This article explores emergency measures at the policy level to improve Pakistan’s position in the Global ICT indices, particularly the Economist Intelligence Unit’s Inclusive Internet Index 2021 where we rank 90th out of 120 countries. Overall, country rank is based on the scores in four broad dimensions: 1) Availability 2) Affordability 3) Relevance, and 4) Readiness with 40%, 30%, 20% and 10% weight respectively per the index’s methodology.

 

Previously, we proposed solutions to enhance Pakistan’s score in the availability category whereas this article will focus on policy interventions to enhance Pakistan’s position in the affordability domain, which examines the cost of internet access relative to income, and the competitive environment for network operators. Generally, the lower the cost of access, the higher the adoption rates. Among the four dimensions considered for ranking, Pakistan performed best in the ‘Affordability’ category, mainly due to the healthy, competitive cellular environment which led to lower tariffs for consumers. Timely policy interventions that I have highlighted below can help fill the gaps in this area and further enhance Pakistan’s position:

 

Phase-out 2G phones, prioritize 4G 

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Starting with the kind of mobile phones both imported and locally assembled in Pakistan, we must know it is highly impractical to expect a digital revolution when a large number of people own and use 2G-only handsets. Those who are already connected to cellular networks but not using data or internet should be the top priority for both the industry and policymakers to make a substantial transition towards a smart society envisioned under ‘Digital Pakistan’ initiative. In this context, in a country with 98 million mobile broadband users and only one to two million fixed-line internet connections, going for 2G phones simply does not make sense. However, since 2019 Pakistan assembled 25 million phones locally out of which only 3.42 million are smartphones.

 

These feature phones are much cheaper than the cheapest smartphones, hence the first choice of the customers who cannot afford smartphones. If a bottom-line feature phone costs around PKR 1,500-2,000, the base level smartphone costs close to PKR 6,000. For some, the difference might not sound like much; for many others, it’s a huge deal. So, the biggest barrier to the provision of internet connectivity to the lower-income segments of society remains the affordability of smartphones.

 

The government must cut the cord on both the import and local production of 2G phones to expedite Pakistan’s digital journey and prioritize local assembly of 4G-enabled quality handsets. Widespread penetration of 4G will boost digital adoption and unlock tremendous socio-economic opportunities for masses. Reduction in the demand of pure 2G services would also help the operators expedite 2G sunset and re-farm spectrum for more efficient 4G adding significant quality and value to mobile broadband.

 

Smartphone on instalments

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To facilitate the transition to mobile broadband for an additional 50 million people in the next three years, the affordability of smartphones among low-income groups needs to be addressed. However, as the market is dominated by prepaid connections owned largely by an unbanked adult population, credit default risk is high. Secondly, since the credit bureaus network in Pakistan is also in its infancy, we may avail regulatory cover and use the proven effective regulatory and technical systems to mitigate possible credit default.

 

Last year, Jazz proposed the Pakistan Telecommunication Authority (PTA) to facilitate telecom companies as well as other third parties including microcredit providers to offer smartphones on easy installments to their customers. A mobile phone installment plan, in which the price of the device is spread across low monthly installments is the best way to facilitate the purchase of smartphones among low-income groups.

 

This way the operators will ensure their subscribers stay with them during the loan maturity period whereas customers can enjoy a better life experience with their exposure to the digital world. To ensure loan recovery, we suggested that in case of verified persistent default, PTA can order blocking of the contract handset in the first phase through the DIRBS mechanism, as done in case of lost or stolen phones. And even if that fails to deter default then in the second stage, all the SIMs issued by different companies against the CNIC number may be blocked under a set of regulations applied across the board.

 

Though there is still a lack of consensus among telcos on this suggestion, the good thing is that the regulator is giving this option serious consideration. Jazz is the first telecom operator to offer smart feature phones on installments, however, an effective loan recovery mechanism or credit scoring model will help launch it on a wider scale.

 

Tax reforms and regulations

For the past many years, telecom subscribers in Pakistan have been subject to one of the harshest tax regimes in the world. Millions of Pakistanis use mobile phones and a vast majority of them have no jobs or taxable earnings. Countless others are hardly making ends meet with their disposable incomes – day laborers, for instance. All these people who are even below taxable thresholds and rather even eligible for cash assistance and welfare support programs, are being subjected to indirect taxes. Furthermore, this vast majority has no mechanism to claim back these taxes.

 

Telecom taxes in general are morbid and irrationally high in Pakistan. There’s 19.5% GST (highest of all GSTs in Pakistan) and 12.5% WHT. Plus, for many students, their smartphones are partly their computers, helping them access information and aiding in their education. But even they end up paying huge taxes on smartphones and internet usage. It’s akin to taxing education!

 

It’s high time the government starts considering smartphones and mobile broadband as a necessity and not a luxury. This will help it lower the irrational taxes imposed on mobile connectivity and mobile broadband, encouraging digital adoption. In addition to the wide economic benefits that higher broadband proliferation can deliver, as a result of rationalized taxes, increased usage has the potential to boost government tax revenues in the long term.

 

Meanwhile, we must also laud some recent steps by the government to facilitate the telecom users; addressing the right of way (RoW) issues to allow telcos to lay their infrastructure, granting industry status to the telecom sector, as well as the announcement of some cuts on advance income tax over the next few years to encourage broadband proliferation. The current PTA and MoITT leadership deserve credit for that, and the approved measures need unambiguous reflection in the upcoming Finance Bill and seamless implementation. 

 

Effective implementation 

We cannot achieve any meaningful milestones in our ‘digital’ journey unless we bring down regressive taxes and ease a common man’s access to a smartphone with an internet connection. The government needs to make an overall objective towards internet inclusion in consultation with all concerned stakeholders, assign measurable timebound KPIs and then implement them effectively with periodic progress reviews. The way Pakistan is making reforms to improve its ranking in the World Bank’s Ease of Doing Business Index is an effective model where a steering committee headed by the Prime Minister collaborates with different ministries, federal and provincial departments, regulatory bodies etc. to modernize business regulations across Pakistan.

 

With improvement in the availability of mobile broadband through measures proposed in the first article, and removing the affordability barriers as highlighted above, many of the challenges Pakistan is facing with respect to internet inclusion would stand addressed, thus leading to a significant improvement in our score on global ICT indices. This will also pave the way for a meaningful push for the same through digitalization measures, both in the public and private sectors, to improve the ‘relevance’ of digital connectivity for the socio-economic wellbeing of the nation, which I will attempt to explain in the next article.