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PTCL : Will it turnaround…???

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PTCL: Will it turnaround…???

PTCL : Will it turnaround…???

Privatization of Governmental assets has been a hot topic of discussion for over a decade now. During this time many organizations have been privatized. According to the proponents of privatization, it is the key factor that enables greater efficiencies and markets to work properly and an ultimate solution to economic woes of a country.  This has worked for Banks but has largely met with mixed results in many other sectors -especially with failure where half-hearted attempts were made such as energy, steel, airline and manufacturing. Being part of ICT sector our point of concern is most certainly the privatization and performance of Pakistan Telecommunication Company Limited (PTCL).

PTCL was privatized back in 2005, and since then the performance of the organization has been quite bumpy rather than burgeoning as was expected prior to privatization

PTCL was privatized back in 2005, and since then the performance of the organization has been quite bumpy rather than burgeoning as was expected prior to privatization. The control of PTCL was handed over to Etisalat as part of the offering to the highest bidder. Etisalat being a public sector enterprise of UAE negates the proponents’ belief that “state cannot run vital services”-well if the Government is as competent and forward looking as Abu-Dhabi Government, it is not impossible. Maybe Pakistani Government should have taken some lesson and had improved itself instead of privatizing the company. The most important dilemma is that neither Government wants to give up control nor want’s to own it fully.  Therefore, a very professional and businesslike approach is required now to prevent PTCL from becoming a liability like steel mill, PIA and other such white elephant entities.

The success of PTCL has always been of great importance as this is not only a source of revenue for the Government to fund other development initiatives but at the same time a source of public sufferings if they get deteriorating services and higher prices. While, revenue realization and improved efficiency remain a very important milestone for the PTCL privatization but the most itching factor in the whole episode of PTCL Privatization from the start is the outstanding payment issue of around USD 800 million that Etisalat has refused to pay to the Government of Pakistan even after 10 years. The weakness could be witnessed from the onset when the buyer was able to get the product at discounted rate along with management control-which could have been handed over to Singtel or China Mobile, the two other aspirants having considerably more experience to take the daunting task of turning PTCL around. Although, we keep on hearing news about settlement of long standing payment issue between Etisalat and Government of Pakistan but nothing much has happened. This long standing issue is quite recently added in the mega scandal list of FIA; which is a new twist that will definitely lead this issue no-where.

The main objective of privatization is to turnaround the performance of a company when it is not possible for the Government to do so. In essence, one needs to look at the performance parameters like profitability, customer growth, network development, increase in service portfolio and quality of service besides appreciation of the company assets to judge how well the organization has been performing. Let’s look at some of these parameters briefly to analyze the performance of PTCL:

Profitability: Soon after its privatization, PTCL had posted revenues of Rs. 71 billion and net profit of 15 billion rupees. Whereas, last year PTCL reported Rs. 81.5 Billion revenue and 5.7 Billion profit.

The revenue boost mainly resulted from abolition of International Clearing House (ICH). Although some see it as an artificial support at the expense of the consumer but the real impact will be seen next year as ICH has been abolished quite recently. While, revenue drop is certainly a big issue, the  major impact is seen in the sharp drop in profits as well i.e. Rs. 5.2 Billion last year almost 3 time less than it was way back in 2007. This just shows that the company is operating its business at a very high expense and if the current trend continues, the company could go in loss unless some drastic steps are not taken to arrest the trend just being explained.

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The decline in net profits indicates that OPEX and CAPEX have been quite high throughout these years. Although in 2014 company incur huge expenses due to fire struck in PTCL exchange but one of the main element responsible for high OPEX is certainly increased HR cost.  At the time of PTCL’s privatization there were around 60,000 employees out of which only 17 to 18 thousand are left, thanks to the various VSS initiations. But the employee benefits announced under these initiatives greatly affected company’s profits after privatization. But overall effect on the organizational efficiency has improved as there is now lesser and more competent workforce in action, and more importantly political interference has been reduced to almost zero thanks to its existing President Waled Irshaid-who maybe a very crude person to deal with but has largely been responsible to thwart any move that has been the primary reason for the demise of corporations like steel mill, PIA and other government utilities.

