Pakistan: Evaluating Private Capital Mobilization Potential for Resilient Digital Connectivity Phase 1: Khyber Pakhtunkhwa (P181105) June 25, 2024 © 2024 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org. This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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Nothing herein shall constitute or be construed or considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. 2 Table of Contents Contents Table of Contents ......................................................................................................................................3 Figures, Tables, and Annexes...................................................................................................................4 Acronyms ....................................................................................................................................................5 Acknowledgments .....................................................................................................................................6 Executive Summary................................................................................................................................... 7 1. The Digital Quality Divide in Pakistan ............................................................................................... 9 A. The Global Phenomenon of Digital .............................................................................................................. 9 B. Pakistan’s Broadband Challenge ............................................................................................................... 10 C. Technology options for connectivity ........................................................................................................ 13 D. Snapshot of the fixed broadband value-chain in Pakistan................................................................... 16 E. Regulatory and Operational Challenges in deploying fiber broadband in Pakistan .......................... 17 Right of way (RoW) ..................................................................................................................................................................17 Infrastructure sharing............................................................................................................................................................. 18 Underutilization of the Universal Service Fund............................................................................................................ 18 F. Broader challenges and its impact on digital investments .................................................................. 19 G. Climate Resilience of Digital Infrastructure in Pakistan ...................................................................... 21 2. The Digital Gaps Assessment Framework (DGAF) ........................................................................ 23 A. Methodology, Taxonomy and Definitions ................................................................................................ 23 B. Digital Gaps Assessment in Khyber Pakhtunkhwa ................................................................................ 27 C. Policy Actions and Investments ................................................................................................................ 32 Conclusion ................................................................................................................................................ 34 Annexes .................................................................................................................................................... 37 3 Figures, Tables, and Annexes Figure 1. Median speed of Fixed and Mobile Broadband Download by Country Income Group between 2019 and 2023........................................................................................................................................................................................................... 10 Figure 2. Demand for Data – Average Gigabytes of data used by a mobile user per month. .................................. 11 Figure 3. Internet Quality Index (IQI) comparison of Pakistan....................................................................................................12 Figure 4. Legacy and emerging technology options for connectivity. ................................................................................. 13 Figure 5. Fixed Broadband subscribers by access technology in Pakistan. ..................................................................... 15 Figure 6. Wireless local loop is on decline. ...................................................................................................................................... 15 Figure 7. Segments of the Fixed Broadband Value-chain and Cost Drivers of Deploying a Fiber Connection to a House or Business. ................................................................................................................................................................................... 16 Figure 8. Analytical Framework to Illustrate the State of Broadband Coverage. ............................................................24 Figure 9. Men’s and women’s mobile ownership and mobile internet adoption, by country Percentage of total adult population. ........................................................................................................................................................................................... 39 Table 1. List of administrative level two locations (districts) in KP with estimated number of urban households (HH). ..................................................................................................................................................................................................................... 27 Table 2. Market Potential Given District Purchasing Power. .................................................................................................... 30 Table 3. Mapping of Fixed Broadband Market Zones in KP Province, Pakistan. ............................................................ 31 Table 4. Anticipated Uptake in Zone-0, and Zone-1. ....................................................................................................................32 Table 5. Existing Average CAPEX per House Pass in Fiber to the FTTH Network in Pakistan................................32 Table 6. Private Capital Mobilization Potential in Different Fixed Broadband Market Zones in KP. ...................... 33 Annex 1. Stakeholders Consultation .....................................................................................................................................................37 Annex 2. Pakistan’s digital readiness ................................................................................................................................................. 