Pakistan on the Cutting Edge of Mobile Technologies
Pakistan, like many other developing countries, has seen an explosion in its mobile communications market in recent years; from 2004 to 2007, the number of subscribers in the country more than doubled annually. By 2008, according to the Pakistan Telecommunication Authority (PTA), there were some 94.3 million subscribers, compared to only 5 million at the beginning of 2004.
Pakistan has also become a regional leader in the mobile communications market. Pakistan overtook India in 2005 and Sri Lanka in 2007 in the rate of mobile SIM card subscriptions per 100 residents  This is despite the fact that Pakistan is less densely populated than either country.
During the 2008-09 financial year mobile access growth seems to have plateaued compared to previous years. The PTA has attributed this to the saturation of many urban markets have become saturated. However, the overall mobile communications subscribership did grow at an estimated 6 percent. The PTA estimates that 58.2 percent of the population are subscribers. In the 2008 national survey used in this Country Profile, some 63 percent of respondents said they have household access to a mobile phone, while about 75 percent said that they have a mobile phone available to them somewhere-at home or elsewhere.
Fifty-nine percent of rural survey respondents said they have household access to a mobile phone, versus 82 percent of urban respondents. Working to bridge this gap is Pakistan’s Universal Service Fund (USF), which was established in 2006 and is funded by a 1.5 percent levy on telecommunications operators’ adjusted revenues. Subsidies provided by the USF go toward extending basic telephony and data services (http://www.usf.org.pk/Rural-Telecom-Programme.aspx). Despite the slowdown in mobile access growth, the telecoms industry, with the help of the USF, has continued to expand its service coverage areas. In fact, the number of cell tower sites in the country increased 31 percent from 2008 to 2009 from 21,518 to 28,124.
Other factors that have inhibited further growth in mobile phone access, particularly within the FATA and NWFP, include continued unrest in areas bordering Afghanistan, attacks by religious extremists on shops selling mobile services and accessories, and military operations that have displaced area residents hurting commercial activity. 
Pakistan’s mobile communications market is competitive, with major five service providers. For the 2008-2009 financial year the mobile market posted a net addition of more than 6 million subscriptions. In a reflection of the market’s fluidity, market leader Mobilink actually lost almost 3 million subscribers during this period. The main contributors to the market’s net increase was Telenor, which added about 2.8 million subscribers, while Zong and Warid added 2.4 million each during the last year. Ufone had a net addition of 1.9 million. 
Liberalization of the mobile communications sector have spurred market growth. Major sector reforms first took effect in 2004 with the adoption of a new licensing framework, along with new guidelines on how mobile license auctions are conducted. This led to the creation of new pricing models to attract those remaining outside the market, particularly low-income earners who need more flexible and inexpensive services. One such price change was the introduction of packages on a per-second, thirty-second, and per-minute basis. Pre-paid subscriptions (SIM cards) account for 98 percent of all subscriptions. 
Market competition in voice and SMS services has driven down prices in general, with average monthly service costs in Pakisan now equal to or lower than most of its regional neighbors. For example, a “low-use” pre-paid monthly mobile phone price basket costs $2.31(purchasing power of parity), according to the regional ICT think tank LIRNEasia (February 2010). This is below India at $3.17 and is only higher than that of Bangladesh, which has a cost of $2.10.  Using the same price basket criteria, Pakistan has the lowest monthly mobile phone costs for both “medium“ and “high”-use within the South Asian region, including India, Sri Lanka, Bangladesh, Afghanistan, Nepal, Maldives and Bhutan.
Demographic and Regional Differences
Chart 2 illustrates the rural-urban divide in mobile phone access. When cross tabulated with income, the survey data show that 75 percent of low-income urban respondents said they have home access to a mobile phone, compared to only 62 percent of rural low-income earners.
Within the Northwest Frontier Province (NWFP, renamed Khyber Pakhtoonkhwa in early 2010), household mobile phone access is substantially lower in urban areas than in other provinces. Potential causes for this disparity include the province’s comparatively lower level of economic development and the fact that the area has been the site of violent incursions by both religious extremists and the Pakistani military. As an area of continued insecurity, the NWFP has also been the scene of large scale migrations of its citizens, which has severely limited commercial activity.
