In a major shakeup in the telecom industry, a largely state-owned group Pakistan Telecommunication Company Limited (PTCL) has acquired a 100% stake in the Telenor Pakistan unit of the Norwegian telecom operator.
Pakistan’s largest integrated ICT company PTCL is a subsidiary of UAE telecom and tech giant e& with 23.4% ownership.
PTCL said that the deal was valued at an enterprise value of PKR 108 billion ($380 million) on a cash-free, debt-free basis. However, Telenor said that the transaction valued the operation at $493 million (5.3 billion Norwegian crowns). The agreement awaits regulatory approvals and the transaction is expected to conclude in 2024.
Telenor Group CEO Sigve Brekke acknowledged the company’s successful 18-year presence in Pakistan and expressed pride in Telenor Pakistan’s future readiness. Telenor Pakistan “is an efficient and future-ready telco operator, with a strong distribution network and talented team serving 45 million customers.” He added that the consolidation with PTCL would help strengthen Pakistan’s telecoms sector, create opportunities, and benefit consumers.
Key Points
- Pakistan’s main telecom players are: Jazz, PTCL, and Zong.
- The acquisition boosts PTCL Group’s status as a leading operator, with over 70 million customers in mobile, fixed, and microfinancing sectors.
- PTCL’s major assets include Ufone, a mobile operator boasting 25 million customers.
- Telenor Pakistan, which was launched 18 years ago, has 45 million subscribers.
- Telenor Pakistan reported PKR 112 billion ($400 million) in revenue with an EBITDA margin exceeding 43% based on September 2023’s 12-month financial reporting.
- Telenor Microfinance Bank Limited (TMB)and its financial service Easypaisa are not part of this transaction.
Why did Telenor exit Pakistan?
Telenor signaled its intention to exit Pakistan for over a year. The multinational telecom company, which entered the Pakistani market in 2005, had expressed concerns about the deteriorating macroeconomic situation.
The decision to exit was influenced by a range of factors, including underwhelming financial results and challenges, such as a consistent decline in average revenue per user (ARPU), which now stands at less than a dollar for the entire industry.
During the company’s earnings call, Telenor’s Chief Financial Officer (CFO) Tone Bachke said “Pakistan continues to be a challenging market with high inflation continuing at a very high level.” The Telenor Annual Report 2022 cited that Telenor Pakistan continues to face “arbitrary assessments and unpredictable application of tax legislation.”
Telenor pursued a sale after exploring a merger in Pakistan. Petter-Børre Furberg, Head of Telenor Asia, stated, that the group “considered all alternatives during the strategic review process and believe that, following a sale, the market will be better served by a strong local champion.”
The sale of its Pakistan unit is part of Telenor’s restructuring in Asia, consolidating operations in Thailand and Malaysia. Telenor’s remaining Asian portfolio includes Grameenphone in Bangladesh, CelcomDigi in Malaysia, and True Corporation in Thailand, with close to 160 million customers.
How will the acquisition affect Telenor Microfinance Bank and Easypaisa?
Despite close integration with Telenor Pakistan, the leadership and ownership of Telenor Microfinance Bank and Easypaisa, Pakistan’s first mobile banking platform launched in 2009, remain unchanged.
Addressing the confusion and queries arising from the Telenor acquisition, Telenor Microfinance Bank (TMB) reassured its customers that their operations remain unaffected by this transaction. “Telenor Microfinance Bank, along with its flagship platform easypaisa, is not part of the sale. Your deposits are completely secure, and this development will not impact them in any way,” the TMB said.
Telenor Microfinance Bank operates as an independent financial institution, licensed and governed by the State Bank of Pakistan (SBP). It is a joint venture between Telenor’s parent company and Ant Group (an affiliate of Alibaba Group). TMB is in the process of transitioning from a microfinance bank to a digital retail bank, pending regulatory approvals.
PTCL says acquisition to accelerate digital transformation journey in Pakistan
The acquisition brings together the strengths and expertise of PTCL Group and Telenor Pakistan, promising a new era of innovation and connectivity. PTCL said that the combined entity aims to reach a broader customer base, accelerate the digital transformation journey, and become a best-in-class provider across all domains.
Hatem Bamatraf, President and Group CEO of PTCL, expressed confidence in the strategic synergies, emphasizing the enhanced value for customers and stakeholders. “The combined entity will serve as a best-in-class provider across all domains with better coverage, seamless data experience, massive reach, and a wide range of products and services for customers” he stated.
Hatem Dowidar, Group CEO of e&, described the acquisition as a significant opportunity for market consolidation, enabling further investment in creating the best next-generation network in Pakistan. He emphasized the commitment to the progress of the country’s telecom sector. “We aim to accelerate digital transformation to better serve our customers and community” in shaping a telecom legacy where innovation and connectivity converge, he said.