38 Annex 3. Segments of Optical Fiber Connectivity Value-chain in Pakistan ....................................................................... 41 Annex 4. Regulatory considerations in deploying fiber broadband ......................................................................................42 Annex 5. Average Download and Upload Speed of Fixed Broadband in KP ..................................................................44 Annex 6. Broadband Market Zones .....................................................................................................................................................45 4 Acronyms $ all dollars are United States dollars CAPEX capital expenditure DGAF Digital Gaps Assessment Framework DSL digital subscriber line FTTH fiber to the home ICT Information communication technologies KP Khyber Pakhtunkhwa MoITT Ministry of Information Technology and Telecommunication MSAG multi-service access gateways PKR Pakistani Rupee PTCL Pakistan Telecommunication Company Limited QoS quality of service RoW right of way TIP telecommunications infrastructure provider USF universal service fund VNO virtual network operator 5 Acknowledgments This report is prepared by a World Bank Group team including Jerome Bezzina (Senior Digital Development Specialist, IDD06), Shahbaz Khan (Senior Digital Development Specialist, IDD06), Ada Ogbunude (Senior Investment Officer, CN5IS), Carlo Maria Rossotto (Principal Investment Officer, CNGTT), Moritz Meyer (Senior Economist, ESAPV) and Oscar Eduardo Barriga Cabanillas (Economist, ESAPV). The team received valuable comments from peer reviewers Doyle Gallegos, Program Manager (IDD07), Junglim Hahm, Senior Infrastructure Specialist (IPGPP), Georges Vivien Houngbonon, Economist (CDIDF), Olivier Lavinal, Senior Social Development Specialist, Program Leader (SSADR), Thomas Chalumeau, Senior Digital Development Specialist (IDD09), Clara Stinshoff, Junior Professional Officer (IDD09), Moritz Meyer (Senior Economist, ESAPV), Oscar Eduardo Barriga Cabanillas (Economist, ESAPV), Christina Wieser, Senior Economist (ESAPV), Anshuman Sinha (Consultant, IDD05), Luciano Charlita De Freitas (Consultant, IDD07), Matin Malik, Senior Executive Vice President, PTCL and Ufone and Wahaj Siraj, Chief Executive Officer, Nayatel. The team acknowledges and appreciates key sectoral guidance received from several stakeholders including Major General (R) Hafeez Ur Rehman, (Chairman) of Pakistan Telecommunication Authority, and Muhammad Jahanzeb Rahim (Member Telecom), and Faisal Ratyal (Director General Telecom)) from the federal Ministry of IT and Telecom of Pakistan and the Managing Director of Khyber Pakhtunkhwa Information Technology Board. The challenges faced by the private sector were elaborated in detail by the private sector leadership in Pakistan. The team extends their appreciation to Wahaj Siraj, Chief Executive Officer (CEO) of Nayatel, Danish Lakhani (CEO), and Maroof Shahani (Chief Operating Officer) of Cybernet, Mateen Malik (Senior Executive Vice President) of Pakistan Telecommunication Company Limited (PTCL), Saad Waraich (President) of Transworld Associates, Adnan Hayat Zaidi (CEO) of Multinet, Arisa Siong (Director, Public and Regulatory Affairs External Relations) of Telenor Asia, and Syed Fakhar Ahmed (Chief Corporate & Regulatory Officer) and Ibrar Khan (Vice President) of Jazz. The team acknowledges Taimur Qadir and Hassan Ali for their technical insights and is grateful to the many reviewers who provided thoughtful insights and guidance at various stages of the report’s preparation. Finally, the team would also like to thank Andrea Ruiz-Esparza who edited draft version of the report and Tahani Iqbal who supported the team in finalizing the document. 6 Executive Summary Digital enablement and inclusion have proven to be the most impactful tools for transforming human interactions and services delivery by business and government. The opportunities have grown phenomenally over the last two decades. However, these opportunities are not equally distributed across countries and within different parts of countries. Moreover, future investments in the digital development are also likely to remain skewed toward high-income countries, potentially widening the gap. In Pakistan, the demand for data has significantly increased year-on-year. Pakistanis are now consuming three times more data than they did in 2018. Yet fixed broadband subscriptions, which include legacy digital subscriber line (DSL), metropolitan wireless, and optical fiber access technologies, remain low at just 3.135 million total number of subscriptions. At the current rate of investment in the fixed broadband infrastructure, with about 370,000 additional lines to be deployed between May 2023 and April 2024, it will take Pakistan approximately 30 years to reach the fixed broadband connectivity levels comparable to the high-income countries. This report attempts to find answer for simple questions about the coverage (availability), uptake, quality, and resilience of digital connectivity in Pakistan by considering key supply-, and demand- side factors affecting the digital connectivity market. While the overall focus is technology neutral, the report takes a phased approach, focusing initially on the Fiber-to-the-Home (FTTH) variant of the fixed broadband market in Khyber Pakhtunkhwa. The focus is on the opportunities for efficiency gains in the last mile, also known as the access network. The last mile involves the largest number of stakeholders and service providers in the digital infrastructure value chain, and it is this segment that requires an efficient regulatory environment for not only to minimize the digital coverage divide but also to provide an equal quality of service and reduce the digital quality divide. The report then delves deeper into the market efficiencies that can be achieved through policy and regulatory reforms, as well as options for public investment to leverage private capital and expand the broadband market. This is done using a Digital Gaps Assessment Framework (DGAF), which focuses on first differentiating the different broadband market segments based on four zones: Zone- 0 to show existing broadband coverage, Zone-1 to show locations where market efficiency gaps exist, Zone-2 to show locations where coverage is sustainable over the long term beyond initial capital cost barriers, and Zone-3 to show locations where coverage is not sustainable without ongoing subsidies. The DAGF provides opportunities that can be replicated for other markets and geographies. Results from the DGAF framework for Khyber Pakhtunkhwa province indicate that approximately 5.8% of urban households have FTTH connectivity, while an additional 17.4% can afford and are already using a legacy fixed broadband technology. Expanding the market to the additional 17.4% of urban households will require policy and regulatory reforms in addition to a one- time investment of approximately US$84 per FTTH connection. These additional 17.4% of households represent the highest public-private investment ratio. This ratio is such that US$1 of public investment has the potential to leverage US$1.84 of private capital. 