Institution learned from this?

“I think, we as any business need to really acknowledge the ground realities. Ethics and code of conduct are fundamental for businesses and individuals and we need to be aware of that. However, this is all behind us. Now, it’s (Telenor Bank) position is much healthier. So we’re able to actually address some of the challenges which we see coming.” Irfan said.

“Of course we take the learning of all our experiences. So there’s much better controls, much tighter controls, background checks, etc which are used both at the front end as well as the back end to make sure that those things don’t happen at that magnitude again.” He added.

When the Pandemic started, the State Bank issued a circular instructing Banks to abolish IBFT charges to promote digital payments. This however, was one of the main earning points for Mobile Financial Service Operators like EasyPaisa. Coupled with the market opening up to FinTechs and Commercial Banks venturing into digital banking space, EasyPaisa and similar services are now challenged for the dominance of Pakistan’s Mobile Banking Market.

Declining income of Telenor Bank from Branchless Banking (EasyPaisa)

“My point is sustainability of any business is important. In the case of Easypaisa there is a different regulator.

Roughly 30% of people have conventional bank accounts. These people can transfer money from their bank account and that should be free. That should be frictionless, that’s OK.

But on the other side there are 70% of Pakistanis who don’t have access to alternate bank accounts. Their choice is only to go to the Mobile financial service retailers out there and deposit money (cash in). The retailer has to manage that cash, deal with that cash and there’s a cost associated with it.

That means the retailer will want some incentive for the service and that incentive we should be allowed to charge. We have to build that long tail of retailers, we have to manage cash, there’s a cost of servicing, there’s a cost of cash handling.” Irfan commented.

He further added, “So there we feel that just abolishing IBFT charges altogether perhaps is not a long term sustainable strategy, we need to really understand the long term sustainability of the entire sector holistically.”

“The market opening up for competition, at this stage is a good thing, again we welcome the competition. We feel that the market size today is still very limited. More players are investing in building the use cases. Creating awareness will only help because the sector has a long way to go.

As more players enter the market with the introduction of additional banking licenses, whether it’s EMI license, whether it’s Raast as a super app, I think these are all good steps because they will help us build a more financially inclusive society. As such, we still have a long time to go in this phase and then over time, obviously we will see if there’s a need for any consolidation.”

So we asked Irfan that if the market is such a lucrative one, then why is Telenor looking to sell its stake in the Telenor Bank?

“These are two different things. We believe that there’s a big market size. There’s a big opportunity and then comes our own strategy.

Telenor itself is a telecom player. When we came to Pakistan we saw an opportunity to build this fantastic brand which is a household name. But then we saw a lot of synergies with other telecoms.

Now we want to focus more on our core business, because we see so many opportunities there. However, it doesn’t mean that there are no new opportunities in the mobile financial services market, this is more of our own decision or a strategy driven decision.” He answered.

So what was the thought behind entering the mobile financial services market in the first place, given that other market players were reluctant to partner with Tameer bank’s (former name of Telenor Bank) idea of EasyPaisa.

“As I mentioned earlier, in our market, in our own breeding space, we need to see where other opportunities are. So this particular opportunity, no one in Europe or America could see as majority there was banked. But we saw that at that time (2008-9) about 85% of Pakistan’s population was unbanked.

We had some global examples like Safaricom in Africa who were doing something similar and we asked ourselves a question: why can’t we replicate the same model or a similar model in Pakistan?

And so that’s how the EasyPaisa journey started to it now being a category product”

The innovation by the big players of the Telecommunication Industry has stagnated a bit given that new startups are penetrating the market with novel ideas and technologies. This might be indicative of a lack of motivation from the side of some large multinationals to step-up their game.

However, Irfan disagreed with this

Sources: Pakistan Telecommunication Authority, PACRA’s Telecommunication sector case study, 2021

statement. He said, “So I will give a couple of examples. Our product Kushal Zamidar is one example. We have digitized the whole experience for farmers with the (easypaisa) application. We are expanding more and more in the (agriculture) sector, like the service of video chat with the agriculture expert is also made available to a farmer.

Recently, Telenor launched Pakistan’s first (at least in the telco space) ESports platform. We feel that’s a huge segment, especially after Covid It became even more evident and Global forecasts also support these assumptions.”

