Pakistan Telecomunication Company Limited - Annual Reports

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Pakistan Telecommunication Company Limited

Annual Report 2000

CONTENTS

COMPANY INFORMATION

Board of

Abu Shamim M. Ariff, Chairman PTCL /Secretary, IT& Telecom Div.

Directors

Zafar Ali Khan, Secretary (Privatization Commission)

Maj. Gen. Muhammad Tariq, S.O-in-C, (GHQ)

Muhammad Yunis Khan, Secretary, Finance

Akhtar Ahmad Bajwa, Member (Operation) PTCL

Arshad Mahmud, Member (Finance) PTCL

Dr. Altamash Kamal, CEO, Xibercom

Dr. Avais Kamal, MD, L T Eng. & Trade Services (Pvt.) Ltd.

Syed Mazhar Ali Chairman, 1T Commission

Zafar I. Usmani, CEO, Mobil Oil

Fakir Aijazuddin, Chairman, Arts Council

Rafiuddin Ahmed, Partner, ORR Digham & Company

Syed Zahoor Hassan, Associate Dean, LUMS

Asghar D. Habib, Chairman, Habib Sugar Mills

Company's

Abu Shamim M. Ariff Chairman PTCL

Management

Akhtar Ahmad Bajwa (Member Operation)

Iftikhar Ahmed Raja (Member Administration)

Malik Muhammad Amin (Member Technical

Arshad Mahmud (Member Finance)

Noor-ud-Din Baqai (DG SBP & SP)

Muhammad Nehmatullah Toor, DG (Accounts)

Fazal Ahmed, DG(Internal Audi0

M. Mashkoor Hussain, DG (International Communication)

Capt. Zahir M. Khan, DG (ITT&R)

Sh. Muhammad Afzal, DG (Development)

Khalid Habib, DG (Operations) North

lrfan Ali Khan, DG (Operations) South

Shah Muhammad Chaudhary DG (Finance)

Company Secretary

Javed Zafar

Auditors

A.F. Ferguson & Co., Chartered Accountants

Legal Advisor

Iftikhar Bashir

Bankers

AB N AMR O Bank

ANZ Grindlays Bank Ltd.

Bank of America

Bankers Equity Ltd.

Citibank. A.

Deutsche Bank

Faysal Bank Ltd.

First Women Bank Ltd.

Muslim Commercial Bank Ltd.

National Bank of Pakistan

Standard Chartered Bank

Share Registrars

Khalid Majid Husain Rahman

First Floor, Modern Motors House,

Beaumount Road, Karachi.

Tel: +92-21-5210516-7, 5210736, 5210765,

Fax: +92-21-5210626, 5688834

Registered

Block-E, PTCL Headquarters, G-8/4, Islamabad

Office

Tel: +92-51-2263732, Fax: +92-51-2263733

Email: secptcl@isb.paknet. com.pk

NOTICE OF THE FIFTH ANNUAL GENERAL MEETING

Notice is hereby given that the Fifth Annual General Meeting of Pakistan Telecommunication Company

Limited will be held on Saturday, 30th December, 2000 at 9:30 a.m. at the S.A. Siddiqui Auditorium, Old

Building, PTCL Headquarters, G-8/4, Islamabad, to transact the following business:

Ordinary Business:

1. To receive, consider and adopt the Audited Accounts for the year ended 30th June, 2000, together

with the Auditors' and Directors' reports.

2. To approve the cash dividend @ 22.25% i.e. Rs.2.25/- per share for the year ended 30th June, 2000 as

recommended by the Board of Directors.

3. To appoint Auditors for the year ending 30th June, 2001 and to fix their remuneration. The retiring

Auditors Messrs A.F. Ferguson & Co., Chartered Accountants, being eligible, offer themselves for

reappointment.

4. To transact any other business with the permission of the Chair.

Islamabad

BY ORDER OF THE BOARD

Dated: 29th November, 2000.

Javed Zafar

Company Secretary

Notes:

1. Any member of the Company entitled to attend and vote at this meting may appoint any persons as

his/her proxy to attend and vote instead of him/her. Proxies in order to be effective must be received

by the Company at the Registered Office not less then 48 hours before the time fixed for holding the

meeting.

2. Share Transfer Books of the Company will remain closed from 23rd December, 2000 to 30th

December, 2000 (both days inclusive) for the purposes of the Fifth Annual General Meeting.

3. Members are requested to notify any change in address immediately to the Shares Registrars Messrs

Khalid Maj id Husain Rahman, First Floor, Modem Motors House, Beaumont Road, Karachi.