7 Similarly, another 6.1% of urban households have the affordability, but the market is falling short of supply due to capital cost inefficiencies. To reduce inefficiencies and expand the broadband market to the additional 6%, US$1 of public investment will leverage US$1.6 in private capital. Overall, Khyber Pakhtunkhwa has the potential to leverage US$53 million in private capital through a combination of policy and regulatory reforms and US$36 million in public investment. This will increase FTTH household coverage from 5.8% to 41.4% of total urban households. These results provide insights for framing the intervention logic, including policy reforms and investments, in the development of national broadband strategies, such as the proposed National Fiberization Plan in Pakistan. 8 1. The Digital Quality Divide in Pakistan A. The Global Phenomenon of Digital 1. Digitalization has revolutionized interactions with people and society, business operations, government and economic services, education, and knowledge sharing, and has provided a platform for marginalized, new and emerging groups to be heard. Access to high-quality (fast) internet increases the probability of employment by 13.2 percent as compared to an individual who does not have such access. For businesses and firms, it can increase its exports by four times 1. 2. There is a growing digital divide – dividing genders, economic groups, and geographies into three groups: (1) those connected with high-speed internet, (2) those connected with poor quality internet, and (3) those who remain offline. While there has been a greater global focus on reducing the gap between the connected and the unconnected, the gap between those connected with high-quality internet and those connected with poor-quality internet is widening and is creating a new form of digital quality divide. For instance, in 2022, the global internet user base expanded by 1.5 billion, reaching a total of 5.3 billion users. This is approximately two-thirds of the world’s population. This increase was the highest in history, driven by Covid-19 mobility restrictions that led to a significant shift of activities online. Importantly, this growth reduced the gap between the connected and the unconnected groups and it remained particularly pronounced in low-income and lower-middle-income countries, where vast populations began adopting internet usage. 3. The digital quality divide, differentiated by the speed of internet connection, remains increasingly widened between richer and poorer countries. High-speed internet, also known as broadband, may be delivered through fixed or wireless connectivity. According to the World Bank’s report1 in 2022, the number of fixed broadband subscriptions per 100 persons stood above 30 in high-income and upper-middle-income countries. While in lower-middle-income countries the subscriptions remained at 4.2 and in low-income countries it remained at an even lower number of 0.24 persons. The uneven availability of high-speed internet infrastructure puts the high-income countries at a huge advantage in terms of their participation in the digital economy and their overall growth and innovation as a digital society. This is evident from the data which demonstrates that in 2022, the digital participation of the population of the high-income countries, differentiated by the per capita internet traffic, was 14 times higher as compared to the per capita mobile internet traffic in the low-income countries, while in the case of the fixed broadband this divide is even wider and the high-income countries’ median per capita traffic is 1700 higher than that of the low-income countries. 4. Future investment priorities for upgrading data and connectivity infrastructure will remain skewed in the direction of high-income countries and may create wider divides and make it harder for low- and middle-income countries to catch up. According to the GSMA, mobile operators are anticipated to invest approximately US$ 600 billion between 2022 and 2025 in the 5G ecosystem. 5G ecosystem will mean more investments in optical fiber infrastructure, and data centers. 5G 1 World Bank. 2024. Digital Progress and Trends Report 2023. Washington, DC: World Bank. doi:10.1596/978-1- 4648-2049-6. License: Creative Commons Attribution CC BY 3.0 IGO 9 availability will create even more use cases for people and society to participate in the digital economy and a lag between the income groups will result in an unprecedented quality divide. 5. Low-income and middle-income countries need more infrastructure investment to catch up digitally and reduce the widening participation gaps. More investments are needed in high- speed internet infrastructure such as optical fiber cables, next-generation mobile network connectivity and satellite connectivity options. Investments are also needed in the key building blocks of the infrastructure layer of a country’s digital economy which includes mainly investments in internet exchange points, data centers, and cloud computing. 6. In addition, the demand-side of the digital services needs new contextualized interventions by a combination of public and private sector participation. Regulators and policy makers need more agility to adjust the course of policy directions especially around the affordability of internet, digital competence, online safety, cybersecurity, and digital trust to maximize the participation of the society and businesses in the digital economy. Figure 1. Median speed of Fixed and Mobile Broadband Download by Country Income Group between 2019 and 2023. Source: Digital Progress and Trends Report 2023. B. Pakistan’s Broadband Challenge 7. Demand for data is growing in Pakistan on year-by-year basis (Figure 2). From 2018 to 2023, the average monthly per capita data consumption has grown more than 300 percent. Between May 2023 and March 2024, Pakistan expanded its broadband users by an additional 7.35 million to the new total of 132.35 million. Out of the new broadband subscribers in Pakistan, approximately 7 million (95.2 percent of the new subscribers) connected through next generation mobile services while the remaining 0.35 million (4.7 percent) connected through fiber-to-the-home optical fiber access infrastructure. 10 Figure 2. Demand for Data – Average Gigabytes of data used by a mobile user per month. Source: Pakistan Telecommunications Authority. 