ISLAMABAD, 30 August 2004 — Foreign direct investment has started flowing into Pakistan’s huge telecom and IT sectors with the amount projected at more than $2 billion this year.

But telecom industry watchers say “it will not be surprising if the investment goes up to $3 billion.” Investment, according to immediate plans in cellular companies, is estimated at $600 million to $800 million, besides $1,095 million in Fixed Local Loop (FLL), and $240 million in Long Distance and International (LDI) projects. Other operators are fine-tuning their investment plans and installation schedules. In that case, it will triple the overall FDI investment in all sectors that had totaled just $1 billion so far in 2004, according to the government.

Investment in telecom and IT now makes it the hottest favorite, among all the sectors, followed by oil and gas.

The government expects $15 billion investment in telecom and IT sectors in the next few years. The World Bank projects it at $8 billion to $10 billion. A big interest in Pakistan’s telecom sector was also seen at the recent investors’ conference in which 77 chief executives of renowned foreign multinational and domestic companies and investors participated. The conference followed announcement of the telecom sector deregulation policy on July 13, 2003.

The policy is designed to provide increased service choice to customers at competitive rates, increased tele-density and expanded telecom infrastructure, particularly in the unserved and under-served areas. The scope of investment is also evident from the fact that in this country of 159 million, tele-density is as low as 2.8 percent, compared to an 11 percent average for Asia. Out of 50,000 villages, 31,000 are still without telecom facilities or access.

Last April saw award of two licenses for launching cellular services to the UAE’s Alwarid of Chairman Sheikh Nahyan ibn Mubarak Al-Nahyan and Norway’s Telenor of Chief Executive Officer Fredrik Baksaas. They are likely to invest an estimated $300 million to $400 million each, within the next few months. Each of these two is paying $291 million as license fee to the telecom regulator Pakistan Telecommunication Authority (PTA). Scores of other foreign and domestic companies have just lapped up licenses for investment in long distance international, fixed local loop and wireless local loop services.

A total of 105 foreign and domestic companies competed in open bidding for these licenses. All told, they paid a hefty total of Rs.14.453 billion as license fees. PTA’s total revenues from grant of various license fees now stands at Rs.48.453 billion. Twelve of these companies were granted LDI licenses, 73 for FLL services, and 20 for WLL services.

Pakistan had started its telecom deregulation policy in 2003 to end the monopoly of the state-owned Pakistan Telecommunication Company Ltd. (PTCL). The entry of LL operators in 14 telecom regions and LDI operations will “completely put an end to PTCL’s monopoly over basic telephony, “ PTA Chairman Shahzada Alam Malik says.

The demand and services like fixed line and cellular phones and others are expanding fast. Alwarid and Telenor have announced plans to start operations in the next few months.

With this, the number of cellular services will rise to six. Egypt-based Orascom’s Mobilink, Instaphone and Paktel that have partnership between a Pakistani group and Millicom International Cellular of Sweden, and state-owned U-fone are already operating here. Mobilink with its attractive customer packages has more than 3 million subscribers out of 5.2 million. There were only 200,000 cellular subscribers in 1999 when the first cellular service started in Pakistan. So far penetration of mobile phones at 2.3 percent is quite low compared to the Asian region, as it should be more than 10 percent. Al-Warid and Telenor are expected to raise mobile phone penetration to five percent. The new companies hope that the number of subscribers in Pakistan will rise from the present 5.02 million to between 15 million to 20 million in the next four years.

Ministry of IT and Telecom officials forecast cellular penetration will rise between 10 to 15 percent within three years. But the competition will be intense.

Anticipating this, U-fone that has over one million customers, allowed free connections from Aug. 13 to 17, to coincide with the country’s Independence Day celebrations. It saved each customer Rs.1,000. Industry estimates, between 250,000 to 400,000 people got these free connections. But, U-fone says it is still compiling data from across the country.

The equipment and mobile phone set suppliers are upbeat. The monthly import of phones that was 200,000 in 2004, is now projected to go up to 350,000 to 400,000.

PTA Chairman Shahzada Alam Malik says the cellular mobile segment has exhibited “a phenomenal growth.” Up to June this year, cellular subscribers shot up to 5.02 million — an increase of 100 percent over June 2003, outstripped the fixed line subscribers for the first time.