Home Asia-Pacific II 2013 South Asia a new frontier for carriers

South Asia a new frontier for carriers

by david.nunes
Rashid ShafiIssue:Asia-Pacific II 2013
Article no.:7
Topic:South Asia a new frontier for carriers
Author:Rashid Shafi
Title:Senior Executive Vice President and Chief Strategy Officer
Organisation:Multinet Pakistan (Pvt) Ltd.,
an Axiata Group Subsidiary
PDF size:405KB

About author

Rashid Shafi is the Senior Executive Vice President and Chief Strategy Officer at Multinet Pakistan (Pvt) Ltd. an Axiata Group Subsidiary; he has more than 27 years of technical, manufacturing, telecom green field projects, economic and strategic telecom analysis, business and project development, consulting and telecom business management and operations. Since 2005 Mr Shafi holds the position of Senior Executive Vice President and Chief Strategy Officer at Multinet Pakistan Private Limited. He is the head of international carrier business, strategy and regulatory affairs. He has extensive expertise in Strategy development, business plan and sales strategy development, Project Management and Regulatory Affairs.
Rashid Shafi has Bachelors and Masters Degrees in Electrical Engineering and a graduate diploma in Advance Management from Harvard Business School

Article abstract

Communications technology is at the core of global development. Although South Asia’s economy has grown far faster than in developed regions, it remains far behind in socio-economic development. The low levels of Internet usage – due mainly to high costs and low literacy rates – slow the rate of regional development. Inexpensive smartphones help, but Internet connection costs are far too high for most of the population, so telecom earnings and, consequently, investment in infrastructure and market development, lag considerably.

Full Article

The world continues to develop at a rapid pace and communications technology is at the very core of this global development story. While the recent financial crisis has dented growth especially in America and Europe, Asia still continues to drive the engine of the world economy. With the ever-increasing economic muscle of China and South Asia, this century has been dubbed the ‘Asian Century’. South Asia has averaged six per cent per year GDP growth over the past two decades, far more than the rest of the world (Figure 1).
The future looks bright, with GDP forecasted to grow at 6.7 per cent for the next three years. South Asia currently has the world’s largest working age population and a quarter of the world’s middle class consumers and is fast becoming the consumption hub of the world.
South Asia still has a way to go before reaching the level of the developed countries, but its rapid growth rate, smart infrastructural development, technology penetration and is hunger to succeed predicts a bright future.

Figure 1: Regional GDP Growth Rates – year over year (Source: World Bank)

To better understand the growth potential of telecommunications in South Asia, it is important to compare it with developed telecommunication markets. The United States of America is a useful benchmark for economic and technological growth and a detailed comparative analysis of economic, social and telecom indicators is. (Figure 2)

Indicators Developing Developed
South Asia United States
GDP Total (trillion) $ 2.27 $ 15.09
GDP growth (annual %) 6.4% 1.7%
Population (Millions) 1,656 312
Population growth (annual %) 1.4% 0.7%
GDP per capita (current US$) $ 1,371 $ 48,442
Literacy rate 62.50% 100%
Fixed broadband Internet penetration rate 0.9% 28.7%
Internet Penetration Rate 9.4% 78.2%
Mobile Penetration 68.8% 105.9%
Fixed Telephone lines Penetration 2.7% 47.9%
Total Annual Telecom Revenues (US $ billions) $ 28.20 $ 389.60
Poverty Headcount (%) 29.0% 0%
No of Submarine cable systems 17 50+

Figure 2: Developing vs. Developed – Key Indicator Data (Source: World Bank)
GDP (gross domestic product) per capita in United States is US$ 48,422 whereas in South Asia is US$ 1,371, thus the average South Asian’s disposable income is many times less than in the United States. Literacy Rate in South Asia is still very low at 62.5 per cent compared to 100 per cent of United States.

With the huge variation in economic and social conditions between both regions in terms of GDP, poverty and literacy, ratio analysis has been used to identify potential areas of growth, weaknesses and improvement.
Indicators Developing Developed
South Asia United States
Internet Penetration / Literacy Rate 15% 78%
Telecom Revenues Per Capita per Year $ 17.02 $ 1,250.35
Telecom Revenues Per Capita per Month $ 1.42 $ 104.20
Telecom Revenues Per Capita / GDP per Capita 1.24% 2.58%
Population / Submarine cable 97.41 million 6.24 million

Figure 3: Ratio Analysis
Internet Penetration in South Asia is a meagre 9.4% while in US is 78.2 per cent and broadband penetration is even lower at 0.9 per cent compared to 28.7 per cent in USA. The literate population fuels the demand for the Internet; it has taken the role of information dissemination and only with an increase in literacy can we achieve this growth.
Our analysis shows that 78 per cent of literate people in United States are Internet users while only 15 per cent of literate people of South Asia are Internet users. The average telecom revenue generated per capita in United States is US$ 104.2 per month while only US$ 1.42 is generated in South Asia. The lower GDP per capita shows there is a huge potential for growth in ARPU (average revenue per user).
One of the most significant findings of the study is that 2.58 per cent of GDP per capita goes for telecommunication services in United States while in South Asia, at 1.24 per cent of GDP, it is at less than half this level. So as this region develops, we can expect telecommunication services revenue will double.
The availability of submarine cable systems in South Asia, the backbone of Internet and telecom sector, is still very low. More than 50 submarine cables are connected to United States – that is one cable serving 6.24 million people. There are 17 cables connected to South Asia; there is only one cable to serve every 97.41 million people.

