Pakistan: 5 (really 6 [or 7?]) becomes 4 (or 5 or 6?)?

China Mobile: keen to drive consolidation of Pakistan's mobile market?

With a population of around 173 million and a mobile penetration rate of just 55.01% (according to WCIS), Pakistan would appear to be an attractive place to be for multinational telecoms groups. Some very significant individuals, however, have recently expressed the belief that market conditions are too tough to support the current number of mobile operators competing in the country. A specific suggestion about a possible merger between operators has also surfaced in the last few days.

According to Pakistani news portal Dawn.com, Telenor is considering selling its operation in Pakistan to China Mobile, which already has a presence in the market in the form of the MNO Zong. The Dawn.com article contends that the Norway-headquartered international telcoms group has been deliberating a withdrawal from Pakistan for some time because of "security issues".

Shortly after this report surfaced, Reuters was carrying a 'no comment'/denial from Telenor. The Reuters snippet notes that ARPU at Telenor Pakistan was the lowest of all its operations around Europe and Asia but that the number of subscribers grew by nearly 20% year-on-year. Why, then, would the Norwegian group consider this move?

Let me put forward a possibly outlandish theory, which also relates to security concerns - but security concerns in India rather than in neighbouring Pakistan.

A few days ago, the Economic Times ran an article about how the Indian Government has withdrawn approval for ByCell, a company "promoted by Russian businessmen", to offer telecoms services in the country. The company had planned to set up as a GSM mobile operator in areas including Assam, Bihar, Orissa and West Bengal, but seems to have endured a long struggle to get the green light to do so. As far as I can make out from this and other articles, the Indian Foreign Investment Permission Board (FIPB) has been concerned by the security implications of ByCell's ownership structure and its sources of funding for some time.

The same Economic Times piece also indicates that the FIPB is uncomfortable with the idea of Telenor increasing its stake (currently 49%) in cellco Unitech Wireless. Again, "security concerns" are the cause of the problem - in this case to do with the fact that Telenor operates in Pakistan, with which India has long had an uneasy relationship.

This, then, is my possibly highly simplistic and implausible theory: Telenor sees India as a far richer prize than Pakistan and therefore considers selling its Pakistani operation to China Mobile in order to pave the way for establishing a full controlling stake in Unitech Wireless. Crazy? Maybe. Or maybe I'm onto something. This is just a wild stab in the dark, so who knows?

Either way, China Mobile certainly seems keen to accelerate the growth of its share of Pakistan's mobile subs (currently estimated at 7.20% by WCIS) by acquiring a rival player and consolidating the market. Well, certainly if the Dawn.com article is to be believed. This contends that "before the merger talks with the Telenor group... China Mobile had offered to buy the management shares of Warid Telecom Pakistan" but could not settle on an acceptable price.

The article also claims that Pakistan's five leading mobile operators - Mobilink, Telenor Pakistan, Ufone, Warid Telecom and China Mobile's Zong - have reportedly all told the Pakistan Telecommunication Authority (PTA) that there is room for only four players. The further claim is made that a PTA official has said that by 2010 the country may indeed have just four mobile operators.

I have no idea of the source of this assertion, but it does now seem clear that Telenor Pakistan, at least, feels that the market is currently split too many ways. According to Mehtab Haider of the Pakistani newspaper the News, writing today, the cellco's CEO Jon Eddy Abdullah predicts market consolidation. In an interview with the News, Abdullah said Pakistan had the lowest call rates in the world and a continuous reduction in charges, as seen in the past, to attract customers was no longer viable. "This means that in the long term, having five operators in a market with intense competition and low prices may not remain feasible anymore," said Abdullah. "This can result in anything from mergers and acquisitions to [players] dropping out of the market," he added.

Abdullah mentioned two other significant challenges faced by operators in Pakistan - double-digit inflation affecting consumers' ability to afford services and the "overall law and order situation" limiting network expansion, restricting maintenance activity, increasing security-related expenses and dampening investor confidence.

The security situation in the country certainly does seem to present challenges for cellcos. Orascom Telecom-owned Mobilink, for example, has suffered damage to its network due the military opetation in Swat and Buner, where the army has been fighting with militant insurgents.

The Telenor Pakistan CEO was a little more upbeat about recent tax measures made by the country's Government - lower General Sales Tax; SIM activation tax slashed by 50%; the elimination of regulatory duty on handsets; lower customs duty on imported handsets.

"Although we consider these tax measures positive," said Abdullah, "we feel that there is more to be done. We are all aware of the impact of high tax rates on the industry, which depress growth in subscriber numbers, divert investments and ultimately discourage mobile usage."

"We also understand that when this industry flourishes," he continued, "it helps the economy by attracting foreign direct investment, contributing heavily to the national exchequer, generating employment and increasing productivity of almost every sector. Therefore, it is imperative that the taxation structure for the mobile industry is rationalised further."

