J U L Y 2 0 0 7
Foreign Direct Investment in Pakistan Telecommunication Sector 파 키 스 탄 통 신 분 야 로해 외직 접투 자활 동
Aasif Inam Pakistan Telecommunication Authority Agenda
PAKISTAN INVESTMENT BRIEF
DOING BUSINESS IN PAKISTAN - INDEX
TELECOM SECTOR – AN OVERVIEW
INVESTMENTS IN TELECOM SECTOR
FINANCIAL HIGHLIGHTS
FUTURE PROSPECTS
QUESTIONS & ANSWERS F O R E I G N D I R E C T I N V E S T M E N T I N P A K I S T A N T E L E C O M S E C T O R T O C S E C O M L E T E N A T I S K A P N I T M E N T E S V I N T C E I R N D I G R E F O Pakistan’s Investment Brief
A Reinvigorated Economy
n a st ki a P
- Re-alignment of - Political stability - Opened economy by - Reduced Ext. Debt - GDP Growth up 4X Interests - Consistency through extensive reforms - Access to int. markets - Exports up 2X - War on Terror Legal Framework - Investor facilitation - Stable credit ratings - Poverty Reduced - Relations with India - Devolution - Legal Protection - Growing Income - Economic interests - Stable Currency - Contained inflation - FX Reserves up 10X - Development spending - Fiscal deficit halved P A K I S T A N I N V E S T M E N T B R I E F R B T N E E S T M V N I N A I S T K A P 2 The Growth Story
Pakistan witnessing rapid and sustainable economic growth
Nominal GDP (US$ billion) & Real GDP Growth (%) Real GDP Growth ‘06 (%)
207 6.6 GR CA 182 5.7 13% 5.4 161 8.4 4.7 142 6.6 8.2 6.4 7.8 8.0 111 7.4 125 5.1 72 96 82 3.1
2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E Pakistan ASEAN Latin America MENA Nominal GDP (US$ billion) Real GDP Growth (%)
• One of the fastest growing economies in Asia • Expected to surpass the US$ 200 billion GDP mark by 2010
Source: Pakistan Ministry of Finance, Economist Intelligence Unit P A K I S T A N I N V E S T M E N T B R I E F R B T N E E S T M V N I N A I S T K A P 3 The Growth Story (Cont’d)
Wealth levels have increased and a large middle-class is emerging
GDP per Capita (US$ PPP) Household Income Distribution (%) AGR 3,420 9% C 6. 3,200 2,980 2,780 2,590 41.7 2,410 49.3 2,210 2,070 1,980
48.6 45.0
5.7 9.7
2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E 1991 2002 Lowest 20% Middle 60% Highest 20%
• Rising disposable income • Increasing income distribution largely a result of decreasing unemployment • Accelerating income growth across lower and middle segments of population
Source: Economist Intelligence Unit, Pakistan Federal Bureau of Statistics P A K I S T A N I N V E S T M E N T B R I E F R B T N E E S T M V N I N A I S T K A P 4 The Growth Story (Cont’d)
International investors have begun to take notice of the Pakistan story, however significant upside remains as FDI flows are still far below regional levels
Foreign Direct Investment (US$ million) Foreign Direct Investment (% of GDP), 2006
6,280
13.9 GR CA 61% 3,521 9.1
1,524 2.8 798 949 485 1.1
2002 2003 2004 2005 2006 2007 Pakistan Singapore India UAE
• Opening up of economy leading to strong foreign interest • FDI inflow more than doubled in 2006 & 2007. • Broad based inflow across sectors
Recent notable investments by Phillip Morris, China Mobile, Standard Chartered, ABN AMRO and Etisalat
Source: Economist Intelligence Unit, Pakistan Federal Bureau of Statistics P A K I S T A N I N V E S T M E N T B R I E F R B T N E E S T M V N I N A I S T K A P 5 The Growth Story (Cont’d)
Significant decline in external debt
External Debt (% of GDP) External Debt (% of GDP), 2006
