History of Restructuring of Telecommunications Sector
In 1990 T&T transformed into a wholly-owned Government corporation i.e.
Pakistan Telecommunication Corporation (PTC) under the Pakistan
Telecommunication Corporation Ordinance issued on December 15, 1990.
Proper legislative action being taken in 1991 through the promulgation of the
Pakistan Telecommunication Corporation Act (Act XVIII of 1991).
The primary objective of this structural change was to create an entity
financially independent of the Government while maintaining the existing inflows
into the Government treasury.
This was achieved by two main elements of the Telecommunication Act whereby, on
the one hand, PTC was required to pay to the Government on a fixed minimum basis
for the assets transferred to it from the T&T department and not converted
into paid-up capital and on the other,
Restriction on excessive cash withdrawal from the Corporation through the
imposition of a 7% limit on dividend declaration. This principle ensured that
the Government's budgetary support from PTC was maintained and PTC was also able
to invest in network development.
Since the payment for assets by PTC was spread over a period of approximately 3
years, it implied that the privatization of PTCL should take place before this
three year period.
Bear Stearns Hired as Advisors for Privatization
In 1992, the Government, through the Ministry of Communication, appointed a high-quality advisory consortium headed by Bear Stearns & Co. and consisting of Coopers and Lybrand and Latham & Watkins to study the telecom sector in general and PTC in particular and make recommendations for the deregulation of the telecom sector and the privatization of PTC.
Based on the outcome of that activity, it was decided that PTC would be sold as a single company with a monopoly on basic telephony services and through a transfer of minority shareholding but with control of the management of the company. This recommendation later crystallized in the form of a 7 year monopoly and a strategic sale of 26% with management control.
Vouchers Exchangeable for PTCL Shares are Launched
In mid-1994, primarily to inject an element of continued commitment to the privatization process, the Government decided to float 2% of the company in the domestic and international markets immediately. In July 1994, Khadim Ali Shah Bokhari/Merrill Lynch were awarded the mandate for the 2% floatation. Consequently, 1 million vouchers (equivalent to 100 shares each) issued by the Government but convertible into PTCL shares (once PTCL was formed) were pledged in August 1994. The offer was fully subscribed within Pakistan and was massively over-subscribed abroad. The overwhelming success of the sale of 2% equity of PTC encouraged the Government to look at the possibility of a further sale through a second tranche. It was then decided that the 1 million vouchers will be used to fully meet the domestic demand and launch of a second tranche of 10% was proposed exclusively for international investors.
While the sale of 2% equity in the first tranche was performed primarily to gain popular support for the privatization process, the impetus for the second tranche appeared to have come from the budgetary support viewpoint. Therefore in September 1994, the Government, through a finely tuned book-building process, managed to off-load 5 million vouchers at the strike price of Rs. 5,500 per voucher (representing conversion value for 100 shares at Rs. 55 per share) bringing in approximately US$900 million to the exchequer.
Some of the key commitments made, and met, by the Government in the information packages for the two tranches were:
PTCL would be created out of PTC and shares of PTCL would be listed on the three stock exchanges of the country within 2 years of the issue of the
In case the above does not take place as stipulated, the Government will buy back the vouchers at Rs. 3,840 each,
The maximum number of fully paid-up shares in PTCL at the time shares are listed will not exceed 5.1 billion ordinary shares of Rs. 10 each,
PTCL will take over a "large majority" of the assets, liabilities, employees and operations of PTC.
Deutsche Morgan Grenfell Appointed as Advisors for Privatization
In August 1995, Deutsche Morgan Grenfell & Co. Ltd (DMG) of U.K. was signed on as Financial Advisor to the Government of Pakistan (GOP) on the Privatization of PTCL. The period for the work was estimated at 9 months to the close of the transaction by May 1996. Morgan Grenfell led a consortium consisting of international accountants and lawyers (Coopers & Lybrand and Denton Hall respectively, both of the U.K.) supported by local accountants and lawyers.