Men hold only a slight advantage in household mobile phone access over women. This is possibly a testament to the sharing of mobile phones between family members. In fact, among low-income earners access levels are even between men and women, 50 percent and 49 percent respectively. For further information regarding mobile phone access among particular demographic groups see the Demographic Analysis Tabs.
Recent Market Developments
Despite the sector’s overall growth, profitability has been difficult to come by for many of Pakistan’s service operators. In recent years, operators have been burdened by falling ARPUs (monthly average revenue per user), which decreased from an industry-wide $9.00 in the 2003-04 financial year to $2.50 in 2009, as a majority of new mobile subscribers are using prepaid SIM cards and are low-income users. They tend to be heavy users of voice services instead of data services, which are generally more profitable.
In response, providers have begun to offer more non-voice value-added services such as mobile banking, mobile music and cultural services like Quranic recitation. Operators also have adapted their pricing schemes, as mentioned above. The government responded by the tougher market conditions by lowering certain tariffs. For example, in 2009, the PTA cut the industry’s activation tax by 50 percent and reduced the import duty and regulatory charges on mobile handsets by 67 percent.
Another important development within the mobile communications market is the requirement for all SIM card holders to register their cards. SIM card registration is intended to allow government authorities to track and identify suspected criminals as owners of specific SIM cards. The disabling of unregistered SIM cards was due to begin in late 2008 but implementation was slow among most mobile operators. Enforcement by the PTA and among mobile operators picked up steam in 2009 and by late October 2009 the PTA had blocked around 12.9 million unregistered SIM cards.  Over the short term, the registration requirement may hinder mobile phone access among low income users, as they are the most likely to purchase SIM cards or phones on the black market. The overall effect of this policy on the mobile communications market is yet to be seen and is contingent upon how well it continues to be enforced.
Branchless banking (BB), sometimes referred to as mobile banking, has been one of the most talked about and researched development topics in recent years. How exactly governments regulate these hybrid banking and mobile communications services has varied from country to country and is a matter of great debate. The government of Pakistan has been at the forefront of the debate about how best to regulate and guide the implementation of such services. The State Bank of Pakistan (SBP) has spearheaded the government’s efforts to provide a coherent and effective regulatory framework. In March 2008 the SBP issued its Branchless Banking Regulations (BBR) establishing the guidelines for market entry and participation.
In its efforts to expand financial services to the unbanked, the SBP decided to limit branchless banking to bank-led strategies, wherein a bank is the entity that has primary responsible for the customer account relationship and where an agent network and/or a mobile service operator conducts transaction on behalf of the bank. This contrary to the mobile operator-led model where the mobile service provider is responsible for the maintenance of customer accounts. The purpose of choosing to emphasize bank-led BB is because it offers several alternatives to conventional branch-based banking in that customers can conduct financial transactions through a wide range of agents, including mobile network operators, gas stations, and retail outlets. While most BB services have been known specifically for easing the burden of money transfers, bank-led models also have the potential to easily offer more complex financial services.
The SBP’s BBR allows for three models of bank-led BB. In fhe first, referred to as “one to many”, a bank offers BB services to any person with a mobile phone, provided that their mobile operator has an SMS pipeline for processing transactions, or transactions are processed through the bank’s network of agents. United Bank Limited (UBL) has begun to offer such services, but on a limited basis. Through its Orion UBL allows any customer of the five major mobile service providers who has registered as an Orion customer to transmit money to family and friends, buy prepaid mobile cards, and view and pay utility bills. UBL reportedly has 250 direct agents registered and operating (primarily retails spaces and pharmacies) and have more than 500 applications in process. In a recent report by the Consultative Group to Assist the Poor (CGAP), UBL is currently signing up retail and mobile service agents to expand its network, ultimately targeting to have some 80,000 agents. 
The second bank-led model is referred to as “many to many”. This model involves “a central transaction processing system (i.e., switch) that provides total inter-operability, allowing multiple banks to offer services to the customers of multiple agent networks”. The many-to-many model is seen by the SBP as the “the desired situation”, as it resembles an ATM-style system in which all banks and mobile operators are able to process each other’s transactions.
The second bank-led model is referred to as “many to many”. This model involves “a central transaction processing system (i.e., switch) that provides total inter-operability, allowing multiple banks to offer services to the customers of multiple agent networks”. The many-to-many model is seen by the SBP as the “the desired situation”, as it resembles an ATM-style system in which all banks and mobile operators are able to process each other’s transactions. However, this framework has not yet been implemented.
