Examining Change In Pakistan Telecommunication Company Limited - Free Essay Example

Sample details Pages: 10 Words: 2962 Downloads: 4 Date added: 2017/06/26 Category Finance Essay Type Argumentative essay Did you like this example? Pakistan Telecommunication Company Limited (PTCL) is the largest telecommunication service provider in Pakistan. It has 30,000 employees and 5.7 million customers. PTCL is the leading Infrastructure Provider to the other telecom operators and corporate customer of Pakistan. PTCL provides a variety of up-to-date home user, corporate and wholesale communication services e.g. telephone, internet, television, video conferencing etc in every part of Pakistan. Geographically the company is divided into: Headquarters, North, South, Central, and West Zones and functionally in Commercial, HR Admin, Corporate Development, Finance, Operations, Technical departments. On 16th august 2010 PTCL employees went on strike against management for not increasing their salaries in accordance with the government decision in 2008.which badly effects PTCL customers, as the whole network was running at its own with no maintenance and operation at all. As a result its after sale and support services for voice, IPTV, DSL, broadband, Wireless Internet and Dial-up became poor. Don’t waste time! Our writers will create an original "Examining Change In Pakistan Telecommunication Company Limited" essay for you Create order The major loss is in Khyber Pakhtunkhwa due to floods, also the rehabilitation works has not started there due to damaged system, including workers strike. On September 7th, 2010 strike has softened and Salaries and Bonuses were transferred to employees In 2006 a new shift in the ownership of the company has been taken place. Emirates Telecommunication Corporation, a Dubai based Telecom Company commonly known as Etisalat, assumed management control of PTCL as 26% Management Share of largest telecommunication company limited (PTCL) been sold out for some about US$ 2.6 billion. Emirate Telecommunication Company Etisalat Founded on August 30, 1976, the Emirates telecommunications Corporation-Eitsalat-provides telecommunication services to the United Arab Emirates, and is one of the leading service providers in the Middle East. Eitsalat is embracing new technologies, new philosophies and new ways of doing business. Eitsalat was one of the first to introduce mobile telephones in the Middle East in 1982 and launched the GSM Service in September 1994.Mr. Obaid the Chief Executive officer, Eitsalat says that the new Management will take steps for improving quality, reorganization and extension of PTCL service to more areas; he further added that technical staff might be sent to Africa and other countries after imparting additional training to them. Emirates Telecommunications Corporation (Eitsalat) was the highest bidder for the acquisition of a 26 per cent stake in Pakistan Telecommunication Corporation Limited (PTCL). This latest win reflects the determination of Etisalat to strengthen its position as t he leading telecommunications company in the region. The acquisition of 26 per cent of PTCL provides Eitsalat International access to the management of the company and a pool of experienced professionals. Subsidiary of PTCL PTCL is the exclusive provider of basic telephony in Pakistan .Besides providing fixed line, value added and other ancillary services, PTCL owns subsidiary that provides cellular services. Since its transformation from a public sector corporation into a publicly listed corporate entity in 1996, PTCL has implemented an aggressive restructuring program, the primary aim of which is to improve profitability through increased customer focus and efficiency and to prepare the company for the highly competitive environment UFONE The company commenced its operations, under the brand name of Ufone, from Islamabad on January 29, 2001.being a part of PTCL the management of Ufone has also been handed over to Etisalat after privatization. During the year July 2005 to June 2006, Ufone keep on getting success. As a result The Company expanded its coverage and has added new cities and highways.Ufone has network coverage in more than 4745 locations and in most part of the country. Ufone successfully completed the network expansion amounted to more than US Dollar 170 million which results in increase in the asset base of the Company from Rs. 20 billion to Rs.27billion.Ufone currently caters for International Roaming to more than 230 live operators in more than 130 countries and introduced International roaming facility for Prepaid subscribers in Saudi Arabia, United Kingdom, United Arab Emirates, Singapore, Portugal, Thailand, Cyprus, Bangladesh, Uzbekistan, Tunisia, Sri Lanka, Belgium and Kuwait with lowest rates, fea turing no security deposit and activation charges. GPRS Roaming facility is available with more than 115 Live Operators across 85 countries. The company also got a new License for providing cellular services in Azad Jammu Kashmir and Northern Areas. Company