Thursday, July 23, 2009

Telenor sees mergers in telecom industry

Pin It Thursday, July 23, 2009 By Mehtab Haider ISLAMABAD: Telenor Pakistan Chief Executive Officer Jon Eddy Abdullah has said there are possibilities of mergers in the cellular industry in future. In an interview with The News, Abdullah said Pakistan had the lowest call rates in the world and a continuous reduction in charges, as seen in the past, to attract customers was no more viable for the future as the industry had already hit rock bottom.

“This means that in the long term, having five operators in a market with intense competition and low prices may not remain feasible anymore. This can result in anything from mergers and acquisitions to dropping out of the market,” he added.

Answering a question about deteriorating law and order situation in the country and other factors impacting growth of the sector, he said high inflation eventually reduced usage of mobile services among consumers and pushed up the cost for the operators. Overall, it negatively impacted the demand and supply and hence growth.

“Though inflationary pressure eases around the globe and especially in our region, Pakistan still faces a high double-digit inflation,” he added.

“Largely, the overall law and order situation limits network expansion, restricts upgrading and maintenance of sites, increases security-related expenses and dampens investor confidence,” he said and added as networks in Pakistan grew at a tremendous rate, growth would certainly speed up if security conditions further improved.

When asked about the recent taxation measures taken by the government in the budget, he said general sales tax (GST) had been brought down to 19.5 per cent from 21 per cent, though the industry had demanded 16 per cent tax like the one on other services.

SIM activation tax had been slashed by 50 per cent, bringing it to Rs250, but the industry had asked for its complete withdrawal.

Regulatory duty on handsets has been eliminated, while customs duty has been brought down to Rs250, meaning that a total of Rs250 will be applied as taxes on the import of each handset.

“Although we consider these tax measures positive, we feel that there is more to be done. We are all aware of the impact of high tax rates on the industry, which depress growth in subscriber numbers, divert investments and ultimately discourage mobile usage.

“We also understand that when this industry flourishes, it helps the economy by attracting foreign direct investment (FDI), contributing heavily to the national exchequer, generating employment and increasing productivity of almost every sector. Therefore, it is imperative that the taxation structure for the mobile industry is rationalised further.

”When asked whether the taxation measures were pro-growth or anti-growth for the industry, he said tax reduction was obviously a pro-growth measure. The rapid increase in penetration over the last few years was made possible to a large extent by subsidisation of activation tax by the cellular operators.

The 50 per cent reduction in activation tax will free up funds, which can be invested in capacity enhancement and network expansion.

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