Pakistan’s mobile operators say licence tussle worries investors

Pakistan’s last-minute price hike for a long-term mobile operating licence renewal will worry foreign investors who are seeking stability in their operations, Jazz chief executive Aamir Ibrahim said, amid an ongoing court case about the issue.

Pakistan’s biggest mobile network Jazz, owned by Dutch giant VEON, and the country’s second-largest telecoms firm, Telenor, are challenging in court the licence renewal process, which has seen the fee set at $450 million from an expected $291 million.

The battle comes as Pakistan’s government faces heavy pressure to lift tax revenues following a preliminary loan agreement with the International Monetary Fund that will require it to cut billions of dollars from its swollen budget deficit.

Pakistan’s telecoms sector has grown rapidly over the past decade but the market is hyper-competitive and mobile operators fear a tougher period ahead amid a slumping economy and rising inflation that is expected to lead to belt tightening by the country’s 208 million people.

Jazz believes the licence increase goes against a previous agreement struck in 2004 and is also frustrated the government had two years to come to a renewal fee decision but raised the price only three weeks before the May 25 deadline.

“Ultimately the investor needs profitability, stability and continuity in a country that’s different from their own,” Ibrahim told Reuters at Jazz’s swish headquarters in the capital Islamabad earlier this week.

“So for a foreign investor having these surprises three weeks prior to the renewal of a licence is a big shock.” The government did not respond to a request for comment. The next court date is set for June 3.

Ibrahim said Jazz, which has 58 million subscribers, and Telenor expected the renewal fee to remain the same as during the auction in 2004, which was won by Warid, a company that was acquired by VEON’s Mobilink and merged to form the Jazz brand.

Another major sticking point for the mobile operators is the decision by Pakistan’s cash-strapped government to set the new fee in US dollars and not in local rupee currency, which has lost about 40 per cent against the dollar in the last 18 months.

The 2004 auction for a 15-year licence cost $291 million, equivalent to 17 billion rupees at the 2004 exchange rate. But with the rupee plunging to record lows against the dollar, Jazz now faces paying 67 billion rupees for $450 million.

“There is no precedent of the government offering (in dollars) any kind of a concession or a licence to a company in Pakistan selling things in Pakistan,” Ibrahim said, pointing out that Jazz charges customers and earns in rupees, not dollars.

“Pricing in dollars is completely unsound.” Pakistan secured preliminary agreement over a $6 billion IMF bailout programme earlier this month that is expected to come with tough conditions requiring it to improve tax receipts to rein-in a ballooning fiscal deficit.

Ibrahim said higher fees will leave Jazz and other operators with less cash to invest in vital digital infrastructure Pakistan will need if it wants to modernise its economy and drive entrepreneurship and growth.

“I understand the government is cash-strapped but what they’re trying to do is milk for short-term gain,” he said. “But that in the process leaves the country behind.”

Meanwhile, Pakistan added 1.99 million mobile subscribers in April, ending the month with 161.01 million mobile users, up from 159.02 million in March, according to a report from the Pakistan Telecommunications Authority (PTA). Pakistan had 12.05 million 4G service subscribers and 8.77 million 3G users at end-April, up from 11.60 million and 8.76 million, respectively, in March.

Mobile operator Jazz led the Pakistani mobile market with over 59.20 million mobile customers at end-April, followed by Telenor (44.83 million), Zong (34.40 million) and Ufone (22.56 million). Pakistan’s broadband subscribers base jumped to 69.57 million in April, from 66.70 million at end-March.  

The exports of Pakistan for telecommunication equipment, computer, and information services have been increased to $539.71 million, registering 3.78% growth in the first half of the current fiscal year 2018-19.

According to data issued by the Pakistan Bureau of Statistics (PBS), the earning made via these exports was $520.043 million during the same period of the last fiscal year 2017-18.

PBS revealed that the overall imports of these sectors reached $49.640 million in July-December (2018-19) from $45.424 million in a similar period of last year. However, the exports regarding telecommunication sector declined by 24.57% in the period under review. These were recorded at $98.740 million, down from $130.909 million.

Agencies