Indicators India Pakistan Bangladesh Sri Lanka Nepal Bhutan Afghanistan
GDP Total (billion) $1,850.0 $ 211.1 $ 110.6 $ 59.2 $ 18.9 $ 1.7 $ 20.3
GDP growth (annual %) 6.9% 2.5% 6.7% 8.3% 3.9% 8.4% 8.2%
Population (Millions) 1,242 177 151 21 26.6 0.70 28.1
Population growth (annual %) 1.4% 1.8% 1.2% 1.0% 1.7% 1.7% 2.7%
GDP per capita (current US$) $ 1,489 $ 1,194 $ 735 $ 2,835 $ 619 $ 2,288 $ 576
Literacy rate 62.8% 55.5% 55.9% 90.6% 59.1% 52.8% 30.0%
Internet Penetration Rate 10.2% 14.0% 5.0% 15.1% 6.9% 13.9% 4.2%
Mobile Penetration 74.9% 68.6% 61.2% 85.7% 53.4% 62.31% 71.05%
Fixed Telephone lines Penetration 2.6% 3.2% 1.1% 17.2% 2.8% 3.7% 0.04%
Total Annual Telecom Revenues (US $ billions) $ 22.23 $ 3.78 $ 0.90 $ 0.39 $ 0.20 N/A $ 0.19
Poverty Headcount (%) 29.8% 28.0% 31.5% 8.9% 25.2% N/A N/A
No of Submarine cable systems 16 4 1 5 0 landlocked
Figure 4 South Asia – Country Wise Key indicator data (Source: World Bank and National Telecom Regulatory Authority Websites)

Although growth has stagnated in the developed world, growth prospects in South Asia are still very high, given the rapidly growing population and growing demand it will generate. Because of the high CAPEX needed for fixed line telephony, most of the growth is in the mobile sector. Fixed line penetration is very low and is likely to remain so. Asia is leapfrogging fixed line technology so mobile technology will enable broadband growth.
The highest Internet penetration is in Sri Lanka at 15.1 per cent, which is still very low and thus the market has tremendous potential for growth. The greatest inhibitor of Internet growth is the lack of quality local content. Investment in locally relevant content using local languages, so people can benefit from Internet connectivity, will drive Internet growth. Poverty plagues South Asia; despite the high GDP growth, little trickles down, so 29.8 per cent of Pakistan’s population cannot afford telecommunication access.

Indicators India Pakistan Bangladesh Sri Lanka Nepal Bhutan Afghanistan
Internet Penetration / Literacy Rate 16% 25% 9% 17% 12% 26% 14%
Telecom Revenues Per Capita per Year $ 17.90 $ 21.42 $ 5.98 $ 18.63 $ 7.63 N/A $ 6.76
Telecom Revenues Per Capita per Month $ 1.49 $ 1.78 $ 0.50 $ 1.55 $ 0.64 N/A $ 0.56
Telecom Revenues Per Capita / GDP per Capita 1.20% 1.79% 0.81% 0.66% 1.23% N/A 1.17%
Figure 5: Key indicator analysis
Literacy rates in the region are low, but access to the Internet even by literate people is still very limited. In Bhutan only 26 per cent and in Pakistan 25 per cent of literate people access the Internet. The situation is even worse in the rest of the countries – 16 per cent in India and 17 per cent in Sri Lanka. The high cost of terminal equipment (PCs, laptops etc.) also limits Internet access, but the wider availability of inexpensive Internet-enabled smart phones is starting to reduce this gap.
The GDP per capita is very low in the region, as are telecommunication revenues per capita per month. In India, Pakistan and Sri Lanka, which are relatively more developed, revenues range from $1.50 to $ 1.80 per month, the average telecom revenues in the remaining countries is even lower. This is a huge concern. Average revenues need to grow and value added services and 3G/4G technologies can help. Further analysis suggests that the share of telecom revenues in total GDP is still very limited. Pakistan leads the region with telecom contributing 1.79 per cent of total GDP while in Sri Lanka this is the lowest of 0.66 per cent of GDP.
This low share of GDP is a result of several factors. Price based competition is still prevalent and has reduced the prices of services, secondly still much of the population is not connected to the Internet. In the United States over the past 5 years, mobile data has seen the greatest growth in volume and service revenues, while in South Asia this is still very limited.

Areas of Improvement India Pakistan Bangladesh Sri Lanka Nepal Bhutan Afghanistan
Need for GDP growth
(annual %) Low High Low Low High Low Low
Need for increase in GDP
per Capita High High Very High High Very High High Very High
Need for Literacy Rate Improvement High High High Low High High High
Need for Poverty Reduction High High High Medium High High High
Need for Submarine / terrestrial cable systems Low Medium High Medium High High High

Figure 6: Areas of Improvement Matrix – Country Wise

To build long-term growth the industry needs to find ways to increase telecommunication revenues. Figure 6 highlights the improvements that each country must consider to ensure a healthy telecom industry as well as a healthy economy. By addressing these issues, South Asia’s telecom industry can continue to attract FDI (foreign direct investment) and perform a role as a growth enabler for the region’s economy.

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