Paktel’s parent company wraps up operations in Pakistan
KARACHI: Millicom International, the parent company of Paktel, the pioneer cellular service in the country, has decided to wrap up its operations in Pakistan because of lower returns and frequency interference issues with the authorities.“Millicom International today announces that it is considering strategic options for Paktel Limited, its business in Pakistan, where significant doubts affect confidence in the ability of Paktel to generate returns on investment at the levels required by Millicom,” said a statement issued on Monday.
The company said it had been considering significant investments to build market share in Pakistan but the return on those investments had been overshadowed by, among other things, the challenging business conditions in the Pakistan mobile telephony market and frequency interference issues. The fresh move of the Luxembourg-based company has sent ripples through government quarters as well as its more than one and half a million subscribers, as uncertainty looms over the company’s plans regarding Paktel.
Speculation grips the telecom industry as key cellular players, all of them with foreign stakes and management controls, see the Millicom announcement as a significant development in the sector, but obviously a negative one. “Obviously, this is not very good news,” said a senior official of one of the five other cellular companies. “But one has to look into the Paktel or Millicom history in Pakistan before reaching any conclusions. Millicom is already in the red due to financial problems so winding up operations in Pakistan in this context is natural.”
However, he said, it was the responsibility of the country’s telecom authorities to prevent the subscribers from losses and come up with a clarity to avoid speculations and remove uncertainty, as the Millicom announcement kept several questions unanswered. “As a result, Millicom is considering a sale of its interest in Paktel, but there can be no assurance that the sale will be consummated and another option that may be considered is the closure of Paktel,” said the Millicom statement.
It said Paktel had been granted additional 1,800 megahertz spectrum to resolve the service issues but the grant of such spectrum was not permanent. “As part of an overall discussion with the Pakistan Telecommunications Authority to resolve these interference issues permanently, Paktel has requested a deferral of the latest instalment of its licence fee ($291 million) which the PTA has not granted,” said the statement.
Millicom, which introduced cellular service in Pakistan through local operations named Paktel, has already sold out its shares of Instaphone, another cellular company, to its local partner. The company owns 88.9 per cent in Paktel and by September 2006 it had 1.52 million subscribers, up 62 per cent from 944,718 as at 30 September 2005 across the country.“Either sale or closure may impact profit and loss and cash outflow in a way that Millicom cannot quantify at this time but which, in any case, Millicom believes would be lower than the loss it expects to incur in 2007 and 2008 if it were to continue to fund Paktel as a going concern,” said the statement.