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Pakistan’s Digital Emergency: We Need to Act Now

The telecom industry’s commitment to the country and the Digital Pakistan agenda is unwavering. However, their declining health can only be revived by prioritizing connectivity as an essential human right. Policymakers should act now or risk going offline.

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We live in an era of rapid technological advancement and the internet is at the heart of driving this digital revolution the world over. Internet connectivity is the single most essential tool of communication which allows the world to become a global village. Internet access and use have become so indispensable that in 2016, the United Nations General Assembly declared the right to access the internet a human right. It is no longer a ‘good to have’; it is a ‘must have’!

However, this resolution failed to identify the role of governments in providing, facilitating, and ensuring optimum internet access to their people. Sadly, Pakistan is on the list of countries that consistently rank in the bottom quartile when it comes to access and use of this necessity.

Since the launch of mobile broadband in 2014, we have witnessed tremendous growth in the number of broadband users and the digital ecosystem. Out of 122 million broadband subscribers in Pakistan today, over 119 million use 3G/4G to stay online. This explains the impact that the telecom sector has in connecting this world of digital opportunities to the masses. Today, the telecom sector is the backbone of the digital economy and an essential layer for the digital ecosystem to thrive. Mobile broadband connectivity is no longer a luxury – it has become a fundamental right.

Read more: From bell to broadband: A tale of telecommunication

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Cracks in Pakistan’s digital infrastructure

So, what stops Pakistan from enjoying this right? Pakistan lags behind its peers in terms of 4G penetration, internet speeds, and affordability. More than 50 percent of cellular subscribers don’t use 4G, while around 15 percent of the population lives without any telecom coverage. As per Ookla, the global leader in network and connectivity intelligence, at 14.33 Mbps, Pakistan ranks 114 out of 140 countries in terms of average download speeds. The country is also the second highest-taxed telecom market in South Asia, where consumers are charged 34.5 percent usage tax – 15 percent advance income tax, and 19.5 percent general sales tax.

These indicators point toward a larger problem, which really came to the fore during the pandemic. As the nation went into its first lockdown, businesses, organizations and educational institutes prepared to work remotely. It was at this point that we realized that, barring a few technologically advanced outfits, the rest of Pakistan was nowhere near readiness. Businesses lost business, students were deprived of their education and a lot of people had no alternative to their livelihoods because of affordable and good connectivity.

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Through years of neglect and short-term policy approaches, the cracks in Pakistan’s digital infrastructure were laid bare and this was further compounded by the economic woes. Almost all industries are affected, including telecoms. Investor apprehensions have intensified as a result of turbulence in key macroeconomic indicators.

Amidst rising business costs, revenue growth has stagnated for all MNOs (Mobile Network Operators)  as Average Revenue Per User (ARPU) declines – from $9 in 2009 to around $1 at present. Competitive pricing has always been a major issue for the operators and it has now reached the edge of sustainability. Pakistan has one of the lowest voice and data prices in the world, yet MNOs are encountering declining connectivity spending in real terms, as customer purchasing power is severely affected by entrenched inflation and the economic downturn.

Moreover, the continued PKR depreciation is affecting sponsors’ returns in their reporting currencies. In effect, the rupee slide is nullifying for sponsors whatever organic growth local MNOs are getting in this highly-competitive market. This is not to say that the twin threats of currency depreciation and rising CPI inflation are not present in the other markets where those foreign sponsors operate. In the case of Pakistan, macroeconomic instability has exacerbated the pre-existing challenges faced by local MNOs.

Exorbitant costs

Telecom services are a necessity, but the sector is treated and taxed like a luxury in Pakistan. For instance, the spectrum auction is viewed purely from a revenue-generating lens. The spectrum is non-taxed and within the remit of the federal government, but is priced in dollars, has a high spectrum price, and a 5-year period to pay off the fee. So, the industry is expected to pay hefty sums upfront along with periodic sums for spectrum procurement.

In a country like Pakistan, where the dollar rapidly devalues, it is inequitable for telcos to be paying license and spectrum fees in dollars when their revenue is generated in PKR. While the increase in spectrum pricing over the years does not appear significant in dollar terms, but when seen through rupee devaluation, this increase becomes hefty. For example, since 2007, the cost of a 1 MHz spectrum in the 1800 band increased by 47.6 percent – from $21 million to $31 million -However, in rupee terms, this was a 388 percent increase – from PKR 1.3 billion to PKR 6.65 billion. It is worth emphasizing that while most of the spending of the MNOs is dollarized, their earnings are all in PKR.

