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Continuing the discussion on VOIP in developing countries and in particular in Pakistan, this post looks at the issues with regulating VOIP and the Grey telephony market. Pakistan Telecommunication Authority (PTA) defines Grey telephony as: the use of illegal gateway exchanges to bypass legal PTCL gateways and terminate/originate international traffic, including through VoIP gateways, GSM gateways, WLL phones, mobile SIMs or other related equipment. This traffic may then be distributed onwards using WLL and mobile numbers. It is claimed that gery telephony costs losses of over Rs. 3 billion annually.
More of the post is here.
A very good coverage of Pakistan telecom is given by a Russian site called COMMNEWS in its Emerging Telcom Markets section. I’d seen the headline on a telecom news feed but after TM recommended it and KO posted it on WiredPakistan forum I paid more attention to it. Here’s what the Pakistan overview page on COMMNEWS says:
In liberalization of its telecom market Pakistan is ahead of many other world countries, let alone their regional neighbors. However, the lack of full and objective information about this country led to cautious behavior by foreign investors, who appeared only recently on the local telecom market, and rather in single cases.
Here’s the first recommended article:
The Last Train: Foreign investors still can jump on Pakistan’s telecommunication market
This article has lots of useful information and talks about the alliances, mergers and financing activities going on in Pakistan. A key point it makes about low valuations in Pakistan must be an eye-opener for investors:
It can be expected that in a year or year and a half the value of telecom assets in Pakistan will grow significantly, equaling the prices that are set by international investors in neighboring India. Therefore, the winner will be that company which gets to Pakistan’s telecom market within 2007, right before the market overheats.
I believe that the political situation remains the biggest barrire to Pakistan’s economic progress.
Here are the other interesting stories on the site.
Success Story: DIALLOG with Pakistan
Interview with Tore Johnsen, Telenor Pakistan (Pvt) Limited, Chief Executive Officer
Opinion: Igor Khulak, Head of the Business Development Department at Sitronics Telecom Solutions
I would like to share a new series of learning and networking opportunities for executives and entrepreneurs in Pakistan. In June, there are 2 seminars in Karachi, led by senior lecturers Ken Morse and William Aulet at MIT Entrepreneurship Center. First is “Pakistan CEO Summit” and the second is “Financing Your New Venture“. Organizers include OPEN, MDI, MIT Entrepreneurship Center and Computer Society of Pakistan.
I had the opportunity to meet and talk with Ken Morse at a recent OPEN event at Cambridge, MIT. He is a wonderful and dynamic teacher with years of relevant experience. I would strongly recommend attending these seminar.
I realize that the CEO summit is limited to the top executives of large companies but the finance seminar has broader appeal and will be useful to all those who want to know about financing their next big idea. Also note that members of professional organizations such as PASHA get a discount.
More information and full brochures of programs are available at the website:
entrepreneurship-pakistan.com
Feel free to leave a comment or e-mail me if you have any question.
This post examines the challenges faced by PTCL and its future prospects. As we know the Etisalat owned PTCL has been engaged in battles with new competitors and regulatory body (PTA) on one hand and faces internal organizational issues on the other. Its profits have been sliding. Notwithstanding the grand claims by its executives, Will PTCL be able to reverse the trend and prove to be a good investment?
I have written about Business Monitor International’s coverage of Pakistan Telecom before here. In the past BMI has made interesting projections about growth of Pakistan’s telecom industry. This time they have extended their forecast to 3G services in Pakistan. A subscription is required to view the detailed reports but here’s a summary as reported by Business Recorder. I think their forecast of 6% handsets by 2010 is a bit high.
According to BMI’s 3G forecasts for Pakistan, a difficult exercise given that no licences have yet been awarded to other operators. The PTA is eager to kick-start the process in 2007, which would mean that there are unlikely to be any active paying 3G subscribers until well into 2008.
