Telecom sector remains a potential window for FDI

Karachi: Telecom sector is one of the most potential sectors which has potential to attract billion dollar of foreign direct investment (FDI) in the coming years besides manifold growth in businesses and employment opportunities in the country.

Thanks to emerging technology trends in the world that keeps open room of improvement in the communication side by side the window of opportunity for stakeholders to investment on the business to earn better revenues in the untapped and populated market like of Pakistan.

The telecom sector has expanded its services rapidly in many parts of the country over the period of past one decade. It is still in the evolving stage to deploy its services in many un-served small cities and villages and companies are plan to increase their operation areas in maximum locations to get handsome number of customers of their different services.

In the 2005-08, the telecom sector attracted US $ 5.086 billion in the country which is considered a boom period of telecom industry as cellular and wireless operators continued to invest huge capital on infrastructure expansion, maintenance and marketing.

In 2005-06 the telecom sector FDI landed recorded US $ 1.905 billion that is the highest share of 54 percent in overall FDI.

However The FDI in the telecom sector has fell by 79 percent in the closing financial year of 2010-11, standing at merely US $ 79.1 million FDI in the closing fiscal year 2010-11 with its lowest ever share of 5 percent in overall annual FDI.

In the four months of current financial year, the FDI in telecom sector posted negative growth unfortunately by the telecom and broadband operators but it is expected that it will turn into positive trend as if in the future.

Analysts predicted that FDI in telecom sector is likely to rebound its growth in the coming years similarly in the way it recorded huge investment in flow during recent years owing to development and advancement in cellular phone and broadband sectors.

Value added services such as 3G and Mobile-Banking will be major areas for telecom operators, banks and content services providers to invest million of dollars to launch latest technology in Pakistan. Agriculture as a primary sector of the economy also encompasses huge potential to offer mobile agriculture services to farmers and food production companies.

The federal government has set a colossal revenue target of Rs 75 billion from the telecommunication sector through the auction of 3G license to cellular operator in the financial year 2011-12.

The target of 75 billion is achievable easily if the government will draft and implement 3G policy with the auction of 3 licenses in cellular sector. Though the license will be auctioned following completion of policy, the minimum amount should not be at least US $ 293 million, which is slightly higher than the license fee paid by cellular operators for GSM’s network.

Therefore the government will chase its colossal revenues target easily while attraction billion dollars additional investment in the telecommunication sector in the current financial year.

It is estimated that an operator shifts it technology on 3G limited scale or in metropolis will have to invest one billion dollar for license and infrastructure as well. This translates into Rs 86 billion investment on the network, which means Rs 258 billion will be spent by three operators in the next two fiscal year.

But if the PTA could not auction three licenses or merely two operators opt for network swap for 3G or 4G, as the license will be technology neutral, then it will be difficult task to achieve the revenue target.

The 3G is catalyst to attract billion dollar investment in the country with widespread creation of economic and employment opportunities in ICT sector despite of the fact the technology will remain limited for users living in the metros.

The broadband sector has potential to attract million dollars investment in the upcoming months due to massive expansion of their service network and physical infrastructure in the big untapped market.

Moreover FDI may land through various potential sectors including LDI operators, MVNO, class value service providers such as vehicle trackers, satellite and wireless communication services.

The Information Communication Technologies (ICT) has become indispensable for various applications and operations in large to small scale business whether in the private sector or public sector entities. This leads investors to spend money on technology up-gradation and installation time to time in accordance with the demand of the trend in global and local prospective.

Pakistan Telecommunication Authority in its report “Vision 2020” estimated that telecom investments in Pakistan will be landed more than US$ 2.4 billion by 2020 .

The PTA “Vision 2020” document says that, during the next ten years, the improved quality of telecom systems and services would become a critical determinant of competitiveness in ICT. The growth and development of ICTs at present has led to their wide diffusion and application, thus escalating their economic and social impact across the countries.

The next ten years would bring in a ubiquitous personalized communication lifestyle where any service can run on any device, on any network and in any location over a Broadband connection. Only 0.47% of our population has attained subscription to broadband. Broadband 2.0 networks will eventually replace the current broadband networks, it added.

The mobile subscribers’ base is expected to be widened to 161 million, hence approximately 89% of the total population by 2020.

All these estimates will be true if the government provides conducive environment for investors and existing telecom companies to enhance their business spending, operations and services to all over the country with advanced technologies.

The government should form an investor friendly regulatory framework for telecom operators to convince them towards advanced migration of technology and services such as 3G and mobile banking.

There is need to slash taxes and duties on the services coupled license fee for various services in order to attract new foreign companies in the flourishing ICT sectors with relaxed regulations and planned roadmap of the businesses.