Pakistan Telecommunication (Re-Organization) Ordinance
Also in 1995, a comprehensive "Pakistan Telecommunication (Reorganization) Ordinance" was promulgated which established the framework for the creation of Pakistan Telecommunication Authority (PTA) as an independent regulator of all telecommunication activity in the country, the Frequency Allocation Board (FAB), the National Telecommunication Corporation (NTC) as a second carrier in Pakistan exclusively for public sector communication needs and the Pakistan Telecommunication Employees Trust (PTET). The Ordinance provided details of the establishment, constitution, powers and rights of PTA, FAB, NTC, PTCL and PTET and defined the terms of the monopoly of PTCL, the mechanisms of transfer of assets, liabilities, employees, rights and obligation from PTC to PTCL, NTC, PTA, FAB and PTET. This law also covered issues such as rights of employees transferred from PTC to the other entities and national security.
PTCL is Born
In exercise of the powers stated under the Ordinance, PTCL was created on January 1, 1996 and took over all the business of PTC minus about 5% of the assets and much of the Government business which went to National Telecommunication Corporation (NTC). The carving out of NTC from PTCL was performed in response to the national security concerns, although it was indeed a very unique arrangement. A minor portion of the assets and employees were also transferred to PTA, FAB and PTET. PTC stands effectively dissolved from January 1, 1996. Under the law, the 7 year monopoly granted to PTCL commences from this date.
By February 1996, substantially all the activities required for the preparation of PTCL for sale had been completed. These include the preparation of various draft agreements, draft licenses, policy guidelines, valuations, financial model, proforma accounts, long form reports, information memorandum, road shows, lender consents etc. Two Data Rooms had also been established and fully furnished with all documents and requisite support equipment for due diligence.
On October 17, 1996, the new Pakistan Telecommunication (Re-Organization) Act (Act XVII of 1996) became effective providing permanency to the Presidential Ordinance in effect prior to that date. This law is a very comprehensive legislation and includes key provisions for reform of the telecom sector within the country and includes provisions required for the transfer of assets from PTC to PTCL, formation of NTC, formation of the regulatory body, PTA, Powers of Federal Government, National Security issues, creation of pension trust for PTC employees and other employee protection issues, etc.
After a competitive bidding process, the mandate for financial advisory services for privatisation of PTCL was awarded to Goldman Sachs International (GSI) in September 1998.
To give close support and improve coordination, a five member Steering Committee comprising (i) Chairman---PC, (ii) Secretary---Finance (iii) Secretary ---Communications (iv) Chairman----PTCL and (v) Secretary---PC was formulated to oversee the progress of the transaction. The Special Secretary ---Finance was later also co-opted as member of the Committee. Other members co-opted for specific meetings included the Chairman PTA.
Work has been completed in the following areas :
Complete review of the privatisation and legal framework
Formulation and notification of telecommunication rules including interconnect, tariff and licensing rules.
Notification of Policy Statement
The Financial Advisors worked closely with PTCL on the Customer segmentation survey & Traffic Analysis. PTCL had also engaged the services of a consulting company to undertake Technical Audit of its network and performance. The project took 8 months to complete and the final report was presented by the Consultants in June '1999. The Technical Audit is aimed at establishing a baseline of PTCL's technical, commercial and financial performance, which would become the benchmark for improvement of the company and its services. The Financial Advisors are expected to start soft marketing of the transaction by mid February 2001.
The telecommunication industry is regulated by the Pakistan Telecommunication Authority - an autonomous body established under section 3 of the Pakistan Telecommunication Re-Organisation Act, 1996, an Act of the Parliament to regulate the telecommunication industry in Pakistan, including matters relating to protecting consumers' interest, licensing regime, tariff regulation, type approval of equipment and interconnection arrangements. The Authority has the following major objectives and functions:
(a) regulate the establishment, operation and maintenance of telecommunication systems and the provision of telecommunication services in Pakistan;
(b) promote and protect the interests of users of telecommunication services in Pakistan;
(c) promote the availability of a wide range of high quality, efficient, cost effective and competitive telecommunication services throughout Pakistan;
(d) promote rapid modernisation of telecommunication systems and telecommunication services;
(e) make recommendations to the Federal Government on policies in the telecommunication sector.
The Authority has been vested with the necessary powers by the federal government to effectively perform its functions.
Frequency Allocation Board (FAB): The FAB has the exclusive authority to allocate and assign portions of the radio frequency spectrum to the Government, providers of telecommunication services and systems, radio and television broadcasting operations, public and private wireless operators, and others. The FAB has an executive director, who is the vice chairman, devoting his full time to the business of the FAB. The objective of the FAB is the efficient management of the spectrum.
