Moody’s Investors Service says that the outcome of the 3G and 4G spectrum auctions held on 23 April in Pakistan are credit positive for Pakistan Mobile Communications Limited (Mobilink, B2 negative).
“Mobilink was able to secure 10MHz of 3G spectrum in the 2100MHz frequency for $300.9 million, which is well below our earlier expectation of at least $400 million.
In addition, it was only 2 percent above the base price set by the regulator — the Pakistan Telecommunication Authority (PTA),” says Yoshio Takahashi, a Moody’s Assistant Vice President and Analyst.
As of January 2014, Mobilink had 37.7 million customers, or a market share of 29%, according to PTA. Telenor Pakistan (unrated), Pakistan Telecom Mobile Limited (Ufone, unrated), and CMPak Limited (Zong, unrated) had market shares of 26 percent, 19 percent and 18 percent, respectively.
Telenor and Ufone each obtained 5MHz of 3G spectrum ($147.5 million) at the spectrum auction, while Zong obtained 10MHz of 3G spectrum ($306.9 million) and 10MHz of 4G spectrum ($210 million).
While Mobilink’s spectrum holding will therefore help it to maintain better network quality when compared to Telenor and Ufone, Zong’s large spectrum holding, including 4G, could be a potential threat.
Zong is a subsidiary of China Mobile Communications Corporation (unrated), the parent of China Mobile Limited (Aa3 stable). China Mobile is the largest mobile operator in China by number of subscribers and has already launched 4G services in China.
The launch of 3G services will allow Mobilink to sustain revenue and earnings growth as the increased data revenue will drive up the average revenue per user (ARPU). According to PTA, ARPU in Pakistan is $2.14 per month — currently lower than neighbouring India ($2.56 per month) and Sri Lanka ($2.35 per month).
“We expect Mobilink to benefit from the increased data revenues as subscribers shift to 3G services. The ongoing migration to 3G services will also be fuelled by the proliferation of more affordable smartphones,” adds Takahashi.