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UNCLAS SECTION 01 OF 02 ISLAMABAD 000442 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD PREL PK
SUBJECT: PAK TELECOM SECTOR SLUMPS 
 
¶1.  (SBU) Summary:  Based on conversations with several telecom 
executives and the Pakistan Telecommunications Authority (PTA) 
Director of Economic Affairs Muhammad Sargana, the 
telecommunications sector in Pakistan is suffering from market 
saturation and the general economic downturn.  Telecom companies are 
looking at value-added and broad-band services as areas for further 
expansion, but are hampered by a lack of available credit.  Rumors 
of the demise of the largest cellular phone company in Pakistan may 
be exaggerated, but the large cellular companies clearly are 
suffering financially.  PTA also imposed new SIM card registration 
requirements for security reasons, leading it to block 15 million 
unregistered SIM cards in February.  End summary. 
 
Telecom Market Overview 
----------------------- 
 
¶2.  (SBU) Pakistan Telecommunications Authority (PTA) Director of 
Economic Affairs Muhammad Sargana told econoffs February 24 that the 
economic slowdown has affected the previously robust 
telecommunications sector, although foreign direct investment 
continues to flow for telecommunications related infrastructure. 
Expansion of broadband and value added services could prove a bright 
spot in the market. 
 
¶3.  (SBU) Pakistan's tele-density is approximately 60 percent, well 
above Bangladesh and India, at 25 and 20 percent, respectively.  The 
number of cellular subscribers grew more than 80 percent annually 
over the last few years, then dropped to 40 percent last year.  One 
telecom executive quipped that "even the man who cannot feed himself 
and sleeps on the street has a cell phone."  The sector is now 
plateauing, however, due to market saturation and the economic 
slowdown. 
 
¶4.  (SBU) Cellular phones currently comprise 90 percent of the 
telecommunication market share, Sargana said.  However, four of the 
five major cellular companies in Pakistan reported losses in 2008. 
Of the five major cellular companies - Telenor, Mobilink, Zong, 
Warid and U-Phone - only U-Phone was profitable in 2008.  U-Phone, 
controlled by the Emirates Telecommunication Corporation since 2006, 
when it bought the controlling share of the Pakistan 
Telecommunications Company Limited (PTCL), is one example of 
successful privatization by the Pakistan government.  U-Phone has 
been able to take advantage of pre-existing PTCL infrastructure and 
facility access to quickly become a market leader with relatively 
low entrance costs. 
 
Trouble on the Horizon? 
----------------------- 
 
¶5.  (SBU) Mobilink, owned by Egyptian based Orascom Telecom, remains 
the largest cellular company, with 30 million subscribers and 31 
percent share of the total market.  However, Mobilink market share 
is declining, and press rumors persist that Mobilink dealers are 
going on strike and that Mobilink will soon cease service.  Mobilink 
currently provides service for all of the US Embassy cell phones. 
 
 
¶6. (SBU) Sargana insisted that the press reports of Mobilink's 
imminent demise were not reliable; however, he stated that Mobilink 
undoubtedly is suffering due to a decrease in subscribers. 
(Comment:  Mobilink also lost its Chief Financial Officer in the 
Marriott hotel bombing last September. End comment.)  All of the 
cellular phone company executives queried stated that the cellular 
market in Pakistan is saturated and that fierce competition among 
the existing companies for a shrinking customer pool has led to very 
low profit margins and little variability in pricing options for 
providers. 
 
¶7.  (SBU) Most executives stated that they would be pursuing more 
value-added, broadband and wireless internet services to try and 
increase their shrinking revenues.  The density of high-end cellular 
and wireless services in Pakistan is still relatively low and 
subject to expansion. 
 
¶8.  (SBU) At an event hosted by the Foreign Commercial Service (FCS) 
on February 26, telecom executives were openly soliciting assistance 
 
ISLAMABAD 00000442  002 OF 002 
 
 
from bank executives and the USG through econoff to keep their 
businesses viable.  Two telecom executives spoke with econoff about 
the need for more capital to expand operations.  One solicited a 
meeting with a U.S. bank executive to speak about his company's 
immediate needs.  Another quipped that "we prefer to borrow money 
from U.S. banks, but it seems that the Chinese are easily able to 
promise and deliver any amount of money." 
 
¶9.  (SBU) One newer mobile phone company, Zong, owned by China 
Mobile Pakistan, increased its market share from 1 percent to 6 
percent in the last two years.  Some telecom executives stated that 
they thought Zong's position in the market is tenuous due to high 
entry costs; however, the company recently promised to invest $550 
million in additional infrastructure in Pakistan this year. 
 
SIMS and Security 
----------------- 
¶10.  (SBU) Sargana highlighted one notable recent PTA policy change, 
which requires purchasers of SIM cards to call and verify their 
identity with the Pakistan National Database and Registration 
Authority (NADRA) before the SIM card will be activated. 
Previously, users turned in written information to the SIM dealer, 
who then forwarded it to PTA.  In the mean time, the SIM was active. 
 
 
¶11.  (SBU) PTA found that the written data provided by SIM users and 
dealers was often inaccurate, and Sargana said that the real-time 
NADRA database check was an effort to enhance security and 
traceability in the cellular phone system.  As a result of the new 
SIM registration requirement, PTA has blocked approximately 15 
million unregistered or inaccurately registered SIM cards since the 
beginning of February. 
 
¶12.  (SBU) Comment:  The deregulation and privatization of the 
telecommunications sector and its rapid growth thereafter was one of 
the Musharraf government's success stories.  However, we cannot look 
to the previously robust services sector to contribute significantly 
to GDP growth, as the telecommunications sector is suffering.  The 
saturated market and general economic downturn, as well as 
tightening credit conditions for both consumers and businesses, is 
causing losses across the board.  The credit crunch may lead telecom 
companies to seek financing from sources they otherwise would not 
use, like Chinese firms that seem to have capital on hand.  Although 
the new PTA policy requiring registration for activation of a SIM 
card may cause difficulties for the providers, we view it as a 
positive step in that it increases security in the cell phone system 
and accountability in cellular phone usage. 
 
FEIERSTEIN