Background History of Telecommunication In Pakistan Posts Telegraph Department (PT) was established in 1947 and Pakistan Telephone Telegraph Department (TT) in 1962.The history of telecommunication in the Sub-Continent is as old as the history of our slavery. In the subcontinent, before Independence this sector was under the Indian Post Telegraph Department and developed as a successful industry. The role of telecommunication in Pakistan can be broadly divided into four phases. Pakistan Post Telegraph (PT) This department started its telephone service with only 12346 telephone lines and seven telegraph offices all over Pakistan. All the telephone system at that time was manual. This department worked up to 1962. At the time of independence the postal and telecommunication services were performed by a single department known as Pakistan Post Telegraph (PT). The Government of Pakistan adopted the Government of India Telegraph act 1885 to control and direct the activities of telecommunication. Pakistan Telephone Telegraph (TT) Pakistan Post and Pakistan Telephone Telegraph (PTT) under the presidential ordinance was the first step towards reforms in the telecommunication sector. It was made in 1962, when the Ayub Khans government decided to split up the PT department into two separate departments. Director General headed this department. DG has the decision making power, while the responsibilities were delegated to General Managers and Chief Engineers throughout the organization. The PTT were in fact a civil service department under the ministerial control. The PTT organizational structure had 20 Chief Engineers and General Managers reporting directly to the Director General. At the time of inception of PTC the total number of employees working in PTT was 45686 and the total network comprised of 922,000 telephone lines Pakistan Telecommunication Corporation (PTC) A major breakthrough in the history of telecommunication in the country occurred with the gradual deregulation and privatization of TT. At the first stage Pakistan Telephone Telegraph Department (TT) was converted into a statutory corporation Pakistan Telecommunication Corporation. On December 15, 1990 the PTT department was transformed into Pakistan Telecommunication Corporation with a legal identity separate from the Government. With Pakistan Telecommunication Corporation Ordinance 1991 government open the way for private competition and start awarding licenses for cellular phone and card operated pay phones. With this liberalization 1991 government of Pakistan decided to privatized PTC and use voucher method in 1994 for privatization that later were convertible to shares, total number of voucher was six million that were equal to 600 million shares at the rate Rs. 10 per share. The telecom sector was liberalized but PTCL was still the monopolist of the land line telephone service s. In 1996 Pakistan Telecommunication Company was formed and declared the monopoly for the basic telephony of the country with Pakistan Telecommunication (reorganization) Act 1996(Choudhary, et al., 2008) Four Bodies of PTCL Under the PTC Reorganization Act, 1996 the telecommunication sectors was split into four entities. Pakistan Telecommunication Company Limited (PTCL) Pakistan Telecommunication Authority (PTA) National Telecommunication Corporation(NTC) Frequency Allocation Board (FAB) Pakistan Telecommunication Company Limited (PTCL) PTCL was established with a view to undertake the telecommunication business formally carried in Pakistan. Pakistan Telecommunication Corporation (PTC) was transformed into Pakistan Telecommunication Company Limited (PTCL) on January 1, 1996 under Pakistan Telecommunication Reorganization Act, 1996 according to which PTCL took over all the properties, assets, rights and obligations of PTC. Pakistan Telecommunication Authority Pakistan Telecommunication Authority (PTA) is a regulatory body responsible for monitoring the telecommunication business in Pakistan. It frames rules and regulations for private telecom companies such as Mobile Phone Companies, Internet service providers, paging companies and pay card phone companies. Moreover, issues licenses to the new companies entering into this business. National Telecommunication Corporation (NTC) National Telecommunication Corporation (NTC) is responsible to provide the telecommunication services to the various departments of government and armed services. Frequency Allocation Board Allocates radio frequency spectrum to the Government, providers of telecommunication services, radio and television broadcasting operators, public and private wireless operators and others. Privatization In December 1990 Pakistan Telecommunication Corporation was established to replace the Pakistan Telephone and Telegraph Department. In 1991 government of Pakistan showed its intention for the privatization of PTC for economic growth of country A consortium was hired for this purpose and as a result of his report government decided to sell out 26 % share capita along with management