4. Any individual Beneficial Owner of CDC, entitled to vote at this meeting, must bring his/her original

NIC with him/her to prove his/her identity, and in case of proxy, a copy of shareholder's attested NIC

must be attached with the proxy form. Representatives of corporate members should bring the usual

documents required for such purpose.

DIRECTORS' REPORT

The Directors of PTCL take pleasure in presenting the Annual Report and the Audited Accounts of Pakistan

Telecommunication Company Limited for the year ended 30 June 2000 to its shareholders.

Company Overview

The telecommunication sector around the world is going through a process of rapid change in information

technology and convergence with focus on mobile internet and value added services. In line with global trends and for

meeting the emerging demand, major initiatives have been taken by your Company to upgrade its network, introduce a

range of new value added services and develop a portfolio of information technology, internet and bandwidth related

services to enhance the revenue potential of the Company. Internationally, the current decade has seen restructuring and

growth of the telecom industry. Your Company's two new subsidiary companies, Pak Telecom Mobile Limited (PTML)

and Paknet Limited are progressing according to plan. PTML is expected to become operational and provide cellular

mobile service by January 2001. It has already obtained a license and selected the GSM 900 technology with the latest

features for its operations. The technology selected will be migratible to 3rd generation. A turnkey contract has been

awarded to Nortel Canada for the supply of equipment and technology. This is in its final stage of implementation. A

team of professionals has been deployed for its implementation and operations.

Paknet has acquired a customer base of over 30,000 in its 6 months of operation. An annual growth of amount

60% is expected in the mobile business while the information technology and Internet services may grow even faster

(close to about 100% per annum).

PTCL will ensure full accounting separation with its subsidiaries to maintain a level playing field for fair competition

with the other operators.

Private Sector Participation

In line with the world wide trend and best commercial interests, PTCL is out-sourcing a number of its new

services. It continues to encourage partnerships with the private sector. These are based on interconnect models for

licensees and out-sourcing of PTCL licensed services under O&M agreements. PTCL has made arrangements with three

foreign and local telecom companies to launch Prepaid Calling Card Services (PCCS) for international calls, which have

contributed about Rs. 300 million to PTCL during the year. All the three Prepaid Card businesses have installed their

own Intelligent Platforms in the international gateway exchanges.

Under license from PTA, a number of private operators have established telecom systems and operate their

services through interconnect arrangements with PTCL. About 325,000 mobile connections, provided by three mobile

operators in the private sector, are in operation. The market has a high growth potential. A number of pagers and card-pay

phones are also being operated in the private sector. During the year, card payphones increased to over 30,000 - a growth

of over 100% compared with the previous year. There is still a large unsatisfied demand for payphones provision of

which needs to be increased by at least 100% during the following years.

PTCL has also launched its own Pre-paid Calling Card Service (domestic and international) to provide better

service to the customers. The customer response to this service is encouraging. In view of developing technologies, some

new projects like Tele-Housing, Voice over Internet Protocols have also been initiated.

A number of Data and Internet Service Providers are operating their services in the private sector under license

from PTA. Internet & information technology services are now very popular and the number of new entrants is growing.

Your Company is trying to increase its revenues by procuring and leasing greater bandwidth capacity to these operators.

Tariffs

The Accounting Rates for international telephone calls continued to fall sharply during the year. This is mainly

due to the competitive international market and has further been compounded by the FCC accounting benchmark of $

0.46 per minute by January 2002. The situation is further compounded by the WTO regime effective from January 2003.

This is resulting in a gradual reduction in rates, but is compensated by a strong growth in incoming traffic. Your

Company has been endeavoring to minimize the impact of the declining TAR by expanding its facilities with other

countries, improving call-success ratios and adding new lines to enhance international traffic. Despite the reduction in

Accounting Rates, international revenue growth has been sustained, due to higher traffic volume and devaluation of the

Pakistan Rupee over the years.

To offset the impact of reduction in international settlement rates and in line with global trends, domestic tariffs

were further rationalized during the year. The line rent was increased from Rs.204 to Rs.245 per month. Long Distance

(NWD) and International lease circuits rates were further reduced this by year 15% and 25% respectively in addition to

the reduction already made in 1997 to 1999. NWD Distance Zones were reduced from 5 to 3. As a result, the rates in

higher distance bands have been reduced by over 50% in just three years i.e. from 1 July 1997 to August 2000.

The Line Rent and Local Call charges, in spite of the increase, are still one of the lowest in the region. PTCL

intends to continue the rationalization of tariffs in line with international trends and gradually remove built4n subsidies

over the next three to four years.

