Pakistan Telecom Sector Concerned Over License Fees and Interest on Installments
Introduction Pakistan’s telecom sector has raised concerns over payments of license fees and interest on installments, due to the devaluation of the currency, which has jeopardized their business plans. The telecom players and their chief executives have expressed their grievances through tweets.
Impact of Devaluation on Telecom Companies
CEO Jazz Aamir Ibrahim stated that the Pak rupee devaluation had jeopardized the business case for telecom companies as their license fees and interest on installments were pegged to the US dollar. He added that last year, 50% of the license renewal fee cost the company Rs44.5 billion, and this year just 10% of the installments alone cost over Rs13 billion.
Irfan Wahab, CEO of Telenor, also tweeted about the issue, stating that while the telecom sector generates its revenues in Pak rupees, renewal and installments are priced in US dollars, exposing telecos to massive currency devaluation risk. He added that this mismatch needs to be fixed before the telecos’ capacity to further power digital transformation gets irrevocably depleted.
Hatem Bamatraf, CEO of PTCL, stated in his tweet that the constant devaluation of the Pak rupee against the US dollar has significantly increased the cost of doing business in the country, making it difficult for telecos to invest heavily in infrastructure modernization while earning in rupee.
Effect of Devaluation on License Renewal
In a background discussion, the telecom sector sources said that last year for renewal of the license, the Jazz company had to repay $486 million, out of which 50% was paid at an exchange rate of Rs44.5 billion. However, for 10% repayment in January 2023, the company had to pay Rs13.5 billion due to the increased devaluation. With further devaluation, it has become impossible to make a business plan and project, develop, and deliver on sound business plans.
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Concerns Over Spectrum Costs
The telecom sector has raised a huge concern, which remains unaddressed, that all spectrum auctions and renewals and installments to be paid on them are priced in US dollars, while the revenue generated is in Pakistani rupees. This mismatch has made it impossible to project, develop, and deliver on sound business plans. Denominating spectrum costs in dollars also exposes the operators to massive currency devaluation risks. For example, three operators paid $291 million each for telecom licenses in 2004-05, but the same were renewed at a 55% higher price of $450 million in 2019. In rupee terms, the increase was 360% from Rs16 billion to Rs74 billion, respectively.
Conclusion
The devaluation of the Pak rupee has raised significant concerns for the telecom sector, as license fees and interest on installments are pegged to the US dollar. The mismatch between the revenue generated in Pak rupees and the costs in US dollars has made it difficult for telecos to make business plans and invest in infrastructure modernization. The issue needs to be addressed to avoid further harm to the telecom sector and to support the dream of a digital Pakistan.
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