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Subscribers:  In last seven years, PTCL landline connections reduced significantly. The maximum number of connections recorded were in the year 2005. The landline market has been either stagnant or witnessed little growth because people have now turned toward cellular phones specifically smartphones that not only provided calling service but also solved the problem of easy availability of internet.

While, revenue drop is certainly an issue, the  major impact is seen in the sharp drop in profits as well i.e. Rs. 5.2 Billion last year almost 3 time less than it was way back in 2007

However, with over 25 million households in Pakistan, it was expected that there certainly will be some growth in PTCL’s landline market but in reality it has been otherwise. As seen in the graph the number of connections or subscriber have been reduced to half as compared to 2005 and 2006.

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On an average PTCL is losing around 40,000 customers each year. The consumers are increasingly moving towards cellular services while many customer in the cosmopolitan cities have opted for landline services from other providers like Nayatel, that is becoming quite popular for not only landline but its broadband and cable television services as well.

At the time of PTCL’s privatization there were around 60 thousand employees out of which less than 18 thousand are left, thanks to the various VSS initiations that such fat was reduced over time

PTCL could have benefited from increased landline network had it expanded aggressively and then converted these same customers to broadband subscribers. Although PTCL has done well especially in the urban areas, where it enjoys more than 80% market share. PTCL still continues to have the largest broadband subscribers based on its landline connections. While, PTCL Broadband users are split into DSL, 3G-EVO and CharJi 4G wireless broadband. DSL facility provided on PTCL landline is the most popular and PTCL enjoy a good grip in the market as compared to its competitors while, EVDO and LTE services provided in the form of Dongles, Mifi and Tablets have also good traction but facing stiff competition from the mobile operators who have also started offering  these services to the consumers. PTCL still hold the biggest market share in broadband services, its market is growing at a steady pace and in fact it is its key strength and also the major source of revenue.  The consumers still prefer DSL services as they get a healthy and stable internet connection while there is no data limit as one can use internet without any data restrictions, making PTCL the preferred internet service provider in the country.

Network development: There is no doubt that technologically PTCL has tried to move with time which is so very important for a technology company. PTCL was successful in making its mark in the wireless broadband services by introducing new technologies despite remaining within the limits of the WLL regulations of fixed wireless. By introducing EVDO-Rev A services PTCL became the first telecom operator to provide 3G services in the country. PTCL’s EVDO-Rev A services were provided through EVO dongle, EVO Wi-Fi cloud, EVO Tab & EVO Droid. In 2010, PTCL upgraded to EVDO-Rev B called “EVO Nitro Rev. B”. It was amongst the world first few commercial network based on EVDO- Rev B technology that could theoretically offer speeds up to 9.3 Mbps.

PTCL also sensing competition from 3G auction introduced LTE services called ‘Charji EVO’ by re-farming its spectrum and through strategic alliances. This latest move to start LTE service was a good addition to its fixed wireless strategy to ensure that there is a continuous evolution and network growth. This LTE technology can provide comparable speed and QoS as is expected to be provided by the mobile operators in Pakistan.

The services are available in the major cities across Pakistan and also being expanded. The good part is that that devices such as dongles and Mi-Fi clouds have the ability to fall back to the EVO Rev A or Rev B networks in case there is no LTE service available in the area. PTCL is expanding its wireless broadband coverage across the country, if it does so successfully it can provide a good competition to the cellular operators with competitive price and good speed.

PTCL sensing competition from 3G auction introduced LTE services by re-farming its spectrum and strategic alliances. This latest move was a good addition to its fixed wireless strategy to ensure that there is a continuous evolution and network growth

PTCL also has done well on the network development side by offering Fiber to Home (FTTH) services for its home and business customers.  The first ever Fiber to Home service was based on Gigabit Passive Optical Network (GPON) technology that was deployed in Karachi. Fiber to Home or Fiber to the Building (FTTB) services allows it consumers to enjoy speeds up to 100 Mbps. This is possible with the Optical Fiber solution which not only provides considerably higher efficiency as a transport medium but also delivers quite simple and a greater scalability for future expansions in supporting more and extra services with lower cost. Consumers of the technology can enjoy fastest internet speeds, flawless streaming, content services and much more.

