Pakistan’s Mobile Crisis: World’s Lowest ARPU and Its Impact

Pakistan’s telecommunication sector presents a unique paradox. While boasting over 193.238 million mobile subscribers as of November, 2024, representing a penetration rate of 88%, the industry grapples with the world’s lowest Average Revenue Per User (ARPU) at approximately $0.80 per month. This figure stands in stark contrast to global averages – developing markets typically see ARPUs ranging from $3-5, while developing markets command $15-50 per user monthly.

Note: The number of cellular subscribers, 3G/4G users as well as penetration in Pakistan declined in November 2024, the Pakistan Telecommunication Authority (PTA)’s data revealed. The number of cellular subscribers decreased from 193.309 million by end of October 2024 to 193.238 million by end of November.

Definition & Siginificance of ARPU

Average Revenue Per User (ARPU) is a key performance indicator in the telecommunications industry that measures the average monthly revenue generated per user or subscriber. It’s calculated by dividing total revenue by the number of subscribers over a specific period.

Significance:

• Indicates operator profitability and financial health
• Helps forecast revenue and plan investments
• Enables comparison between operators and markets
• Guides pricing strategies and service offerings
• Reflects market maturity and consumer spending patterns

Formula: ARPU = Total Revenue / Number of Active Subscribers

In Pakistan’s case, the $0.80 ARPU represents one of the lowest globally, significantly impacting operators’ ability to invest in infrastructure and maintain service quality.

Source: Profit

Root Causes of Lowest ARPU in Pakistan

High Taxation
The roots of this crisis run deep into Pakistan’s economic and regulatory landscape. The telecom sector faces one of the highest taxation regimes globally, with operators bearing up to 34% in various taxes and levies. This includes corporate income tax, sales tax, and service charges at both federal and provincial levels. In comparison, neighbouring India’s telecom sector faces an average taxation of 18%, while Bangladesh stands at 21.75%.

Currency Depreciation
Currency depreciation has dealt another significant blow to operators’ financial health. The Pakistani Rupee has depreciated by over 60% against the USD in the last five years, severely impacting operators who manage substantial USD-denominated costs.

These include spectrum fees, which can run into hundreds of millions of dollars, and equipment purchases for network maintenance and upgrades. For perspective, when Telenor acquired its 4G spectrum in 2017 for $395 million, the exchange rate was PKR 105 to the dollar. Today, with rates exceeding PKR 280, the real cost in local currency has more than doubled.

Market Competition
The market structure itself contributes to the ARPU challenge. Pakistan’s mobile market is characterized by intense competition among operators – Jazz (37% market share), Telenor (24%), Zong (23%), and Ufone (16%). This competitive landscape has led to some of the lowest tariffs globally, with voice calls costing as little as PKR 1-2 per minute and data packages offering 1GB for as low as PKR 100.

Predominance of prepaid users
The predominance of prepaid users, constituting over 98% of the subscriber base, significantly impacts revenue potential. Prepaid users in Pakistan spend an average of PKR 200-250 monthly on mobile services, compared to postpaid users, who typically spend PKR 1000-1500. This disparity is further exacerbated by limited adoption of value-added services, with only 5% of users regularly purchasing additional services beyond basic voice and data packages.

Economic Contraints
The economic environment plays a crucial role. With inflation reaching 29.2% in December 2023 and real wages declining, consumers are increasingly price-sensitive.

A recent industry survey revealed that 67% of Pakistani mobile users consider price as the primary factor in choosing their service provider, compared to 45% who prioritize network quality.

 

Impact of High Inflation Rate on ARPU

Pakistan’s high inflation rate, hovering around 30% in 2023-2024, directly impacts Average Revenue Per User (ARPU) in two key ways – while companies may increase prices to offset inflation, consumers’ reduced purchasing power often leads to downgrading of services or plans.

The erosion of the Pakistani Rupee’s value means that even when ARPU rises in local currency terms, it often declines in USD terms, creating challenges for companies reporting global metrics.

This inflationary pressure combined with economic uncertainty typically results in consumers becoming more price-sensitive and seeking cheaper alternatives, ultimately putting downward pressure on ARPU despite nominal price increases.

Impact on Telecom Operators

The impact on Pakistan’s telecom operators has been severe and multifaceted. Industry data reveals a dramatic drop in Return on Investment (ROI) from 33% in 2018 to merely 12% in 2023. This financial strain has triggered a 30% reduction in capital expenditure since 2020, severely limiting operators’ ability to maintain and upgrade infrastructure.

