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Saturday, November 19, 2016

CMOs pricing mechanism: PTA fears slowdown in broadband network investment

Courtesy Business Recorder - TAHIR AMIN 

ISLAMABAD: Pakistan Telecommunication Authority (PTA) fears slowdown in investment in broadband network while terming the current pricing mechanism among Cellular Mobile Operators (CMOs), which is under intense competition, as non-sustainable, it is learnt Friday. 

“The current pricing mechanism under intense competition among CMOs is not sustainable for a longer term. Resultantly, it may slow down investment in the broadband network which is required continuously to meet the quality of service standards and spectrum/bandwidth requirements of 3G/4G and other digital services,” revealed the PTA documents. 

A marked difference in the growth of broadband data usage versus the growth in the data revenues was registered during the last two years. The operators are suffering losses, as the data traffic volumes have increased dramatically in proportion to revenues, leading to high operating costs and leaving little room to further investment in networks. 

Globally, telecom markets are developing as the portfolio of data and associated digital services in addition to traditional voice services. Same trend is being observed in Pakistan; however, there is an intense price war among operators for provision of data services even in the nascent stage of the mobile broadband data proliferation. This situation has led to a number of issues such as unlimited/unpublicised pricing offers/promotions resulting in consumers to make impulsive decisions without considering and comparing with other packages, lesser incentives for operators to invest in their networks and acquire more spectrum from time to time in order to meet the quality of service and bandwidth requirements of accelerated digitalisation. 

The PTA has also received a request from one mobile operator to regulate prices of data services with the objective to ensure increasing demand of consumers (individuals as well as small & medium enterprises) for enhanced mobile broadband services while preventing potential market failure. 

A study conducted by an international research firm Mackenzie has highlighted that mobile data revenues per MB in Pakistan are one of the lowest in the world, ie, US cents 0.55 per MB in 2014 which has further dropped to US cents 0.25 per MB in 2015 and US cents 0.20 per MB in 2016. 

It can be inferred that this drastic drop of 63.6 per cent in overall revenue per MB during the last two years, is actually due to data dumping practices being adopted by the different operators under hyper competition. 

Mobile data revenues per MB have also been compared with similar economies such as India, Sri Lanka, Indonesia, Egypt and Tunisia wherein they are in the range of US cents 0.50 per MB to US cents 0.80 per MB respectively. A recent report by the World Economic Forum on “The Global Information Technology Report 2016” puts Pakistan at 110 out of 139 countries. However, in the category of affordability Pakistan is number 1. That shows that Pakistan has the lowest prices in the world. 

The huge decrease in mobile data revenues per MB has resulted in destabilisation of broadband market which is an unexpected phenomenon at such a nascent stage. 

The PTA maintained that currently, the industry is facing large number of unpublished/unpublicised ‘Below the Line’ data offers which can be considered as anti-competitive and difficult to sustain for longer period of time. 

Furthermore, certain data promotional offers could not accomplish the true economic potential of broadband services through productive usage; rather, it has resulted in social menaces. As a consequence, abuse of critical resources and the promotion of unhealthy practices are being observed in the youth. 

According to the Annual Audited Accounts (AAAs) submitted to the PTA by CMOs, it has been observed that there is an increase (2% to 6%) in net revenues of three CMOs, whereas two operators have reported decrease in revenues (-5.7% to -11%) for the financial year 2015 as compared to 2014. Although it is a healthy sign that all the operators have positive gross profit margin, yet percentage of gross profit margin has decreased for three operators for the FY 2015. Regarding Net Profit/ (Loss), four out of five operators have reported net losses, which is not a healthy sign for the industry. 

The current financial state of CMOs further reinforces the need for strengthening the sector through appropriate pricing practices. 

As to protect and safeguard the interest of consumers as well as operators, there is a need to set a level of retail tariffs/prices which should encourage operators to further invest in their networks as well as acquire more spectrums to continuously improve quality of services (QoS), while offering competitive and affordable services to their subscribers. In this regard, the minimum mobile broadband speed would also be realised upwards. 

The PTA is of the view that appropriate price for data services will lead to the following benefits: introduction of healthy and competitive regime leading to expeditious network rollout of services and investment in the mobile broadband segment for sustainable mobile broadband proliferation; enhanced quality of service that satisfies growing needs of the consumers (individuals as well as SMEs) with specific reference to digitalisation of services (Internet of Things, E- Governance, E-Health etc.); increase confidence of the consumers in use of mobile broadband by reducing free access with potential non-social use of social media and channelising the youth in a more creative direction; and ensuring long-term sustainability of the telecom industry in consultation and collaboration with all stakeholders, including consumers, government and operators. 

The PTA is planning to start an exercise of taking views of all telecom users, stakeholders, interested persons and the general public on the issue. The purpose of the exercise is to analyse and examine the feedback of all relevant stakeholders to set level of retail prices for mobile data/broadband services and ensure provision of services to end users in accordance with parameters of quality of service, besides encouraging introduction of innovative broadband services. 



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