Another telecoms industry leader seeminly keen to see cellular sector consolidation is Walid Irshaid, President and CEO of PTCL, Pakistan's incumbent wireline operator, in which the UAE's Etisalat owns a minority stake (but with management control), and of which MNO Ufone is a wholly owned subsidiary.

Farhan Sharif of Bloomberg, writing late last month, states that PTCL is in talks with several domestic companies to make acquisitions this year. "We’re already in discussions with various carriers and operators," Walid Irshaid said in an interview with Bloomberg News on June 16th during the CommunicAsia 2009 conference in Singapore. "The market must surely consolidate", continued Irsaid because he feels that Pakistan doesn’t need more than three GSM operators. He declined to name the companies with which he is in talks.

Between the Zong-Telenor takeover rumour and the comments of the CEOs quoted here, there does seem to be a body of evidence to suggest Pakistan's mobile market is set for consolidation.

So, how many cellcos would that leave? Thus far, this article has mentioned five currently in operation. There is, however, at least one more doing business in the country (which is why this article has a title that looks like a confusing equation).

One of these is rather unusual - the Special Communication Organisation (SCO), set up by the Government of Pakistan to provide services in Pakistan-occupied Kashmir and Northern Areas. According to one article I found, Pakistani army officers, both serving and retired, hold critical positions in the SCO.

One other cellco confuses me. Instaphone, a US TDMA network operator, was once part-owned by Millicom International Cellular (as was Paktel - sold to China Mobile and rebranded Zong). A slew of articles going back at least as far as January 2008 suggest the MNO had its licence terminated some time ago by the PTA for failing to make outstanding payments. However, the operator's website remains live and it still seemed to be fighting the PTA as recently as April this year. According to WCIS, the US TDMA operator currently has around 50,000 subs on its network - a market share of just 0.05%.

Pakistan: 5 (really 6 [or 7?]) becomes 4 (or 5 or 6?)?

Bridging the digital divide between the provinces and regions of Pakistan

Pakistan is the world's sixth most populous country. It is also one which features regularly in TV news broadcasts that remind us of the country's strategic importance - as a state armed with nuclear weapons; as a country whose long history of troubled relations with neighbouring India took a new turn after the Mumbai terrorist attacks of November 2008; as a country with a porous border with troubled Afghanistan.

The country, however, has not featured very heavily here at DevelopingTelecomsWatch - before today, just five of the our first 100 stories even mention Pakistan. Today's short essay will, I hope, go some way towards making up for that glaring omission.

That I was able to round up a few interesting recent stories from the country is due mainly to my knowing of a very useful blog/news site - TelecomPK.net, set up and maintained by Babar Bhatti, a a senior IT professional now based in Dallas, Texas. Most of the news items, articles and reports referenced here today came to my attention via Babar's site and his tweets.

One item I found interesting was written by Babar himself, and concerns how the takeup of mobile telephony in Pakistan has been very uneven across the country's different provinces and regions. Mobile penetration in Pakistan currently stands at 54.11%, according to the World Cellular Information Service from Informa Telecoms & Media. Babar cites figures from the country's telecoms regulatory agency, which indicate a wide variety of cellular penetration rates in the four provinces:

• Sindh - 64.28%
• Punjab - 59.35%
• North-West Frontier Province (NWFP) - 35.37%
• Balochistan - 25.01%

Sindh, in the southeast of the country, is a major centre of diversified economic activity - heavy industry, finance and agriculture. The second best performer in terms of mobile penetration, Punjab, is the county's most populous region and its most industrialised. The two other provinces, where mobile penetration is well below the 50% mark, are places whose share of the national economy is much smaller.

Babar writes Balochistan's low cellular penetration rate is most likely attributable to the province having few urban areas and, as a result, high costs for the roll out of telecoms infrastructure. He feels, however, that recent Universal Service Fund (USF) projects may improve the situation in the provinces. I assume these include the three contracts recently signed by the USF and the country's incumbent fixed line and broadband provider Pakistan Telecommunication Company Ltd (PTCL), as reported on 3rd July by TeleGeography. These include arrangements to bring fibre-optic connectivity to all tehsils (administrative divisions) in southern Balochistan, involving the installation of 1166km of fibre-optic cable in the region.

Much of Pakistan's population is denied access to the range and quality of vital services taken for granted in highly developed countries. Two obvious examples are the provision of health care and education services. Canada-based technology journalist Jerry Blackwell, a regulator contributor to Wi-Fi Planet, wrote an interesting article earlier this month about how communications technology is making an impact with regard to the first of these.

Blackwell's article quotes Phil Cruver, President of KZO Education, an American company that develops content and technology for online interactive learning, who points out that "the literacy rate in Pakistan is only about 50%, and for girls, it’s lower. The country has about 1.3 million teachers now, but it needs double that number in order to meet the standards [in education] that are needed."

