5G and Pakistan’s digital landscape

October 15, 2023

There seems to be more hype surrounding 5G’s revenue potential than a focus on implementing measures to prepare the market for its commercial launch

5G and Pakistan’s digital landscape


rials for the 5G technology in Pakistan were conducted between 2019 and 2021, showcasing technical readiness of the local industry. This was followed by several announcements regarding its commercial launch. Now, with the caretaker government aiming at 5G rights auction within 10 months, the buzz around 5G has increased.

Before analysing Pakistan’s preparedness for a commercial launch, let’s review the last three spectrum auctions. A careful analysis will show that the auctions held between 2016 and 2021 received a lukewarm response. This was due reportedly to high prices and stringent conditions. Each time, a single cellular phone operator secured the spectrum at the base price. Last year, the government approved an auction schedule but did not actually carry one out as telecom companies, aware of their worsening financial health and challenging macroeconomic conditions, did not show much interest.

Nearly a decade after the launch of broadband services in Pakistan, a major telecom company has exited, another is exploring exit strategies and the remaining three are incurring losses. Less than half of Pakistan’s population is currently connected to 4G services.

Historically, the government’s revenue-maximisation approach towards telecom sector has been an obstacle to setting a broad, long-term policy agenda for universal broadband access and digitalisation. Apparently, a similar approach is being pursued again.

The push for 5G comes at a time when the capital-intensive telecom sector is already struggling with high interest rates, a depreciating exchange rate and escalating business costs, amidst foreign exchange restrictions. Some of the telecommunication companies have raised concerns about their inability to import essential equipment for routine maintenance and its impact on service quality. A 5G launch at this stage with service restricted to three cities will result in outflows of at least half the foreign exchange that Pakistan expects to get from the IMF under the Stand-by Arrangement.

So far 5G device penetration in the country is well below 1 percent (the global average is 17 percent). If a commercial launch is conducted with a bare minimum of 5 million devices, it will require the import of an additional 3 million 5G smartphones with an average price of $250. Overall, the endeavour will cost $1.75 billion – roughly a quarter of the foreign exchange reserves currently held by the State Bank.

It’s crucial also to factor in the state of broadband penetration in Pakistan. Currently, nearly half of Pakistan’s population is offline. Nearly 20 percent have no telecom coverage. There is thus an urgent need for a comprehensive strategy to bridge the digital divide. Our 4G penetration is less than 50 percent, significantly below the global benchmark of 80 percent recommended for venturing into 5G territory.

Given Pakistan’s current economic constraints and the cautionary tales from countries that rushed into 5G, Pakistan should proceed with utmost prudence. Launching 5G without a thorough understanding of its implications might strain our already depleted foreign exchange reserves.

In addition to addressing coverage gaps, the country needs to reevaluate its approach to local handset manufacturing. Shifting the focus from 2G and 3G handsets to the production of 4G-enabled smartphones is paramount. Such a move will not only bolster the local industry but also enable network operators to phase out 2G and 3G networks, optimising resources for a more efficient 4G experience. Ultimately, this will enhance users’ mobile broadband experience.

The news from other countries also cast a shadow on the anticipated benefits of 5G. South Korea’s largest cellular operator, SK Telecom, an early pioneer in commercial 5G deployment in 2019, has recently reported that despite an investment of around $20 billion in 5G infrastructure, 5G’s promised potential has not been fully realised. It was marketed as a catalyst for autonomous driving, unmanned aerial vehicles, enhanced reality and digital twins. However, these applications have faced challenges, not primarily due to issues with 5G network performance, but due to a combination of factors like device limitations, technology immaturity, low market demand and policy and regulation hurdles.

The global experience raises pertinent questions about the excitement for 5G in Pakistan. It underscores the importance of a comprehensive strategy that not only focuses on technology deployment but also addresses the broader ecosystem in which 5G is expected to operate.

The Pakistan Telecommunication Authority has a critical role in this. They are reportedly aware of the challenges and impediments faced, including low handset and optic fibre cable penetration, world’s lowest average revenue per user for telecom operators and mounting operating expenses. These factors and high taxes present serious hurdles to the successful launch of 5G services in the country.

Currently, there seems to be more hype surrounding 5G’s revenue potential than a focus on implementing measures to adequately prepare the market for its commercial launch. Pakistan has yet to implement the recommendations outlined in The World Bank’s report, Telecommunications Advisory Assistance, 5G Readiness Plan for Pakistan, commissioned by the Ministry of Information Technology and Telecommunication.

The report underscores the necessity for large contiguous blocks of affordable spectrum, broader access to fibre backhaul and widespread availability of budget-friendly 5G smartphones as essential prerequisites for successful implementation.

The critical recommendations outlined by GSMA in their recent report, Making Digital Pakistan a Reality necessitate a comprehensive government-led approach to enhance the financial health of the telecom sector. The approach should also empower industry stakeholders to invest and drive innovation. These aspects still await attention. The stakeholder recommendations span various domains and include: a phased reduction of the 15 percent advance income tax on telecom services and pricing spectrum payments in local currency.

Granting industry status to telecom sector in terms of energy tariffs can also help.

Given Pakistan’s current economic constraints and the cautionary tales from countries that rushed into 5G, Pakistan should proceed with utmost prudence. Launching 5G without a thorough understanding of its implications will strain our foreign exchange reserves.

The writer is a business and economy journalist, specialising in telecom and information technology, energy and automobile sectors. He tweets @hfhabib

5G and Pakistan’s digital landscape