PTCL is actively working on a smooth transition process to minimize disruption for employees, customers, and other stakeholders. Hassan Nasir Jamy, Chairman PTCL Board, underscored PTCL’s pivotal role in connecting the people of Pakistan and supporting Pakistan’s digital transformation.
The acquisition will open up new opportunities, particularly in network infrastructure, broaden the customer base and accelerate investment in digital technologies, allowing us to move forward with our digital transformation at a faster pace.#eAndinternational #eAnd #PTCL
— e& (@etisalatAnd) December 14, 2023
What it means for Pakistan’s telecom sector?
The acquisition would position PTCL as Pakistan’s second-largest operator with 70 million connections, trailing only Veon-owned Jazz, which has 75 million subscribers.
The recent acquisition in the Pakistani telecom sector marks a strategic opportunity for in-market consolidation, signaling a significant improvement in the industry’s long-term prospects, e& said in its regulatory filing with the Abu Dhabi Securities Exchange (ADX). “It will also improve the capabilities of the combined entities and results in improved coverage and quality of services to customers … while supporting economic growth of Pakistan,” e& said.
Now, let’s discuss the impact of this acquisition, its potential challenges, and what it means for the customers and the overall sector.
Benefits:
This move strengthens the capabilities of combined entities, aiming for improved coverage and service quality, benefitting overall economic growth in Pakistan. PTCL Group’s acquisition positions it as a major player with a customer base exceeding 70 million.
In-market consolidation, merging operations for efficiency, can increase market share and scale, improve infrastructure and service quality, enhance network coverage, and lead to potential cost savings and job creation.
Drawbacks:
The acquisition of a foreign telecom company by a state-owned entity can pose challenges such as potential inefficiencies, reduced competition and innovation, and impacts on foreign investment.
It may also lead to job redundancies and put a strain on the national budget if the state-owned company is not as profitable. This purchase comes at a challenging time for the South Asian nation, which is navigating a challenging economic path, grappling with Asia’s fastest inflation and an impending $1 billion debt payment next year. The caretaker government has characterized the economy as “still fragile”, prompting consideration of additional loan from the global lender International Monetary Fund (IMF).
The most serious of all is the risk of political interference in decision-making. The acquisition can enhance the state’s influence in the telecommunications market, potentially giving it greater control over data flows and communication infrastructure. Striking a delicate balance between state interests and the need for a competitive and innovative telecom industry is essential to protect consumer interests and ensure a positive impact on the overall market dynamics.
How competitors reacted to the acquisition?
The industry players raised concerns about increasing government ownership and called for urgent reforms.
Aamir Hafeez Ibrahim, CEO of Jazz, the key telecom player in Pakistan, said in a social media post that the acquisition of Telenor by PTCL is a significant development with long-lasting implications for the telecom sector and customers.
While appreciating the spirit of mergers and in-market consolidation, he raised concerns about state ownership and influence over the telecom sector. “With PTCL being 62% government-owned and 12% publicly owned, this acquisition seems more like nationalization as opposed to foreign direct investment, which is what the government has been trying to promote”.
Ibrahim questioned the exits of foreign telecom companies, Warid in 2016 and Telenor in 2023 from Pakistan, and attributed the exit of foreign entrants to challenges such as dollar-based spectrum pricing, high taxation, and prolonged legal processes. Jazz CEO called for urgent reforms to avert a digital emergency, including delinking spectrum from dollar pricing, reducing taxes on internet usage and smartphones, and simplifying processes.
Pakistan Telecom stats in 2023
Pakistan’s total population was reported to be 241 million in 2023. Here are the key mobile phone and broadband adoption and usage stats as of October 2023:
- There are 190 million mobile phone users in Pakistan.
- Mobile Internet users have reached an impressive 127 million.
- Mobile broadband penetration rate stands at 53.05%.
Telecoms in Pakistan
In Pakistan, Jazz, owned by Netherlands-headquartered telecom operator Veon, dominates the mobile services landscape with 75 million subscribers. Jazz had a substantial 38% market share during the third quarter of 2022. Other major players include China Mobile-backed Zong with 46.8 million connections and PTCL-owned Ufone with 25 million customers. Telenor had a market share of 21.4% before the merger with PTCL. Post-acquisition, PTCL now boasts a total of 70 million customers in mobile broadband, comprising 25 million Ufone subscribers and 45 million Telenor customers.
Jazz (Veon-owned): 75 million users
PTCL: 70 million customer
Zong (China Mobile-backed): 46.8 million users
According to the country’s telecoms regulator Pakistan Telecommunication Authority (PTA), Pakistan’s telecom industry revenue increased to about Rs694 billion (US$2.4 billion) during the last fiscal year and it contributed over Rs325 billion ($1.1 billion) to the national exchequer.
Pakistan’s telecom market size is expected to grow to US$5.15 billion by 2028, at a CAGR of 3.28% during the forecast period (2023-2028), according to Mordor Intelligence.
