SAARC: A Fragmented Dream

Even after 22 years of its formation, the SAARC countries have
not been able to emerge as one consolidated region for investment in the telecom
sector. Though the SAARC countries have several major investment tie-ups, it is
not at a regional level. On the telecom investment front, there are three prime
regions that invite investments namely, India; countries west of India; and east
and south of India.

With the top three players essentially domestic, India has seen
a lot of domestic investments in the field of telecom. In the region west of
India, consisting of Afghanistan, Pakistan and Maldives, most of the investments
have come from the Middle East. In the regions to the east and south of India,
namely Sri Lanka and Bangladesh, investments have come from the South East Asian
countries. The proximity factor seems to be working here as far as foreign
investments are concerned. However, in a noticeable change, cross investments
and investments from countries outside the neighborhood of the SAARC region has
increased. This is because SAARC has around 275 mn subscribers and the number is
growing at an average rate of 50% per year.

The Western Block

Afghanistan: The New Kid on the Block

Along with being a new entrant in the SAARC nations, the ICT industry in
Afghanistan is also fairly new. But, it is fast emerging and witnessing large
investments from the private sector, with maximum investment coming from the
Middle East, mainly due to its proximity to the country. Afghanistan started
restructuring its telecom industry after the US-led war against the Taliban.
International support was extended for the reconstruction and economic
development of the nation. The first two telecom players of Afghanistan, Afghan
Telecom and Roshan Telecom, were funded by international support.

Afghan Telecom, the incumbent operator, started rolling out
services using international funds channeled through the government of
Afghanistan. Roshan Telecom, the second operator, was funded by the Agha Khan
Trust, which owns 51% in the company. Monaco Telecom, owned by British Cable and
Wireless, has 37% of the rest, while the US-based MCT Corporation owns the
remaining share. Roshan has invested over $250 mn in building operations across
Afghanistan.

Two new entrants, Areeba and Etisalat, were given licenses in
the country soon after. The Lebanon-based Investcom owns Areeba, which is a
60:40 joint venture between Investcom and a company from UAE, the Alokozay
Group. The fourth service provider in Afghanistan to be given a license is
Etisalat. This is also a UAE-based company and it paid $40 mn for a license in
the country. Wasel Telecom is the CDMA operator and the Afghani arm of the
Dubai-based Modern Technologies International. Two ISP licenses have been issued
to Shaheen and Ertebat.

Though there is a lot of opportunity in Afghanistan, the
political situation, security issues, and lack of information about the country
has probably been the reason for other international companies not investing in
Afghanistan until now. Recently, international vendors like Ericsson, Huawei,
ZTE, and Alcatel-Lucent have executed their contracts in Afghanistan.

Pakistan: Inviting Investment

Pakistan is the second largest telecom market in the SAARC region. Despite
having a well laid out telecom policy, foreign investments from developed
countries are not coming forth. However, the European and American
multinationals are showing growing interest to enter Pakistan's telecom
market. In the last three years, Pakistan had attracted over $9 bn of foreign
investments. Other than the six mobile operators, there are four other companies
in Pakistan that utilize the CDMA WLL networks. In addition to the formers
telecom monopoly, there are fourteen other licensed telecom carriers that
provide long distance and international services (including mobile operators).

Apart from China Telecom and Telecon from Norway all other
investment in Pakistan's telecom market is either from the domestic players or
regional neighbors such as UAE, Qatar, Egypt, China and Malaysia. The primary
reason for the absence of international players from other regions like the West
is the lack of information about the prospects of Pakistan's telecom market
and a negative perception about Pakistan. All this results in low valuation of
assets. It can be expected that in a year or two, the value of telecom assets in
Pakistan will grow significantly. Therefore, the winners will be companies that
enter Pakistan's telecom market before it overheats.

Foreign investments are
pouring with Pakistan's telecom industry. Here is a quick look at what's
on Pakistan's platter and in the pipeline

Broadband: The
competition in the broadband sphere is everywhere, be it wireless or wired
modes. Nayatel which is owned by three private companies is among the
first ADSL operators in Pakistan. The company serves a few thousand
customers, and has recently launched fiber-to-the-user (FTTU) project.

CDMA: In
June 2006, Millicom sold its entire share in Instaphone to a local
partner. Now the company belongs to the Pakistan holding Arfeen Group.