With GSM the main mobile technology in use in Pakistan, as accessed by Mobilink, Ufone, Warid Telecom, Telenor, and local group Paktel (since its emigration from AMPS in 2004), the preferred 3G technology would be UMTS.
It is likely that the PTA will stage an auction in mid of 2007. It is even possible that licences could be awarded later still. It is improbable, therefore, that any commercial 3G launch would happen before H1 2008.
The introduction of EDGE services (such as the one by Telenor) and popularity of WLL may hinder the development of 3G, but BMI forecasts that by the end of 2010, about 6 percent of all mobile subscribers in Pakistan will have a 3G handset. This, however, remains very much in the hands of the PTA, the operators themselves and, of course, Pakistan’s consumers.
Universal Service Fund, commonly known as USF, is a tax on telecommunication service which is used to fund and subsidise telecommunication infrastructure for remote and rural areas. USF is a controversial regulatory tool. It has been around since 1997 in USA. The goals of Universal Service, as mandated by the Telecommunications Act of 1996, are:
1. To promote the availability of quality services at just, reasonable, and affordable rates
2. To increase access to advanced telecommunications services throughout the Nation
3. To advance the availability of such services to all consumers, including those in low income, rural, insular, and high cost areas at rates that are reasonably comparable to those charged in urban areas
In Pakistan USF was also setup with similar intentions of reducing the digital divide and to advance ICT. Minister for Information Technology, Awais Ahmad Khan Leghari recently said that the government is firmly poised to spend millions of dollars from Universal Service Fund (USF) to add up about 1000 new Basic Transmission Stations (BTSs) and cell sites in remote areas which were not commercially attractive for the existing players. Part of the conditions for licence approvals for new companies such as Telenor and Warid included that these providers will invest in rural areas in addition to the more lucrative urban cities.
Awais Leghari said Ministry of IT had already engaged consultants which would lay down within the next couple of months a proper framework for the USF roll-out through a transparent bidding process to be conducted and overseen by the regulators. He said the number of cell sites in Pakistan had crossed the 10,000 mark and in a couple of years 90 per cent of the country’s population would have access to phone coverage. Also see my related post about network expansion in Pakistan.
As reported by The Economist in an article “At your service - Telecoms in the developing world“, the idea of “universal service” is being extended from voice to broadband.
In India, the government created an auction of the rights to create and run telecommunication networks in remote rural areas. Around the world, such networks are often subsidised by a “universal service fund” (USF) paid for by taxes on existing telecoms services. Auctions are held, and the network operators that demand the smallest subsidies win. They must then provide a certain number of public payphones, as well as signing up subscribers.
Economist notes that something rather odd happened in India: in 38 of the 81 regions on offer, many mobile operators bid zero. In other words, they asked for no subsidies at all. In 15 regions, India’s biggest operator, Bharti Airtel, even offered to pay. As a result, barely one-quarter of the 40 billion rupees ($920m) available in subsidies is likely to be allocated. If operators think there is money to be made running mobile networks even in some of the poorest parts of the world, is USF needed anymore?
This post is first in a series in which IPTV services in Pakistan will be discussed. First an introduction to IPTV: in simple terms IPTV is television content that, instead of being delivered through traditional formats and cabling, is received by the viewer through the technologies (IP) used for computer networks. IPTV provides multimedia services via a broadband connection with the help of a set-top box (STB) which resembles a traditional cable box. A single connection (fiber optic, copper or cable) coming to your premise can serve phone, TV and Internet service - terms such as FTTH or FTTP are used when fiber optic cable is being used for higher bandwidth transmission.
See the full post at the new site.
Are the developing countries and organizations such as ITU, WSIS making real progress against digital divide? A new measure called Digital Opportunity Index may provide an objective way to answer this question.
Following the World Summit on the Information Society (WSIS) summits (Geneva 2003 and Tunis 2005) which brought together the stakeholders, ITU and partners including the United Nations Conference on Trade and Development introduced Digital Opportunity Index (DOI), a tool for measuring the digital divide and monitoring progress in building the information society.