Service portfolio: PTCL has also been able to increase its service portfolio to keep itself afloat. Besides its biggest strength, broadband services, its portfolio includes services like Smart TV, PTCL Tablets, dongles, Wifi and Mifi devices that have been introduced over a period of time. Through timely introduction PTCL enjoyed a good period of virtual monopoly and also secured a sizeable subscriber base in each segment of its service portfolio, although PTCL could have done much better if it had continued with its aggressive marketing strategy as there was no  credible competition.

Corporate and enterprise business remains a potential for further growth as PTCL offers, several products/services such as Managed WAN, Cloud computing, Video Conferencing  and Geographical Information System (GIS) that were launched specifically for the corporate sector. The business relationship with various government and educational entities could further strengthened PTCL’s position in the market.

Quality of Service: Over the years PTCL’s quality of service has also improved through better network and products, it has indeed tried to improve its service delivery as well which is the most important part. PTCL has recently been ranked as the number one broadband operator in Pakistan and also the fixed line telephony service provider-although not much competition do exist at such scale because other fixed line service providers are limited to a couple of cities. This survey conducted by Best Buy Award research in association with Swiss organization ICERTIAS measures customer experience relative to price-quality ratio and best value for money. But still, internet disconnection is a huge issue in many small cities especially in Baluchistan, where according to residents internet is disconnected for several days and sometimes for weeks. PTCL mainly suffer from a bad image in terms of QoS from the past and will have to focus on improving its image in addition to actually improving further the quality of service and quality of delivery as well.

Asset Valuation: Technology and communication segment holds the biggest chunk in the stock market of Pakistan, currently it tops all sectors listed on the stock market with 24% share and PTCL obviously is a major patron in that. Slightest fluctuation in its share volume can seriously jolt the market. PTCL stock share value saw a nose dive in the period from 2007 to 2009 and has comparatively stabilized since then. The market value of PTCL shares may not be as significant as it was when it was first listed but it still presents a very important portfolio. The stability of PTCL shares does have a huge impact on the stock exchange and therefore it is equally important for the government that it ensures and maintain its healthy growth. PTCL could do well if further regulatory concessions are made to enable it to get mobile devices so that it could compete with the mobile operators that are eating company’s market share. If PTCL is able to convert its huge infrastructure to get subscribers on board, it shall definitely be able to improve its financial position that will also see improvement in its share value.

PTCL historically suffers from a bad image in terms of QoS and will have to focus on improving its image in addition to actually improving further the quality of service and quality of delivery as well

Despite shaky performance, PTCL is still the largest broadband provider of Pakistan with 1.4 million DSL subscribers by the end of July 2015. PTCL has the capacity to maintain its dominance over other broadband services if it further improves the quality of service along with its wide network. The hour of need is to devise an aggressive strategy to convert all of its strength into profitable customers. This could include tapping into new market with wider product portfolios and most importantly to have a joint strategy with its subsidiary Ufone, which is also facing a downward trend due to limited spectrum. If both operators come up with a combined strategy for broadband services while using each other’s resources, they will be able to offer newer and better mobile services to compete in the market.

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Privatization of PTCL most certainly freed itself from political interference which was the biggest dilemma for its growth and development. It has all the opportunities and ingredient that are needs to emerge as the telecom giant in the region as it is still the largest landline operator and broadband service provider of the country. It has everything that its contemporaries like SingTel and Telekom Malaysia have; the technology, infrastructure, technical experts etc and with its 100% owned subsidiary, Ufone, PTCL can have leadership position in the fixed and wireless market of Pakistan, that obviously can only be made possible if PTCL comes up with aggressive strategies while making full use of its capabilities and resources at hand.