The article is part of a series which examines the state of the worldwide WiMAX industry in 2009. According to Phil Cruver, WiMAX will be "absolutely critical" in ongoing efforts to pull Pakistan's public education system up by the bootstraps. Cruver's plan is to deliver interactive streaming video-based learning over WiMAX networks and KZO has already launched pilot projects in Islamabad. This has involved connecting two schools to a WiMAX network operated by Wateen Telecom, a provider of telephony, broadband and multimedia services that is part of the Abu Dhabi Group, which also owns Pakistani mobile operator Warid Telecom.

Comments about technical issues and allegedly poor service for Wateen Telecom WiMAX customers were aired by Chris Cork, a British social worker settled in Pakistan, in September last year. Writing in Pakistani newspaper the News, Cork provided a personal history of the frustrations of getting a reliable Internet connection in the country during his time working there. This concludes with a none-too-complimentary account of dealing with a company whose "name begins with a 'W' and ends with 'n'" when he asked for an externally-mounted receiver to get full benefit of their service.

One Pakistani blogger, writing in December, also reported that the Wateen Telecom WiMAX service, the first such offering for consumers in the country, was facing bad press and suffering reliability problems. That writer's feeling seemed to be that this created opportunities for the providers of two other WiMAX-based services. One of these is Infinity from Orascom Telecom-owned mobile operator Mobilink, the market leader in the cellular space with an estimated market share of 29.74% according to WCIS. The other is wi-tribe Pakistan, part of an international collection of wireless broadband operations owned jointly by Qatari incumbent telco QTel and Saudi firm A.A. Tukri Group of Companies (ATCO). According to TeleGeography, wi-tribe Pakistan began commercial operations earlier this month.

Gerry Blackwell writes that according to the WiMAX Forum, at least two other operators, including Supernet (owned by Telecard, a fixed wireless operator known for its CDMA service) and Burraq Telecom, also plan to launch WiMAX services in Pakistan. The Supernet/Telecard offering, however, may be in doubt if nothing has changed since Babar Bhatti wrote in March about a dispute between wi-tribe and Augere, a European company that was planning to offer WiMAX services in Pakistan via the acquisition of spectrum in the 3.5Ghz band from Telecard.

Although some have raised concerns about Wateen Telecom's WiMAX service, Blackwell reports that Phil Cruver of KZO Education has no complaints: "It was so quick to get service," says Cruver. "We paid for it, and it was up and running within 24 hours."

Blackwell writes that when KZO first got involved in Pakistan, WiMAX wasn't on its radar. "To be very honest, we didn't know there was a WiMAX," Cruver says. "It's just serendipity that Pakistan has the first nationwide WiMAX network."

Cruver's last comment might not be accurate. Gerry Blackwell writes that Pakistan is really just "on its way to having a nationwide network", with service is only available in major population centers, and coverage spotty outside city centres.

As discussed, the second area of vital services in which WiMAX could potentially make a very valuable contribution in Pakistan (and other developing countries) is healthcare.

Earlier this year, Monica Paolini of Senza Fili Consulting (from whom I once sought advice about the agenda content for a Fixed-Mobile Convergence themed conference I hosted in Miami many moons ago) wrote a paper on the theme of expanding the reach of healthcare in developing nations with WiMAX. Sponsored by Intel and Cisco, this paper notes that today, in developing nations, patients have to travel to their nearest clinics or hospitals to receive even basic treatment and to more distant institutions for specialised or emergency care. Monica argues that this model does not provide comprehensive and efficient access to healthcare and suggests that reliable, always-on broadband wireless connectivity makes a new healthcare model possible -medical professionals reaching out to patients where they live and when they need care, bringing access to a range of medical resources through voice, data and video applications.

In her paper, Monica discusses an example from Pakistan - a Cisco trial combining satellite and WiMAX connectivity to mobile units that provide early oncological screening for patients in rural areas.

Overall, Monica uses her paper to make a case for why WiMAX stands out as an ideal technology to support telemedicine initiatives. Rather than focus on the capabilities of the technology, however, I'd like to consider the business models needed to make such initiatives a success.

Monica quotes Debra Sloane, Global Healthcare Solutions Partner Manager at Cisco, who says that "extensive cooperation among public agencies, health care providers and [telecoms] operators is necessary for the creation of new business models that can address the specific
needs of communities."

Just as we have noted that WiMAX networks in Pakistan are currently confined to urban centres, Monica notes that wireless networks tend to be initially deployed in high population-density areas and suburban business districts where the highest-paying subscribers can be found. Monica argues, therefore, that governments, health care agencies, and NGOs need to work together with network operators to ensure that operators see a business opportunity in under-served urban and rural areas. Perhaps Pakistan's Universal Service Fund could be used to intervene in this way. As far as I can tell, however, the USF's activties do not yet include any such initiative.

To conclude, while it seems that a number of worthy initiatives are improving the currently uneven access to telecoms and Internet services and to other vital services, Pakistan continues to be notable for a marked digital divide between its various regions.

Bridging the digital divide between the provinces and regions of Pakistan