47 46 34.0 30.8 44
19.1 38 16.0 36 34
2001 2002 2003 2004 2005 2006 Pakistan Singapore India UAE
• Consistent decline in external debt / GDP ratio • Concerted effort to move away from poorly structured high-interest debt • Allowing increasing government expenditure on development projects
Source: Economist Intelligence Unit, Pakistan Federal Bureau of Statistics P A K I S T A N I N V E S T M E N T B R I E F R B T N E E S T M V N I N A I S T K A P 6 Turnaround Strategy – Economic Framework
Creation of an enabling and governed economic framework
Policy Description All sectors are open to FDI with equal treatment of local and foreign investors Investment 100% foreign equity allowed, and royalties, franchise fees, capital, Policy & profits, dividends etc all fully repatriable Environment Attractive tax / tariff incentives package Low cost of doing business, one-window facilitation Reduction in corporate tax rate from 39% in 2005 to 35% by 2007 for private companies
Creation and subsequent strengthening of the institutional capacity of a number of independent regulatory bodies in Pakistan that have Regulatory developed management structures, technical expertise, technology and Framework enforcement capacity compatible with international best practices
Massive capital market reforms aimed at risk management and mitigation of systemic risks P A K I S T A N I N V E S T M E N T B R I E F R B T N E E S T M V N I N A I S T K A P 7 Agenda
PAKISTAN INVESTMENT BRIEF
DOING BUSINESS IN PAKISTAN - INDEX
TELECOM SECTOR – AN OVERVIEW
INVESTMENTS IN TELECOM SECTOR
FINANCIAL HIGHLIGHTS
FUTURE PROSPECTS
QUESTIONS & ANSWERS F O R E I G N D I R E C T I N V E S T M E N T I N P A K I S T A N T E L E C O M S E C T O R T O C S E C O M L E T E N A T I S K A P N I T M E N T E S V I N T C E I R N D I G R E F O Ease of Doing Business in Pakistan New Zealand Singapore Canada United States Hong Kong Hong Japan United Kingdom United Germany Thailand Malaysia Korea Pakistan South Africa China Srilanka Bangladesh India Vietnam Indonesia Congo Dem Congo
01 02 03 04 07 09 10 19 20 21 27 28 60 65 75 91 99 115 116 155 Ease of Doing Business:wise) (Country
Ranking: Highest (01); Lowest (155)
Source : World Bank and IFC report “Doing Business in 2006” D O I N G B U S I N E S S I N P A K I S T A N A I S T K A P N S I N E S I B U S N G I O D 9 Agenda
PAKISTAN INVESTMENT BRIEF
DOING BUSINESS IN PAKISTAN - INDEX
TELECOM SECTOR – AN OVERVIEW
INVESTMENTS IN TELECOM SECTOR
FINANCIAL HIGHLIGHTS
FUTURE PROSPECTS
QUESTIONS & ANSWERS F O R E I G N D I R E C T I N V E S T M E N T I N P A K I S T A N T E L E C O M S E C T O R T O C S E C O M L E T E N A T I S K A P N I T M E N T E S V I N T C E I R N D I G R E F O Telecom Sector – An Overview
Telecom – A Success Story
Telecom has emerged as the success story in the recent years For years, Pakistan's telecom sector has plodded along, seemingly stuck in the mid-20th where win-win scenario for all participants (Customers, century. Its newly deregulated sector is taking off -- and may lift the economy. When the Investors & Government). transformation is over, Pakistan telecom will be firmly rooted in the 21st century.
Over the last four years, Pakistan has witnessed rapid (BusinessWeek January,2005) transformation in its telecom service industry through a series of discrete liberalization measures.
