Growing pains

Pakistan has a young, well-educated workforce with a growing software export industry, but the high cost of bandwidth is preventing the country from achieving its potential on the global stage. Daniel Stanton investigates.

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By  Daniel Stanton Published  April 23, 2006

|~|pak_kamran1.gif|~|Hussein: Bandwidth costs will decline.|~|After a slow start, Pakistan is beginning to make a name for itself in the global IT market, but this is happening despite some substantial barriers to growth.

Bandwidth in particular is an expensive commodity, but one that is increasingly essential if Pakistan is to compete internationally. There are only 2.5 million internet users in the country, out of a total population of 140 million. Less than one percent of internet users have broadband, and it is a commonly-held opinion that the high cost is deterring businesses from making the most of the opportunities offered by the internet.

“One of the challenges is that a lot of architecture coming from official products assumes high availability of good quality connectivity,” says Abbas Khan, head of IT consulting and outsourcing at Abacus Consulting, based in Pakistan.

“To give an example, one of the banks I was working at could not choose a solution because it (the product) fully leveraged and was fully dependent on the internet. For the bank to be able to implement it, it would have had to provide high connectivity and high availability of the network, which is commercially unfeasible.”

In addition to creating a disadvantage for local companies, it can also discourage foreign direct investment. “It becomes not only an issue for companies implementing the latest technology but also it makes the offshore outsourcing proposition a little tougher,” Khan adds. “I think we still have a very good outsourcing story in Pakistan, but we’re paying a lot more in bandwidth than our competition and that shouldn’t be the case. Even small outsourcing firms pay several thousand dollars a month in connectivity costs.”

Hassan Basharat, CEO of GoodCore, a Pakistani developer of financial software, agrees that bandwidth is overpriced. “It’s probably the most expensive commodity over here,” he says.

However, Nidal Abou-Ltaif managing director MENA, Avaya, the communications solutions provider, does not believe that the cost of bandwidth is deterring businesses from implementing systems such as IP telephony. “I tend not to agree because I was talking to a major client who was moving his call centre to Pakistan and when he made the overall calculations he found Pakistan is cheaper than other countries,” he says.

||**|||~|pak_nesci1.gif|~|Nesci: Big telecoms investments projected. |~|Avaya is currently implementing a large call centre for Mobilink, and is revamping the ones already in place in Islamabad, Karachi and Lahore. “They are using IT to be able to serve their customers faster, do more things and also reduce their costs and improve overall service,” says Abou-Ltaif. “We are also in the process of migrating Citibank Group to IP telephony and to enhance their branch operations by moving them towards the latest in technology in Pakistan.”

Major Akram Khan, vice president and telecom head, Citibank NA, says that the bank may also move all of its call centre operations from India to Pakistan using Avaya technology. “We may upgrade to a 1000 seat call centre in Pakistan,” he says. “The cost of seating is the lowest in the whole EMEA region.” He adds that Citibank receives a 30% corporate discount on its bandwidth costs.

Bandwidth subsidies are generally not available to smaller companies, and Abbas Khan of Abacus is unconvinced that it is a good approach. “I don’t think subsidising is necessarily the answer,” he says. “Shaking up and improving the fundamental dynamics of providing internet handling, that’s really what’s needed.”

However, things could be on the way to changing. Etisalat, the main telecoms service provider in the UAE, last month purchased a 26% controlling stake in the Pakistan Telecommunications Company Limited (PTCL). Vincenzo Nesci, vice president ME, Alcatel, says: “With the arrival of Etisalat in Pakistan, PTCL will certainly invest much more than they did in the past three or four years. I don’t believe that Etisalat bought this big organisation to let it stagnate as it was.”

Alcatel has worked with PCTL for the last 15 years to provide switching. The company is also a major supplier of Mobilink, and last year was awarded a contract by Paktel to supply radio technology to its mobile network.

Nesci adds: “Private companies, new licensees, are now investing in backbone and I presume that the competition will have a positive effect on the price of bandwidth for the consumer.”

Kamran Hussein is VP of sales and marketing at TechAccess Pakistan, which is a partner of brands including Sun Microsystems and Oracle. He says that the cost of bandwidth is a hindrance to some companies when they are planning projects that require connectivity, but does not believe it will be a long-lasting problem. “Of course it does affect the projects, but it’s like any other country,” he says.

“Coming from the UK myself, I remember initially the cost of bandwidth was high and then as supply was increased, the popularity increased, and more players came onto the market, the price came down and the quality and stability and the service levels became much higher.

“So Pakistan is no different. It’s like growing pains. It’s a problem that appears with any country through its development.”

Mobile phone use more than doubled between 2004 and 2005, according to the Pakistan Telecommunications Authority, increasing from 5m to more than 12.5m. Internet usage is still in its infancy, with just over 2m internet users – around 1.5% of the population.

Now, approximately 40% of the population is covered by either mobile or fixed lines.

A large step towards easing Pakistan’s bandwidth problems could be its connection to a second submarine cable, SEA-ME-WE 4, which links South East Asia with the Middle East and Western Europe. The cable went live in December 2005, and a third fibre-optic cable linking Lahore to Amritsar, India, is in the planning stages.

