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Telecoms sector analysis Nov 09

Telecom sector: monthly update
Latest telecom statistics for the month of Sep ’09 show the cellular subscriber base has marginally increased by 0.13%MoM (6.32%YoY) to reach close to 96mn subscribers, with cellular teledensity inching up to 58.6% in the review period. Similar to last year, when PTA in its campaign against unverified SIMs blocked over 5.6mn SIMs in FY09, the latest 668 SIM verification system (launched in Oct ’09) is effectively blocking SIMs. In this regard, around 1.5mn SIMs have reported to been rendered inactive by the 668 campaign. As a result, the cellular subscriber base is expected to be stressed going forward, in our view. With five incumbent players aggressively trying to increase market share in a mature industry, the cellular sector is likely headed towards consolidation with prospects of M&A activity heating up. Within the sector, we continue to like PTCL which offers exposure to landline, WLL and the cellular market (Ufone).
AKD Research
19 November, 2009

Mobilink’s debt ratings downgraded
Standard & Poor’s Ratings Services reduced the corporate credit rating and long-term senior unsecured debt rating on Pakistan Mobile Communications (Mobilink) to ‘CCC+’  placing Mobilink in the ‘Substantial risks’ category. Mobilink’s previous rating of ‘B-’ was described ‘Highly Speculative’.
S&P predicts that Mobilink will to continue to have weak liquidity, with refinancing risk, over the next one year. They also expect the company’s covenants, for the period ended June 2010, to come under pressure due to an absence of support from its parent company, Orascom Telecom.  In the past, Orascom Telecom Mobilink has given great support to Mobilink in the form of equity infusion and the waiver of management fees. However, Orascom Telecom’s compromised liquidity position means that it may no longer be offering such support to Mobilink in the immediate future.
Mobilink is a 100% privately owned company by Orascom Telecom and is also Orascom Telecom’s second-largest operation.

Telecom sector registers 20% growth
Pakistan’s fiercely competitive telecommunications sector has grown by an outstanding 20%   by generating Rs 327.8 billion as revenues in fiscal year 2008-09. According to the Pakistan Telecom Authority (PTA), the telecoms sector paid Rs 112 billion in tax and the teledensity of Pakistan is 62%, amounting to a growth rate of 5.4%.
The PTA stated in its annual report that the telecom sector attracted $815 million Foreign Direct Investment in 2008-09. However, due to the current economic upheaval and liquidity crisis, telecom operators have been obliged to delay their expansion plans. Nevertheless total investments in the sector stood at $1.7 billion.

Highlights of 2008/09
• The telecom sector contributed Rs 112 billion to the national exchequer in the form of taxes
• Telecom imports grew by 20% to  $1.6 billion
• Mobile penetration reached 58.2%  of the total population
Tax rates were reduced on the telecom industry as GST was lowered  from 21%  to 19.5%.
• Activation tax was reduced by 50% and import duty on mobile handsets was reduced by 66% from Rs 750 to Rs 250 in Budget 2008-09.

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