DOI is a composite index created from 11 internationally agreed ICT indicators, including the percentage of a population covered by cellular telephony, the proportion of households with internet access and the ratio of fixed broadband subscribers to total internet subscribers. Based on this approach Pakistan scored 0.73 out of a maximum of 1.o and is ranked 42nd out of 54 countries in Asia Pacific region in 2005. South Korea tops the list worldwide. Full results here (scroll to end). A separate post will discuss the reasons for Pakistan’s low ranking.
As shown in the graphic above the index ranges from 0 to 1 where 1 is complete digital opportunity.
These indicators are divided into 3 categories: opportunity, which measures the basic access and affordability needed to participate in the information society; infrastructurewhich looks at networks and devices; and utilisation which focuses on who is using what.
The DOI was developed by a multi-stakeholder partnership (the Digital Opportunity Platform) comprising ITU, UNCTAD and the KADO (Korea Agency for Digital Opportunity and Promotion) and which is open to other partners.
A recent Financial Times article by Alan Cane with the headline “Digital Divide: Still there for the poor” points out that despite the telecommunication growth rates observed in some countries, the poorest of the world still face formidable challenges of digital divide. Excerpts from the FT article:
Less than 10 per cent of the world’s population had basic internet access in 2003, Paul Mountford, president of Cisco Systems’ emerging markets group, told the Silicon Valley Challenge Summit last month, vividly illustrating the size of the “digital divide” which separates the information rich from the information poor.
On Digital Opportunity Index: Mr Kelly, head of the ITU’s policy and strategy unit, says: “The first full release (of DOI) was published in July 2006 covering 180 economies. It is the first genuinely neutral index for the ICT sector. This first edition will provide a baseline for analysis between now and 2015 when the WSIS outcomes are due for review.”
This year’s WSIS report, the first of its kind, uses the DOI to show that India and China have made the most gains in closing the digital divide between 2001 and 2005, followed by Russia, Hungary, Peru and Indonesia.
The article ends with a dose of reality check.
“But the poorest countries have yet to taste the wonders of the internet and would, no doubt, prefer the taste of plentiful food, clean water and adequate sanitation.”
Next door to Pakistan is the world’s largest telecommunication market: China. In part 2 of telecom growth in Pakistan’s neighbors I present an overview of the Chinese telecom industry. This post will cover the major service providers and top telecom equipment makers in China. I’ll also touch upon China-Pakistan collaboration in the telecom sector.
With a country the size of China one post cannot do justice. This post will not cover the role / influence of Chinese government in its telecom industry or the legal and regulatory situation in China. These will be taken up in a separate post.
According to data from the Ministry of Information Industry, China had 437 million mobile-phone subscribers, 368 million fixed-line users and 47 million broadband subscribers as of the end of August 2006.
Here are the major telecommunicatio
n service providers - follow links to their websites for details.
1. China Telecom (NYSE: CHA) provides fixed/landline, fixed wireless and internet services. It has 60% of market share. There have been reports that China Telecom will sell a stake to a foreign strategic investor.
2. China Netcom (NYSE: CN) is th fixed line competitor to China Telecom and has a market share of about 33%. China Netcom has two strategic partners in PCCW of Hong Kong and Spain’s Telefónica.
3. China Mobile (NYSE: CHL) is the world’s largest mobile company with near to 300 million customers. It was spun off from former monopoly China Telecom in 2000. China Mobile provides GSM mobile service and is the dominant player with 65% market share. See its profile here and a recent article about its performance here. Vodafone has a 3.27% holding in China Mobile.
4. China Unicom (NYSE: CHU) provides mobile services on GSM (its core business) and CDMA networks. It has a market share around 32%.
There are many other smaller operators which are attractive partners for foreign firms so it is expected that we will see many international deals in coming years.
