Why foreign telecom companies are winding up business in Pakistan?

• Telenor reported heavy loss in Pakistan in 2022.
• Norwegian firm had highlighted challenges in its annual report.
• Telecos had identified problems faced by industry in Pakistan.

ISLAMABAD: Telenor Pakistan's recent decision to win up business in Pakistan after selling its 100 stakes to the Pakistan Telecommunication Company Limited (PTCL) has raised the question of why different telecom companies are preferring to leave Pakistan.

Something, it appears, has gone fundamentally wrong, compelling businesses to shut their operations in our part of the world.

Telecom sector experts, while speaking with The News, highlighted the overall prevailing business environment, which has led to these companies' exit from Pakistan.

"It is a business venture that cannot be run on the basis of charity. A viable business is aimed at earning profits, and when it shrinks, then business will not stay at any such place," a telecom expert said.

He added that recently it was communicated that Telenor was exiting the Pakistan market, but reminded that a few years back, Warid had exited from the market as well.

He reminded that Qatar Telecom and Oman Telecom invested in World Call and Witribe, but both preferred to go away from the Pakistani market mainly because of the flawed regulatory regime as the government was not even willing to give them frequencies even on payment/ auction of frequencies in dollars, etc.

Another expert stated that Telenor’s repeated warnings and concerns about the formidable challenges in the sector’s business environment remained unaddressed, compelling it to wind up its operations from here.

Highlighting the regulatory risk exposure, Telenor Group, in its Annual Report 2022, noted that its Pakistan unit continues to be subject to arbitrary assessments and unpredictable application of tax regulations. Just last year, the Federal Board of Revenue (FBR) froze the bank accounts of Telenor Pakistan, citing a disputed tax claim amounting to around Rs3.5 billion, which the company challenged and later was granted a stay order.

Two years ago, the Inland Revenue Department, AJK, sealed multiple Telenor Pakistan network sites over a disputed tax demand, resulting in service disruption to most of the population of AJK.

Later, Telenor Pakistan was served a penalty of Rs50 million by the Pakistan Telecommunication Authority due to a service breakdown.

Telenor Pakistan, later, responded that the services were not shut down by the company; in fact, they were forced out of the company-operated towers and offices. Reportedly, no notice period was provided to Telenor to inform its subscribers of the service closure in advance.

In the second quarter of 2022, shares in Telenor ASA dropped after Norway’s biggest telecommunications company posted a $250 million impairment on its Pakistan operations due to a jump in funding costs and an adverse court ruling on license renewals.

“There has been a significant increase in interest rates, country risk premium, and market premiums, impacting the weighted average cost of capital,” the company said in its second-quarter report. “This, together with a hike in energy prices and increased global inflation, has made the outlook for Telenor Pakistan challenging.”

Among Telenor Group’s seven markets, Pakistan was the only country where it reported a heavy loss of Norwegian Krone 2,862 million last year, owing to a high cost of business, primarily high energy costs, interest rate hikes, and dollar-denominated spectrum instalments.

On the other hand, Pakistan also enacted an increase in its corporate income tax from 29% to 33% in 2022, which now reached an aggregated all-time high of 39%.

Further underscoring risks and uncertainties in the latest quarterly report, the Telenor Group noted that its Asian markets, particularly Pakistan, are experiencing a deterioration in the political and economic situation. This may increase the risk of civil unrest, security concerns, and financial instability. The report further said that the macroeconomic outlook for Pakistan remains challenging and its entity is still sensitive to impairment.

Over the years, Telenor Pakistan, alongside other telecom companies, has actively advocated for policy interventions across various platforms to enhance the industry’s health and safeguard the viability of operations. Unfortunately, governments and policymakers have not heeded the industry’s warnings regarding an impending digital emergency, resulting in the departure of one of the most well-organised telecom groups globally.

This sentiment is echoed by industry analysts who find Telenor’s exit not as a natural market consolidation or reorganisation, but as a consequence of a policy environment failure that compelled a hasty departure. This situation warrants a thorough and immediate introspection to help address the digital emergency.