June 12, 2014 12:00 am JST

Pakistan cellphone services set to get faster

ANNABEL SYMINGTON, Contributing Writer

Sikander Naqi, CEO of Zong © Photo by Annabel Symington

ISLAMABAD -- Pakistan is ready for high-speed mobile Internet.

     The Pakistan Telecommunication Authority held an auction for mobile telecom spectrum in April to pave the way for 3G and 4G services in the country.

     The long-awaited auction, first touted eight years ago, is a welcome boost to the telecommunications sector. But operators are concerned that stifling red tape and a lack of coordination between government departments will limit the business potential of this breakthrough.

     The auction for 3G -- as third-generation mobile technology is called -- was satisfactory, industry observers say, but the same could not be said for the 4G sale. Under strict rules imposed by the regulator, only one of the operators interested in the fourth-generation technology qualified to take part in the auction.

     Zong, a subsidiary of China Mobile Communications, paid a combined $519 million for its 3G and 4G licenses and said it would invest $1 billion on new infrastructure. China Mobile made its first move abroad when it bought Zong's predecessor, Paktel, in 2007. The new licenses should help it grow its market share in Pakistan, where it is currently in third place behind Russian-backed Mobilink and Telenor Group of Norway.

     "We were expecting at least one operator to be competing with us for 4G," said Sikander Naqi, CEO of Zong, sitting in his office at the company's newly built headquarters on the edge of Islamabad. He said his company was surprised that they ended up being the sole bidder.

Needed money

The Pakistan Telecommunication Authority said selling 3G and 4G licenses at the same time was the right thing to do, even though the cash-strapped government had initially wanted to hold the auctions separately.

     Pakistan first tried to hold a 3G spectrum auction in 2006, when its telecom services were considered the region's best. Today, the country of 190 million has a high mobile penetration of 75%, but it is the last South Asian country to get 3G services.

     Operators managed to block the auction in 2006, saying they didn't have the capital available to invest in 3G infrastructure. Second-generation licenses had been issued only two years before, and the operators said they had not recuperated money from the investment in that infrastructure.

     Over the next eight years the industry floundered, as the end of military rule in 2007 eventually brought a weak coalition government to power that spent the next five years lurching from crisis to crisis, dogged by corruption allegations.

     The government needs a cash injection, making the $1.1 billion raised by the auction welcome. Plagued by security concerns, the country last year had to take out a $6.7 billion loan from the International Monetary Fund after the national deficit hit 8% of gross domestic product in the fiscal year through March 2013. Under the loan terms, Pakistan had to commit to reducing the deficit. As a result, the government imposed strict payment terms on telecom operators. Companies had to pay for all licenses upfront or face high interest charges.

     Zong and rival Ufone bid for 4G, and four out of the five existing operators made a play for 3G spectrum. But Ufone failed to win a 4G license after it failed to secure the minimum amount of 3G spectrum as required by the PTA in order to take part in the 4G auction.

     A number of foreign companies -- Turkcell, Qatar's Ooredoo (formerly Qtel) and Saudi Telecom -- pulled out after expressing initial interest. Senior officials told the Nikkei Asian Review that they decided not to take part after the government refused to grant them exclusive one-year 3G licenses.

Blundering bureaucrats

The next hurdle for the new license holders is notorious bureaucracy.

     The biggest challenge is in getting approval for building infrastructure, according to Zong's Naqi. "We want approvals as soon as possible so we can start deploying the network. When you go inside the cities, the government says don't put (the cell tower) here, don't put it over there. And that might delay things."

     The Federal Board of Revenue, the government tax body, has also demanded that the operators pay a 10% tax on the licenses. The telecom industry is already one of the most highly taxed in Pakistan, a country where few pay any money to the government at all.

     A senior PTA official said on condition of anonymity that this was an example of government departments not working in harmony. The telecom authority would like to encourage more investment by the operators, but the tax authority had its own ideas, he said.

     The government, led by the business-friendly Pakistan Muslim League-Nawaz party, has been praised for successfully holding the spectrum auction just 10 months after it took office. But the outlook for Pakistan's telecom sector remains uncertain.