The number of cellular subscribers has more than tripled in the last two years and today mobile subscriber base has
crossed 63 million whereas 7 million new connections on 228.9 average are added in in every quarters of 2006-07 improving Teledensity May-2007 teledensity further to 43 percent. Currently, there are more than 6.5 Mln fixed line subscribers and more than 2.1 Mln 146
internet users in the country. 94
43 2 Mobile Licenses, 14 Long Distance International Licenses, 35 37 Fixed Local Loop licenses and 17 Wireless Local Loop licenses 20 9 7 have been awarded to different companies. This made the i l o o s a a g e a tn d h pa pr iy as kn sd Kn i a n e market highly competitive. a a l ea l k I l g g i N a a r g n n i n o M P S S a H B T E L EC O M S EC T O R – O R T EC M S O EC L E T W I E V E R V O N A 11 Telecom Sector – An Overview
U Kazakhstan Almaty Frunze # # MARKET STATISTICS Land locked LICENSE STATUS Toshkent Uzbekistan energy# rich Kyrgyzstan Population: 156 million Central Asia Samarkand BasicKashi Telephony 04 # # Turkmenistan Dushanfe Geographical Area 796,096 sq. km # Ashkhabad Tajikistan Mobile Cellular 06 #
Number ofMashhad Fixed Lines: 6.5 million China # LDI 14
Number of MobilesHer : at 63 million Kabul # # Islamabad WLL Jum mu & 17 Kashmir # Tele-density 43 percent # (Disputed Territory) Afghanistan Rawalpindi Yazd FLL 38 # Qandahar Faisalabad Lahore Internet Coverage # 2389 # # # Amritsar Capital & (Cities Iran& Towns) Value Added 510 energy Zahedan Pakistan surplus Middle # Pakistan Internet subscribers: 2.4 million New Delhi Delhi Nepal # East Internet/DataKathmandu 213 # Broadband Subscribers : 60,000 Jaipur Lucknow # BoomingKanpur East# India # Hyderabad Asia Patna Benares # # # Abu Zaby # Karachi # Masqat # Ahmadabad ab Emirates # Ca Oman N T E L EC O M S EC T O R – O R T EC M S O EC L E T W I E V E R V O N A 12 Pre-Deregulation Scenario & History of Deregulation
Phases Description
PTCL’s Monopoly in Market, State owned Incumbent Little to No Investment Pre 4 Mobile licenses, but only Mobilink’s Monopoly Deregulation High Tariffs, Low Quality of Service High Tax Rates & High Activation Taxes
• Posts & Telegraph Deptt. - 1947 • Pakistan Telephone & Telegraph Deptt. – 1962 • Telecom Corp. - 1990 • Under Pakistan Telecom Corp Act – 1991 • Licenses to Pvt. Sector Participants for Cellular, Card Operated De-Regulation payphones, paging & data communication Services History • Issue of 600 million (16%) PTCL shares – 1996 • PTCL, PTA, SCO, NTC - 1996 • Listing on all stock exchanges of Pakistan • Mobile (Ufone) & Internet (Paknet) subsidiaries – 1998 • Privatization of state owned incumbent PTCL T E L EC O M S EC T O R – O R T EC M S O EC L E T W I E V E R V O N A 13 Pre-Deregulation Scenario & History of Deregulation
Phases Description
• Open Licensing Regime & Technology neutral • License Term - 20 years, review after 5 years De-Regulation • Local Loop (LL) – US$ 10,000 - 14 Regions Policy • Wireless Local Loop option (Spectrum Auctioned) • Long Distance and International (LDI) – US$ 500,000, (performance bond USD10million) • Access Promotion Charges (applied to Fixed)
• Promotion of efficient use of Radio spectrum Mobile Policy • License Term – 15 years • Encouraged private investment & fair competition
• Encouraged the entry & growth of new service providers • Encourage private sector investment Broadband • Encourage local content generation and broadband service Policy provision • Increased choice of broadband technologies T E L EC O M S EC T O R – O R T EC M S O EC L E T W I E V E R V O N A 14 Cellular Mobile Coverage T E L EC O M S EC T O R – O R T EC M S O EC L E T W I E V E R V O N A 15 Wireless Local Loop Coverage T E L EC O M S EC T O R – O R T EC M S O EC L E T W I E V E R V O N A 16 Agenda
PAKISTAN INVESTMENT BRIEF
DOING BUSINESS IN PAKISTAN - INDEX
TELECOM SECTOR – AN OVERVIEW
FINANCIAL HIGHLIGHTS
INVESTMENTS IN TELECOM SECTOR
FUTURE PROSPECTS
QUESTIONS & ANSWERS F O R E I G N D I R E C T I N V E S T M E N T I N P A K I S T A N T E L E C O M S E C T O R T O C S E C O M L E T E N A T I S K A P N I T M E N T E S V I N T C E I R N D I G R E F O Financial Highlights
Profit & Loss Statement USD year-end December FY05 FY06 Revenue 664,109,941 928,173,871 Net profit 98,640,830 67,696,473 EBITDA margin 40% 40% Mobile – SMP Sales Growth 40% ROE 62% 45% EPS 0.86 0.59 Source: Company reports
