Pakistan's biggest mobile operator warns license tussle worries investors

ISLAMABAD (Reuters) - Pakistan’s last-minute price hike for a long-term mobile operating license renewal will worry foreign investors who are seeking stability in their operations, Jazz chief executive Aamir Ibrahim said, amid an ongoing court case about the issue.

Aamir Ibrahim, CEO of the Jazz cellular network, poses for a photograph during an interview with Reuters at his office in Islamabad, Pakistan May 27, 2019. Picture taken May 27, 2019. REUTERS/Drazen Jorgic

Pakistan’s biggest mobile network Jazz, owned by Dutch giant VEON, and the country’s second-largest telecoms firm, Telenor, are challenging in court the license renewal process, which has seen the fee set at $450 million from an expected $291 million.

The battle comes as Pakistan’s government faces heavy pressure to lift tax revenues following a preliminary loan agreement with the International Monetary Fund that will require it to cut billions of dollars from its swollen budget deficit.

Pakistan’s telecoms sector has grown rapidly over the past decade but the market is hyper-competitive and mobile operators fear a tougher period ahead amid a slumping economy and rising inflation that is expected to lead to belt tightening by the country’s 208 million people.

Jazz believes the license increase goes against a previous agreement struck in 2004 and is also frustrated the government had two years to come to a renewal fee decision but raised the price only three weeks before the May 25 deadline.

“Ultimately the investor needs profitability, stability and continuity in a country that’s different from their own,” Ibrahim told Reuters at Jazz’s swish headquarters in the capital Islamabad earlier this week.

“So for a foreign investor having these surprises three weeks prior to the renewal of a license is a big shock.”

The government did not respond to a request for comment. The next court date is set for June 3.

Ibrahim said Jazz, which has 58 million subscribers, and Telenor expected the renewal fee to remain the same as during the auction in 2004, which was won by Warid, a company that was acquired by VEON’s Mobilink and merged to form the Jazz brand.

Another major sticking point for the mobile operators is the decision by Pakistan’s cash-strapped government to set the new fee in U.S. dollars and not in local rupee currency, which has lost about 40 percent against the dollar in the last 18 months.

The 2004 auction for a 15-year license cost $291 million, equivalent to 17 billion rupees at the 2004 exchange rate. But with the rupee plunging to record lows against the dollar, Jazz now faces paying 67 billion rupees for $450 million.

“There is no precedent of the government offering (in dollars) any kind of a concession or a license to a company in Pakistan selling things in Pakistan,” Ibrahim said, pointing out that Jazz charges customers and earns in rupees, not dollars.

“Pricing in dollars is completely unsound.”

Pakistan secured preliminary agreement over a $6 billion IMF bailout program earlier this month that is expected to come with tough conditions requiring it to improve tax receipts to rein-in a ballooning fiscal deficit.

Ibrahim said higher fees will leave Jazz and other operators with less cash to invest in vital digital infrastructure Pakistan will need if it wants to modernize its economy and drive entrepreneurship and growth.

“I understand the government is cash-strapped but what they’re trying to do is milk for short-term gain,” he said. “But that in the process leaves the country behind.”

Editing by Jacqueline Wong