Telenor’s Revenue Declined in Pakistan due to Reintroduction of Telecom Tax

One of the leading telecom company’s revenue has declined in Pakistan due to multiple factors including re-introduction of telecom tax as well as challenging market environment, offsetting growth in several other markets. Telenor’s Revenue Declined in Pakistan due to Reintroduction of Telecom Tax.

This has been revealed in the third-quarter report of Telenor issued on Wednesday. Telenor’s president CEO Sigve Brekke stated that Malaysia registered improvements in revenue, but its business in Pakistan proved troublesome, due to the reintroduction of a telecoms tax and a difficult macroeconomic environment.

Telenor Witnessed a Significant Revenue Decline due to Telecom Tax in Pakistan

In Pakistan, Telenor saw significant revenue decline and challenging macroeconomic development in the third quarter.

Subscription and traffic revenues decreased by 15 percent and Earnings before Interest, Taxes, Depreciation and Amortisation (EBITDA) decreased by 50 percent.

Adjusting for the reversal of SIM tax in the third quarter last year, subscription and traffic revenues decreased by 11 percent and EBITDA decreased by 31 percent. The negative revenue development was mainly caused by the disallowance of the service fee in the second quarter but also lower Average Revenue per User (ARPU).

Telenor’s Revenue Declined in Pakistan due to Reintroduction of Telecom Tax

In addition, increased energy prices, network expansion and the devaluation of the local currency led to 8 percent higher opex. On the positive side, the subscriber base increased by 0.5 million, and the subscription base is now at a level which is 3 percent higher than last year.

The report further states Telenor Pakistan’s GSM license expired on 25 May, and the renewal fee was set to USD 449 million by Pakistan Telecommunication Authority (PTA). Telenor claim that the renewal price should be USD 291 million, which is the same as prior renewals for other operators. In third quarter, Telenor paid a deposit of USD 225 million of the requested license renewal fee awaiting a hearing in Islamabad High Court.

Continued growth in Bangladesh, good overall performance in Norway and positive results in Myanmar were not able to cushion the strong decline in Pakistan, where a combination of falling revenues, higher network costs and reversals last year led to a significant decrease in EBITDA. In addition, the decrease in high margin fixed legacy revenues and corporate project costs contributed negatively.

Free cash flow before M&A activities was Norwegian Krone (NOK) 2.8 billion, which is a decrease of NOK 1.9 billion compared to last year. This was primarily due to the 2G licence deposit of NOK 2.1 billion made in Pakistan. In the first three quarters of 2019, Free cash flow was negative NOK 10.1 billion, a decrease of NOK 42.2 billion. In addition to the DNA transaction and licence deposit in Pakistan, CAT settlement payments in Thailand of NOK 2.6 billion, as well as higher income tax and interest payments, affected the Group’s cash generation negatively.

Organic subscription and traffic revenues decreased by 0.6%, as the decline in Pakistan following the re-introduction of telco specific taxes outweighed positive developments in other markets.

On a reported basis, growth was 7% after the inclusion of Finnish telecom operator DNA in the Group’s consolidated figures.

The report maintained that subscription and traffic revenues decreased by 1% on an organic basis. In a challenging market environment, revenues in Pakistan declined significantly, offsetting growth in several other markets. Total reported revenues increased by 7 percent to NOK 29.5 billion.

Currency adjusted gross profit excluding Finnish telecom operator (DNA) declined by NOK 0.8 billion, impacted by the revenue drop in Pakistan and reversals last year. Reported gross profit increased by NOK 0.6 billion.

Currency adjusted opex increased by NOK 0.6 billion, but was stable excluding DNA and project costs related to the DNA acquisition and the Axiata merger discussions. Reported opex increased by NOK 0.9 billion or 10%. EBITDA decreased by 7% or NOK 0.9 billion on an organic basis, primarily as a consequence of the development in Pakistan. Reported EBITDA before other items was NOK 12.1 billion with an EBITDA margin of 41%.

Based on the performance so far this year and our expectations for the fourth quarter, we maintain our outlook for 2019. Execution on our strategic agenda remains our focus and key driver for value creation going forward,” said Sigve Brekke, President and CEO, Telenor Group.

The company stated that the performance in the third quarter reflects continued strong execution on its strategy, focusing on growth, efficiency and simplification

Overall, the Group delivers an almost flat organic subscription and traffic revenue growth and organic EBITDA decline of 2%, when adjusting for project costs this quarter and non-recurring items last year. Its cost base remained stable, excluding DNA and project costs.

The statement mainlined the modernization in Norway is progressing according to plan, and it sees a 3% mobile subscription and traffic revenue growth combined with a 5% reduction in operating expenses this quarter. In Thailand and Myanmar, the momentum seen earlier in 2019 continued and both operations have now returned to positive subscription and traffic revenue growth. However, headwinds in Pakistan as a result of the telecom tax re-introduction and a difficult macroeconomic environment have made the situation locally challenging.

During the quarter we have successfully concluded the acquisition of DNA in Finland. The mandatory tender offer period ended on 10 October and resulted in an ownership share of 97.96 percent. We have started to onboard DNA to our procurement processes to materialise synergies, and we are now looking for opportunities to expand service offerings to Finnish business customers.

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