In 1991, Arfeen Group was
co-founder of the Uzbek mobile operator, Uzdunrobita, and owned 51% of
Uzdunrobita's shares via its 100% subsidiary International Communication
Group (ICG). Due to internal pressure from the Uzbek government, Arfeen
Group abandoned this project, and in July 2004 the controlling stake was
bought by the Russian MTS.

ILD: In
the ILD space, Transworld Associates launched its undersea cable TW1
between Karachi, Fujaira (UAE) and Al-Sib (Oman). This alternative
operator is a consortium between the Egypt telecom holding Orascom Telecom
(50%), Saif Group from Pakistan (40%) and Oman Fund, Omze.

Mobility: In
the limited mobility space, the domestic investment is higher than in the
mobile space. Worldcall Telecom is one of the largest operators and also
has national and long distance licenses. It is promoted by First Capital
Securities. The Great Bear promoted DIALLOG has investments from
Belorussian, Ukrainian, TeleCard (GO CDMA) as well as the former Pakistan's
telecom service provider that had a monopoly, Pakistan Telecommunication.

According to PTA, by the
beginning of 2007 these companies, put together, provided services to over
one million users. What is even encouraging is that the growth rate of the
subscriber base was about 287%. There is a chance that CDMA networks will
get full mobility in Pakistan.

WiMax: Worldcall
intends to build its WiMax network in all seventy-six cities, located in
nine licensed zones, where the company owns the 3.5 GHz frequency range.
Based on Worldcall's estimates, for this purpose, it needs 355 base
stations and at least $16 mn of finance. Pakistan's largest GSM operator
Mobilink purchased WiMax assets from Dancom Pakistan.

Apart from CDMA networks,
WLL providers are interested in WiMax technology (in 3.5 GHz range). The
first player to start a WiMax project was Wateen Telecom, which like Warid
Telecom (GSM), fully belongs to the Abu Dhabi Group from UAE. Wateen owns
the 3.5 GHz frequency spectrum in all fourteen regions of the country. In
the middle of 2006 it acquired equipments for the 802.11e standard from
Motorola. And, by the spring of 2007, it deployed the world's largest
WiMax network. Currently, the network covers twenty-two cities of
Pakistan. At the second stage, Wateen is planning to cover 20-25 more
cities.

Mobilink is the largest service provider in Pakistan, and is
owned by the Egypt-based Orascom. Ufone, which is the second largest operator,
is the incumbent and is owned by the government. Ufone has been partially
privatized and 26% of its shares were acquired by Emirates Telecommunication (Etisalat).
Etisalat is the UAE-based company that recently got license in Afghanistan as
well.

Telenor, the third largest service provider, based in Norway, is
the only service provider apart from Paktel that has investments from outside
the Middle East. Telenor also has controlling stakes in Grameenphone. Warid
Telecom, one of the latest entrants into the market and the fourth largest
service provider, is promoted by the Abu Dhabi-based Wateen Telecom. Singtel has
signed a definitive agreement to buy 30% stake in Warid. Singtel has valued
Warid Telecom at $2.9 bn

In February 2007, China Mobile bought controlling stakes
(88.86%) in Paktel, the fifth largest service provider, for $284 million. The
seller was an American holding, Millicom International Cellular.

Pakistan as an Investor's Destination: Pakistan is fast
emerging as an investor destination. With most companies looking to expand their
network, a huge amount of investment will be required. Pakistan's telecom
market is on the cards for major industry players. The recent sale on Wateen's
share to Singtel is a case in point.

Vodafone and MTC's interest in Pakistan is also a testimony to
the increasing interest, internationally, in the country's telecom market. The
entry of China Mobile is a break from the trend and might open the doors for a
lot of foreign investments coming into Pakistan from the developed nations. The
China Mobile, ACT Consortium and Orascom deals took place in 2007, and show
foreign investments the green light into the country.

Maldives: Small and Content

Maldives is a very small country with a scanty population. So, lack of
interest from international companies is understandable. Only its immediate
neighbors understand the market in the country, so the investments also come
from the neighborhood. Maldive's incumbent operator is called Dhiragu. WARF
Telecom was recently issued an ILD license.

The second player to get a license, Watania Telecom, was awarded
a mobile license in 2005. The license was the result of an open, competitive
auction with bidders including Telekom Malaysia, Syriatel Mobile Telecom and the
Bharat Consortium. The Wataniya Group of Companies is owned by

Qatar-based Qtel. WARF is a consortium of companies established in Maldives by
Wataniya Telecom Maldives, Focus Infocom and Reliance Communications. The
project consists of the financing network rollout and related work for a total
estimated project cost of $70 mn.