8. Despite the progress, Pakistan faces the highest coverage gap of 22 percent in mobile internet connectivity in comparison with regional comparators including Bangladesh (2 percent), India (1 percent), and Sri Lanka (5 percent). Due to Pakistan’s current macroeconomic situation, telecommunications operators experience higher operating costs, primarily because of the currency depreciation and the falling ARPUs (average revenues per user). This situation affects the country’s economic sustainability of the overall connectivity market and will have long-standing impacts on the supply side. 9. There are approximately 3.2 million fixed broadband subscribers in Pakistan. Since a fixed broadband connection is considered a household connection, therefore, the number of persons benefiting from a fixed broadband connection should be taken by the size of the household. Using an average household size of 6.4 persons, the 3.2 million fixed broadband connections are serving 8 out of 100 persons in Pakistan. This number is substantially lower than the 37.8 subscriptions per 100 persons in high-income countries. To reach the benchmark number of the high-income comparators, Pakistan needs to have an additional 10.9 million fixed broadband connections. 10. At the current pace of investment in the fixed broadband infrastructure, where approximately 370,000 additional lines are deployed between May 2023 and April 2024, it will take Pakistan approximately 30 years to reach the high-income countries. Several gaps remain in the supply side of the fixed-broadband market in Pakistan when compared with regional comparators. According to a recent study by the IFC: − Pakistan lags behind a benchmark group of countries composed of Bangladesh, Egypt, India, Indonesia, and Philippines to the tune of approximately 5.1 million Fiber-to-the-home (FTTH) lines. − An average of $2.5 billion in fixed broadband is required by 2027 to close the gap with the benchmark countries by 50 percent. The current investment in this market segment is significantly falling short. 11 Figure 3. Internet Quality Index (IQI) comparison of Pakistan. 75th Percentile Median 25th Percentile 92 83 52 49 48 30 25 22 21 18 15 14 12 10 9 7 6 5 5 4 3 PAKISTAN INDIA BANGLADESH UNITED ARAB VIETNAM SINGAPORE SOUTH KOREA EMIRATES Source: Cloudflare. 11. Twenty-five percent of the internet users in Pakistan have on average a 12 Mbps connection while half of the internet users have an average internet connection speed of 6 Mbps. 2 This gives a clear perspective of the quality of digital experience that the internet users have in Pakistan as compared to the internet users in the United Arab Emirates, Singapore, South Korea, and Viet Nam as shown in the Figure 3. It is also important to emphasize that the 25 percent of internet users who have access to a relatively high-speed internet live in affluent neighborhoods in urban locations creating pockets of high digital experiences zones while leaving the remaining population to has access to low-speed internet. 12. In addition to these challenges, Pakistan consistently ranks low in global digital indices due to persistent issues owing to access and availability, governance, regulation, inclusiveness, and digital literacy. Affordability is a rare bright spot, with Pakistan regularly featuring among the countries with the cheapest mobile data plans. However, inadequate high-quality connectivity infrastructure negatively impacts its scores in several indices, including the UN e-Government Development Index, where it ranks 150th out of 193 countries. The Inclusive Internet Index highlights significant gender gaps and low internet relevance, placing Pakistan last in Asia and 79th globally. The ITU Development Index ranks Pakistan 142nd out of 169 countries, reflecting poor universal connectivity although it fares slightly better in meaningful connectivity. The GSMA’s Mobile Gender Gap Report 2024 shows Pakistan has the widest gender gap in mobile ownership among surveyed countries. Pakistan also scores poorly on digital skills and literacy, affecting meaningful internet use. Despite a relatively favorable ICT regulatory environment, excessive state control over the internet, as reported by Freedom House, exacerbates the country's digital challenges. More details on these indices and Pakistan’s digital readiness scores can be found in Annex 2. 2 CloudFlare Radar’s Internet Quality Index. 12 C. Technology options for connectivity 13. The internet provides foundational connectivity for digital services on a global scale consists of several infrastructure segments. Every segment is regulated and depending on the type of service a segment provides; it typically requires a specific regulatory license. A broader configuration of the various infrastructure segments and technology options that enable global connectivity is shown in Figure 4. Figure 4. Legacy and emerging technology options for connectivity. National Core backbone (long -haul fiber) Cross border and Fiber international fiber Landing Cities stations (central Microwave Locations (usually port office of (towns, cities) telcos) Satellite residential areas) Metropolitan DSL Fiber 3G, 4G, 5G Satellite wireless House, business Source: Authors’ own construction 14. Traffic between countries and continents is carried by fiber-optic submarine cables. These submarine cable systems are typically financed, built, and operated by consortiums. In terms of internet traffic volume, submarine cable systems carry by far the largest bulk of internet traffic and therefore this segment is a critical infrastructure piece for global connectivity and economy. 15. The undersea optic-fiber cables enter countries at cable landing stations (CLS). These stations serve as the terrestrial landing point and connect to data centers, internet exchange points and/or points of presence (PoPs) before the data is served to internet users over last mile access networks. The CLS are typically located in coastal towns near the cable landing points. 13 16. Pakistan is connected to the global internet via seven submarine cable systems. These provide connectivity with Asia, Middle East, Africa, and Europe through SMW3 3, SMW4 4, IMEWE 5, AAE-16, TW1 7and PEACE 8cable systems. In addition, Orient Express will also be available in the future. The Pakistan Telecommunication Company Limited (PTCL), is the landing party to majority of the submarine cable systems in Pakistan. There are three additional landing parties in this segment including Cybernet for PEACE, Wi-Tribe for Orient Express and Transworld for TW1. 17. From the cable landing stations, the internet traffic is carried inside a country to its various cities (to the central offices of telecom companies) by the national core backbone network. The national core backbone network is also referred to as the long-haul fiber and typically spans over distances of hundreds of kilometers. In Pakistan, operations on this segment of the network requires a Long Distance International (LDI) license. These licenses are issued by the sector regulator known as the Pakistan Telecommunication Authority (PTA). The PTA has issued twenty-one (21) LDI licenses however, there are only five (5) active LDI operators including PTCL, Multinet, Jazz, Transworld, and Wateen. 