rights and converted it to limited company (PTCL, Internal Report). According to the privatization session of 1991-1992 12% share of Pakistan Telecommunication have been divested during 1994(Choudhary, et al., 2008; Kemal, 1999). One million exchangeable vouchers have been issued in august 1994. These issues were equal to 100 million shares and each has a value of Rs 10. In September 1994 five million vouchers have been issued to international investors. The value of these issues were $900 million from international and Rs.3 billion from domestic issue while the values of the voucher in first and second issues were Rs.3000 and 5500 respectively. the issues of 26 % management share was still a controversy, the Government continued its mission by issuing Notes with 150 million US dollar worth to international investor in 1997. The Notes were convertible to fully paid A class ordinary shares of PTCL and these were 3.3 % of the total share capital issued. In august 1997 foreign receivable has been securitized successfully obtaining 250 million US dollar to GOP. In 1995 a new financial advisor was hired by Privatization commission for the implementation of strategic sale (26% management shares) but the new governments suspended the services of the financial advisor (Deutsche Morgan Grenfell), and in 1998 hire the M/S Goldman Sachs International to provide advisory services on PTCL privatization (PTCL, Internal Report).The Financial Advisor (Goldman Sachs International) has start working and established a data room at the head quarter of PTCL where all possible information that is related to PTCL were available to facilitate the team. Government approved the proposed policy and decided to complete the Re-regulation by December 2003, major steps has been taken on legal and regulatory measures, PTA granted license to PTML (Ufone) and proposed DSI regulation for tariff and licensing has also been accepted (PTCL, Internal Report). At last in April 2006 control of the Pakistan Telecommunication corporation was handed over to Etisalat(UAE based company), Etisalat assume the control of the company by paying 2.6 billion US dollar to buy 26% share with management right in PTCL. With the control of PTCL Etisalat also assume the control of Ufone, one the top class mobile service provider subsidiary of PTCL (PTCL subsidiary) PTCL also signed a contract with Emaar to provide information and telecommunication technology services to household in Karachi and Islamabad. After this agreement PTCL is the only services provider that offer ICT to two big project of Emaar Pakistan, every household and office will be connected through fiber optics (PTCL, PTCL signed contract with Emaar). Impact on Competition The Re-regulation in telecom sector has positive effects; people now have more Choices and easy access to value added services at cheaper prices. The intensive competition in all parts of telecom sector has momentous decrease in the tariffs of different telecom services. With the privatization and Re-regulation of PTCL many Competitors have entered in Pakistani market. Paktel and Instaphone were entered in Pakistan telecom industry in 1990 and in 1994 Mobilink started its function. In 2001, Ufone, a supplementary part of PTCL entered in the market and in 2005 both Warid and Telenor one by one started their services (uz Zaman, et al.) From the year 2000 there is tremendous increase in the cellular users. Mobilink is the largest cellular company with the highest number of users, compare to Ufone. Currently 79% population in Punjab has mobile phones, 75% in Sindh, 34% in Baluchistan, 63% in N.W.F.P. and overall 73.3% of population in Pakistan enjoying this facility (uz Zaman, et al.).Zong (previously Paktel) has great share in the cellular market. Latest data from PTA shows that Telenor rise to number two and Warid telecom is becoming more popular and capturing market share with the high pace as compare to other traditional rivals. Within 4 year of time Telenor has reached to the second largest cellular mobile company after Mobilink with subscribers of approx.19 million (PTA, Cellular subscriber). With the arrival of competitors there is decreasing trend in PTCL landline and WLL subscribers. In 2000 there were 3.05 million fixed line subscribers and till 2005 there is increasing trend in the fixed line subscribers (5 million fixed line subscribers), but after the year 2005 and with the entrance of competitors its fixed land line subscribers decrease and reached at 3.58 million. This is not just PTCL whose subscribers decrease but also Instaphone and Paktel who lost their market. Instaphone is currently operating with bellow 1% market share in some backward area and Paktel was coming down and down when Zong overtake and buy the company (PTA, fixed line subscribers). This was just due to obsolete technology. A great number of local and foreign companies are competing in Pakistan It includes both fixed line (wired and WLL) and cellular. Although current operator still has monopoly position in fixed line due