Profit & Loss Statement USD year-end June FY05 FY06 Revenue 1,266,206,050 1,151,423,933 Net Profit 443,427,617 346,290,500 FIXED LINE – SMP EBITDA margin 69% 63% Sales Growth -9% ROE 39% 29% EPS 0.09 0.07 Source: Company reports F IC N A N I A L H I G H L I G H T S 18 Agenda
PAKISTAN INVESTMENT BRIEF
DOING BUSINESS IN PAKISTAN - INDEX
TELECOM SECTOR – AN OVERVIEW
FINANCIAL HIGHLIGHTS
INVESTMENTS IN TELECOM SECTOR
FUTURE PROSPECTS
QUESTIONS & ANSWERS F O R E I G N D I R E C T I N V E S T M E N T I N P A K I S T A N T E L E C O M S E C T O R T O C S E C O M L E T E N A T I S K A P N I T M E N T E S V I N T C E I R N D I G R E F O Pakistan the Home of World Telco’s I N V E S T M E N T S I N T E L E C O M S E C T O R M S E C O L E T E N I T S M E N T V E S N I 20 Foreign Direct Investment in Telecom Sector
Pakistan is a growing telecom economy and Share in GDP communication sector has attracted FDI of $1.55billion during the first eleven months 4.0% of 2006-07, including 133.2 million from privatization proceedings 1.7% 1.7% 1.9% 1.6% Telecommunication Sector remained the top earner of FDI in 2006. 2001-02 2002-03 2003-04 2004-05 2005-06
In the first nine months Inflows in communication grew by 34 percent over correspondent period of 2005-06
Telecom Sector’s share in GDP has raised to 4 percent in 2005-06 I N V E S T M E N T S I N T E L E C O M S E C T O R M S E C O L E T E N I T S M E N T V E S N I 21 Major Investments in Telecom Sector
Norway's group TELENOR acquired fifth Mobile Cellular license in the country for $290 million in 2004.
UAE group WARID acquired sixth Mobile Cellular license in the country for $290 million in 2004.
Emirates Telecommunication Corporation (ETISALAT) bought 26 per cent stake in Pakistan Fixed Line incumbent Pakistan Telecommunication Company for $2.6 billion in 2005.
China Mobile has acquired 100 percent stakes of one of the Cellular Mobile company - Paktel Limited. Initially China Mobile had acquired 88.86 percent share in Paktel for $460 million.
Qatar Telecom has bought 75 percent stakes of Burraq Telecom for Nationwide and International Telephony Networks.
Orascom Telecom of Egypt, laid down first private sector undersea Fiber Optic cable for $60 million. I N V E S T M E N T S I N T E L E C O M S E C T O R M S E C O L E T E N I T S M E N T V E S N I 22 Investments during Last Week
June 25, 2007
Egyptian based Orascom Telecom who had 88 percent stakes in Mobilink, the largest cellular operator of Pakistan has just acquired the remaining 11.31 percent stakes in the company for $290 million from a local investor. Now Orascom holds 100 percent stake in the company.
June 28, 2007
Waridtel one of the six cellular operators of Pakistan was in talks with Singtel of Singapore, Vodafone of Britain & Kuwait Mobile of Kuwait to sell its minority stakes. The deal has been materialized in favor of SingTel of Singapore. SingTel has acquired 30 percent stakes in the company for $758 million. I N V E S T M E N T S I N T E L E C O M S E C T O R M S E C O L E T E N I T S M E N T V E S N I 23 Private Sector Investments
CM-PAK of China Mobile has pumped $700 million in Pakistan Telecom Sector for its network expansion in Rural Areas since its take over of Paktel. This is a part of $2 billion investment plan of the next three years, all of which will come from China.
CM-PAK of China Mobile has signed a contract for its network expansion worth $500 million, with the four of its strategic partners (vendors):
— ALCATEL-Lucent Pakistan Ltd. — ERICSSON Pakistan (Pvt) Ltd. — Huawei Technologies Pakistan (Pvt) Ltd. — ZTE ZhongXing Telecom Pakistan (Pvt) Ltd.
Emirates Telecom (Etisalat) that has 26 percent stake of PTCL, the incumbent fixed line operator under its new management has planned to invest $500 million to widen PTCL’s existing fixed line network and to add approx. one million more telephone lines I N V E S T M E N T S I N T E L E C O M S E C T O R M S E C O L E T E N I T S M E N T V E S N I 24 Private Sector Investments
Mobilink has placed $250 million of senior notes in November 2006, due 2013. Mobilink was rated B1 and B+ and the notes were rated B3 and B+ by Moody's and Standard & Poor's respectively. The notes bear an interest at a rate of 8.625% per annum. The proceeds of the issue will be used to fund ongoing capital expenditure for Mobilink's network expansion.