PTCL Company Overview
The telecommunication sector around the world is going through a process of rapid change in information technology and convergence with focus on mobile internet and value added services. In line with global trends and for meeting the emerging
demand, major initiatives have been taken by the Company to upgrade its network, introduce a range of new value added services and develop a portfolio of information technology, internet and bandwidth related services to enhance the revenue potential of the Company. Internationally, the current decade has seen restructuring and growth of the telecom industry. The Company's two new subsidiary companies, Pak Telecom Mobile Limited (PTML) and Paknet Limited are progressing according to plan. PTML has become operational in Islamabad, Lahore and Karachi and had started to provide cellular services from January 2001. It has employed GSM 900 technology with the latest features for its operations. The technology selected will be migratible to 3rd generation. A turnkey contract has been awarded to Nortel Canada for the supply of equipment and technology. A team of professionals has been deployed for its implementation and operations.
As of June 2000, Paknet has acquired a customer base of over 30,000 in its 6 months of operation. An annual growth of about 60% is expected in the mobile business while the information technology and Internet services may grow even faster (close to about100% per annum). PTCL will ensure full accounting separation with its subsidiaries to maintain a level playing field for fair competition with the other operators.
Private Sector Participation
In line with the worldwide trend and best commercial interests, PTCL is out-sourcing a number of its new services. It continues to encourage partnerships with the private sector. These are based on interconnect models for licensees and out-sourcing of PTCL licensed services under O&M agreements. PTCL has made arrangements with three foreign and local telecom companies to launch Prepaid Calling Card Services (PCCS) for international calls, which have contributed about Rs. 300 million to PTCL during the year. All the three Prepaid Card businesses have installed their own Intelligent Platforms in the international gateway exchanges.
Under license from PTA, a number of private operators have established telecom systems and operate their services through interconnect arrangements with PTCL. As of June 2000, about 325,000 mobile connections, provided by three mobile operators in the private sector, are in operation. The market has a high growth potential. A number of pagers and card-pay phones are also being operated in the private sector. During the year, card payphones increased to over 30,000 - a growth of over 100% compared with the previous year. There is still a large unsatisfied demand for payphones provision of which needs to be increased by at least 100% during the following years.
PTCL has also launched its own Pre-paid Calling Card Service (domestic and international) to provide better service to the customers. The customer response to this service is encouraging. In view of developing technologies, some new projects like
Tele Housing, Voice over Internet Protocols have also been initiated.
A number of Data and Internet Service Providers are operating their services in the private sector under license from PTA. Internet & information technology services are now very popular and the number of new entrants is growing. The Company is
trying to increase its revenues by procuring and leasing greater bandwidth capacity to these operators.
The Accounting Rates for international telephone calls continued to fall sharply during the year. This is mainly due to the competitive international market and has further been compounded by the FCC accounting benchmark of $ 0.46 per minute by January 2002. The situation is further compounded by the WTO regime effective from January 2003. This is resulting in a gradual reduction in rates, but is compensated by a strong growth in incoming traffic. The Company has been endeavoring to minimize the impact of the declining TAR by expanding its facilities with other countries, improving call-success ratios and adding new lines to enhance international traffic. Despite the reduction in Accounting Rates, international revenue growth has been sustained, due to higher traffic volume and devaluation of the Pakistan Rupee over the years.
To offset the impact of reduction in international settlement rates and in line with global trends, domestic tariffs were further rationalized during the year. The line rent was increased from Rs.204 to Rs.245 per month. Long Distance (NWD) and International lease circuits rates were further reduced this by year 15% and 25% respectively in addition to the reduction already made in 1997 to 1999. NWD Distance Zones were reduced from 5 to 3. As a result, the rates in higher distance bands have been reduced by over 50% in just three years i.e. from 1 July 1997 to August 2000.
The Line Rent and Local Call charges, in spite of the increase, are still one of the lowest in the region. PTCL intends to continue the rationalization of tariffs in line with international trends and gradually remove built-in subsidies over the next three to four
During the year ending June 30, 2000, the Company earned a total revenue of 58.64 billion as against 51.19 billion in the previous year, an increase of 14.6 %. In spite of depressed economic and inflationary conditions, the Company was able to
maintain its operative expenses proportionate to revenue as compared to the previous year. Operating expenses were at Rs.33.30 billion for the year ended 30th June, 2000 as against Rs. 29.46 billion for the previous year.
