Pakistan: Birth Of A Telecom Revolution

Its newly deregulated sector is taking off -- and may lift the economy

For years, Pakistan's telecom sector has plodded along, seemingly stuck in the mid-20th century. From 2.1 phones per 100 Pakistanis in 1999, the number of fixed lines has crept up to just 2.9 per 100 today. And while cellular has been more dynamic, only about 5% of Pakistanis have cell phones.

All that is about to change. The government is taking Pakistan's telecom future seriously and has deregulated the sector. As a result, scores of new private entrants are gearing up to provide service, and since June cellular subscriptions have shot up by 56%, to 7 million -- making Pakistan one of the fastest-growing cellular markets. Within the next 18 months the number of phone lines -- both fixed and mobile -- in Pakistan is expected to double. "It's an absolute revolution," says Awais Ahmed Khan Leghari, the telecommunications minister.

Companies from as far away as Norway have been tempted by Pakistan and its population of 140 million. Since July, 2003, regulators have handed out more than 200 fixed, mobile, and long-distance licenses to some 50 companies. Although there will surely be a shakeout with so many new entrants, officials believe operators will pour as much as $8 billion into networks and equipment over the next five years, compared with just $1.5 billion since 1999. Karachi-based TeleCard Ltd., for instance, in January launched a $200 million fixed-wireless network, and expects to have 2 million subscribers within three years. "It will be easy for us to pick up all the pent-up demand," says TeleCard's head of strategic planning, Shams ul Arfeen.

Adding to the competition will be a privatized Pakistan Telecommunications Co., the state-controlled carrier that had a monopoly until last year. After four years of often rancorous discussion, Islamabad in November finally settled on a plan to sell off a controlling 26% stake to investors by mid-2005. Current management is already gearing up to take on the new rivals. The company plans to add 2.4 million lines by June, increasing its capacity by 50%. And over the past year, PTCL has cut rates twice, though new entrants have proposed prices that are even lower. "PTCL is fully alive to the challenge," says M. Mashkoor Hussain, who oversees marketing at the carrier.


The real action, though, is likely to be in cellular. This year the number of mobile users outstripped fixed-line subscribers for the first time, and cellular is sure to make further gains as two new operators join the existing four. In April, Pakistan awarded licenses to Norway's Telenor (TELN ) and Al-Warid Group of the United Arab Emirates. The two new entrants are expected to start operations by mid-year.

The danger is that with so many licenses, no one will be able to make any money. "While we're investing in a big way, these other guys just seem to be playing around and getting in the way," says an exec at one of the best-funded of the new entrants. The major players are also worried that the Pakistan Telecommunication Authority, which regulates the sector, lacks the expertise to deal with conflicts among the legions of new competitors. "Issues will come up and the regulator needs to be prepared for this beforehand," says Leghari. To do so, regulators are studying how other countries have handled deregulation.

The real winners, the government hopes, will be Pakistani consumers and businesses. Officials expect tariffs to come down and service quality to improve as competition heats up. The changes may also give the broader economy a much-needed boost. The government expects the expansion to create 370,000 jobs as telecom's share of gross domestic product rises from 1.7% to 3% by mid-2005. When the transformation is over, Pakistan telecom will be firmly rooted in the 21st century.

By Naween A. Mangi in Karachi

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