On the global front China is also making its mark with its telecom equipment makers. The chinese telecom companies are taking on bigger rivals from around the world. Chinese government wants its telecom industry to become a leading force in research, innovation and standards.
o Huawei is one of the world’s leading networking and telecommunications equipment supplier with R&D centers worldwide (China, US, Europe, India). See related post on telecompk for Huawei’s profile and its march towards global growth.
o ZTE - is another major Chinese telecom equipment maker. It started as a government company in 1985. Recently ZTE has been pursuing internationl telecoms markets and has been successfully working in Europe. ZTE is a major supplier for Pakistan’s service providers such as PTCL. You may have seen ZTE name on PTCL V wireless phone.
As I mentioned in a previous post the above mentioned Chinese telecom equipment firms are working in collaboration with Pakistan: Huawei is working with UET Lahore and ZTE is setting up a R&D center in Islamabad.
China and Next Generation Network Technologies
3G will be a huge factor in China and depending on how 3G works out in China, it will influence adoption in India, Pakistan and other Asian emerging telecom markets.
China is set to become the world’s largest 3G customer base in the next decade. As is the case in rapidly growing markets the real growth areas for Chinese operators lie no longer in their voice service business, but instead with non-voice and data services. China Mobile is aggressively going after next-generation technologies to boost profit levels. China Unicom is also looking for 3G to increase its market share. China Telecom has its eyes on IPTV service which is expected to be out in near future, though the market and regulatory framework for IPTV is not fully defined yet.
China is developing a home-grown 3G standard:TD-SCDMA, which is undergoing testing this year. It is believed that China will wait for TD-SCDMA technology to mature before opening up the 3G market to all 3G platforms. Critics argue that such moves will make it hard for foreign companies to compete in China.
I close with a few related Articles from Businessweek:
The International Telecommunication Union (ITU) has declared it will set up an Asia Pacific Centre of Excellence in Pakistan for imparting training to member countries in issues ranging from telecom policy to regulations.
The ITU, headquartered in Geneva, Switzerland is an international organization within the United Nations Systemwhere governments and the private sector coordinate, standardize and regulate global telecom networks and services.
This center of excellence in Pakistan is one of the four centers of excellence being setup in Asia by ITU. According to the statement by Telecom Ministry of Pakistan, “ITU would provide assistance to Pakistan for setting up and running the training centre for specialised policy and regulatory training. The decision to set up the centre of excellence in Pakistan was taken at a meeting of the 1st ITU Asia Pacific Centre of Excellence Stakeholders held in Bangkok recently.”
Pakistan’s strategic role in international telecommunication scene has been growing steadily over the last few years. This month Pakistan won the council seat of International Telecommunication Union (ITU) and Chairman Pakistan Telecommunication Authority (PTA) was elected as member of Radio Regulation Board of ITU. Pakistan also holds the office of President in Asia Pacific Telecommunity.
There’s a lot more work waiting for the policy makers. Pakistan needs to push more towards telecom research and development work within the country. As noted in my previous posts, China and India are in the process of becoming world’s major R&D centers for technology and telecommunication. Two of the top Chinese telecom equipment firms have announced their plans to collaborate with Pakistan: Huawei is working with UET Lahore and ZTE will setup R&D center in Islamabad. The goal of the policy makers should be to increase the rate of transfer of technology from abroad, broaden the pool of local skilled workforce and accelerate the local production of telecom equipment and handset parts etc. If that can be achieved it will be more than consumerism - it will be real progress.
Here is all you wanted to know about Orascom, parent of Mobilink (official name: Pakistan Mobile Communications Ltd or PMCL) , in a nutshell. This snapshot will give you some insights into Mobilink’s parent group and is intended to educate potential investors. You may find its strategy and management approach interesting as well.