The third bank-led model is “one to one”, in which a bank offers BB services through a single mobile service provider or by means of another agency that has a joint venture agreement with the mobile operator. This model is being used by Pakistan’s first large scale BB service, EasyPaisa, operated by Telenor. Due in part by the SBP’s decision to only allow bank-led BB initiatives, Telenor (Pakistan’s second largest mobile operator as of January 2010) took a controlling stake in microfinance institution Tameer Bank in 2008. In October 2009 Tameer Bank with its now parent company, Telenor, launched the over-the-counter services of EasyPaisa. The service allows both Telenor and non-Telenor customers to make over-the-counter bill payments and money transfers through Tameer agents. This service, while not mobile phone based, grants access to financial services to the unbanked who traditional bricks-and-mortar institutions have not reached.
In early 2010, Tameer finally launched its EasyPaisa mobile wallet, expanding its services to savings accounts, insurance and loan services to Telenor customers which they can access over their mobile phones.  Tameer has stressed that they are not like most other mobile money service providers, citing their emphasis on bill payments over money transfers. In addition, their agent network is structured so that anyone that has a different mobile provider can be an over-the-counter customer of EasyPaisa. As of mid-January 2010, Tameer reportedly had 4,500 agents operational, with 3,000 more identified. EasyPaisa had processed over 500,000 bill payments and money transfers within the first four months of operations. Use of EasyPaisa is expected to grow as the company’s mobile wallet service is further publicized and more agents become operational. Tameer is hoping to deploy 30,000 agents by 2012.
Though the SBP already has issued clear guidelines on BB, the SBP and PTA announced in November 2009 the creation of a joint committee to work on a unified regulatory framework for mobile banking.  These guidelines, if implemented, have the potential to open up new opportunities for other stakeholders, including the introduction of new mobile operator-led models. In a largely rural country of 170 million which has only some 16 million individual bank accounts, there are plenty of opportunities for new players in the mobile money market. 
 “Indicators: Mobile Cellular Services”. Pakistan Telecommunication Authority. Updated 11 March 2010. Accessed March 2010. http://www.pta.gov.pk/index.php?option=com_content&task=view&id=650&Itemid=603.
 “ICT-Eye Indicators”. International Telecommunication Union. Accessed March 2010. http://www.itu.int/ITU-D/icteye/Indicators/Indicators.aspx.
 “Four Mobile Phone shops blown up over “obscene” ring tones in northwest Pakistan”. Daily Times. Lahore, Pakistan. 18 July 2008. And Hazrat Bacha, Ali. “Pakistan northwest sees 24 phone exchanges closed due to militancy”. Dawn. 15 November 2008. Karachi, Pakistan. and “Mobile Cellular Services”. Annual Report. Pakistan Telecommunication Authority. Updated 12 January 2010. http://www.pta.gov.pk/index.php?option=com_content&task=view&id=361&Itemid=590.
 “Mobile Cellular Services”. Pakistan Telecommunications Authority.
 “Mobile Benchmarks: South Asia”. LIRNEasia. February 2010. Accessed March 2010. http://lirneasia.net/wp-content/uploads/2007/08/10-02-SA-Baskets-explained-v1-0.pdf. The mobile price basket used by LIRNEasia employs three price indicators including the “T-Baskets” used by the Organization for Economic Co-operation and development, the International Telecommunication Union’s (ITU) Core ICT Indicators document, and the ITU’s basket of call charges.
 “Pakistan blocks 12.9m ‘unverified’ mobile SIM cards- agency”. Associated Press of Pakistan. 23 October 2009. Islamabad, Pakistan.
 “Update on Regulation of Branchless Banking in Pakistan”. Consultative Group to Assist the Poor. February 2010. Accessed March 2010. http://www.cgap.org/gm/document-1.9.42729/Pakistan_Update_03_08_10.pdf.
 “Easypaisa Introduces Mobile Accounts”. Telenor Group. 1 March 2010. http://www.telenor.com/en/news-and-media/articles/2010/easypaisa-introduces-mobile-accounts.
 CGAP, 6.
 “SBP, PTA to introduce unified regulatory framework for enhancing mobile banking in Pakistan”. State Bank of Pakistan. 18 November 2009. Karachi, Pakistan. Accessed March 2010. http://www.sbp.org.pk/press/2009/PTA-Meeting-19-Nov-09.pdf.