18. The internet traffic when it reaches the city’s central office of telecommunication companies is further carried to different neighborhoods (towns, communities) by different technologies including the predominant mode of metro fiber network using what is referred to as the feeder optic-fiber cable network, microwave links and satellite. 19. After the internet traffic is delivered to towns and communities it is further carried in the last mile to houses and business to the internet subscribers by a variety of network access technologies. These include 3G, 4G, and 5G mobile internet services, the legacy fixed broadband technology of DSL, optic-fiber, wireless metropolitan area network access technologies, and satellite internet services. The last mile, which is also referred to as the access network, include the highest number of stakeholders and service providers in the digital infrastructure value chain and this is the segment which needs efficient regulatory environment for not only to minimize the digital coverage divide but also to offer an equal quality of service and reduce the digital quality divide. 20. The last mile of Pakistan’s fixed broadband connectivity value chain is fairly technology- neutral in terms of the technology mix. However, the access network is dominated by 3G and 4G with over 97 percent of the internet subscribers in the country. The legacy DSL technology for fixed broadband is going through a sunset and the numbers are decreasing as it is evident in the past years data. Although the trend is not consistent the reduction in the DSL subscribers in some cases is because of the switch to fiber broadband connectivity options where the supply-side has caught up with the demand. The DSL segment is clearly dominated by PTCL and provides incumbent margins in the rollout plans of optical fiber broadband technology. 3 Southeast Asia-Middle East-Western Europe: This cable system connects Pakistan to Europe and other countries in Asia and the Middle East. 4 Southeast Asia-Middle East-Western Europe 4: Similar to SMW3, SMW4 also connects Pakistan to Europe, Asia, and the Middle East. 5 India-Middle East-Western Europe: Links Pakistan with India, the Middle East, and Europe. 6 Asia-Africa-Europe 1: It provides connectivity between Asia, Africa, and Europe. 7 Transworld 1: is operated by Transworld Associates and links Pakistan with Oman and United Arab Emirates. 8 Pakistan East Africa Connecting Europe: connecting Pakistan with Singapore, France, Kenya and Egypt. 14 21. In addition to the decline in the DSL technology in the access network, the wireless local loop (WLL) technology segment also experienced a decline in the number of subscribers over the last years. Refer to Figure 5 for the distribution of internet subscribers using different access technology segments and Figure 6 for the decline in the number of subscribers in the WLL segment, respectively. Figure 5. Fixed Broadband subscribers by access technology in Pakistan. Source: Pakistan Telecommunications Authority. Figure 6. Wireless local loop is on decline 9. Source: Pakistan Telecommunications Authority. 9 Includes data of 11 WLL service providers. 15 D. Snapshot of the fixed broadband value-chain in Pakistan 22. As shown in the Figure 5, the market is clearly dominated by two segments: 3G and 4G for mobile broadband service, and optical fiber for fixed broadband. This section will focus on the currently relevant last mile fixed broadband technology in the market i.e., the fiber-to-the-home (FTTH), to understand its stakeholders, challenges, opportunities for growth and participation of the private sector for mobilizing capital. A description of terms in the Figure 7 can be found in Annex 3. Figure 7. Segments of the Fixed Broadband Value-chain and Cost Drivers of Deploying a Fiber Connection to a House or Business. House, Business Cost drivers for every house pass of (Customer Premises GPON connection in the last mile (from equipment) Last mile connectivity L4 to L6) Drop fiber L6 Distribution Feeder Street (Fiber Access network distribution Terminal) (ODN) Distribution cable (Distribution network) L5 US$ 107 to 110 US$ 19 - 22 Groups of Streets (approx. 200-350 ISP and houses) Right of Way Transport Feeder cable (feeder L4 distribution network) US$ 42 to 45 US$ 4 to 6 Locations (towns, residential areas) Estimated cost for deploying a GPON Feeder cable L3 line to home users in Zone 0 ranges (metro network) from US$ 172 to US$ 183 Cities (central office of telcos) National Core Cost efficiencies are needed through backbone (long-haul) L2 policy reforms and investment in the last mile segment Landing stations (usually port cities) Cross border and Deployment cost for GPON line L1 significantly increases to the tune of international fiber an additional 34% where Terrestrial fiber construction of metro network (L3) is needed for reaching new locations Source: Authors’ own construction 16 E. Regulatory and Operational Challenges in deploying fiber broadband in Pakistan 23. There are several regulatory and operational challenges faced by stakeholders involved in the provision of fixed broadband infrastructure in Pakistan. These are discussed in further detail below and exemplary approaches are addressed in Annex 4. Right of way (RoW) 24. One of the key and longstanding regulatory challenge for the expansion of digital infrastructure in Pakistan is the right of way permissions. While this is not an issue unique to Pakistan and is a consideration across the world, the adoption of the newly approved RoW policy governing this issue in the country remains a challenge. As a result, private operators face delays and there are often no specified timelines for the issuance of RoW approvals. 25. The Public Private Right of Way Policy Directive10 of the federal government of Pakistan is a step in the right direction. However, its implementation requires capacity building within key institutions at the national, provincial, and local government levels. Additionally, as the policy identifies, capacity is also required for the development and adoption of a unified digital channel to process the RoW requests of the Telecom Infrastructure Provider (TIP) and other licensees and the establishment of an effective dispute resolution mechanism in faster than 60 days. The dispute resolution for the RoW cases requires visibility of challenges across the country and needs a mandate across the three tiers of the government. 26. Promoting cross-sector coordination of civil works policy can indeed be an extraordinary leapfrogging opportunity for Pakistan. It will generate significant financial savings, reduce inconvenience (noise, road traffic interruption, etc.) and damage to infrastructure. In many countries it may not be possible to reduce the powers of municipalities for political or constitutional reasons. In such cases providing more autonomy to network providers, such as using the option of designating certain facilities as “low impact facilities” whereby no permit is required can be useful. 