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A Comparative Study on Total Factors Productivity Performance of Cellular Firms in Pakistan

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A Comparative Study on Total Factors Productivity Performance of Cellular Firms in Pakistan A COMPARATIVE STUDY ON TOTAL FACTORS PRODUCTIVITY PERFORMANCE OF CELLULAR FIRMS IN PAKISTAN Shumaila Hashim1 and Khair-Uz-Zaman2 1Department of Business Administration and 2Department of Economics, Gomal University, D.I.Khan, KPK, Pakistan ABSTRACT This study empirically measures the total factors productivity (TFP) of three cellular firms i.e. Paktel, Pakcom and Mobilink operating in Pakistan. For the purpose of analysis, time series data (2000q1-2006q2) has been taken. For all three firms TFP is taken as dependent variable while output, teledensity, geographical areas covered and competition were taken as independent variables. By using the multiple regression models in log-linear form we obtained the positive and significant impact of all variables in all cases except competition that showed its impact negative in case of Paktel and Pakcom and geographical area that was insignificant in case of Mobilink. _________________________________________________________________ entrance of multinational cellular firms INTRODUCTION since 1990 till 2007 served as stepping Advancement in infrastructure especially stones in the growth of Pakistan in telecommunication sector is very telecommunication sector. important for any economy. At the time of independence Pakistan telecommu- Main purpose of this study is to measure nication sector was not well developed. the total factors productivity (TFP) of Telecommunication sector reforms were three pioneer multinational cellular firms started in 1962 and with the passage of working in Pakistan i.e Paktel, Pakcom time key telecom institutional bodies (Instaphone) and Mobilink. Since their like Pakistan Telecommunication inception of operation in Pakistan they Authority (PTA), National Telecommu- have seen many ups and downs. This nication Corporation (NTC) and study tries to examine the impact of Frequency Allocation Board (FAB) were those variables that are responsible for established. Telecom Sector Reorga- growth of total factors productivity in nization Act 1996, Telecom these three cellular firms. Let we study Deregulation Policy 2003, privatization the profile of these firms: of Pakistan Telecommunication Company Limited (PTCL) in 2006 and Hashim & Zaman., Gomal University Journal of Research 27(1): 55-68 (2011) 56 Paktel & Pakcom (Instaphone) Instaphone were classified as Luxembourg based Millicom discontinued operation. Total telecom, a International Cellular (MIC) Group part of Arfeen group finally acquired Company which operates Advanced Instaphone and thus its sale was finally Mobile Phone System (AMPS) and completed in June 2006, Millicom was Global System for Mobile (GSM) actively selling Paktel as of Dec31, cellular services M/S PakCom 2006. Millicom international signed for (Instaphone) and Paktel in Pakistan, is a the sale of 88.86% shareholdings in global telecommunications operator with Paktel limited to China Mobile ventures in 16 countries worldwide Communication Corporation. The including countries in Latin America, transaction implies an enterprise Asia and Africa. Paktel was the first valuation for Paktel Ltd of US$460 cellular mobile service operator in million. The total cash received by Pakistan and for a long time the word Millicom as a result of this transaction Paktel was commonly used as another was approximately US$284 million. The word for mobile phone. It started its sale of Paktel was completed on 13th operation in Pakistan since 1990. February, 2007. Later on it has acquired Ministry of Communication issued both 100% stock of Paktel. Current licenses, free of cost. As per license subscribers’ base of Paktel and requirement both companies started their Instaphone are 1,024,563 and 333,081 operation from Karachi in December respectively [Millicom, 2006)]. Table 1 1990, after it Paktel started its services in and 2 show the details of revenue, Lahore and Instaphone in Islamabad in earnings before interest and taxes late 1991 (http://www.millicom.com). (EBIT) and net income (loss) of Paktel and Instaphone respectively. Paktel has entered the digital mobile network market with the launch of its Table 1 review of paktel performance GSM and AMPS services and formed Items 2004 2005 2006 Revenue 34,349 51,862 55,430 strategic alliances with mobile giants EBIT (1,839) (37,877) (43,492) Samsung and Nokia. In 2006, Millicom Net Income (2,412) (54,450) (74,927) (Loss) decided to exist from its business in Source: Millicom International Cellular SA, (Annual Reports & Accounts,2006) Pakistan and as a result Paktel and Hashim & Zaman., Gomal University Journal of Research 27(1): 55-68 (2011) 57 Table 2 review of instaphone performance Mobilink was awarded a license for (US$, 000) mobile communication system and Items 2004 2005 2006 services in July 1992, and commenced Revenue 54,337 34,640 10,948 its operation in 1994, becoming the first EBIT 7218 (36,324) 7,866 company in Pakistan to setup and Net Income (5,435) (45,581) (281) (Loss) operate a digital mobile network based