Telecom Sector: Austerity Won't Help
Zeemal Ali Abbas
Program Officer Jinnah Institute
The telecommunication sector in Pakistan has managed to forge a path to success despite multiple hurdles. The year 2022 was mostly characterized by governance inefficiencies and loss of infrastructure through floods, but there have been enduring gaps in the country’s telecom ecosystem, reflected in Pakistan’s EDGI scores, which trail 31% behind other global contenders. The 2022 megaflood exacerbated connectivity problems, and although telecom companies tried their best to assist food affected districts (through free call provisions and even joining rehabilitation efforts), they shouldered an increasing tax burden. With the economy in dire straits, tax relief for the telecom sector is probably not on the charts. Moving into 2023, decline in mobile phone imports could potentially reduce subscription growth. Despite having 114 million broadband subscribers, 192 million mobile subscriptions and one of the lowest broadband rates in the region, subpar connectivity in rural areas remains a major issue.
One way to alleviate patchy connectivity is broadening the spectrum through inviting more investment into the sector. Unless spectrum auctions are introduced in months to come, it seems unlikely Pakistan will be able to reinvigorate telecom FDI inflows. Some telecom operators are making an attempt to exit Pakistan's mobile market, with an expected $1bn sale value which will open up the market for auction bids. However, a reduced spectrum translates into lower investment for the operator, and poorer services for the end user. With the current spectrum rates, larger investments drain the operators, and the lack of revenue is a serious deterrent for new investors. The challenge with spectrum auctions is that auctions are made in dollars whereas company revenues are generated in the Pakistani rupee, which impacts the industry. This is all the more salient for 2023, when sharp currency devaluation is making revenue projections difficult.
Earlier in 2022, administrative actions were taken to restrict machinery imports which helped manage the current account deficits, resulting in import compressions. In 2023, it should be considered whether the telecom sector’s import restrictions or duties on technical equipment can be phased out to enable revival and growth. Further, a reduction in withholding taxes on telecom services must be thought through. The telecom industry is a cross-sectoral enabler that facilitates all other sectors. Pakistan’s bid to go digital, and bring about a multiplier in governance, economy and human development hinges on the telecom sector’s survival and growth. 2023 may well be the year when this nexus becomes clear.