27. Pakistan lacks consolidated and openly available utility maps which makes it difficult for new infrastructure rollouts and often involves additional costs because of damage or displacements. In addition, it has been observed that standard specification for laying buried infrastructure is either not followed correctly and/or was also not rectified because of poor monitoring mechanism which makes it difficult for subsequent roll outs of buried infrastructure along the same utility corridors. 28. Pakistan should prioritize and take a unified data-driven approach to infrastructure development. This means added coordination among infrastructure companies, regulators from energy, transport, communication and telecommunication sectors, federal, provincial, and local governments. Visibility of existing utility corridors, their capacity is important for planning future rollouts. In addition, enforcement of standard specification during the new rollouts is necessary for reducing the cost in future rollouts. A unified approach for new projects must make it mandatory to 10 Public Private Right of Way Policy Directive, SRO/1474(I)2020, Ministry of Information Technology and Telecom, October 9, 2020. Published in the Extraordinary Gazette of Pakistan on December 31, 2020. 17 ensure that the dig-once principle is taken into consideration by all new infrastructure projects agnostic of the sector and the PTA must be consulted ensuring that due consideration is given in the planning for new projects for telecom infrastructure. Infrastructure sharing 29. Although PTA has revised framework for mobile virtual network operators (MVNO) there is no similar framework for fixed broadband operators. In addition, while the VNO model of infrastructure sharing offers several promises for the various stakeholders of the connectivity value- chain, the report could not find a case of an effective VNO model in Pakistan. In terms of passive last mile sharing, there are recent examples of projects in Pakistan where housing societies acquired the telecom infrastructure provider (TIP) license from PTA and built its own optical distribution network (ODN). It provides a central hub to the service providers and connects the hub through a feeder provided by another service provider. However, the practical challenges in this model remain and include the revenue share charged by the infrastructure provider and other QoS challenges. 30. Infrastructure sharing is also challenged by the presence of an incumbent in the market in Pakistan. Challenges arise when an incumbent declares that all of its multi-service access gateways (MSAGs 11) are operational and utilizing existing fiber capacity. In such cases the implementation of infrastructure access regulations becomes crucial. Regulations should mandate the incumbent to provide open access to its fiber infrastructure to new entrants. 31. A broader stakeholder consultation is required to discuss the merits and challenges of the VNO or the passive last mile sharing models for the fixed broadband market in the context of Pakistan with the objective of safeguarding the existing investments by the stakeholders and opening opportunities for new players to broaden the market. Underutilization of the Universal Service Fund 32. Despite the developments by the USF, less than 10 percent of the mobile towers in Pakistan are connected to a back-end optical fiber link while the remaining are connected through microwave links causing quality of services issues. The universal coverage gap segment includes part of the market (broadband subscribers) that are typically located in the remote and rural areas of Pakistan where sustainability of infrastructure operations is not viable without the need for on-going subsidies on the operational costs. The Universal Service Fund (USF) has the mandate to reduce the universal coverage gap and is primarily tasked to improve the quality of connectivity in the under-served locations and promoting connectivity services in the un-served locations. The USF is mainly funded by the telecommunication licensees who are designated as the ‘contributors’ and are liable to pay an equivalent of 1.5 percent of their gross adjusted revenues to the fund. USF has made significant contributions including the rollout of fiber to tehsil levels and fiber connectivity to mobile towers in the under- and un-served locations. 33. Progress have been made to reduce the universal coverage gap. The USF has identified un-served and under-served locations in Pakistan. In Khyber Pakhtunkhwa (KP) province, the USF 11 MSAG provides traffic aggregation from multiple subscribers, ensures QoS and accounting, network security and traffic routing and switching in a Fiber-to-the-Home (FTTH) network. 18 focus locations are primarily the newly merged districts of KP in the north-west of the province (these districts were formerly known as the Federally Administered Tribal Areas), the rural areas of the southern districts of Kohat and Dera Ismael Khan and the northern districts of Malakand and Chitral. In Punjab the USF has focused on the southern Punjab districts of Dera Ghazi Khan, Layyah, Muzzafargarh and parts of Multan. In Sindh, the focus of USF has remained on the rural parts in the South-eastern locations of Hyderabad, Mirpur Khas, Nawabshah, Sukkhar and Sujawal etc. In Baluchistan, which is the least densely populated province, most of its locations come under the mandate of USF. Other locations, such as the central districts of KP are relatively urbanized and are outside the consideration of the USF and include market segments with existing footprint or those with potential for private capital enabled (PCE) and private capital mobilization (PCM). 34. The question of USF optimum use warrants further ideation. Despite the progress by the USF which includes the auctions of approximately Pakistani Rupee (PKR) 5 billion of which PKR 2.2 billion in 2019 was for the newly merged districts of KP (former FATA). It is interesting to note that most of the USF contracts are won by a very limited number of USF contributors and the contracts have interconnection available as part of its obligation. Despite these provisions, the market expansion is not aligned with the newly invested infrastructure by the USF. F. Broader challenges and its impact on digital investments 35. There is a need for a stronger and more holistic approach to digitalization by the federal and the provincial governments in Pakistan. After the 18th Amendment, provinces are now responsible for the digitalization of services and the broader digital strategy within the province. A lack of coordination is evident with the provinces which may become a hurdle in the achievement of the Digital Pakistan Policy goals. Similar coordination is needed for the RoW Policy Directive, Cloud Policy, and the draft personal Data Protection Bill. In addition, the draft personal Data Protection Bill raised international objections and if pursued without following international best practice could have long standing implications on the investment climate. 