Source: Millicom International Cellular SA, (Annual Reports on GSM 900 technology. Mobilink was & Accounts, 2006) awarded a license for 15 years in July Pakistan Mobiles Communication Limited (Mobilink) 1992 to establish and operate. In July Mobilink launched its operation in 2000, PTA indicated that Mobilink August 1994 after it was founded in license would be renewed on 5th July, 1990 as a joint venture between 2007 for the further period of 15 years. Motorola and Saif group. Mobilink is the PTA confirmed the following payment most expensive network in Pakistan schedule: US$ 14.55 million will be captures 56% of the total population and payable in each of July 2007, January st 95% of the urban population as of 31 2008, July 2008 and January 2009; US$ December, 2006. Mobilink has invested 29.1 million to be payable in each of more than US$2.0 billion in its mobile July 2009, January 2010 and July 2010 communication network and has and the balance of the fee will be paid in approximately 5,250 cell sites and 50 ten equal installments of US$14.55 switches, Mobilink served over 22 million with first installment payable in st million subscribers as of 31 December, July 2011 (http://www. 2006, representing a market share of orascomtelecom.com). On 26th June, approximately 46.3% of total mobile 2006, Mobilink was granted another subscribers in Pakistan.Mobilink has Azad Jamu & Kashmir and Northern coverage area of more than 10,000 cities, areas license for a period of 15 years towns and villages and providing (Orascom telecom, Annual Report, international roaming services in 130 2008). countries Mobilink markets its prepaid services (http://www.mobilinkgsm.com/coverage using the Jazz trade name and its post- /index.php). paid services using the brand name Hashim & Zaman., Gomal University Journal of Research 27(1): 55-68 (2011) 58 Indigo. In addition to the basic voice Table 3 review of mobilink performance services, Mobilink also provide its Items 2004 2005 2006 Revenue (US$, 379,484 732,594 1,017,239 subscribers other services like voice 000) EBITDA (US$, 212,410 292,928 406,537 mail, closed user group, SMS, call 000) waiting/holding, call forwarding, caller’s EBITDA margin 56.0 40.0 40.0 (%) line identification presentation, free ARPU US$ (3 9.7 6.7 4.1 months) minutes services such as MMS through MOU (YTD) 173 156 130 its GPRS platform Source: Orascom Limited (Annual report 2004-2006) (http://www.mobilinkgsm.com). This study is organized as follows: Motorola entered in an agreement with • Review of literature by including the Mobilink to deploy a WiMAX 802.16e- theoretical and empirical findings. 2005 access network for the operator in • Description of research methodology and about dependent and independent the country. According to an agreement, variables. Motorola will design, plan, deploy and • Limitations of the study. • Interpretation of regression results optimize a WiMAX network for and analysis. Mobilink, deliver integration and • Conclusion. • Results are given in appendix. support services as well as indoor and LITERATURE REVIEW outdoor customer premises equipments Madden et.al. (2003), studied the growth (CPE) units to enable faster adaptation in total factor productivity (TFP) of 12 of the operator’s WiMAX offerings. Asia –Pacific telecommunication firms This network will enable Mobilink to for the period from 1987-1990. They used following model: extend its current services beyond data TFP it = δ0 + δ1 Qit+ δ2 MIXit + δ3 COMPit + δ4 PRIVit + ut and cellular offering to high speed Where broadband and VoIP services for fixed TFP = Total Factor Productivity line residential and business subscribers Q = Output (The NEWS, Dec6, 2007). Table 3 MIX = Output Mix shows the details Mobilink Pakistan’s COMP =Competition PRIV =Privatization revenue, earnings before interest and Ut = Error term, with zero mean and taxes (EBIT), operating income, average no variance. revenue per user (ARPU) and minutes of They measured output growth as the log use. difference of aggregate Hashim & Zaman., Gomal University Journal of Research 27(1): 55-68 (2011) 59 telecommunication output, where Madden and Savage (2001), employed a telecommunication output is measured Malmquist index to calculate by minutes of local exchanges, long telecommunications TFP growth of 74 distance and out-going international countries for the period from 1991-1995. traffic. Technology is the log change of They used a model relating TFP growth the telecommunication technology index to output growth, network digitization, and the proxy for telecommunication telecommunications development, change is based on a network-switching output mix, business cycle and market indicator. Oum and Zhang (1995), structure. He empirically found the defined the index is annually as the log positive impact of advance technology, of one plus the percentage of main lines competition and privatization on TFP. served by digital switches. Output Mix Gort and Sung (1999), studied the effect was measured by the log change in of competition on the efficiency of the domestic output divided by the log United States domestic telephone change in aggregate output. Competition industry. They found that efficiency was the dummy variable.
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