Financial Performance

During the year, the Company earned a total revenue of 58.64 billion as against 51.19 billion in the previous

year, an increase of 14.6 %. In spite of depressed economic and inflationary conditions, the Company was able to

maintain its operative expenses proportionate to revenue as compared to the previous year. Operating expenses were at

Rs. 33.30 billion for the year ended 30th June,-2000 as against Rs. 29.46 billion for the previous year.

The Directors are pleased to inform the shareholders that the operating profit for the year under review was

Rs.25.34 billion as compared to Rs. 21.73 billion for the previous year, representing 42.44% of total revenue. lncome

from other sources amounted to Rs. 1.30 billion as compared to Rs. 0.59 billion for the previous year. By exercising

prudent financial management, financial charges registered a significant decline of 17.4% during the year under review

declining to Rs. 3.92 billion from Rs. 4.74 billion for the previous year.

After adjustment of other income and financial charges, the net profit of the Company was Rs. 22.73 billion as

against 17.57 billion for the previous year, an increase of 29.4%. The increase is largely attributable to significant

increase in revenue and other income and a decline in financial charges. By virtue of the Telecommunication Re-

Organization Act 1996, the Company was brought under the tax net as of 1 July 1999. As a result a provision of Rs. 9.4

billion was made to account for the tax liability.

Total assets of the Company stood at Rs. 139.90 billion as compared with Rs. 133.30 billion of the previous

year. Net operating fixed assets were Rs. 74.30 billion as compared with Rs. 68.49 billion. A net addition of Rs. 5.81

billion was witnessed in the net operating assets as on 30th June, 2000 to meet the ever increasing demand, replacement of

EMD with digital lines and to further improve the telecommunication facilities available to the general public, an

amount of Rs. 13.67 billion was invested in the expansion of telecommunication network during the year ended 30~'

June, 2000.

Total current assets stood at Rs. 40.07 billion as compared with Rs. 36.98 billion as at 30~ June, 1999 indicating

an increase of 8.4%. This is mainly attributable to 13% increase in cash and bank balances, which increased to Rs. 16.69

billion against Rs. 14.77 billion of the previous year. Stores and spares witnessed a slight increase during the year to Rs.

2.45 billion from Rs. 2.24 billion of the previous year. Trade debtors revealed a nominal increase by 3.7% over the

previous year. However, the percentage increase in trade debtors was much less than 14.6% increase in revenue over the

previous year.

Total current liabilities stood at Rs. 41.70 billion as against Rs. 37.80 billion at 30th June, 1999 showing an

increase of 10.32% slightly decreasing the current ratio from 0.98 to 0.96. This increase in current liabilities is mainly

because of rise in dividend payable and increase in income tax payable. Short term financing decreased to Rs. 9.94

billion as against Rs. 10.20 billion of the previous year. During the period under review, long term liabilities increased to

Rs. 35.66 billion from Rs. 26.24 billion, mainly due to effect of change in accounting policy regarding staff retirement

benefits under IAS- 19.

PTCL is consistently paying cash dividend to its shareholders, and maintaining this policy, PTCL Board has

proposed a cash dividend of 22.5% for the year ended 30th June, 2000, which is the highest ever to PTCL shareholders.

Technical Achievements

PTCL continues to modernise and digitize the remaining analog network. Over 90% digitalization has been

achieved and the quality of service improved. The alternate fiber optic cable link on the right bank of the Indus river has

provided, resilience and higher network reliability, thereby reducing outages and improving trunk service quality.

During the year ended 30th June, 2000, a total of 245,853 digital lines were commissioned at 456 existing sites,

264 new sites and of 192 existing exchanges expanded. 122,675 lines were installed in the rural areas at 340 sites all over

the country. In total, 481 sites were provided outside plant for the exchanges during the year.

Implementation of the turnkey project for 305,000 digital line units was also started under a contract with a

Chinese Consortium at a total cost of US $ 95 million. So far 169,000 lines out of 194,000 lines have been replaced under

this turnkey project at 20 sites in the country. Commissioning of the remaining 25,000 replacement lines at 4 sites is

expected to be completed by December, 2000. Nation-Wide Direct Dialing facility was extended to another 232 new

stations, making a total of 1482 stations, covering almost the whole of Pakistan.

Nationwide Transmission Optical Fiber Network

Optical Fiber Cable of 622 MB capacity equipped with 9 pairs and a total length of 3,870 fiber kms has been

commissioned, providing digital connectivity to the province of Balochistan. In addition to the above, optical fiber links

on 18 subsidiary routes of 364 Kms and optical fiber cable on 41 junction routes of 357 kms have been commissioned

with 292 digital radio systems, to provide connectivity to the rural areas. Additionally, 8 TDMA systems have been

commissioned, thereby extending telecommunication facilities to 107 villages.