The operating profit for the year was Rs.25.34 billion as compared to Rs. 21.73 billion for the previous year, representing 42.44% of total revenue. Income from other sources amounted to Rs. 1.30 billion as compared to Rs. 0.59 billion for the previous year. By exercising prudent financial management, financial charges registered a significant decline of 17.4% during the year under review declining to Rs. 3.92 billion from Rs. 4.74 billion for the previous year.
After adjustment of other income and financial charges, the net profit of the Company was Rs. 22.73 billion as against 17.57 billion for the previous year, an increase of 29.4%. The increase is largely attributable to significant increase in revenue and other income and a decline in financial charges. By virtue of the Telecommunication Re-Organization Act 1996, the Company was brought under the tax net as of 1st July 1999. As a result a provision of Rs. 9.4 billion was made to account for the tax liability.
Total assets of the Company stood at Rs. 139.90 billion as compared with Rs. 133.30 billion of the previous year. Net operating fixed assets were Rs. 74.30 billion as compared with Rs. 68.49 billion. A net addition of Rs. 5.81 billion was witnessed in the net operating assets as on 30th June, 2000 to meet the ever increasing demand, replacement of EMD with digital lines and to further improve the telecommunication facilities available to the general public, an amount of Rs. 13.67 billion was invested in the expansion of telecommunication network during the year ended 30th June, 2000.
Total current assets stood at Rs. 40.07 billion as compared with Rs. 36.98 billion as at 30th June, 1999 indicating an increase of 8.4%. This is mainly attributable to 13% increase in cash and bank balances, which increased to Rs. 16.69 billion against Rs.
14.77 billion of the previous year. Stores and spares witnessed a slight increase during the year to Rs. 2.45 billion from Rs.2.24 billion of the previous year. Trade debtors revealed a nominal increase by 3.7% over the previous year. However, the percentage increase in trade debtors was much less than 14.6% increase in revenue over the previous year.
Total current liabilities stood at Rs. 41.70 billion as against Rs. 37.80 billion at 30th June, 1999 showing an increase of 10.32% slightly decreasing the current ratio from 0.98 to 0.96. This increase in current liabilities is mainly because of rise in dividend payable and increase in income tax payable. Short term financing decreased to Rs. 9.94 billion as against Rs. 10.20 billion of the previous year. During the period under review, long-term liabilities increased to Rs. 35.66 billion from Rs. 26.24 billion, mainly due to effect of change in accounting policy regarding staff retirement benefits under IAS-19.
PTCL is consistently paying cash dividend to its shareholders. A cash dividend of 22.5% for the year ended 30th June, 2000, was paid out to the shareholders.
PTCL continues to modernize and digitize the remaining analog network. Over 90% digitalization has been achieved and the quality of service improved. The alternate fiber optic cable link on the right bank of the Indus river has provided resilience and
higher network reliability, thereby reducing outages and improving trunk service quality.
During the year ended 30th June, 2000, a total of 245,853 digital lines were commissioned at 456 existing sites, 264 new sites and of 192 existing exchanges expanded. 122,675 lines were installed in the rural areas at 340 sites all over the country. In total, 481 sites were provided outside plant for the exchanges during the year.
Implementation of the turnkey project for 305,000 digital line units was also started under a contract with a Chinese Consortium at a total cost of US $ 95 million. Nation-Wide Direct Dialing facility was extended to another 232 new stations, making a total of 1482 stations, covering almost the whole of Pakistan.
Nationwide Transmission Optical Fiber Network
Optical Fiber Cable of 622 MB capacity equipped with 9 pairs and a total length of 3,870 fiber kms has been commissioned, providing digital connectivity to the province of Balochistan. In addition to the above, optical fiber links on 18 subsidiary routes
of 364 Kms and optical fiber cable on 41 junction routes of 357 kms have been commissioned with 292 digital radio systems, to provide connectivity to the rural areas. Additionally, 8 TDMA systems have been commissioned, thereby extending
telecommunication facilities to 107 villages.
SEA-ME-WE-3 Optical Fiber System
For international communications links a SEA-ME-WE-3 Submarine Optical Fiber System Project was commissioned in August 1999. This is gradually being loaded for expanding circuits with different countries according to a schedule. During the
year, 1,176 international circuits were opened with 19 countries. The submarine cable capacity has been enhanced to over 800,000 MIU kms.
