Ufone, the state-owned telecom operator in Pakistan, is facing significant financial losses, raising questions about accountability and the government’s role in addressing the ongoing crisis. While the company’s management bears the fiduciary responsibility for its operations, the larger issue revolves around the government’s position in the matter, especially since Ufone’s parent company, Pakistan Telecommunication Limited (PTCL), remains majority-owned by the state.
Earlier this month, the IT Minister of Pakistan stated that Ufone’s mounting losses were not the government’s concern, explaining that management control of PTCL and its subsidiary Ufone rests with Etisalat (now rebranded as E&), thus absolving the government from any responsibility. This statement, however, contradicts the financial reality of the situation. The government owns about 62% of PTCL, making it the majority shareholder, and as such, is still deeply involved in the company’s financial well-being.
In fact, the government’s finances have already absorbed significant damage due to the losses at Ufone, with the telecom operator contributing to negative cash flows of approximately Rs. 15 billion over the past two fiscal years. This troubling trend is highlighted in the latest State-Owned Enterprises (SOE) report published by the Ministry of Finance. As the losses continue to pile up, it is becoming increasingly difficult to ignore the financial burden placed on the public sector.
The situation calls for a closer examination of Ufone’s history and the broader context of Pakistan’s telecom sector.
A Brief History of Ufone
Ufone was launched in 2001 by PTCL under the name Pakistan Telecommunications Mobile Ltd. (PTML), with the goal of capturing a share of the burgeoning mobile market in Pakistan. By 2006, just five years after its inception, Ufone had achieved significant success, claiming a 21.7% share of the cellular subscriber market and 17.9% of the industry’s revenue. It seemed poised for further growth as the telecom sector expanded rapidly across Pakistan.
However, Ufone’s fortunes began to shift in the face of intense competition. Between 2004 and 2008, three additional telecom players entered the market: Telenor, a Norwegian telecom giant; Warid, a telecom company founded by Abu Dhabi’s ruling Nahyan family; and Zong, backed by China Mobile. This new wave of competition created an increasingly cutthroat market environment, forcing Ufone to battle for market share against these well-funded competitors.
Despite the stiff competition, Ufone managed to hold its ground, consistently occupying the second or third spot in market rankings over the following years. However, as the years passed, the company began to face greater financial pressure, and the costs of remaining competitive in the market began to outweigh the benefits.
The Current Situation
Fast forward to today, Ufone’s position in the market has been steadily eroding, and its financial struggles have become a growing concern. The latest financial data reveals that Ufone’s ongoing losses are not merely a result of market forces but also due to poor management decisions and insufficient strategic direction. These losses have led to negative cash flows for PTCL Group, adding further strain to the state’s balance sheet.
This brings us back to the question of accountability. While the government’s IT Minister has attempted to deflect responsibility by highlighting Etisalat’s control over Ufone’s management, the fact remains that the Pakistani government, as the majority shareholder, must take some level of responsibility for the telecom giant’s losses. The public sector has absorbed considerable financial damage, which could have been better utilized to enhance the nation’s economic growth.
The government must reconsider its stance on Ufone’s financial troubles. Instead of distancing itself from the situation, it must take proactive steps to address the root causes of Ufone’s losses and explore solutions that benefit both the company and the state’s economy. If Ufone continues to hemorrhage money, it will not only harm the telecom industry but also further strain Pakistan’s public finances. Therefore, it is crucial for the government to play a more active role in resolving Ufone’s challenges and ensuring that the company operates sustainably.
The Ufone saga serves as a stark reminder that corporate governance and accountability are not just the responsibility of management but also of the larger stakeholders, including the government.