BMI View: We believe there is greater upside potential in Pakistan's mobile broadband market due to low penetration and upcoming 3G/4G licensing. We have revised upwards our forecast for the Pakistani mobile broadband market, predicting a compound annual growth rate of 57% from 2013-2018.
|Mobile Broadband Drives Market Growth|
|Broadband Forecast, 2012-2018|
There are two key reasons underpinning the growth potential in Pakistan's mobile broadband market. First, the Pakistani market is hugely underserved, with more than 98% of the inhabitants without broadband access as of 2013. The country has a population of over 182mn, but average revenue per user (ARPU) has been falling since 2011, according to operators Mobilink and Telenor. BMI believes an upgrade to the higher value 3G or 4G plans would help to increase both ARPU figures and mobile broadband rates. However, the increase would be limited by the low GDP per capita of the local citizens - around US$1,223 in 2013 - which limits their ability to pay for expensive data services. BMI's country risk team predicts an average growth rate of 3.75% in the national GDP per capita from 2014 to 2020.
Another growth impetus is the upcoming licensing of 3G and 4G spectrum, due to take place by April 2014. The Pakistan Telecommunication Authority (PTA) will auction 50MHz of spectrum - 30MHz in the 3G band and 20MHz in the 4G band - to new and existing operators that include Mobilink, Telenor Pakistan, Abu Dhabi Group-owned Warid Telecom, Zong (the local subsidiary of China Mobile Limited) and Pakistan Telecommunications Company-owned Ufone. With a largely untapped data market, BMI believes new investors stand a fair chance of competing alongside existing operators. Furthermore, the option to deploy 4G LTE technology increases the potential return on investment.
BMI believes this presents opportunities for both international telecoms operators and low-cost smartphone manufacturers. As investment into the country's 3G and 4G infrastructure increases, this stimulates demand for cheap smart devices as subscribers purchase the latest mobile subscription plans. In India, Miramax and Karbonn Mobile dominate the handset market. In China, budget handset makers such as Xiaomi, Lenovo and Yulong which sell phones for less than US$50 are making international brands like Nokia and LG look overpriced. Similar to the trends of other emerging markets, BMI believes low-cost smartphones will form the bulk of the smart devices demand.
Fluid Regulatory Conditions Remain Key Downside Risk
The biggest downside risk to our mobile broadband forecast is the unpredictability of the regulatory environment in Pakistan. The long-awaited 3G auction has been postponed four times since early 2012 on various grounds, including alleged irregularities in the appointment of 3G consultants. The newly elected government has also estranged telecom players with its controversial tax hike ( see 'Telenor Unhappy With Rising Telecom Industry Taxes', July 9 2013) and Universal Service Fund raids ( see 'Investor Confidence Jeopardised By USF Raids', July 1 2013). In August 2013, the PTA unexpectedly declared bankruptcy, which led to the delay of 3G licensing until April 2014.
That said, BMI believes the risk of a delay in 3G auction this time is reduced given the government's transparent and pro-investment approach during the licensing process. Besides engaging consulting firm Value Partners Management Consulting to advise on the sale, base price and the number of licences to be issued, the PTA has also extended invitations to Saudi telecom companies and entrepreneurs to participate in the auction. Mobile investors are also receptive to the licensing terms, with Telenor, China Mobile and Mobilink already indicating interest in bidding for the 3G licences, as has Turkey-based Turkcell. BMI believes that, as Abu Dhabi Group has been striving to sell Warid, Turkcell could choose to enter the market through the purchase of the minor player or take advantage of Warid's disarray to outbid it at the auction. The potential induction of Turkcell into the market presents further additional upside to our mobile broadband outlook.