1. From 8 to 80 million subscribers in 80 months: The Reform and Regulation in the Mobile Telecommunications Market in Pakistan Adnan Rafiq Adnan.rafiq@cantab.net

2. 2 Introduction The Study was conducted in 2006-07 in Pakistan Aim was to understand what led to the exponential growth in Pakistan Mobile Telecom market Used In-depth, Semi structured interviews involving all key stakeholders e.g. the Regulators, Network and Service providers, Consumers and other analysts. Gao and Rafiq (2009) The transformation of the mobile telecommunications industry in Pakistan: A developing country perspective, Telecommunications Policy 33 (2009) 309–323 Facts and Figures Located in South Asia Has a population/market of over 160 million Middle Income country with Per Capita Income around US$1000 Had meagre record in Telecommunications, with less then 1% mobile density in 2000.

3. 3 End of YearNo. of Subscribers (‘000) Growth Rate (%)Mobile Density (&) 2000743142.30.52 20011699128.71.16 2002240441.61.61 20035023108.93.29 200412,771154.38.30 200534,506170.222.21 200663,16080.739.94 200788,02039.454.70

4. 4 Frame work for Analysis We divided the process of mobile telecommunications market transformation in Pakistan into three distinct phases based on the significant changes in national policy. 1990 – 1995: Start of the Journey 1996 – 2003: Establishing the Base 2004 – 2007: Exponential Growth

5. 5 Phase-I (1990-1995) Start of the Journey Mobile sector presented a status of ‘‘managed competition’’ Ministry of Communications (MoC) was mandated to regulate the telecommunications sector. However, MoC did not have a clear policy. Award of License to Instafone and Paktel in 1990 – With a promise to support this duopoly for 15 years Disputed award of License to Mobilink in 1992 Mobilink allowed to operate the GSM network eventually in 1994 Banning Mobile Services in Karachi - 1995 Loss of Revenue – Over half of the total subscribers lost It took over two years of negotiation to over turn the ban Heavy Government Taxes and Activation charges were levied by the government which contributed to keeping the mobile phone a Rich Man’s toy.

6. 6 Phase-II (1996-2003) Establishing the Base Publication of the Telecommunications Act 1996 – Government made commitment to liberalise the telecommunications sector. Frequency Allocation Board (FAB) was created for allocating frequencies and managing the spectrum. Pakistan Telecommunications Authority (PTA) was created with a mission to protect the rights of consumers and encourage fair competition. PTA had powers to issue licences to telecommunications operators, oversee the tariff setting and mediate in case of a disagreement. MoC was demoted to a division of MoST (Ministry of Science and Technology) and later merged into the MoITT (Ministry of IT and Telecommunications). PTA was placed directly under its Cabinet Division, which granted it with the much-needed institutional autonomy

7. 7 PTA succeeded in establishing new culture Public policy-making became transparent – Policy drafts were routinely placed on the website and reviewed by all stakeholders A consultative mechanism was introduced where experts in the fields were heavily involved in providing guidance to PTA. Several regulatory measures were taken:  To intensify competition a new license was issued to Ufone.  New Rules for interconnection between different networks were set  Caller Party Pays (CPP) system was enforced, the consumers could now enjoy free incoming calls  Activation charges and taxes were significantly reduced (e.g. AC reduced from Rs. 7000 to Rs. 500)  Pre-paid billing system was encouraged.

8. 8 Phase-III (2004-2007) Exponential Growth Cellular Mobile Policy announced in 2004 This policy reaffirmed the government’s commitment to a competitive market and encouraged private investment in this sector. Certain regulatory steps were taken  PTA made it mandatory for all operators to expand their networks from the urban to the rural areas  Mobile Number Portability was enforced to reduce network effects of switching network.  Two more licenses were issued to foreign companies through transparent competitive bidding.  Each one was asked to establish and operate its own network.  Activation charge was eliminated and taxes further reduced. Foreign Investment (Telecommunication accounted for most of the FDI received by the country), Thousands of jobs were created directly and indirectly (e.g. the Franchise network of each service provider, and supporting industry e.g. mobile sales and repair shops).

9. 9 Future Outlook Further growth expected although slower than before Price wars between service providers Explosion of Value Added services and Data communication, already m- banking has started in the country while accessing internet via mobile devices is increasing. On the down side Average Revenue Per User may drop (ARPU). Worsening economic conditions and financial crunch may affect the industry

10. 10 Lessons Learnt Pakistani experience demonstrates that a strong and credible regulatory regime was the key to the efficient operation of the mobile market based on fair competition.  It left fewer opportunities for political interference, increased transparency and adopted consultative approach  Instrumental in consumer protection; expansion of networks to rural areas, CPP regime, MNP, encouraged Pre-paid billing.  Intensified competition to reduce prices  Successfully lobbied to reduce taxes and eliminate activation charge Policy should be consistent, clear and fair Administrative Culture must be changed to allow consultation, efficiency and transparency. Liberalised and pro-competition policy is beneficial (reduces price, enhances quality and efficiency, expands network and increases range of services) The case shows the benefits of adopting one technological standard in a market. The prices of mobile handsets and accessories were high in Pakistan in the first phase, partly due to the deployment of the competing standards AMPS and GSM. The roaming and interconnection between two kinds of networks remained problematic. However after gradual shift towards all GSM networks, the handset prices and air-time cost reduced due to enhanced economies of scale.

11. 11 Any Questions ?