About Orascom’s International Reach
Orascom Telecom Holding S.A.E. (’Orascom Telecom’ or ‘OTH’) is a leading international telecommunications company operating GSM networks in seven high growth markets in the Middle East, Africa and South Asia, having a total population under license of approximately 460 million with an average mobile telephony penetration of approximately 19% as at 30 June 2006. Orascom Telecom
operates GSM networks in Algeria (’OTA’), Pakistan (’Mobilink’), Egypt (’Mobinil’), Tunisia (’Tunisiana’), Iraq (’Iraqna’), Bangladesh (’Banglalink’), and Zimbabwe (’Telecel Zimbabwe’). Among other international ventures, Orascom Telecom also owns 19.3% of Hong Kong-based Hutchison Telecommunications International Limited operating in 8 countries.
Investment Information
Primary Symbol & Exchange: ORTE - Cairo & Alexandria
Other Symbols & Exchanges: OTLD – London
An example Mutual Funds in US with Orascom holding:
T. Rowe Price Emerging European & Mediterranean TREMX (has 5-star ratings from Morningstar)
Highlights of results from first half 2006
Orascom had 41 Million Subscribers and revenues of over US$ 2 Billion. It added 20 Million subscribers in last 12 months which is impressive. However the average revenue per user (ARPU) kept falling, though slower than before. Capital expenditures increased in Pakistan but overall fell 7%. Net income increased
12% from June 2005. Earningsper share increase 8% in that period.
Full details from the most recent earnings report:
http://www.otelecom.com/Investor_Relations/EarningRelease.aspx
Recent Headlines about Orascom and Mobilink
Though this post is about Orascom (and not specific to Mobilink) but a relevant news is that Pakistan Mobile Communications Ltd raised US$250 million funds from abroad this week.
It is the first international corporate bond issuance by a Pakistani corporate issuer in 12 years and the
first ever high yield bond offering by a Pakistani corporate issue.
Most of the proceeds will be used to fund capital expenditures and refinance its outstanding bridging facilities. European investors bought 40 percent of the deal, while Asian buyers and U.S. accounts each took 30 percent. On Oct. 23, 2006, Standard&Poor’s Ratings Services assigned its ‘B+’ long-term corporate credit rating to Pakistan Mobile Communications Ltd.
Media Articles of Note
Orascom: This Mobile Upstart Really Gets Around - BusinessWeek
Recommended reading - How Orascom leverages emerging markets.
Egyptian Mobile Phone Provider Treads Where Others Dare Not - NY Times
This New York Times article is about Orascom entering in Iraq - interesting notes on risk and reward.
A Telecom King Broadens His Horizons - BusinessWeek
How Orascom is increasing its global power by buying stakes in other companies.
Continue to read more about Mobilink’s performance in 2006 and its position in the global telecom space. Read the rest of this entry »
Huawei is a Chinese telecommunication (wireless, networking) equipment maker with presence in 41 countries. Huawei defines itself as the leader in next generation telecommunication networks. Recently Huawei has signed two mega deals worth over a billion US$ with Pakistani telecommunication companies Worldcall and Ufone. The Ufone deal is worth US$ 550 Million and involves GSM expansion. The WorldCALL deal is estimated to be US$ 720 Million and its for setting up Wireless Local Loop service in South Pakistan.
In this post I’ll provide some background on Huawei and its standing in the world. Next posts will discuss the impact of the new deals on Pakistan’s economy and telecommunication sector.
The tremendous growth of Huawei in the last few years is impressive, given that it competes with established international giants such as Alcatel, Cisco and Lucent. As experts have noticed Huawei’s advantage goes beyond lower prices. Huawei is positioning itself as an innovator and leader of cutting edge technology products. See this Business Week article about Huawei’s R&D focus.
An important feature of the Chinese policy is the empahsis on developing its own technical standards. For instance Chinese are pushing for IPV6 in an effort to catch up with the US. Another example is the TDS-CDMA standard which was developed in China.
