Problems of Internet industry in Pakistan By Ahmad Nadeem Syed
The Internet service was deregulated in the year 1995, when a few organisations from the private sector were granted licenses to launch the service. Thereafter, there was a loot sale for the issuance of licenses. PTA issued a total of 118 licenses without conducting a market study, assessing the actual market potential and educating the new applicants about the viability of the business.
Since the start of Internet was easy, because of low initial investment and space requirements, the investors rushed to this new avenue without conducting market and feasibility studies as happens in most of the business areas (textile and sugar industry boom for example) in Pakistan. It was (supposedly) attractive, as the revenue was projected to be very high and the market was assumed to be all time expanding. The hidden costs were ignored, ongoing investment requirements for continuous expansion were not considered, and above all, huge number of new entrants was never accounted for.
The total private sector investment in the industry is estimated to be over PRs 2.5 billion corresponded by a proportionate infrastructure investment by PTCL. According to PTA figure as published in April 2002, the total number of subscribers was about 417,000, which may be close to 0.5 million by now. The actual number could be even lower as a large number of subscribers use multiple ISPs. The limited general consumers market is dominated by five large ISPs, who share about 48 per cent of the total, using about 42 per cent of the resources. The rest of the pie (52 per cent) is shared by 55 ISPs, using 58 per cent of the resources. The following table gives a summary of the subscribers and resource distribution.
The market share of most of the ISPs is less than 1 per cent, and their presence is generally limited to only one city. About 80 per cent of the subscribers are concentrated in three major cities i.e., Lahore (25 per cent), Islamabad (11 per cent) and Karachi (44 per cent). The rest of the 20 per cent accounts for other small cities and towns.
The limited demand and larger supply has resulted in a cut throat competition, pushing the ISPs into a severe price war. Despite the fact that the minimum average cost per hour ranges between PRs 12 – 15, the average sale price for most of the ISPs ranges between PRs 5 – 10 per hour, resulting in negative cash flow. Since the market growth, both in terms of size and usage, is not enough to absorb the infrastructure capacity installed, the ISP industry in Pakistan is facing the same challenge as the telecom industry is facing worldwide because of overcapacity. Under the circumstances, the large ISPs may be earning some because of not being able to achieve the economies of scale. The deployed resources are scattered all over with limited subscriber base, which is not even enough to meet the fixed cost. Under the circumstances, the same pie, the growth of which is very slow, is being shared by disproportionate number of ISPs. The current usage per subscriber is only about 15 hours per subscriber per month. The usage includes chatting and messaging (40 per cent), porno surfing (15 per cent), IP telephony (20 per cent), entertainment etc. (15 per cent) and research and information (10 per cent).
Internet is a research tool being major source of information for students and researchers, an e-commerce tool for business community and a media for messaging, communication and entertainment. The mode of communication is English language. Despite its usefulness, Pakistan market is not responding well for the following reasons.
– The major internet market comprises of the students, who can read and write English, primarily from English medium private schools. A small number of graduate and postgraduate students from government institutions also join the community. The size of this market segment, which constitutes about 90 per cent of the subscribers, becomes limited because of language barrier.
– The education in our institutions, including the private sector schools, is not research oriented, thus use of internet in the student community is mostly in non productive areas, which does not ensure a regular and extensive use. E-mail, chatting cannot continue for longer hours.
– Internet is a monster of information. The users are lost in search of specific information by thousands of websites. Exploring these sites and reaching the desired one is a laborious and frustrating job. The user keeps counting the minutes being charged, while going through the most likely sites.
– VOIP was another major use of Internet, which could not continue at the same pace because the service providers like Diaplad, Nt2phone etc. started charging, and the PTCL started blocking these sites.
– A large majority of population cannot afford to buy the computer, do not have the telephone connection or even cannot afford additional spending on internet.
– E-commerce platform is yet not ready. There are neither secured payment systems nor any clearing houses established. The banking sector, which plays a major role in this respect, is long way from even being computerised.
– The ISPs are primarily playing the role of retailer i.e. buying the bandwidth in bulk and selling it in retail. They are not adding any value to arouse the interest of the user and keep him connected. No money is spent on R&D for this purpose.
Given the above barriers and larger supply of ISPs than the demand.
There is a need to take serious steps by the concerned corners including educational institutions, the government and more importantly the ISPs themselves. Some of these steps are of long-term and short-term in nature. Some suggestions are given as follows in this respect:
The smaller ISPs should join hands and form one or may be two (limited) companies, to which they become shareholders. This way the number of ISPs will reduce to, 6 to 7 only. The resources will be pooled and instead of competition with each other, and the larger ISPs individually, they will be able to compete with larger ISPs. Overheads will be cut down; economies of scale and operational efficiencies will be achieved. This new company having an immediate market share of 52 per cent should be run by professional management to achieve the desired objectives. The company will have immediate presence in all the major cities and will be able to offer roaming and other value added services immediately.
The ISPs should start R&D and offer value added services, like development of portal of various areas. For example, a portal for engineering students, having engineering related educational information and links etc., could provide ease for the engineering students. Similarly, portals for medical students, business community, welfare organisations and social services can be developed, and may be offered, even on subscription. To attract the corporate sector, DSL or Wireless Broadband services should be launched either by private sector, PTCL or under a joint venture in all the major cities at low prices.
The syllabus of the schools must introduce a compulsory subject on Information Technology, including Internet at least for class 8 to 10. The education system should be turned into research-oriented system, where students are asked to prepare research papers and conduct case studies. The government should encourage setting-up computer manufacturing industry by giving incentives. The Internet community centres should be established for poor. We must remember that communication technology is converging into Internet, and we have to be prepared for that. We must take all possible measure for our benefit, our country and our generations to come.
% Share
ISPs Bandwidth Ports Subs
Paknet 18 15 21
CyberNet 5 11 9
Brain net 12 7 7
World On Line 5 7 6
Supernet 2 2 5
Subtotal 42 42 48
Rest (55) 58 58 52
Total 100 100 100
Source: The News
Date:10/7/2002
” 
” 
” 
” 
” 
