South Asia is a region of opportunities and challenges in equal measure. It is home to a quarter of the world’s middle-class consumers and has the world’s largest working-age population, but it also has huge numbers of poor and undernourished citizens.
Such contrasts are reflected in the region’s telecoms industry. Mobile subscriptions far outnumber fixed (which are in decline) but average revenues per user (ARPUs) are low. Broadband penetration is increasing, albeit slowly. Internet connection costs are too high for many people, while low literacy rates and a lack of local content are also barriers to adoption.
“The market is still underdeveloped in my assessment, and its potential is much larger than what we see today,” says Walid Irshaid, president and CEO, Pakistan Telecommunication Company (PTCL).
“I believe we will see better synergy and better utilisation of the capacity available, but first there has to be better broadband penetration, both fixed and wireless, and better development of local content,” he adds.
Nevertheless, the region’s emerging economies – Bangladesh, India, and Pakistan – are still growing. According to Cody Williams, research analyst at TeleGeography, India is the furthest along of the three, with a fair amount of structural competition, 13 submarine cable systems connected and another planned for 2014.
“South Asia has had strong growth over the last five years, including 60% internet bandwidth growth, and we can expect these countries to continue to gain both initial connections and bandwidth gains as these connections become more robust, either through new cell technologies or more robust terrestrial connections,” says Williams.
“While these factors aren’t directly tied to the wholesale market, we’ve found that the number of connections and the bandwidth of those connections are the two biggest factors for international bandwidth growth,” Williams adds.
Investment and policies
One of the key challenges has been the significant decline in Foreign Direct Investment (FDI) in 2012. According to UNCTAD, FDI inflows to India dropped by 29% year-on-year to $26 billion, inflows to Pakistan fell by 36% to $847 million and Bangladesh saw inflows decrease by 13% to about $1 billion [see graph].
“There has been a decline in the FDI in this part of the world, and more so in Pakistan,” continues PTCL’s Irshaid.
“When I came back here in 2006-7, these markets were seen as being among the most high-growth in the world. The market hasn’t changed. It’s not shrinking, it’s expanding, and the number of consumers is expanding too. But we need more stability and policies with more creative incentives for people and investors, and better regulatory regimes.”
In Bangladesh, regulatory and economic deficiencies have prevented its domestic telecoms sector from attracting FDI.
“In Bangladesh, we have six terrestrial cables connecting us to India and this will spur some changes in the future,” says Mushfique Manzoor, CMO, Mir Telecom.
“However, the current mechanism of only domestic data wholesale by IIGs will have to undergo changes and Bangladeshi carriers will hopefully be allowed to trade bandwidth internationally. The government, regulators and all stakeholders have a lot to do to ensure growth in the telecoms industry – wholesale and retail – in this region.”
India’s hiatus
According to Paul Budde, managing director at independent consultancy BuddeComm, regulatory and economic uncertainty has also contributed to the current situation in India.
“Over the last decade or so, we have seen a once-confident telecoms sector move towards the edge of chaos, as poor administration, corruption and overly bureaucratic and legalistic processes have combined to undermine the outlook of the sector. Not the least of its problems is that foreign investors have become especially wary of India’s telecoms sector – and all this at a time when the economy is looking to be in serious trouble.”
In a bid to restore confidence, the government announced in August that it had raised the 74% limit on FDI in the telecoms sector to 100%. The news received mixed reactions, with expectations that foreign investors will up their stakes tempered by others anticipating no change.
Budde suggests that India’s economic situation is only just starting to impact on the telecoms sector, but he is also confident it will bounce back from any downturn.
“The DoT recently signalled that mobile operators are to be granted permission to share spectrum. There is a real opportunity here for operators to build greater efficiencies into their operations. If this proceeds as planned, it has the potential to help shape that segment of wholesale.”
Implementation will not be straightforward, he cautions. The rules are expected to be strict and the costs high. Budde also predicts continuing strong demand for data, both in India and around the region.
“As the major carriers shift their focus from signing up more and more subscribers to selling value-added services to the ‘quality’ customers they already have, we can expect increased demand for wholesale, national and international services, and capacity to manage the anticipated increase in data,” Budde suggests.
Poised for data boom
A number of carriers in the region are preparing for substantial data traffic growth following the launch of 3G in Bangladesh, and the imminent auction of 3G and 4G licences in Pakistan.
“In preparation for this we are trying to enhance, consolidate and build international capacity,” says PTCL’s Irshaid.
“As the gateway for neighbouring Afghanistan, we’ve also been active in building terrestrial and radio connectivity for the sole purpose of providing a passage for their internet and data traffic. I see potential for growth for data traffic coming from the south Asia region and especially from India and Pakistan, who combined are the sixth-largest consumer market in the world. Even though there are only two million broadband customers in Pakistan, we see average monthly downloads of 25-30GB per user,” he adds.
As well as providing a gateway for Afghanistan, Pakistan also aims to become a transit hub for other countries.
“Looking at the central Asian countries connected to Afghanistan, they are also landlocked. As the economic activity of those countries increases, they will depend on Afghanistan and the latter will depend on Pakistan,” says Rashid Shafi, Senior EVP and CSO, Multinet Pakistan.
Connectivity builds
Shafi sees further wholesale opportunities, should UN sanctions on Iran be relaxed.
“They are looking for around 300 STM-1s, and might benefit from Pakistan for their ICT needs. I also think that once the peace talks between India and Pakistan see results, that will be beneficial to both countries.”
Bangladesh is another country looking to build out connectivity. Bharti Airtel’s India-Bangladesh terrestrial fibre cable went live in July, while the SEA-ME-WE-5 subsea cable is expected to be connected in 2015.
“Bangladesh is to be part of that, but the government is also contemplating a fresh tender for an additional submarine cable,” says Mir Telecom’s Manzoor.
According to Manzoor, one interesting development to monitor is activity on the Bay of Bengal cable – spearheaded by TM and Cable&Wireless – which will connect India with south east Asia.
“We’ve also seen efforts to bring price stability in south Asian markets like India, Pakistan and Bangladesh, which have had mixed results, but such efforts will continue. Carriers will have to reinvent themselves to ensure better revenue and margins to remain in business,” he suggests.
One aspect that is certain, however, is the region’s hunger for new services.
“We always tend to underestimate the needs, experience and expectation of consumers. We launch something that we think might be too fancy or too progressive for the market and the consumers prove us wrong every time,” concludes PTCL’s Irshaid.