to its strong infrastructure, yet major competition has been emerged in Wireless Local Loop (WLL) and this market is directing towards full competition with the entrance of some financially strong companies. The Value-added services market, including Internet and Pay Card phones, is already in full competition (Shahid, Shou-lian, Liu). The raise in the number of telecom service subscribers can be linked with the convenience of service and with the growth in the teledensity. Expansion of fixed line subscribers (200,000- 300,000)/year were projected on the bases of construction of new residential dwelling units, new shops for small businesses and registration of new businesses with the Corporate Law Authority (Choudhary, et al., 2008). The subscriber growth and teledensity rate was insufficient before PTC era. Switching TT into PTC and then to PTCL helped the fixed network development, and increase in teledensity. With the introduction of Competition in fixed and mobile line has major impact on the users and the teledensity. The projection by Choudhary, et.al. pointed towards the teledensity which was continue to increase for the next 10 years and will reach to its peak up to 2018. At the same time, the growth in internet, WLL technologies broadband and investment in telecommunication sector will also increase with t he slow pace for the next 10 years. (Choudhary, et al., 2008).But the figure available on PTA website shows that there is a decline in the fixed line services from 2006 to 2009. This is just in wired line connection but the wireless local loop has an increasing trend in its teledensity and also subscribers. Source: PTA, Fixed line Subscriber Financial Aspects of PTCL PTCL was one of the Pakistan profits earning Telecom Company. After getting Privatized PTCL is losing its base as its subscription declined from 5.12 million to 4.40 million in 2008.While the revenue declined from Rupees 69085 million in 2006 to RS. 61,085 million in 2008. Similarly the Profit after tax in 2006 was some about Rs. 20777 million while in 2008 there is a loss of Rs. 2825 million. The financial statement shows a continuous growth till 2006 while after privatization the company is facing severe financial shortcomings (PTCL limited). In the last few years the impact of Re-regulation and increase of competition in the telecommunication industry of Pakistan has been increasingly mounting pressure on PTCL. PTCL has launched its profit of Rs. 15.64 billion for the period of 2007 compare to last year profit of 20.78 billion. The decreasing trend in the profit was due to the structural change brought by the competitors in the telecom market. PTCL remain leader in fixed line, however there was decrease in revenue by 5.5% due to huge entry of different telecom companies in the market. There was increase in operation expenses by 11.7% mostly due to systematic developments in the operations and customer service and provisions for doubtful debts. The total revenue for the financial year 2006-07 was Rs.65.28 billion against the previous year revenue of 69.09 billion. The main reasons for the reductions in the revenue are reductions in tariffs and heavy competition in the market. (PTCL, Annual Report 2007) To succeed in this highly competitive telecom market and to meet the increasing challenges, PTCL has taken certain necessary steps for organizational revolution. These steps include Enterprise Resource Planning Packages, introduction implementation of Voluntary Separation Scheme (VSS), as well as penetrating new innovated services. However, the profitability of the Company for the year ended June 30, 2008 suffered due to amalgamation of a massive VSS cost amounting to Rs. 23.94 billion. Because of these steps company bears a net loss of Rs. 2.82 billion against previous years net profit of Rs. 15.64 billion. As discussed above the decreasing trend the subscriber and the ultimate affect on the revenue is not just for PTCL but also for two other companies who have the largest share in the cellular market (PTCL, Annual Report 2008). Another reason for the decrease in the revenue is the decrease in the tariff, there is huge decrease in the international tariff from Rs.26/per minute to Rs. 2/per minute so it ultimately affect the revenue.The total revenue for financial year 2007-08 was Rs. 61.09 billion compares to previous year revenue of Rs. 65.28 billion. The decreasing trend in the revenue was due to huge penetration by mobile business and tight market competition. Due to improved operational controls, the Company managed to reduce its operating costs to Rs. 44.7 billion as compared to Rs. 46.6 billion in 2007. The non-operational income of the company is also affected by the huge outflow of the financial reserves in the shape of VSS (Voluntary Separation Scheme). But the implementation of VSS scheme can help the company to understand certain savings in the last quarter against allowances and salaries. (PTCL, Annual Report, year ended June 30, 2008). Source: PTCL, Annual Report, year ended June 30, 2008