SEA-ME-WE-3 Optical Fiber System

For international communications links a SEA-ME-WE-3 Submarine Optical Fiber System Project was

commissioned in August 1999. This is gradually being loaded for expanding circuits with different countries according

to a schedule. During the year, 1,176 international circuits were opened with 19 countries. The submarine cable capacity

has been enhanced to over 800,000 MIU kms.

International Gateway Exchange-!l Karachi

Installation of a stand-alone switching system and operator position sub-systems for a new millennium

compliant Ericsson gateway exchange at Karachi have been completed. The system has been loaded to 98 % of the traffic

on most circuits.

Millennium Compliance

The entire 1.609 million EWSD, 1.124 million Alcatel, 0.337 million Ericsson, 0.169 million ZTE China lines

and 0.116 million NEC lines were made millennium compliant before December, 1999.

Intelligent Network (IN) Platform Services

Intelligent Network Platform, covering a country-wide digital network is scheduled to be on line by December

2000. The Intelligent Network will open new opportunities of value-added services without dependence on suppliers of

exchanges. The new value added services include Premium Rate Service, Universal Access Number, Personal number,

Universal Personal Telecommunication Number, Virtual Private Network, Credit Card Calling, Tele-Voting and Audio-

Conferencing.

Voice Messaging Services

The Project for Voice and Fax Messaging Services (VMS) has been completed. Ten VMS systems were

installed in the major cities of the country. The features available with the messaging system are: call answering, voice

messaging, special delivery, fax messaging, priority messaging, information services and messaging notification. The

mailboxes can be of different types and a subscriber can opt for a mailbox of his choice. This service will be a welcome

facility for customers and be a new revenue generator for PTCL.

Quality of Service

During the year, PTCL improved its quality of service by reducing complaints pertaining to dropping of calls,

cross talk and wrong dialing through achievement of digitalization of the network although complaints of late delivery of

bills, excessive billing poor response from 17, 18, 109 and other faults still need to be improved. PTCL is taking the

following measures to improve quality of service.

> Upgradation of old Outside Network.

> Better management of digital transit / local exchanges

> Effective network monitoring and better fault management.

> Achievement of call completion ratio of 50% (inland) and 55% (overseas calls)

> Improvement in the response time and quality on 17, 18 & 109.

> Computerization of Directory Assistance Systems in Lahore, Karachi and Islamabad.

> Upgradation of the Customer Service Centers for improved customer care.

Provision of diversity on main arteries for national & international circuits including leased lines to

mobile operators for interruption-free service during breakdowns.

> A Hotline at the headquarters of PTCL which is now fully operational, allows performance of all the

regions to be centrally monitored through a complaint system using 0800 toll free facilities.

Organization and Corporate Restructuring

Services of Sofrecom, France, were engaged for a Technical Audit. The Technical Audit carried out by

Sofrecom of France stands completed. In accordance with the findings of this study, management and financial

information systems are being improved and computerized.

Steps are underway for implementation of recommendations, to overcome operational, technical, marketing

and accounting weaknesses. Systems are being improved so as to provide useful management reporting. Improvement in

performance in priority areas such as human resource, marketing and customer care, network, financial and billing

management is also being addressed.

As part of a study by messrs. OVUM Consulting, PTCL will also establish an information system for

management accounts to unbundle / segregate costs and revenues relating to each service so to ascertain each area's

profitability, so that the access deficit and cross-subsidies are measured and price arbitrages addressed before the expiry

of exclusivity. The consultancy project will also develop a suitable strategy to deal with the threat of falling International

Settlement Rates / Revenues.

Recognizing the importance of operations research and information so as to maintain a competitive edge in the

market place and to establish decision support systems, PTCL has finalized an arrangement with NCR for establishing a

data warehouse to analyze traffic and billing information. This project will help position the Company for competitive

operations in the next millennium, whether or not it is privatized.

