Once a Bright Spot, Afghan Telecoms Face Unsustainable Losses

Via the New York Times, a sobering look at the Afghan mobile phone sector:

Men thread their way through this city’s traffic jams, hawking streamers of phone cards. Others stand behind crude wooden tables selling cheap Chinese-made mobile phones. Throngs of people navigate the sidewalks and streets with cellphones pressed to their ears.

The boom in cellphones here has made the Afghan telecommunications industry one of the few bright spots in a moribund economy savaged by war, political gridlock and an exodus of money and people. Cellphones pumped $148 million into the economy last year. The industry was also the largest private employer, supplying 140,000 jobs, a feat in a country with 25 percent unemployment.

But even that success is now looking shaky.

The Afghan government has again increased taxes on the industry to replenish its coffers, cutting into the industry’s shrinking profits. And the country’s telecom companies are competing for a dwindling pool of customers after the drawdown in American and coalition troops and contractors.

“The success that was is no longer there,” said Karim Khoja, the chief executive of Roshan, one of the largest Afghan telecom companies. “The economics keep making it more and more difficult.”

The explosion in cellphone use is remarkable in a country where most people did not own a phone before the American-led invasion in October 2001. The nation’s telecommunications infrastructure fell into disrepair under the Taliban from lack of investment. With few phones, most people had to walk into Tajikistan or Pakistan or use satellite phones to call their relatives in the Afghan diaspora.

After the Sept. 11 terrorist attacks and the start of the war, Afghan Wireless, a joint venture with the government, opened, and Roshan began a year later. Inspired by Roshan’s growth, three other players jumped into the market.

Over the last decade, the companies have invested over $2 billion in the country, much of it in infrastructure like cellular towers. In this country of 32 million people, around 75 percent are now cellular service subscribers. And the cost of a call has plunged sharply.

“The telecoms industry is one of the rare success stories in Afghanistan,” said Walter Koenig, a former telecommunications executive and senior commercial officer at the American embassy in Kabul who left the post last fall.

While the industry remains vital to the Afghan economy, its growth has also made it vulnerable. Aid money, which accounts for more than three-quarters of the federal budget, is drying up, and Afghan government officials are struggling to find new sources of revenue to plug the shortfall.

Telecoms, which already provide 10 percent of the federal budget, are again in their sights. The total tax load on telecommunications has climbed over the last decade to more than 25 percent. In September, a presidential decree levied a 10 percent tax on customers who top up their mobile phones with more money, a move that so far has raised more than $26 million.

The latest increase was part of a larger package of taxes and reforms introduced last year to stabilize and strengthen the economy under the International Monetary Fund’s direction. The changes are necessary to maintain funding from international donor countries and government agencies.

The government agency that oversees the industry has fought the tariffs, to little relief. “I’m against the tax,” said Abdul Razaq Vahidi, the minister of communications and information technology, who leads the agency. “This is not affordable for the sector.”

Those taxes threaten to further undercut the industry. The companies’ bottom lines have been hurt by the withdrawal of their best customers, American and coalition troops and the 500,000 people who have lost their jobs. Political gridlock, growing insecurity, inflation and the departure of the middle class have also crimped sales.

After reporting steady growth through 2012, the country’s cellphone companies watched revenue crumble as soldiers and contractors began to leave. Sales dropped 10 to 25 percent as the troop departures accelerated.

Roshan pledged in 2014 that it would stay, no matter the cost. The company was founded by the charitable fund of the Aga Khan as a way to spark investment in one of the world’s poorest countries.

The company, however, is re-evaluating its promise. Its chief executive, Mr. Khoja, said Roshan would never recoup its $600 million investment in the country. Revenue slid 10 percent in 2014 and declined slightly in 2015, according to the company.

“I have to keep the balance between longevity and sustainability,” Mr. Khoja said. “You cannot sell below your cost forever.”

Even the Taliban are looking at cellphones to supplement their budget. In January, the insurgents announced that mobile phone companies must pay them a 10 percent tax or risk kidnappings and more attacks on their towers.

The group blows up or burns cellphone towers as a show of strength against the government or as retribution when companies will not turn off service. The Taliban often force nighttime coverage blackouts so their movements cannot be tracked and locals cannot tip off security forces.

“You build a tower 10 times in the same location,” said Ali Asgharzadeh, chief commercial officer at Etisalat Afghanistan, a cell company based in Abu Dhabi and the country’s largest mobile operator. “That’s business in Afghanistan.”

Replacing towers, which cost roughly $100,000 each, is considered a normal business operation. While each site has guards, they are sometimes paid off, threatened or attacked by insurgents, Mr. Asgharzadeh said. The communications ministry is meeting with local elders to apply pressure on the Taliban to cut their attacks, and it is asking the federal government to increase security measures.

As they look to shore up revenue, mobile phone companies are trying to expand their data services and bring more Afghans online. Increasing the number of regular users will be difficult because the country has a high rate of illiteracy and little online content in local languages. Most Afghans cannot afford Internet access.

The challenges are also compounded by the government monopoly of the country’s fiber optic network. Telecom companies must rely on their own satellite links and buy capacity on the network to provide data to customers. But it is expensive and not a reliable source because of frequent cuts in service.

Cellular companies are working with the president’s office to wrest control of the fiber optic network from the state-run operator, which has been criticized for its poor management, capricious rate-setting and poor quality, according to operators.

The companies reached an agreement with the telecoms ministry that would allow them to share the network and lay down their own cables. The country’s economic council has approved the agreement, and the president is expected to sign off on the plan to carry it out. By summer, operators should be able to start work, said Mohammad Qayoumi, the president’s chief technology adviser.

The changes hold the promise of cheaper and expanded access to the Internet, as well as increased revenue for the country. Government officials hope a bigger network will allow Afghanistan to become something of a digital hub, linking traffic from the Far East and its own neighbors and allowing the country to levy more taxes. Iraq earns over $1 billion from such taxes, and Afghan officials expect they can do the same.

Oliver Dziggel, a senior telecom consultant to the American and Afghan governments who has worked on the agreement, said, “Fiber is the magic element that makes it all happen.”



This entry was posted on Saturday, April 9th, 2016 at 4:27 am and is filed under Afghanistan.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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