36. The World Bank published its “Pakistan Development Update 2022” in April 2023. The report notes the government's increased borrowing from the domestic banking sector. Credit to the sovereign accounts for 68.3 percent of all the credit extended by the banking sector as of December 2022. Lending to the sovereign comes at the cost of credit to the private sector. During 2023, restrictions were imposed on dollar outflow and the banks either denied or delayed the opening of letters of credit even for industrial imports. This created a huge backlog of containers at ports and the delay in customs clearance along with bearing the demurrage charges impacted the business. The availability of Optical Fiber Cable and its raw material were also adversely impacted due to the above factors. 37. PTA reports in 2024 that the investments by the Telecommunications Infrastructure Provider (TIP) licensees have significantly fallen short as compared to the previous years. This is consistent with the overall investments in the connectivity sector. 19 38. Additionally, the cost of capital has increased because of the surge in the base interest rate. The one-year Karachi Inter-bank Offered Rate 12 is at the highest of its historical range and stands at 20.97 percent as of April 26, 2024. The higher cost of capital in Pakistan has exceeded the typical hurdle rate in the business plans of the private sector service/infrastructure providers to roll out FTTH in new locations. This situation is particularly affecting small operators who are now finding it difficult to sustain their existing portfolio in the face of the rising cost of capital. 39. In addition to the supply side macroeconomic pressures, the currency depreciation and rising inflation is equally affecting the service providers and the internet users. According to the State Bank of Pakistan’s (SBP) Annual Report 2023, the Pakistani Rupee (PKR) depreciated by around 28.5 percent against the United States Dollar (US$) and the inflation soared above 25 percent. 40. Despite the negative pressures on the economy, the State Bank of Pakistan in its Annual Report, indicates that ICT grew by 6.9 percent against a 22.5 percent growth in 2022. The broadband penetration also expanded, only marginally, to 54.1 percent from 51 percent in the year 2022. In the face of significant PKR depreciation and high interest rates, the State Bank of Pakistan and the Pakistan Economic Survey 2023, show the intrinsic potential of the expansion of the broadband service in Pakistan. 41. It is essential to draw insights from global experiences, adapting best practices tailored for Pakistan. The journey towards digital transformation is not just about technology; it's about harnessing the power of connectivity to drive inclusive growth, empower individuals, and build resilient societies. The eighteenth amendment of 2010 to the Constitution of Pakistan devolved a range of responsibilities to Pakistan’s four provinces. Collaborative efforts between central and provincial governments will be crucial in the enhancement of digital skills and the fortification of infrastructure. Pakistan stands at a crossroads, where the pursuit of digital leadership necessitates a concerted commitment to transformative action, guided by abstract principles of resilience, inclusivity, and forward-thinking strategies. A united front where each province contributes to the overarching objective strengthens the impact and reach of these structural changes. 42. While Pakistan has mainstreamed digital literacy and skills support in its policies at the federal and provincial levels, the strategy has mainly focused on select groups through pilot programs. In addition, there are several public funded initiatives to promote device ownership and subsidizing internet, such as the award of free laptops and subsidy on the internet for university students, however, most of the programs have remained unable to scale and mainstream across the different education levels and thus remained limited in creating the needed impact. 43. In the recent years, Pakistan has promoted local manufacturing of devices, however, the cost of entry level phone is still higher. There are viable options for promoting digital inclusion by increasing the affordability of devices through reduced taxes (including import duties and other national taxes, such as sales tax or value added tax). A detailed comparison is needed to assess how the options for reducing the combined tax percentage, which currently accounts for 30 to 40 12 The Karachi Interbank Offered Rate is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the Karachi wholesale (or "interbank") money market. The banks used it as a benchmark in their lending to corporate sector. 20 percent of the total cost of the devices, align with the potential economic growth they may generate. 13 44. A comprehensive analysis is needed with an overarching focus on the identification of factors affecting the uptake and driving the demand gaps in Pakistan. In addition, there is a need to identify the PCM potential for improving the demand for digital services in Pakistan and to determine the true balance for supply and demand side strategies. 45. Despite the growth in the fixed broadband reported by SBP, the recent years witnessed internal challenges, exacerbated by global events, that have severely impacted the ICT sector. This is reflected in marginal growth in the IT services sector (Economic Survey 2023). G. Climate Resilience of Digital Infrastructure in Pakistan 46. The seasonal recurrence of the monsoon presents an ongoing looming threat to the data and connectivity infrastructure in the country. The 2022 monsoon floods revealed the vulnerabilities in Pakistan’s connectivity infrastructure when the telecom sector experienced devastating losses in the form of damage to essential equipment in telecom exchange sites, repeater stations, and mobile towers, including 3,386 mobile tower sites becoming inactive. The floods also caused power outages; and submergence of backup systems, which further exacerbated the connectivity outage. In addition, long-haul connectivity routes, which form a vital part of the national network traffic backbone, were cut off at multiple locations. The disruption of these routes led to the isolation of Quetta, the provincial capital of Balochistan province, and much of Balochistan from the rest of the world. 47. Response to floods. An uncharacteristically long monsoon season led to catastrophic floods, which left over 1,700 people dead, affected 33 million others, inundated a third of the country and decimated Pakistan’s infrastructure to the tune of an estimated $30 billion. 14 Pakistan’s telecommunications and internet infrastructure was badly damaged in the floods leaving thousands affected by floods and relief workers without means of communication. The situation was exacerbated greatly by power cuts as well as the ongoing economic crisis in the country. 