ICTs in 2014


January 01, 2015 Hammad Haider – BR Report –

2014 was a largely positive year as far as Pakistan’s ICT industry is concerned. However, there were a number of areas which could have performed well. Let’s look at both the events and non-events that took place during the year. Firstly, let’s look at the “C” in ICT that is telecommunications.

Telecoms The long-pending 3G spectrum auction took place in April 2014. On top of four 3G licenses to four operators, the telecom authorities were also able to auction one 4G license. So, Pakistan simultaneously launched 3G and 4G services in the country this year after a long wait. 3G and 4G network rollouts are currently underway and high-speed mobile internet is now available in a number of major cities and some second-tier towns. As the year closed out, Warid Telecom, the only operator which didn’t take part in the spectrum auction, announced launch of LTE services on its existing network. After that, consumers now have a choice between two 4G service providers.

There were 4.96 million 3G subscribers and 1,452 4G subscribers as of November end. These numbers are expected to grow manifold in 2015. Thanks to the auction, telecom investment also picked up during the year. As per PTA’s statistics, FDI in telecom sector jumped from negative $408 million in FY13 to $903 million in FY14. Overall telecom investment – which includes local equity and debt-financing – had reached $1.8 billion, about four times the level seen in FY13. Telecommunications industry, particularly the mobile broadband networks, is helping raise the country’s FDI inflows. In the FYTD, too, 35 percent of the overall net FDI of $423 million had been sourced by the telecom industry. More FDI is expected to come in rest of FY15 as well.

During the year, the Ministry of IT and Telecom (MoIT) showed progress on another pending issue: telecom sector policy framework, which had expired in 2008. The MoIT had issued a draft framework in July this year, sought the market feedback, incorporated the same, and released the tweaked document one more time in October for final consultation. The framework was expected to be released in December; but now it seems it will likely be released early this year. It is hoped that the new framework will address key industry issues like spectrum availability, infrastructure sharing, right-of-way rules, etc.

The long-distance and international (LDI) telephony has seen its ups and downs in recent years. It is widely believed that a sustainable LDI business is only possible if the government reduces super-taxes such as the access promotion charge (APC) and goes after illegal telecom gateways and exchanges. During the year, telecom authorities seemed to get a better sense of the issue and stepped up their efforts. On one hand, surveillance of unscrupulous operators and exchanges was tightened as the authorities conducted raids and busted such establishments. On the other, the controversial International Clearing House (ICH) regime, which severely divided the industry on its pros and cons for genuine LDI business, was abandoned in 2014. Moreover, the APC was reportedly under the scrutiny with the intention to bring it down to zero. That’s the right course to take, and one hopes, it will see some concrete action in 2015.

Other than these positive and major developments, the year 2014 left a lot to be realised. For one, the federal government, encouraged by the outdated policy framework, is still sitting tight on the billions of rupees that belong to the Universal Service Fund (USF) Company, which undertakes ICT infrastructure development of unserved and underserved districts of Pakistan. The USF needs administrative and financial independence, as originally envisaged, to be able to perform its role. Right now the pace of disbursements is slow because of internal organisational structure as well as external government influence. Critically-needed projects like optic fiber and broadband penetration to rural areas demand a fast-track process of USF contracts and disbursements, all done in a transparent manner.

The government did try to bring telecom-consumption-related taxes down a notch in 2014. In the federal budget for 2014-15, the government announced a 1 percent cut in withholding tax to 14 percent and a 1 percent cut in GST to 18.5 percent in areas of Balochistan, Fata, Gilgit-Baltistan, and Islamabad. These cuts are welcome but they are miniscule and do not apply to much of Pakistan. Taxes on account recharge and airtime usage are still very high. Pakistan ranks amongst the heaviest-taxed countries in terms of telecom’s total cost of ownership. Considering the ongoing rollout of a completely new service (mobile broadband), whose mass adoption needs, among other things, some tax relief on airtime consumption, taxes must be brought down significantly in order to boost usage.

The long-running YouTube ban was expected to be lifted last year. However, despite government assurances to rights organisations and courts, the popular video-sharing and hosting platform remains blocked in Pakistan, much to the detriment of the learning community, artists, and entrepreneurs. It has been nearly two and a half years that the ban is in place, and may remain in place in 2015. The legislation on the draft Prevention of Electronic Crimes Bill is also pending. The bill is likely to be cleared this year in the wake of rising online and social media use in the context of terrorism, gender harassment, and extortion.

Information Technology

In order to boost IT exports and encourage local IT firms to remit most of their revenues back home, the Pakistan Software Export Board and the MoIT have reportedly finalised a plan. In a graduated manner, the plan will provide for a lower GST levy on IT hardware import machinery for IT firms that remit more of their overseas sales or profits back home. Officials believe that many IT firms are only declaring a third of their real software exports. The tax break on corporate profits of software exporters is expiring in June 2016. The renewal of the exemption will require legislation, work on which is reportedly underway.

2014 saw many local, tech-enabled start-ups to rise and shine. Pakistan’s growing information technology-centered entrepreneurship ecosystem – with amazing businesses operating in online marketplaces, local-manufactured-and-branded products, and social-impact products – has made folks here and abroad to take notice. Graduates of incubators at organisations like the Plan9, i2i, and LCE have successfully mobilised international funding during the year. The momentum is expected to continue in 2015, with more quality start-ups rising and more international VCs taking exposure in this market.

National Broadband Policy

All forms of connectivity today are underpinned by broadband: fixed and wireless both. Telecom authorities and market leaders need to take a step back and rethink the old of making isolated policies for different telecom segments. Such policies worked well back in the 2000’s. But now it’s time to converge towards a holistic broadband policy framework that takes a 360-degree approach and includes both fixed and wireless solutions based on the scalability principle. Wireless solutions may work in the cities but are not so practical for rural areas, which need fiber optic coverage first.

Remember, ICTs are the enablers, not the decisive factors. Broadband can be the means to exact social change and economic renewal, but alone it will not suffice. The country first needs to have many more people with broadband access. Then, areas need to be identified, such as education, healthcare, agriculture, m-governance, etc for development policies to work well using ICTs. 2015 can be the year when a solid ICT foundation is laid out. For that, all stakeholders need to sit together and agree on an ambitious broadband-density timeline and “useful connectivity” mandates. That’s the starting point.

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