Telenor Rapidly Reevaluates its Business Operations Strategy in Asia as Pakistan Market Loses Gloss

Telenor Pakistan has begun the process of selling its business unit in Pakistan by setting up bids for their mobile operations in a sale that is expected to raise US$1 billion. The first round of biddings is scheduled for the end of November 2022. Earlier in July 2022, the Telenor Group announced that its Pakistan operations experienced a US$244 million loss, in addition to a 22% Year-over-Year (YoY) drop in service revenue in the third quarter of 2022. Telenor attributed their losses to the increased cost of energy in the market. With the recent mergers involving Digi and Axiata in Malaysia and True and DTAC in Thailand, the sale of Telenor’s operations in Pakistan seems to be part of the company’s wider goal of redefining its presence in Asia. This decision comes after Telenor’s exit from Myanmar earlier this March and will be the company’s second exit from an Asian market in the past two years.

Telenor Pakistan’s drop in service revenues was attributed to changes in energy costs, foreign exchange market as well as inflation. Operating expenses (OPEX) increased by US$4.1 million (NOK 140 million) as a result, the largest increase in OPEX in Telenor’s Asian operations. Pakistan Mobile subscribers remained steady at 0% growth from third quarter 2021 to third quarter 2022, where there was a slight decrease from 48.89 million subscribers to 48.79 million subscribers. Meanwhile, service revenues dropped from US$119.6 million (NOK 1,187 million) to US$96.3 million (NOK 956 million) between third quarter 2021 and third quarter 2022. Mobile Average Revenue Per Unit (ARPU) has also decreased by 2% YoY from 0.79 US$/month (175 PKR/month) to 0.77 US$/month (172 PKR/month).

The telecommunications market in Pakistan is not as advanced as other Asian markets like China, South Korea, or Japan. Currently the latest cellular infrastructure in Pakistan is based on 4G LTE. The country has approximately 194 million mobile subscribers, 121 million of which are 3G and 4G subscribers. This leaves an estimate of 73 million subscribers in Pakistan who still rely on 2G network services. As of September 2022, the country recorded a 4G penetration rate of 55%, indicating a plateaued uptake of 4G in the country. There are four major Communication Service Providers (CSP) in Pakistan: Pakistan Mobile Communication Limited (PMCL under the subsidiary Jazz), China Mobile Pakistan (under the subsidiary Zong), Telenor Pakistan, and Pakistan Telecommunication Company Limited (PTCL; under the subsidiary Ufone). By market share, Jazz is the largest CSP (38.6%), followed by Telenor Pakistan (25.3%), Zong (23.1%), and finally Ufone (12.1%). In the Pakistan Telecommunication Authority’s (PTA) Annual Report 2020-2021, Jazz generated the highest mobile revenue at US$86.8 million (PKR 194,961 million), followed by Zong with US$46.9 million (PKR 105,293 million), Telenor with US$46.2 million (PKR 103,737 million) and lastly Ufone with US$24.5 million (PKR 55,040 million). Jazz also experienced the highest Mobile ARPU of the four CSPs, with 1.07 US$/month (240.7 PKR/month), 1 US$/month (224 PKR/month) for Zong, 0.89 US$/month (198.9 PKR/month) for Ufone, and 0.80 US$/month (179.8 PKR/month) at Telenor.

Further, the plan for the rollout of 5G in Pakistan is three years behind China, the global leader of 5G technology. The original deadline of the launch of 5G of December 2022 has now been pushed back to July 2023. This delay is attributed to economic issues that the government is facing such as import restrictions, fuel shortages, currency depreciation, and higher spectrum fees, in addition to the low adoption rate of 4G. Nevertheless, the launch of 5G is scheduled to be in three mega cities in Pakistan next year: Islamabad, Lahore, and Karachi. In the meantime, the PTA has set a policy framework in anticipation of the rollout and open bidding for use of the 1,800 MHz and 2,100 MHz frequencies is set to take place, though a date has not been announced.

Despite the delays to roll out 5G technology in Pakistan, live trials for the new technology begun as early as 2020. Under the regulation of the PTA, Zong and Jazz were issued test licenses to conduct trials with 5G. These licenses fell within the 2.6 GHz radio frequency band. In continuation of this, PTCL (Ufone) also conducted their 5G test trial in anticipation of the 5G commercial rollout. Smart healthcare, including the offering of real-time surgery and cloud gaming applications, was included in the test demonstrations and is anticipated to be the biggest beneficiaries of the new technology.

Given the inadequate market conditions for Telenor to thrive in Pakistan, the company’s exit from the country ahead of the commercial 5G rollout might be the smart move to make. Regardless, given the slowed uptake of 4G technology, high competition in the market, rising energy prices and high OPEX values, the Telenor Group may feel that their business operations in Pakistan is hindering their progress towards establishing a strong business presence in Asia. With this sale, Telenor can channel its current efforts into its growth strategy for Asia. Presently, Telenor is behind two of the biggest mergers in both Thailand and Malaysia to create increasingly competitive CSPs. Telenor has also previously identified a strong telecommunications market in Bangladesh where 4G penetration is at 95% and 5G is set to rollout with the recent conclusion of the 5G spectrum allocation. Furthermore, Telenor Group has just established their headquarters for Asia in Singapore in 2020, a move that will hopefully generate a more prominent presence for the company in the region.