The government has also taken steps to encourage local software developers. The Pakistan Software Export Board (PSEB) provides places at software development parks in major cities like Islamabad and Karachi, offers training programmes and also subsidises software companies’ costs to appear at trade exhibitions.

||**|||~|pak_hafeez1.gif|~|Khawaja: Government discourages grey market.|~|Sarfraz Malik is the coordinator of exhibitions for the Pakistan Software Export Board. “In Pakistan we have developed software technology parks for the companies and there we provide them with subsidised rates with good bandwidth and electricity backup connections,” he says.

In addition, there has been no tax on software exports for the past two years, something that has helped make Pakistani software more attractive when compared to competitors in India and overseas. “Worldwide we are focusing on Europe, it’s the biggest market,” says Malik. “Another growth market is the Chinese market. We are now interacting with Chinese companies and taking orders.”

The government’s strategies, and an improved perception of Pakistan, are also attracting foreign investment from IT firms. “Companies are coming to Pakistan now because of the changing environment,” Malik adds. “We now have political stability.”

GoodCore’s Basharat says: “Finding good infrastructure facilities is another big challenge, so what a lot of people end up doing is spending some money to create a custom infrastructure on a smaller scale.”

GoodCore set up their office in one of the government’s Software Development Parks (SDPs), but were not provided with all of the facilities they had expected. “We had to install our own generator,” says Basharat.

“We had to arrange for our own large-scale UPSs (Uninterruptible Power Supplies), we had to make sure we had everything to make sure the power back-up is sufficient. We had to go through a fairly long process to get telephone lines installed – it took three or four weeks and I think it could have been done in a much quicker fashion.”

Although GoodCore has been successful, it has not found a market for its specialised financial software at home. “100% of sales are overseas,” says Basharat. “There’s no comparison for the demand for financial software as compared to the US, where the industry has matured a lot over the last decade or so. There has been a lot of automation of the local stock exchanges, but it hasn’t become mainstream. A lot of the financial processes are still done in an old-fashioned manner.

“We have been talking to some potential financial clients locally but they are still on the conservative side. They still do not see the same level of advantages of using technology to streamline their processes. In general, SMBs wouldn’t spend too much on technology, it’s only the very large industrial corporations who have invested in technology, like the textile industry.”

In the past, many investments in technology have not been through legitimate channels. A report by the Business Software Alliance (BSA) in 2005 found that 82% of software in Pakistan was pirated, at a cost to the economy of US$26m, making it the 12th worst offender in the world. On April 20, the BSA announced a month-long grace period to allow users of unlicensed software to install licensed versions without facing penalties for their past infringements of copyright law.

“The government has also taken some steps to waive some custom duties to discourage the grey market,” says Hafeez Khawaja, senior regional director, MEA and South Asia, Western Digital. “Local systems integrators are given tax breaks, tax incentives, and that really drives the locally assembled PC market. That also means that sales of hard drives are growing, going forward.”

||**|||~|pak_Rehman-1.gif|~|Rehman: Labs to give community access |~|Western Digital is among the hardware companies that has undertaken training for IT users and suppliers to help them tell the difference between new and refurbished products, which typically arrive from the Far East.

“Now, IT education is being done in seminars and helps explain that new products are better because they carry a warranty,” says Khawaja. “We are also looking at general channels so I think there is now no scope in the country to supply fake or refurbished products and sell them as new.”

Khawaja believes that the market for IT is bigger than many people realise. “If in that 140 million you have a middle class of 20% who can afford IT, that’s a bigger country than a lot of European countries,” he says.

As a Pakistani himself, he believes that cultural values will also drive IT spending. “It is very important for a Pakistani family to give priority on family budget spending to IT for their children,” Khawaja says. “Families will sometimes buy a computer for their children before they buy a TV for the family because they have so much focus on children’s education and so much competition internally going between brothers and sisters, cousins and families.”

Education is something that Microsoft has also been working on in the country.

Jawwad Rehman, country manager, Microsoft Pakistan says: “We are working very closely with almost all the top universities, about 25 of them, in terms of helping them not only use the technology on the campuses but, at the same time, helping them with the latest technologies and curricular options within their teaching in computer science and engineering.”

Microsoft has also established computer labs for people who might not otherwise have access to IT, including journalists and teachers. “Some of those labs are focused on a wide spread of communities, especially women and youth in the most disadvantaged, remote areas of Pakistan,” Rehman adds.

Despite the efforts being made, Abacus’ Abbas Khan believes that Pakistan is not making the most of its human resource potential. “Strategically, we should be looking at having more specialised educational institutions and increasing the number of educated individuals coming out of our educational systems,” he says. “Longterm, if we’re going to compete with India and China we need to increase the scope of our educational system.” He adds: “One of the big opportunities for Pakistan in outsourcing is in finance and accounting. This is a resource base that is completely untapped at the moment.”

Khan also believes that the government could do more to promote the country as a centre of IT excellence. “A lot of countries are promoting themselves, building their brand and attracting investors,” he says. “That’s where we’ve done little in the past as a country and that’s where we can get help from the government.”

Judging by the effect the government’s policies have had in transforming Pakistan’s IT industry, this could be the boost that takes the country to the next level on the world stage. If the cost of bandwidth comes down in the near future, conditions could be right to give Pakistan the inside edge.

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