Lockdowns Bring New Financial & Operational Challenges for Telecom Sector

Virus lockdowns are causing revenues of all big and small global businesses to plummet. The largest of economies are turning upside down and the most profitable of businesses are reporting negative growth. The economic downturn that the pandemic has brought is the worst the world has seen since the Great Recession.

For fragile economies like Pakistan, the effects are naturally more devastating. The virus-induced economic crunch is expected to cost Pakistan losses of at least Rs 1.1 trillion by June 2020. Industries that serve as the backbone of Pakistani economy – e.g. textile, aviation, tourism, oil – continue to suffer heavily as production remains suspended and exports dwindle.

Like other industries, Pakistan’s telecom sector is also reporting negative growth and is faced with unprecedented challenges.

Telcos in Pakistan have recorded a sharp 10-12 per cent dip in voice revenues — a major revenue stream — during the four weeks of country’s economic shutdown.

“Voice revenues were down 18 to 20 percent initially, but they stabilized a but later as top-up shops opened up”, told me Aamir Ibrahim, CEO of Jazz. “They are currently down 12% from the usual numbers”, he added.

While the data demand has grown, the operators are crunched with loss of voice revenue, which is still the major stream of revenues from telecom operators.

Challenges faced by local telcos

In addition to lost revenue, telecom operators are also faced with increased operating expenditures, mainly due to lock-downs, that forced the companies to adopt work-from-home policies.

Furthermore, to keep the networks up and running amid lockdown and reduced working hours, telcos’ operation and maintenance costs have also shot up immensely. Customer services – rendered short-staffed by the virus restrictions – are seeing an influx of inbound calls with an increased load of queries related to balance recharge.

Spectrum limitations are also failing to support the exponential rise in the demand for telecom and internet services that, according to PTA, have surged by 15% during lockdown. Moreover, as mentioned above, landline and mobile voice traffic have seen a sharp decline as major businesses remain closed due to the shutdown.

With the retail outlets closed, mobile top-ups remain largely unavailable adding to the economic woes of cellular service providers. Although loads can be made via various online services, only a handful of people (12-15 per cent) use them as a vast majority, especially in the rural areas, relies on physical retail shops.

The mobility restrictions are putting extra pressure on supply chain as the industry struggles to provide load to retailers that are open. Where mobile top-up cards or load are available, shopkeepers and retailers are charging a premium on top of the actual price due to scarcity. The closures have brought a 50% decline in sales as reported by the industry.

Continuing to serve amid challenges

In spite of the challenges, telcos appear committed to serving customers in this time of crisis. Major players have responded with special discounted and free data and voice offers to make work and study from home easier and more affordable for users.

On top of special offers, that too are causing the industry to incur losses, operators have announced relief aids amounting to billions of rupees to be spent in discounted services, provision of supplies to the poor, and supply of medical equipment to hospitals.

How government can provide relief

There’s no denying the telecom operators’ crucial role in this time of crisis where their services are a huge support in the country’s fight against the pandemic. The government, too, is aware of the fact and so it can consider providing the sector some relief through the following measures.

  • The federal government can consider abolishing the withholding tax (WHT) temporarily till the Covid-19 fight continues, so subscribers’ balance can be of more value for data and voice usage.
  • Temporary suspension of applicable taxes on data services by the federal and respective provincial governments can be considered to facilitate growth of online applications.
  • Temporary spectrum allocation to mobile operators can be considered to improve their data services offering during Covid-19 in line with other international best practices being adopted by governments.
  • If possible, some reduction in the USF and R&D funds contribution and annual payments by telcos to PTA can be re-considered for one year to facilitate them for sustainable operations.

Ensuring sustainability amid crisis

With contracting profit margins, low revenues, shutdown at the sales and retail channel, and higher cost of business, the situation poses a great threat to the telecom sector as a whole.

Sales and distribution teams are unable to sell products and services as the majority of franchises and retailers remain closed.

If not supported, all this will add up for the operators to ultimately cut their cost and may result into lay-offs during midium to long-term period.

By adopting at least some of the measures recommended above, the government can ensure long-term sustainability of the sector that is contributing hugely to Pakistan’s fight against the outbreak.

This essential service industry deserves support so it can continue serving people while still supporting the country’s socioeconomic uplift.

Leave a Reply

Your email address will not be published. Required fields are marked *

GIPHY App Key not set. Please check settings

Sugar Mills Completely Reject FIA’s Report on Sugar Crisis

India’s BJP Gets Schooled by Oxford University for Misquoting Its Index