How Can Pakistani MNOs Cope with Tough Times Ahead? Some Recommendations

The global recession is on the horizon with spiraling inflation witnessed in almost all corners of the world. The third world countries like Pakistan are among the worst hit countries. The Dollar continues to rise in an unprecedented manner and it has affected almost every sector in the country including the telecom sector. It is evident that the sector would have to pass through the tough times ahead.

Tough Times Ahead for Pakistani MNOs

According to latest figures by the Telenor Group one of their mobile network operator subsidery Telenor Pakistan has disclosed a substantial operating loss for the six months ending June 30, 2022. This is a sign that the telecoms sector is in increasing hardship due to the continuous macroeconomic crisis and the rising cost of utilities. According to the Telenor Group’s most recent financial statements, its Pakistan business incurred an operational loss of Rs. 42 billion in 1HCY22 (compared to an operating profit of Rs12 billion in the same period last year).

Inadequate top-line growth is detrimental. Telenor Pakistan’s revenue of Rs53 billion in 1HCY22 was only 0.7% higher than the previous year. After adjusting for double-digit inflation, the poor top-line growth appears even more dreadful.

Despite the MNO’s pricing increases throughout the year, the top-line growth was modest. The 1 percent-plus annual rise in the number of subscriptions, which reached 49.54 million by the end of June 2022, was unable to generate a proportionate increase in income.

Consequently, the average revenue per user (ARPU) in 1HCY22 decreased by 2% year-over-year to Rs163 per month from Rs167 per month in 1HCY21. The lack of top-line vitality was exacerbated by a huge 21 percent annual increase in operating expenses to Rs20.9 billion over the half-year period. Telenor Pakistan spent 40 percent of its overall income on operating expenses in 1HCY22, up from 33 percent in 1HCY21, due to rising electricity rates, petrol prices, and other input expenses.

• Primary Reasons for Decline

Therefore, the macroeconomic scenario entails increased interest rates and a larger country risk premium for Pakistan, which impacts the country’s weighted-average cost of capital. The second is the legal issue which is due to the supreme court’s (May 25, 2022) rejection of Telenor Pakistan’s appeal against the PTA’s license-renewal terms and conditions (mainly renewal price).

Simultaneously, Jazz’s CEO Aamir Ibrahim also issued a statement in which he talked about the effect of adverse economic conditions on the MNO. He also indicated the tough austerity measures that the company would have to take in order to sustain the business. Furthermore, he said,

As the world around changes, so must we. I refer specifically to how our operating environment is changing at the back of political and economic instability around the world, but more so in Pakistan. We all have been personally impacted by the rising cost of goods and services. Jazz is not immune to this adverse economic situation. In fact, we are deeply impacted by the interest rate hike and by the sharp rise in electricity and fuel prices. Tough times call for tough measures, and great teams rise to such challenges.

What can the MNOs do?

Work From Home:

One positive thing that arose from the Covid era is the work-from-home arrangements. Many firms around the world even continued the arrangements after the lockdowns were removed. So MNOs should also take a similar approach and start work from home arrangements again. It will really help them to cut their office expenses, including rent, bills, etc. Furthermore, the work-from-home arrangements can be made smarter with hybrid arrangements and employee choices. For instance, if any employee wants to take a leave on some other day than Sunday, then he/she would be allowed. Similarly, the timings can also be made hybrid according to the nature of the work. This will make employees work more efficiently, and would result in significant savings through office expenses cuts. In addition to that, the travel allowance that employees get would also be minimized. This would also help in saving a substantial amount.

Cutting Hefty Salaries:

In the telecom sector, specifically, those who are at the top are getting hefty salaries that range from PKR 2 million to 4 million, whereas the mid-level to senior level positions range between PKR 0.8 million to 1.5 million. This is also incurring significant costs on the MNOs. Rather than firing valuable employees to save money, they could slash the hefty salaries of the top tier and also cut down on a certain percentage for mid to senior officials.

The CEOs & Senior officials who have such hefty salaries should come forward and voluntarily ask for such measures, as it won’t affect them that much but it would prove to be a good cost-saving option for the company and save jobs while maintaining customer services.

ATL Marketing Cuts:

“ATL” is an abbreviation for “Above The Line.” It is mostly used in marketing and advertising terms. ATL means that the advertisement will be distributed to a broader audience, such as via television, radio, or billboards. All promotional messages are untargeted, meaning that they do not target a particular audience. The purpose of this is to alert customers regarding the new product or certain popular product’s availability. However, ATL advertisement is too much expensive and consumes a lot of resources. So, under such dire economic circumstances, telecom companies must minimize ATL advertisements.

In contrast, they can completely shift to the BTL (Below the line) advertising which is comparatively much more cost-effective. BTL advertising is more tailored and oriented toward certain groups. They are highly targeted, with ads rendered with the demographic and psychographic characteristics of specific customer groupings in mind. They are carried out through SMS, banners, Emails, PRs, etc.

Rationalizing Internet Prices:

In Pakistan, the cost of the internet is considerably low even compared to some of the developed countries around the world. The MNOs have increased their rates in recent times, though still, there is a gap and they can increase internet rates, which would help in generating additional revenues.

However, the step could bring resentment from the public. To that end, the telcos can use targetted price hike model based on the previous data they have. In such a model, the price of the internet would be increased significantly for the rich segments of society.

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