NUMBERS can be deceptive. The mobile phone companies, for example, saw their subscriber base grow by a handsome 15pc from over 114m people to 132m in the first 10 months of the ongoing financial year.

The number of consumers using high-speed internet (3G and 4G) services has almost doubled from 14.60m to 28.68m in this period.

But this encouraging spike in the number of consumers using mobile phones and mobile broadband services notwithstanding, the telecom firms continue to struggle for survival in the country’s highly competitive market. Heavy taxation, high operational cost and fierce competition among the mobile phone operators to grab a bigger share in an already saturated market by slashing their prices are cutting into their profits. On top of that, the over-the-top (OTT) voice and messaging apps offering these services free of charge have left them with little to reinvest in infrastructure for improving their services.

At present, the 4G penetration rate is said to be just 4pc of the total market

The State Bank of Pakistan though insists that the increased use of mobile broadband services is helping improve financial health of ‘most’ telecom firms, the average revenue per user is still below $2 a month. Hence, the industry finds little appetite for another spectrum licence the government is trying hard to sell to raise Rs65-70m to cut its deficit.

The planned spectrum auction had to be twice cancelled this year on account of lack of interest shown by the operators.

Foreign direct investment in the telecom industry peaked to $1.91b in 2007 before drying up in the latter years. The only spike in FDI in the industry came in 2014 when $429m flew in on account of spectrum auctions to plunge again to $121m next year.

“The ARPU in China is $15 a month and spectrum is free of cost,” Liu Dianfeng, chief executive officer of Zong, a China Mobile company, told Dawn in an interview last week. “All the (five existing) operators are heavily losing money (on their investments). China Mobile, our parent company, has invested $3bn in infrastructure and for acquiring high-speed 3G and 4G spectrum licences during the last seven years. China Mobile has 31 provincial companies in China with returns as high as 20pc on the annual revenues of more than $100bn. But here we so far are losing money (in Pakistan).”

Wishing the government success in its planned spectrum auction in June, he hinted at staying away from the auction. “There is an upcoming auction next month… but I don’t know who’ll be attending it from the operators.” Nevertheless, Liu said his company, the country’s third largest mobile phone operator with a market share of a fifth of the total mobile phone subscribers, including 5.77m users of 3G and 584,000 users of 4G services, will continue to invest in infrastructure to expand network coverage, improve quality of services and enhance experience of users of its high-speed internet.

The firm plans to invest $400m in infrastructure this year with intentions to invest more in transmission next year. “We want to invest in our telehouse, and bring international content here for better experience. Initially, it can be free for our customers,” the CEO said.

He said the company’s investment in areas where power was not available goes very high. “Electricity support is a challenge to us; unavailability of power raises our cost of operating business. We’ve to spend a lot more to run generators as well as on security and maintenance.”

The only operator with 4G spectrum licence is finding it hard to penetrate into the 4G market. “It’s a big challenge as the government has imposed a new tax on smart phones that is hampering our effort to penetrate into the mass market. When we as a business talk about smart phone penetration we talk about mass market because the bigger the volumes we have the bigger the earnings we have,” Liu argued.

At present, the 4G penetration rate is said to be just 4pc of the total market.

Heavy taxation, the industry insists, is a major impediment to growth of data revenues. Initially, there was only sales tax on operators. Now there is voice tax, data tax (in Punjab and Khyber Pakhtunkhwa), and on top of that the one-time tax on handhelds.

Currently the industry is negotiating with the provincial governments for withdrawal of data tax. But the provinces want the telecom companies to offer special discounts on their tariffs in their territories in return. “Actually, this is a national issue and every operator has its own pricing strategy. We also have our own strategy for different regions. For example, we offer special packages to customers based on their specific regions and requirements. This is an industry issue so the industry is in continuous discussions with the government,” the Zong boss contended.

Liu pointed out that the overall tax burden on the companies was as high as 44pc of their revenues. “Last year, 41pc of our revenues was paid as tax. In the first quarter of 2016 to March, it increased to 44pc of revenues. In order to penetrate into the mass market we need to offer cheaper bundles and packages to consumers. But, currently, we cannot afford to develop cheaper bundles owing to the high taxation or we will not be able to meet our expense.

Liu agreed that future revenues for the telecom companies will come from data traffic. “At present, data revenues form 20pc of Zong earnings. Our focus in 2017 would be to have revenue from data at around 30pc. The data traffic model in Pakistan is slow to grow. Revenues from voice may be difficult in the future, but we must push data traffic to advance in this field. No one at this time can ignore the internet; it is business for us and we must accept this new business. No one can be exact about the future, but we are hopeful that our data revenue will continue to rise.”

The CEO said “it is difficult to make profit in this market, but we definitely will work hard to have the top network in the nation and support the many number of (CPECT-related) projects announced by the president of China. We will leverage the friendship of both countries to grow our network. We will support CPEC through providing the communication as well as end-to-end solutions of better and more advanced management. 4G will provide speed to connect the CPEC with centralised management system for all these projects. There is a lot of information which will be useful for managing the CPEC projects successfully, and we will act as an operator to provide that information through our 4G technology.”

But that is not his only plan for raising his company’s revenues. “The return on investment will come in many forms to us. Maybe in the future we can think about buying another operator and charging IoT (internet of things) while our subscribers continue to get them free of cost.”

Published in Dawn, Business & Finance weekly, May 30th, 2016