Mobilink has also placed another $750 million of senior notes in February 2007, due 2014. with an interest rate of 7.875% per annum to fund its CAPEX for network expansion.
Mobilink has made investment commitment for the current financial year, as the company showed highest figures for network expansion in 2006. Its total budget for 2006 stood at $600 million. I N V E S T M E N T S I N T E L E C O M S E C T O R M S E C O L E T E N I T S M E N T V E S N I 25 Private Sector Investments
UFONE the second biggest cellular mobile operator has awarded a contract to HUAWEI Telecom worth $550 million as part of its network expansion and to reach out in the rural areas. This was the biggest ever investment in mobile sector for one year in South East Asia.
UFONE a cellular mobile license and a subsidiary of PTCL the incumbent has raised $55 million in collaboration with a local bank Habib Bank for its network expansion.
NAYATEL has laid down region’s first FTTH (Fiber to the Home) net work to deliver a full range of high bandwidth triple play services in the capital city of Islamabad. Nayatel has contracted with Alcatel to deploy their latest Alcatel 7340 FTTU solution for their project. Alcatel’s 5020 softswitch will provide NayaTel with next generation scalable VoIP services.
TELENOR has so far invested over $1.2 billion and is the fastest growing cellular network of Pakistan I N V E S T M E N T S I N T E L E C O M S E C T O R M S E C O L E T E N I T S M E N T V E S N I 26 Deals of Horizon
DV Com Pakistan, a licensed based LDI and limited mobility telecom operator is in the process of finalizing sale of its LDi & WLL business to a Middle Eastern Group.
World Call is one of the largest Pakistani Private group in telecom sector. They have Long Distance International, Fixed Local Loop, Limited Mobility and Broadband Licenses are in final stages of selling its majority stakes in one of Middle Eastern Group.
Pakistan’s pioneer and the largest company in Card Payphone Telecard also having LDI and WLL license is planning to sell minor stakes to a UAE group (name undisclosed) I N V E S T M E N T S I N T E L E C O M S E C T O R M S E C O L E T E N I T S M E N T V E S N I 27 Agenda
PAKISTAN INVESTMENT BRIEF
DOING BUSINESS IN PAKISTAN - INDEX
TELECOM SECTOR – AN OVERVIEW
INVESTMENTS IN TELECOM SECTOR
FINANCIAL HIGHLIGHTS
FUTURE PROSPECTS
QUESTIONS & ANSWERS F O R E I G N D I R E C T I N V E S T M E N T I N P A K I S T A N T E L E C O M S E C T O R T O C S E C O M L E T E N A T I S K A P N I T M E N T E S V I N T C E I R N D I G R E F O Future Prospects…
Pakistan Telecom market is quite competitive and there is great potential for growth.
The market has lower ARPUs, with 63 million mobile customer based, However with an appetite of another 50 million the focus of prospective investors should be towards volumes.
High time for a reputable international telecom operators to capitalize on opportunities in Pakistan, offering one of the best business opportunities in rural areas and in the areas of Local Loop Access Networks (WLL, Wi Max FTTx etc.)
Broadband penetration is low, and investment in fixed “line” technologies (Wireline and Wireless) can deliver and trigger the broadband proliferation today what cellular is promising for tomorrow. Local Loop is investment hungry and has a lot of potential provided the investors are willing to take a long term view.
With 63 million mobile subscribers, and ever growing market Investment in Local Manufacturing of network equipments and handsets is one area which can be capitalized. ($560 million worth of Mobile phones were imported in 2006) F U T U R E P R O S P E C T S C P E S R O P R E T U F U 29 THANK YOU
30 Prospective Economic Environment
Vibrant Economy spurred by FDI and Domestic investment
STRUCTURGovernance Reform Policies Institutionalized, AL Reforms Ensuring Continuity REFORMS Capital Market Financial Sector Reforms Transparent and Predictable Economic Reforms Policies
Improved External Balance of Payments
Trade & Tariff Reforms Tax Reforms Declining Domestic and External Debt Burden
Increased Foreign Exchange Reserves
Deregulation & Privatization Pricing Process Confidence of the Private Sector Fiscal Restored Transparency Exports Growing at Double-digit Rates
Inflows of Remittances Surged F U T U R E O U T L O O K K L O O T O U R E T U F U 31