Maldives's mobile market is near saturation as 97% mobile
penetration has already been achieved. However, opportunity lies in data
services where the country lacks.

The South and East Block

Bangladesh: Raring to Go

A rapidly expanding mobile market has improved the overall situation in the
country's telecom sector to some extent. After years of strong growth, mobile
penetration was only 14% at end-2006, well behind most of its neighbors.

With almost 99% of homes lacking a telephone and with a
four-year waiting list for fixed-line services, the country is still struggling
with some of the most underdeveloped telecommunications infrastructure in the
world. About 80% of the telephone lines are in Bangladesh's four main cities,
while 80% of the population lives in some 86,000 rural villages.

Bangladesh sees a break from the tradition prevailing in other
SAARC countries. A Norwegian company has majority stakes in its largest service
provider. And most of the investment apart from this is coming from the Middle
East. GrameenPhone is the largest GSM operator in Bangladesh and its
shareholders are Grameen Telecom Corporation with 38% (It is a not-for-profit
company, and works in close collaboration with the Grameen Bank) and Norway's

Telecon with 62% stakes. It is easy to see how the telecom market is fast
growing with the example of Grameenphone, which had a million subscribers in a
record of forty days, after taking six years to reach its first million in 2003.

The second largest operator, Aktel, is a joint venture company
between Telekom Malaysia Berhad and AK Khan Telecom.

The third operator called Banglalink is part of the Egypt-based
Orascom. Earlier Banglalink was called Sheeba Telecom and then Oracsom bought
shares from the Malaysian partners. Oracsom has invested around $200 mn in
expanding its network coverage and capacity, and deploying its services.

The fourth service provider is a CDMA operator called Citycell.
Its major stakeholder is SingTel which owns 45%, and two other investors are
Pacific Motors (31.4%) and Far East Telecom (23.5%). The fifth service provider
is a public sponsored company formed out of government money.

United Arab Emirate's Warid Telecom became the sixth operator
in Bangladesh's mobile phone market after paying $50 mn to win a license in
December 2005. Warid has, since then, signed up with Ericsson for a five-year
managed services contract.

Bangladesh is also a high growth mobile market. And, the fact
that 80% of the population is still not covered makes it a good opportunity for
investors to invest and benefit from licenses available at low costs.

Sri Lanka: Abundant Opportunities

Sri Lanka continues its efforts to develop the country, despite the ongoing
political problems that refuse to go away. A modern progressive
telecommunications sector still remains high on the country's list of
priorities. The mobile sector in Sri Lanka was growing at an annual rate of more
than 50% in 2007. With mobile penetration is still relatively low (compared to
some other Asian markets) at around 27% by end-2006, the strong growth was more
than likely to continue. Sri Lanka expects as much as $300 mn investments in its
telecommunications industry. In 2006, the Sri Lankan telecom industry received
foreign investments of $350 mn.

The country's fixed-line teledensity stood at 6% by end-2005.
Low fixed-line penetration levels have been more a result of acute supply
constraints rather than a lack of demand for services. Spurred on by the
extensive use of WLL services to meet demands. By early 2007, fixed line
teledensity was approaching a much healthier 10%.

Sri Lanka Telecom (SLT) is the incumbent operator. The
government now owns 49.5% of SLT, NTT Communication owns 35.2%, and the public
owns the balance 15.3%. SLT is the largest listed company in the Colombo Stock
Exchange. It still remains the largest player in the entire telecom space of Sri
Lanka. In the mobile space it operates through its subsidiary Mobiltel.

The second fixed phone operator in Sri Lanka is Lanka Bell owned
by an Irish conglomerate, Milford Holdings. The third fixed phone operator is
SunTel which is a joint venture company that brings together the Swedish telecom
giant Overseas Telecom AB, Metrocorp, Townsend of Hong Kong, the National
Development Bank, and the International Finance Corporation (IFC), a member of
the World Bank Group. There are talks doing rounds regarding the possible sale
of SunTel by India's public telephone service provider MTNL.

Dialog Telecom is a Telecom Malaysia subsidiary and is the
largest mobile operator in the country.

Tigo is the second largest mobile service provider, and is a
subsidiary of the Luxemburg-based Millicom. Another player in the mobile
business is Hong Kong-based Hutch with its local subsidiary called Hutch Lanka.
Bharti, from India, is the latest entrant into Sri Lanka. It plans to invest
$200 mn in the next five years.