International Gateway Exchange-II Karachi
Installation of a stand-alone switching system and operator position sub-systems for a new millennium compliant Ericsson gateway exchange at Karachi have been completed. The system has been loaded to 98 % of the traffic on most circuits.
The entire 1.609 million EWSD, 1.124 million Alcatel, 0.337 million Ericsson, 0.169 million ZTE China lines and 0.116 million NEC lines were made millennium compliant before December, 1999.
Intelligent Network (IN) Platform Services
Intelligent Network Platform, covering a country-wide digital network is scheduled to be on line by December 2000. The Intelligent Network will open new opportunities of value-added services without dependence on suppliers of exchanges. The new value added services include Premium Rate Service, Universal Access Number, Personal number, Universal Personal Telecommunication Number, Virtual Private Network, Credit Card Calling, Tele-Voting and Audio-Conferencing.
Voice Messaging Services
The Project for Voice and Fax Messaging Services (VMS) has been completed. Ten VMS systems were installed in the major cities of the country. The features available with the messaging system are: call answering, voice messaging, special delivery, fax
messaging, priority messaging, information services and messaging notification. The mailboxes can be of different types and a subscriber can opt for a mailbox of his choice. This service will be a welcome facility for customers and be a new revenue generator for PTCL.
Quality of Service
During the year, PTCL improved its quality of service by reducing complaints pertaining to dropping of calls, cross talk and wrong dialing through achievement of digitalization of the network although complaints of late delivery of bills, excessive billing, poor response from 17, 18, 109 and other faults still need to be improved. PTCL is taking the following measures to improve quality of service:
- Upgradation of old Outside Network.
- Better management of digital transit / local exchanges
- Effective network monitoring and better fault management.
- Achievement of call completion ratio of 50% (inland) and 55% (overseas calls)
- Improvement in the response time and quality on 17, 18 & 109.
- Computerization of Directory Assistance Systems in Lahore, Karachi and Islamabad.
- Upgradation of the Customer Service Centers for improved customer care.
- Provision of diversity on main arteries for national & international circuits including leased lines to mobile operators for
- interruption-free service during breakdowns.
- A Hotline at the headquarters of PTCL which is now fully operational, allows performance of all the regions to be
- monitored through a complaint system using 0800 toll free facilities.
Organization and Corporate Restructuring
Services of Sofrecom, France, were engaged for a Technical Audit. The Technical Audit carried out by Sofrecom of France stands completed. In accordance with the findings of this study, management and financial information systems are being improved and computerized.
Steps are underway for implementation of recommendations, to overcome operational, technical, marketing and accounting weaknesses. Systems are being improved so as to provide useful management reporting. Improvement in performance in priority areas such as human resource, marketing and customer care, network, financial and billing management is also being addressed.
As part of a study by Messrs. OVUM Consulting, PTCL will also establish an information system for management accounts to unbundle / segregate costs and revenues relating to each service so to ascertain each area's profitability, so that the access
deficit and cross-subsidies are measured and price arbitrages addressed before the expiry of exclusivity. The consultancy project will also develop a suitable strategy to deal with the threat of falling International Settlement Rates / Revenues.
Recognizing the importance of operations research and information so as to maintain a competitive edge in the market place and to establish decision support systems, PTCL has finalized an arrangement with NCR for establishing a data warehouse to analyze traffic and billing information. This project will help position the Company for competitive operations in the next millennium, whether or not it is privatized.
The following projects are in the process of execution at different stages:
- Addition of 350,000 new telephones in 2000-01
- Replacement of 220,000 old EMD lines with Digital lines
- Expansion of Internet by 150,000 new connections. Implementation is in an advanced stage
- Video conferencing
- Quetta - Shikarpur Optic Fiber Cable
- Upgradation of switches
- Universalization of internet
- Internet & information technology projects such as the Pakistan Internet Exchange, Tele-Housing & VoIP
- High capacity to SB back-bone network with dedicated data back-bone (ZXSTM1)
The current number of directors on Board is fourteen. The Board comprises representatives of the private as well as public sectors. Mr. Akhtar Ahmad Bajwa is the Chairman and Chief Executive officer of PTCL.