Financial Risk Manager: Telecom Updates

Telecom Updates
Thursday, August 6, 2009

Etisalat International has threatened to approach arbitration court in London against the anticipated decision of the Government of Pakistan (GoP) to issue Long Distance International (LDI) license to China Mobile Pakistan. Etisalat acquired management control of Pakistan Telecommunication Company (PTCL) through purchase of 26 percent shares in PTCL. The Shares Purchase Agreement between the Privatisation Commission and Etisalat, signed in 2006, stipulates non-issuance of new mobile and fixed line licenses in Pakistan for 7 years. Etisalat International considers the prospective decision to award LDI license to China Mobile as a violation of the contractual terms and guarantees.
The Cabinet Committee Regulatory Bodies (CCRB) in 2006 had also approved a summary submitted by the Ministry of Information Technology (MOIT). The summary put on hold for the next seven years granting of new land lines, LDI and cellular licenses. This watch hold decision was subject to the recommendations of the Pakistan elecommunication Authority (PTA) based on the future market dynamics. This decision implied that the GoP could issue new land line, LLI and cellular licenses ‘corresponding to the availability of the spectrum’ and market dynamics consequent to contract finalisation with Etisalat.
The decision to award LDI license to China Mobile was based on a MOIT summary prepared on the pretext of the above CCRB decision in 2006. This summary was approved by the Cabinet in September 2008.
Etisalat in the wake of the Cabinet decision to grant China Mobile the license, is of the opinion that this decision is against the stipulations of the Shares Purchase Agreement signed in 2006 China Mobile Pakistan wants the implementation of the last year’s Cabinet decision to grant the license. The resolution of this issue to the satisfaction of the concerned parties will be beneficial for the sustained growth and investment in the telecom sector which already is showing signs of stagnation. An example is the cellular industry growth rate of 1.3% in the last fiscal year. According to PTA estimates the number of mobile phone users in Pakistan is crossing 90 million but the Average Revenue per User (ARPU) has decreased lately mainly because of different economical issues.
Mobile operators strategy of attracting volumes of subscribers by bringing down prices has resulted in decline in ARPU from $4 to $2.6. The country’s tele-density of 62% has also reached its limit as majority of the population that does not have a mobile is either too young to have cell phones or live below the poverty levels.

Labels: Economy and Business