Pakistan telecom sector contribution to GDP dips in 2010-11

Pakistan telecom sector’s contribution to Gross Domestic
Product declined in the financial year 2010-11 with profitability within the
sector has been eroded on account of rising marketing expenditure in response
to aggressive competition.

State Bank of Pakistan in its report The State of Economy
said overall telecom sector revenues recorded 6.7 percent growth during fiscal
2011 as compared to the marginal 1.5 percent increase recorded in fiscal 2010.

The increase in operating costs has also tended to offset
overall revenue growth witnessed in this sector consequently, both operating
profits and margins of telecom companies registered declines in fiscal 2011.

Within the telecom sector, the growth in revenues of
cellular mobile companies showed some stability in fiscal 11 after recording
successive declines for the past three years. Part of this improvement is
attributable to growth in Average Revenue per User (ARPUs) as well as the total
cellular subscribers’ base.

However, the revenues of Local Loop providers continued
the falling trend observed since the past few years. The cellular density in
Pakistan has been increasing consistently, reaching 64.8 percent in April 2011
as compared to a level of 60.4 percent in June 2010.

However, this level of mobile phone penetration is lower
than most other regional countries, suggesting that growth potential in this
sector is still strong but it will require additional investments in
infrastructure to increase the subscriber base further and tapping market’s
potential, SBP report said.

Telecom companies are more focused on expanding the range
of services for improving revenues but his strategy has resulted in tough
competition, leading to very high marketing costs and declining operating
margins of the service providers.

The continuation of competitive trend is likely to
increase market saturation and further weakening of profitability. Therefore,
in the absence of increase in network coverage the growth in telecom sector is
likely to decelerate further, according to SBP report.

By Team
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