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Besides high capital expenditure in the form of the exorbitant spectrum and license fees and network deployment, the industry also faces high operating expenditures due to a sharp rise in taxes and energy costs. In this climate, it’s increasingly becoming difficult for MNOs to create a business case for network expansion and upgradation.

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In such challenging times, aptly labeled ‘digital emergency’ by insiders, the telecom industry recently wrote a letter to the government, drawing the regulator’s attention to “critical economy-wide factors” that pose a direct impediment to their ability to meet their obligations under the current license conditions.

Among their woes were the rapidly increasing fuel prices that keep the towers powered and the L/C restrictions imposed by the SBP requiring a 100 percent cash margin restriction on all imports of network/backup equipment. This not only stunts the MNOs’ capacity to roll out more sites to meet the license conditions but also severely inhibits the addition of increased backup capacity to counter these prolonged power outages. Telcos implored the government to take swift actions to fix these burgeoning issues and also forewarned extreme phone network and internet service outages, should these issues remain unsolved.

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Increased taxation on imports of telecom equipment includes optic-fiber cables. The unprecedented flash floods in Pakistan have caused major disruption in the optic fiber network, resulting in nationwide connectivity issues. Rescue operations that entail digging the ground to make way to drain the excess water out have inadvertently damaged and broken optic fibers. Repairing damaged optic fibers takes up to 16 hours, but this, too, has been delayed due to the flood onslaught. In addition to disruptions in the limited domestic optic fiber network, import bans on new equipment have posed a grave threat to connecting flood-affected areas with the rest of the country.

Read more: Pakistan re-elected to International Telecommunication Union (ITU)

In another letter submitted earlier, the telecom sector alerted the SBP about the scarcity of essential telecom equipment and SIM cards, calling for the ban on the import of telecom equipment to be lifted immediately.

Torrential rains and the flood onslaught have added insult to injury, damaging the limited telecom infrastructure that was in place. The telcos reiterated the urgency of easing restrictions on the telecom sector so that they can continue to offer the required quality of services and uninterrupted connectivity demanded of them in the PTA-issued licenses.

In a meeting with Prime Minister Shahbaz Sharif earlier this month, a delegation comprising the CEO of VEON Group (Jazz’s parent company), Kaan Terzioğlu, and CEO Jazz Aamir Ibrahim discussed economic conditions and policy challenges impacting the telecom sector in Pakistan. They apprised the PM about the industry’s rapidly dilapidating health and highlighted that the recent floods have added salt to injury to the point where the survival of the telecom sector is uncertain.

Rescuing Pakistan’s telecom sector

To mitigate the digital emergency situation, local MNOs have urged government officials to suspend the industry’s annual contribution to Universal Service Fund (USF) and Ignite for two years. USF’s main purpose is to promote digital inclusivity by developing telecom services and ICT technologies in regions that are un-served and underserved. An estimated amount of PKR 10 billion of annual gross revenue is shared with the USF and Ignite. This comprises 1.5 percent of the revenue to be allocated to USF, whereas 0.5 percent is for the R&D Fund (Ignite).

Telecom experts have stated that the two funds have so far accumulated a balance of around PKR 55 billion parked in the Federal Consolidated Fund (FCF). They contended that there are enough funds to continue programs, without disruption, for at least two years and were also of the opinion that the funds can be reinitiated if they fall short during the suspension period.

Pakistan is going through a period of an extreme digital emergency, worsened by the ravaging floods afflicting the whole nation. Therefore, the urgent need to become a digitally connected and inclusive country has emerged as an indispensable priority.

Read more: More internet outages expected in Pakistan

The Telecom sector is doing its bit. Despite enormous challenges, elaborated above, the telecom sector is taking a frontline position in re-establishing connectivity throughout Pakistan, with technical teams working tirelessly to restore damaged sites. 3 MNOs have announced a combined PKR 3.8 billion flood relief package.

The telecom industry’s commitment to the country and the Digital Pakistan agenda is unwavering. However, their declining health can only be revived by prioritizing connectivity as an essential human right. Policymakers should act now or risk going offline.

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