This company is respected, feared and criticized in the western world. See this MSNBC article on why some people think that Chinese government is too close behind Huawei’s success and the related security concerns raised. A few decades ago Japan’s trade ministry was also very active in promoting their electronics and auto industry. Now the focus is on China. I share a few lines from the article:
The combination of a strong work ethic and modern business practices is helping Huawei to alter customer perceptions of China Inc. in overseas markets. When Huawei salesmen first approached British data-services company Fibernet three years ago, the firm had been using merchandise built by Cisco, Ciena and Marconi, according to Fibernet marketing director Nigel Pitcher. When Pitcher visited Huawei headquarters, he expected “to be underwhelmed by a Third World sweatshop operation.” Instead, he says, he was “bowled over” by “the most modern manufacturing facility that I have ever seen.”
Huawei is certainly moving up on the technology and leadership chain. I think it has a bright future ahead.
Huawei’s official site huawei.com has good information about their products and services. By the way in US they are known as “Future Wei”. Find more at their US site.
With some luck the Pakistani Internet user base may get a long overdue and much deserved break. That is, if the recent bandwidth rate cuts proposed by PTA are implemented and that’s where the battle is. Here’s a bit of history of the PTA vs. PTCL bandwidth rates controversy.
In an effort to accelerate the spread of broadband services in Pakistan, PTA cut bandwidth rates significantly in June and asked PTCL to apply the new tariff rates. This decision was based on a policy paper (PDF) by PTA in April – which concluded that lack of competition and high international bandwidth rates are harming consumers and businesses. The drastic reduction in bandwidth rates created a chain of events. Instead of complying with the PTA decision, the Etisalat-run PTCL took the legal course. In August, the Lahore High Court reversed the PTA decision on reduced bandwidth rates.
The chart below (taken from PTA paper referred above) shows the comparison of domestic leased circuit tariffs between India and Pakistan.
As reported by the Pakcdma site:
Based on the LHC verdict, the PTA has called the LDIs, ISPs, software companies’ representatives and PTCL for a review meeting on its determination. In its August 7 decision, the LHC gave the regulator 60 days to reach a fresh plan of bandwidth rate cut, which has been long over due for the Pakistani market.
The PTA was also directed to adopt the proper procedure for price determination by asking parties to submit and exchange their respective cases; holding a formal hearing; and issue fresh determination this time avoiding the pitfalls.
Read the PTCL response here. PTCL argued that the tariffs should be based on cost criteria.
Whatever the results may be, at least there is a process and some progress. Let’s hope for the best! Read the rest of this entry »
These days its hard to read the news without finding a new mega deal between a Pakistan telecom provider and foreign company be it a handset maker, equipment maker or another service provider. The reasons for such deals and contracts are manifold.. comapnies do it: to differentiate themselves, to introduce new technology which can attract customers and revenue, to rapidly execute on objectives and to get the expertise which is not available within Pakistan. Expect this trend to continue as the market gets competitive and the price wars rage on.
A few examples of such telecom deals and partnerships include:
- Warid and Motorola on Wimax
- PTCL and Huawei & ZTE for V-Wireless
- Worlcall and Samsung / ZTE
One of the recent news is that of cooperation between Warid and Ericsson, a 274 Million dollar deal. The news article mentions:
Under the agreement, Ericsson will provide capacity for an additional 10 million subscribers through its mobile softswitch solution and the expansion of the radio access network in existing and new cities.
The expansion of the network and the implementation of Ericsson’s leading Mobile Softswitch solution will enable Warid to cater for Pakistan’s increased capacity requirements, cover its growing customer requirements effectively and smoothly evolve to all-IP.
One may ask if the delicate Pakistan economy is likely to sustain the demand for capacity. In the US many telecom comapnies rushed to lay fiber in the 1990s and after the bubble burst they were left with redundant infrastructure. Surprisingly the US consumers have not rushed towards broadband as people in other countries. Hopefully the case in Pakistan will be different. It is my opinion that Pakistan is waiting for better technologies to arrive and the public will embrace the improvements - given that the price is right and PTA provides a fair playground.
See more about this deal at Ericsson website.
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