The telecom industry posted its highest-ever revenue in the fiscal year 2013. Total investment in the sector — at $472 million — was a major improvement from the $240.3 million invested in the prior year. And consolidation is also taking place in the cellular industry.

The industry posted cumulative revenue of Rs440.2 billion in FY13, up seven per cent from FY12, according to the recently released annual report of the Pakistan Telecommunication Authority (PTA).

And the fortunes of the country’s largest telecom company — Pakistan Telecommunication Company Limited (PTCL) — mirrored that of the overall industry.

In the January-September 2013 period (9MCY13), the company posted an unconsolidated after-tax profit of Rs9.3 billion, against a loss of Rs742.6 million in the same period last year. Revenues jumped by an impressive 63.4 per cent to Rs60.7 billion.

Meanwhile, the company’s stock has ranged between a low of Rs17 and a high of Rs31.2 in the year-to-date period. It ended last Thursday at around Rs28.4 per share.

Mergers: PTCL — owned by UAE-based Etisalat — has submitted a binding offer to acquire Warid Telecom, the cellular company with the lowest local market share.

Given that PTCL already owns Ufone — which has the third highest market share — it would pass Mobilink as the largest cellular company. It is also bidding in the 3G spectrum auction, which is expected to be completed this year.

Sector watchers pointed out some of the possible effects of the two transactions on the company’s balance sheet. “In addition to the need to finance for 3G [auction], we believe PTCL’s balance sheet will be leveraged further if it opts to be the sole owner of Warid,” said a Topline Securities research report.

Sana Abdullah of Global Securities wrote in a recent research note that in case PTCL acquires Warid, “the transaction is likely to mean a cash outflow of about Rs26 billion (total transaction size of $950 million) for PTCL, even if the transaction is financed by 75 per cent debt.”

“Hence, we estimate PTCL’s payout ratio to be lower in CY13. However, if the company decides to go for a higher equity proportion, we cannot rule out PTCL holding back its final dividend,” said Abdullah.

The company had a huge 173.9 billion in total assets, of which about Rs20 billion were in cash and short-term investments, by end-September 2013.

Cellular industry: The number of cell phone subscribers touched nearly 128.93 million in FY13, up 6.74 per cent YoY. But, this was lower than the 10.23 per cent growth recorded in FY12. By end-September 2013, total subscribers had reached over 129.58 million.

In a sign of the intensifying competition, a key metric for the industry — average revenue per user (ARPU) — declined to Rs211 per month in FY13, from Rs217 in FY12.

However, during the same period, national cellular outgoing traffic to cellular networks grew by a sizable 52.51 per cent to 294.2 billion minutes. The PTA attributed this to the increase in the subscriber base and the attractive call packages offered by cellular companies.

But international incoming calls fell by 10.2 per cent to about 9.71 billion minutes in FY13. Some analysts blamed this on the increase in calling rates after the formation of the International Clearing House (ICH).

“Telecom industry witnessed 550 million average monthly long-distance international (LDI) incoming minutes [in CY13]. This is much lower than the pre-ICH levels [of 1.2-1.8 billion minutes]. But revenues grew handsomely due to 41 per cent increase in international rates, from 6.25-cents per minute to 8.8-cents,” said Muhammad Tahir Saeed of Topline Securities.

Meanwhile, a look at the financial statements of parent companies of cellular companies for 9MCY13 indicates their growth has slowed down.

Telenor group — the parent company of Telenor Pakistan, which has the second highest number of cellular customers in the country — said in its 3QCY13 report that its revenues from Pakistan inched up by five per cent YoY in local currency.

But revenues declined by about four per cent YoY in Norwegian krone terms, to 4.065 billion krone.

“We had expected a higher growth rate, but we see continued pressure on taxes, regulations and weak macroeconomic development. We also see continued fierce on-net competition,” Telenor Group CEO Jon Fredrik Baksaas said in a call with analysts last year.

Issues: One of the major issues impacting the sector’s revenues is the so-called ‘grey traffic,’ which essentially refers to calls that are routed illegally either to or from the country. According to the PTA, Pakistan loses an estimated $1 billion annually due to this.

To reduce the problem, the government partnered with LDI operators to form the ICH. However, the revenue-sharing mechanism under ICH rules has also upset some telecom companies. Telenor LDI Communications (Pvt) Ltd, a subsidiary of Telenor Pakistan, decided to withdraw from the ICH on January 25. “Telenor enterprise has faced financial losses of more than Rs2.2 billion since the establishment of ICH,” the company said.