He further added, “In technology space, we are the first one to have everything internally, our own network which is virtualized. This has given us huge efficiencies. It’s all the cloud and the data you’re managing from Pakistan. We are the first Company actually in Pakistan to do that.

Similarly we are offering services in IoT and cloud cover, based out of Connexion, which is our global company out of Sweden and one of the largest IoT platforms.

In Pakistan, we have deployed tens of thousands IoT solutions primarily in energy management, vehicle tracking and similar solutions. We work with a lot of banks, have been working with energy companies and FMCG merchants like Nestle, Unilever etc.

In the IoT space, our B2B solutions are cloud based and we are selling those cloud solutions to our customers as well. So as the market evolves, you will see more and more shouting around it as well.

Pakistan has seen an upsurge in digital and data driven crimes in recent years. Not only has the country gone through multiple instances of ATM fraud and skimming scams, the proliferation of personal data theft, leakage and other such cybercrimes against individuals has gone unchecked. This happens because organisations collect and tabulate personal data of their consumers without adequate provisions for information security, and when their hit-and-miss security is breached, that personal data is leaked.

“I totally agree, won’t comment on the industry, but I can tell you about what we are doing. So now there are two aspects, one is information security.

Obviously, we need to acknowledge that as the digital footprint expands so will our exposure to this risk.

But we have made huge investments in making sure that we have state of the art information security architecture and systems monitoring. Then there are some audit service learning as well which can solve some problems, but it’s a journey. It doesn’t mean that we can assure 100% protection, as threats are also evolving every day, so that means that we need to be on our toes.” said Irfan.

He further added, “When it comes to privacy. Yes, there are some discussions happening on the draft of the privacy policy. We’ve adopted a higher moral ground when it comes to the privacy framework.

We will always be above the minimum local regulation because we are a global company and we believe in data privacy. While we are also working with the relevant policymakers and regulators.

There are some discussions about data protection policy, but I cannot comment because the ministry is the right forum to check with. But there are some discussions for sure.”

Where do you see the industry as a whole and Telenor going forward?

“I remain very positive and optimistic about the opportunities. I firmly believe that telecom is a sector of sectors. I firmly believe that if we have to progress as a country. Our success actually relies on how successfully we are able to evolve as a Telecoms. We have done it one in terms of FDI. We are ready to take the responsibility again, but what all we are asking is some support in terms of forward looking policy, progressive policy and predictability.

I would also like to make a point that in order to evolve as a digital economy, more spectrum should be made available. Why have we only deployed one-fourth of the spectrum compared to Europe or Saudi Arabia or New Zealand? Each country has a similar number of bandwidth airwaves.

Why are we saving this? I mean, this is not contributing to the national exchequer. It’s just like a melting ice business. We need to fix some of these things, work together and then I remain very positive that we will be the foundation of economic growth which will revolve around the knowledge economy.

The digital economy, it’s a proven thing, will generate most of the wealth in the coming decades. ICT sector exports, young freelancers, startups all have to rely on this and we acknowledge the added responsibility and are committed to that.” n

Declining income of Telenor Bank from Branchless Banking (EasyPaisa)

AreYouShiza.io raises $23 million dollars for app that determines whether an individual Shiza

New Karachi-based startup AreYouShiza.io has raised an impressive $23 million dollars for an app that determines whether any individual goes by the name Shiza. “It’s a simple, basic problem and we’re a simple, basic app,” said founder Zia Haider. “Of late, there has been much media coverage about how sometimes people can get it wrong.” “Our app helps to change that,” he said. “And we do it in a really simple manner,” he said, referring to his app’s award-winning simple User Interface, which is just a screen that has the text, “Are you Shiza?” written on it and “Yes” and “No” buttons underneath. Users simple give their cellphones to individuals whose Shizahood they want to ascertain, who then fill out the immensely simple form.

“Single screen app, just like Google.com,” said a beaming CTO Hajira Khan.

“Yes, some people are asking why there was a need for a tech disrupt here and why people couldn’t just ask whether someone was Shiza but, as some recently unearthed footage shows, some people are not able to do that.”