Arshad Mahmood Awan

Despite the rapid expansion of cellular services, which now cover over 91% of Pakistan’s population, and a surge in broadband subscribers by approximately 14 million, the country’s telecom sector faces an increasingly bleak outlook. The recent report from the Pakistan Telecommunication Authority (PTA) for the fiscal year 2023-24 sheds light on several concerning trends within the industry. Although the number of mobile subscribers has grown, foreign investment (FDI) in the telecom sector has been consistently declining. This decline, coupled with the challenges of raising revenue per user and the massive investment required to transition to 5G networks, paints a troubling picture for Pakistan’s digital future.

The PTA’s annual report highlights that foreign direct investment in Pakistan’s telecom sector has significantly decreased. In FY2023-24, FDI amounted to just $46 million, a drop of over 20% compared to the $58 million received in the previous fiscal year. In contrast, the dollar outflow in 2023-24 was higher, reaching approximately $90 million—though it was still lower than the staggering $280 million outflow in 2022-23. While foreign investment has steadily diminished, the total investment in the sector also saw a decline of $5 million, bringing the overall telecom investment down to $765 million. This is particularly concerning considering the rising importance of digital infrastructure in a world transitioning to 5G.

While it is true that Pakistan has made significant strides in expanding cellular coverage and broadband access, the financial returns from these advances are proving insufficient. The average revenue per user (ARPU) in dollar terms has been declining, and Pakistan lags behind comparable nations in this regard. This could present significant challenges as the country moves toward the 5G era, which requires substantial investment in upgrading networks and building new infrastructure.

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Pakistan’s telecom operators face an immense financial burden when considering the necessary capital to deploy 5G services. While the global telecom landscape is evolving, the financial strain on local operators could impede the swift rollout of next-generation technologies. Additionally, the digital divide in Pakistan remains a significant issue. The disparity between urban and rural areas in terms of telecom access is stark, with urban areas seeing faster and more widespread adoption of new technologies, while rural regions lag behind. This divide poses a major hurdle to the rollout of 5G, as the costs and logistical challenges of providing cutting-edge technology to less populated and poorer rural areas are formidable.

As Pakistan grapples with rapid urbanization, these challenges are only likely to increase. Rural areas are already at a disadvantage when it comes to digital access, and with continued migration to cities, the pressure on urban infrastructure will intensify. However, even in urban centers, the rollout of 5G is expected to face obstacles. Pakistan’s experience with 4G adoption serves as a reminder of the hurdles that lie ahead. The country was slow to transition from 3G to 4G, which hindered its competitiveness in the global digital landscape. Given this history, the question remains: will Pakistan be able to overcome these challenges and ensure that its 5G transition is smoother and more successful?

At the heart of the issue lies the lack of sufficient capital to finance the necessary upgrades. Telecom operators will need to secure substantial investments to ensure that the 5G transition is successful, but with foreign investment in decline, the source of this capital remains unclear. Raising prices for existing consumers might appear to be an obvious solution, but this is fraught with complications. Pakistani consumers have become accustomed to relatively low rates compared to global standards, and the current climate of price sensitivity—fueled by years of inflation—means that operators may struggle to implement price hikes without facing backlash from their customer base.

The ongoing decline in FDI should be a cause for concern for government officials, prompting them to reflect on the state of telecom policy and identify potential missteps. Foreign investors are unlikely to be attracted to a market where the internet is prone to extended outages, where social media platforms are frequently restricted, where internet speeds are slow, and where digital content is heavily scrutinized by state officials. These factors create an unappealing environment for investment, as companies are hesitant to commit resources to markets with such instability.

While concerns around security and political stability are undoubtedly important, they should not come at the expense of creating a dynamic and financially successful digital ecosystem. The global digital economy is evolving at a rapid pace, and countries that fail to foster an attractive environment for investment risk being left behind. Pakistan, with its growing population and expanding access to telecommunications, has the potential to be a major player in the digital world. However, to realize this potential, the government must address the underlying issues that are deterring foreign investment, such as political instability, regulatory uncertainty, and inadequate infrastructure.

One of the primary issues hindering the telecom sector’s growth is the lack of a clear and consistent policy framework. Investors seek stability, predictability, and a level playing field, all of which are currently lacking in Pakistan’s telecom industry. The country has also struggled to create a conducive environment for the development of new technologies. While other nations are racing ahead with 5G, Pakistan is still grappling with the challenges of deploying 4G in rural areas. This lag in technology adoption could place Pakistan at a significant disadvantage, especially as the global digital economy shifts to 5G and beyond.

To address these issues, the government must take a proactive approach. This includes creating a stable regulatory environment, improving infrastructure, and fostering public-private partnerships to drive investment. Policymakers should also consider providing incentives to attract foreign investment, such as tax breaks or guarantees, to encourage companies to invest in the sector. At the same time, efforts should be made to bridge the digital divide by investing in rural telecom infrastructure and ensuring that all citizens, regardless of their location, have access to modern telecommunications services.

In conclusion, while Pakistan’s telecom sector has made significant strides in terms of expanding access to cellular services and broadband, it faces considerable challenges. The decline in foreign investment, the rising costs of transitioning to 5G, and the persistent digital divide are all significant hurdles that must be overcome. The government must take decisive action to address these issues and create a more attractive environment for investment. Without such efforts, Pakistan risks being left behind in the global digital race, which could have long-term implications for its economic growth and development.