Sri Lanka as an Investment Destination: Sri Lanka has huge
potential lying untapped. Despite having seen tremendous growth in the telecom
space in recent years, telecom penetration is low. The Sri Lankan telecom policy
is relatively liberal and allows competition. With Sri Lanka looking to expand
into 3G and 4G, there is a lot of opportunity for foreign investors to invest in
the country and reap huge benefits. Markets like Pakistan and Sri Lanka have
huge potential, but valuations in these countries remain lower when compared to
India.

The Central Block

India: Setting an Example

India is the biggest telecom market in the SAARC region and is much more
diverse in terms of investment than any other country in the region. The other
two countries that fall under the Central Block are Nepal and Bhutan. Nepal
receives most of the private investment in its telecom industry from India. In
Bhutan, the telecom industry is very small and does not have any private
investments.

Nepal: Bidding for a Greener Pasture

Nepal is currently witnessing a political turmoil. But the potential in
Nepal is good, greatly attributed by the fact that the country is a tourists'
destination. Demand for telecom services, especially international telephony
services, will be great once the tourism industry bounces back to its feet.
Nepal is considering a proposal to allow more foreign players in the telecom
sector. The telecom regulatory body of Nepal, the Nepal Telecommunication
Authority (NTA), has recommended allowing a fifth telecom service provider on a
commercial basis to provide basic telephone services in the mid and far-west
regions of the most under-developed part in Nepal.

In addition, the government will also ask for bids by telecom
operators for a $2.5 mn World Bank-funded project for the remote, mountainous
areas.

Currently, besides the state-owned Nepal Telecom that runs both
basic and mobile phone services, there are three foreign operators in the
market. UTL, a joint venture between India's MTNL, VSNL, and
Telecommunications Consultants India as well as the Nepali company, Nepal
Venture, was the first private player to enter Nepal's telecom sector when it
was licensed to start land line services using the CDMA technology in 2003.

It was followed by Spice Nepal, a Nepali-Kazakh venture that
operates mobile phone services, and STM Telecom Sanchar, a JV between the US,
Thailand and Nepal that was awarded a World Bank-funded project to provide rural
telecom services in eastern Nepal through PCOs.

The government this year decided to upgrade STM's licence and
allow it to provide basic telephone services in all rural areas in Nepal as well
as international long distance calls. There remains a high demand for such
services.

As a sequel to the contract given to STM, the government will
now look for an agency to provide basic telephone services in remote areas,
mostly in the north. It is expected that the new projects will attract Indian
players. In the past, TCIL had also contested for the rural telecom service
project that went to STM.

What would whet a foreign player's appetite even more and
spell more competition for those already in the market is NTA's efforts to
follow the Indian example, and aim at a unified licenses regime in the near
future.

It will mean that upon obtaining a license, anyone can offer any
kind of services. UTL can extend to GSM services and Spice Nepal can begin
offering landlines.

The current license regime might end and a system of profit
sharing with NTA will be in place.

Bhutan: The Adolescent

Bhutan has the most underdeveloped telecom infrastructure. There is only one
service provider called the Bhutan Telecom, owned by the government of Bhutan.
Due to the sparse population and rugged terrains, providing telecom services is
very difficult. Although an ICT policy is now in place, and Bhutan is trying to
catch up with the rest of the world, the situation is not improving much. Some
international agencies have infused funds into the industry and it is expected
that very soon the whole country will be covered under a telecom network.

A Forum Required

For SAARC to emerge as a single investment destination, the region has to
portray itself as a single region. For this, better co-operation between the
nations is the need of the hour. Keeping this in mind, VOICE&DATA has taken
a small but bold initiative by forming an advisory council called the 'SAARC
Telecom Advisory Council' (STAC). This would act as a unified platform for the
SAARC telecom stakeholders including service providers, vendors, equipment
manufacturers and regulators who will leverage on each other's strength as
well as weaknesses in making this dream come true. In the first step towards
this direction, the "VOICE&DATA CEO Conclave" held in Colombo, Sri
Lanka, 2006 saw participants from the SAARC telecom industry that showed much
enthusiasm to co-operate with each other. Taking this success further,
VOICE&DATA is organizing this years CEO Conclave in Kathmandu, Nepal. This
year will also see the participation of the newest member of SAARC, Afghanistan.

Nilabh Jha

nilabhj@cybermedia.co.in