Marketing And Customer Care

Your Company is in the process of establishing a customer-oriented culture with pro-active and aggressive

marketing. The necessary organizational set up is in place

Future Outlook

The following projects are in the process of execution at different stages:

> Addition of 350,000 new telephones in 2000-01

> Replacement of 220,000 old EMD lines with Digital lines

> Expansion of Internet by 150,000 new connections. Implementation is in an advanced stage

> Video conferencing

> Quetta - Shikarpur Optic Fiber Cable

> Upgradation of switches

> Universalization of internet

> Internet & information technology projects such as the Pakistan Internet Exchange, Tele-Housing &

VoIP

> High capacity to SB back-bone network with dedicated data back-bone (ZXSTM1)

Information Technology

Your Company is contributing to the growth of information technology in the country. The Company offers

high quality digital lines with special incentives for software exporters and information technology educational

institutions. With the introduction of new digital services, Intelligent Network platform, state-of-the-art mobile

communication system and one of the best Internet Services in the region, PTCL is the vanguard of building an

information infrastructure which will carry the nation forward into the new millennium and the information age. The

Company plans to embark on a number of new projects especially in areas made possible by new technologies such as

DSL, fiber access & 10Gb high capacity transmission systems in backbone network that will place the Company in a

leading position in the region.

Management

he Board of Directors elected in 1997 retired on June 23, 2000, in accordance with the provisions of the

Companies Ordinance, 1984. Fresh elections were held on that date. At the same time, the number of directors on Board

was increased to fifteen. Malik Muhammad Saeed Khan, Mr. Shaukat Usman Khan and Mr. Bashir Ahmed were

replaced by Mr. R. D. Ahmad, Mr. Fakir S. Aijazuddin, Syed Mazhar Ali, Mr. Asghar D. Habib, Syed Zahoor Hassan, Dr.

Altamash Kamal, Dr. Avais Kamal and Mr. Zafar I. Usmani. The directors will hold office for three years from the date of

their election.

Mr. Abu Shamim M. Ariff has replaced Mr. Naseem S. Mirza as the Chairman of the Board and the Chief

Executive Officer of the Company who retired on August 1,2000, after holding office for four years.

The present Board of Directors wishes to place on record the very valuable contribution made by the retiring

Directors in the management of the Company.

ABU SHAMIM M. ARIFF

Islamabad: 28th November, 2000.

CHAIRMAN

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of Pakistan Telecommunication Company Limited as at

June 30, 2000 and the related profit and loss account, cash flow statement and statement of changes in equity

together with the notes forming part thereof, for the year then ended and we state that we have obtained all the

information and explanations which, to the best of our knowledge and belief, were necessary for the purposes

of our audit.

It is the responsibility of the company's management to establish and maintain a system of internal

control, and prepare and present the above statements in conformity with the approved accounting standards

and the requirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these

statements based on our audit.

We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These

standards require that we plan and perform the audit to obtain reasonable assurance about whether the above

statements are free of any material misstatement. An audit includes examining on a test basis, evidence

supporting the amounts and disclosures in the above said statements. An audit also includes assessing the

accounting policies and significant estimates made by management, as well as, evaluating the over all

presentation of the above said statements.

We believe that our audit provides a reasonable basis for our opinion and, after due verification, we

report that:

(a) in our opinion, proper books of account have been kept by the company as required by the

Companies Ordinance, 1984;

(b) in our opinion:

(i) the balance sheet and profit and loss account together with the notes thereon have been

drawn up in conformity with the Companies Ordinance, 1984, and are in agreement with the

books of account and are further in accordance with accounting polices consistently applied

except for the change in accounting policy referred to in note 2.3 to the accounts, with which

we concur;

(ii) the expenditure incurred during the year was for the purpose of the company's business; and

(iii) the business conducted, investments made and expenditure incurred during the year were in

accordance with the objects of the company;

balance sheet, profit and loss account, cash flow statement and statement of changes in equity

together with the notes forming part thereof conform with approved accounting standards as

applicable in Pakistan, and, give the information required by the Companies Ordinance, 1984, in the

manner so required and respectively give a true and fair view of the state of the company's affairs as at

June 30, 2000 and of the profit, its cash flow and changes in equity for the year then ended; and

(d) in our opinion Zakat deductible at source under the Zakat and Usher Ordinance, 1980 (XVIII of

1980), was deducted by the company and deposited in the Central Zakat Fund established under

section 7 of that Ordinance.

A.F. Ferguson & Co.

Chartered Accountants

Lahore: 28th November, 2000

BALANCE SHEET AS AT JUNE 30, 2000

2000

1999

Note

(Rupees in thousand)

SHARE CAPITAL AND RESERVES

Authorized share capital

11,100,000,000 "A" class ordinary shares of Rs. 10 each

111,000,000

3,900,000,000 "B" class ordinary shares of Rs. 10 each

39,000,000

----------

150,000,000

=========

Issued, subscribed and paid up capita[

51,000,000

510,000,001

General reserve

10,500,000

16,000,000

Insurance reserve

42,000

Unappropriated profit

279,863