The diminishing revenues per user have created a challenging environment for sustainability, with operators struggling to balance operational costs against declining profits. This has led to significant market restructuring, most notably Warid’s merger with Jazz in 2017 and Telenor’s recent market exit announcement.

These financial pressures continue to ripple through the industry, creating a cycle of operational challenges. High costs coupled with low revenue have forced operators to make difficult choices between maintaining service quality and managing expenses. Infrastructure investments have been particularly hard hit, with operators struggling to justify new technological upgrades amidst shrinking margins.

This situation has created a concerning precedent in the market, where sustained financial pressures may potentially trigger more market exits or consolidations, further reducing competition and potentially impacting service quality for consumers.

Impact on Consumers

The impact on Pakistani consumers manifests in deteriorating service quality and limited technological advancement. Network metrics show a 25% increase in call drop rates since 2021, while average data speeds stagnate at 17 Mbps compared to global 4G averages of 30+ Mbps.

The financial constraints have particularly affected rural areas, where only 40% of the population has access to 4G services. Price sensitivity has reached critical levels, with recent surveys showing 76% of consumers reducing their telecom spending in response to inflation, which hit 29.2% in late 2023.

This situation has created a widening digital divide, especially affecting Pakistan’s rural population of approximately 130 million people. Limited infrastructure investment has resulted in a 35% gap in internet penetration between urban and rural areas.

The inability of operators to introduce advanced services has left Pakistan lagging behind regional peers. While neighbouring countries prepare for 5G deployment, Pakistan’s consumers face limited access to even basic 4G services in many areas. Economic constraints further compound this issue, with average monthly telecom spending declining by 18% in 2023 compared to the previous year.

Challenges With 5G implementation

The 5G implementation challenge in Pakistan presents a critical technological and economic hurdle. Beyond the stark investment disparity with India ($12 billion) and Bangladesh ($5 billion), Pakistan faces unique obstacles in its 5G journey.

Current estimates suggest Pakistan would need minimum investments of $6–8 billion for basic 5G infrastructure, with operators needing to spend at least $1.5 billion each on spectrum acquisition alone. With the current ARPU of $0.80, recovering such investments could take 12–15 years, compared to the industry standard of 5-7 years.

Market readiness poses another significant challenge. Only 3% of mobile devices in Pakistan are 5G-compatible, compared to 15% in India and 8% in Bangladesh. The spectrum allocation remains uncertain, with Pakistan yet to finalize its 5G policy framework. Testing phases have been repeatedly delayed while neighboring countries progress with commercial rollouts.

Additionally, existing 4G infrastructure utilization remains low at 45%, raising questions about the timing of 5G investments. Industry experts suggest Pakistan might need to delay mass 5G deployment until 2025-26, potentially creating a significant technological gap with regional competitors and impacting future economic competitiveness.

The infrastructure gap is particularly concerning. Pakistan would need approximately 30,000 new cell sites for effective 5G coverage, requiring an additional $3 billion investment. Current fiber optic backbone coverage, essential for 5G, reaches only 20% of cell sites, compared to the required 60-70% for efficient 5G deployment. Without addressing these fundamental infrastructure gaps and ARPU challenges, Pakistan risks falling further behind in the regional technology race.

Measures to Address Lowest ARPU Challenges

The situation demands immediate attention from all stakeholders. Regulatory bodies need to revisit the taxation structure, potentially implementing a gradual reduction in sector-specific taxes to align with regional averages. Operators must innovate in service offerings and pricing strategies, possibly through more sophisticated market segmentation and targeted value-added services.

From a policy perspective, the government should consider establishing a telecom sector stabilization fund, similar to Malaysia’s Universal Service Provision Fund, which could support infrastructure development in underserved areas. Additionally, introducing favorable spectrum payment terms and promoting infrastructure sharing could help reduce operational costs.

My Take

The path forward for Pakistan’s telecom sector requires strategic balance and collaboration. The industry needs a comprehensive policy framework that addresses both affordability and sustainability. Key stakeholders – including PTA, mobile operators, and the Ministry of IT—must develop strategies to enhance ARPU while maintaining accessible services. Without intervention, Pakistan faces significant risks: experts predict the digital divide could widen by 40% by 2025, and the country could lag 3-4 years behind regional peers in digital infrastructure.

Immediate action points should focus on: reducing the 34% tax burden to regional standards (18-22%), implementing infrastructure sharing to cut costs by 25-30%, and creating investment-friendly spectrum payment terms.

Industry data suggests these measures could potentially raise ARPU to $1.5-2.0 within 24 months, creating a more sustainable ecosystem for both operators and consumers while ensuring Pakistan’s competitive position in the regional digital economy.