48. Mapping and baseline data: There is a growing need for baseline data about the climate vulnerable digital infrastructure in Pakistan. Such data should be collected by mapping of climate critical digital infrastructure. The data available through such mapping will establish a baseline and support the start of a more structured approach to improving the climate resilience of the digital infrastructure. A data driven baseline will also guide future development operations in the country and would be useable by cross sector teams such as transport, energy, and digital development to take a joint and a more holistic approach to addressing the climate vulnerabilities faced by the digital infrastructure. 13 Smartphone Affordability Factors and Financing Schemes in Developing Countries. World Bank. 2023. 14 World Bank Press Release – October 28, 2022 “Pakistan: Flood Damages and Economic Losses Over USD 30 billion and Reconstruction Needs Over USD 16 billion - New Assessment” 21 49. A report by Tabadlab 15 said flood damage will have a “lasting impact” on core telecommunications infrastructure. It noted that, “While the floodsʼ impact on infrastructure is undeniable, connectivity interruptions over the last few weeks are both a consequence of the floods, and a reflection of the fragile state of our telecommunications sector. Had the underlying infrastructure been more robust, the industry would have been much more resilient in the face of a single large-scale event”. It further pointed to the potential for a collapse in another crisis without immediate intervention, stating, “Such a collapse would devastate not just Pakistanʼs broader digital transformation journey, but also the lives of Pakistanʼs 195 million telecommunications subscribers and 123 million broadband subscribers.” The report recommendations included: build a telecommunication resilience framework; focus on depth and not just breadth; treat the telecommunications industry as core public infrastructure; promote consumer behavior change for long term benefits. 50. Disaster resilience and response framework: Pakistan also lacks a digital economy resilience framework. The climate risk assessment framework must be built using the baseline data about the vulnerabilities of the digital economy infrastructure in the country and may estimate the economic impact of digital outage in Pakistan which will inform key stakeholders to support investments for improving climate resilience. Such a framework must include the identification of short-, medium-, and long-term priorities for improving the climate resilience and mobilization of key stakeholders through data-informed awareness sessions. 15 Rashid, N., Sheikh, M., & Khan, A. (2022, October 7). Pakistan Disconnected: Understanding the Fragility of our Mobile Network in the Wake of the 2022 Floods. Tabadlab. 22 2. The Digital Gaps Assessment Framework (DGAF) A. Methodology, Taxonomy and Definitions 51. The Digital Gaps Assessment Framework (DGAF) uses a systematic approach to identify the private capital mobilization (PCM) potential in broadband markets. The DGAF assesses the policy and regulatory efficiencies which can reduce the market efficiency gap and enables the market to expand to its full efficiency. It is a technology neutral methodology and can be applied across geographies and markets as needed. It is important to define the baseline definitions of some of the key terms that would cumulatively define the PCM in the context of the DGAF. The PCM term used by the DGAF includes the following scenarios: − Private capital enabled (PCE) – the monetary value of all potential private investments resulting from interventions, including financing, investment, guarantees and technical assistance, that are enabled by these interventions that address binding constraints to private investments whether physical, operational, policy, legal, regulatory, institutional, or related to other enabling environment factors that affect private investment and/or commercial financing. − Private direct mobilization (PDM) – it includes financing from a private entity on commercial terms due to the active and direct involvement of a public sector entity leading to commitment. − Economic additionalities (EA) – It includes the additional growth in related (digital) sectors such as e-commerce, digital payments etc. 52. The DGAF, summarized in Figure 8 below identifies key supply and demand thresholds in a market environment and provides a snapshot of the state of broadband coverage. − Vertical axis represents infrastructure supply with the level of supply ranging from no service provision to 100 percent provision. − Horizontal axis represents the willingness to pay for services or demand ranging from highest to lowest. 53. The framework also allows for analysis of investment gaps defined by progressive economic market frontiers: (a) existing coverage, (b) efficient market gap, and (c) coverage gap. − Existing coverage. The innermost rectangle in Figure 8 represents the existing state of population coverage in a country. In a market driven by purely economic forces representing all areas that are commercially viable (typically urban and dense areas). Beyond this frontier suppliers would not provide service without some form of intervention. − Efficient market gap. The difference between existing coverage and the extent of commercially viable market is called the efficient market gap. It defines all the geographic areas in which broadband service could be provided on a commercially viable basis if no economic or regulatory barriers were impeding the market development. 23 − Coverage gap. The Coverage Gap is broken down into two categories:  Sustainable coverage gap: areas in which revenue potential is high enough to cover ongoing operating costs but not enough to cover capital investments over a reasonable depreciation period.  Universal coverage gap: all remaining areas in which the revenue potential is insufficient to cover either capital or operating costs of infrastructure in their entirety. Figure 8. Analytical Framework to Illustrate the State of Broadband Coverage. Source: Based on Navas-Sabater, J.; Dymond, A.; Juntunen, N. 2002. Telecommunications and Information Services for the Poor: Toward a Strategy for Universal Access. 54. The DGAF methodology uses the concept of zones, where each zone represents a market segment: − Zone-0 to show the existing broadband coverage and is indicative of the current market potential. − Zone-1 to map market efficiency gap locations. Broadly speaking, the boundary of Zone-1 in a market represents the efficient market gap/frontier. Beyond this frontier, the market will not expand only with policy and regulatory reforms but would also need public investments. 24 − Zone-2 to show the locations where coverage is sustainable in the long-term beyond the initial capital cost barriers. This represents the sustainable coverage segment of the market and includes locations where the broadband coverage remains sustainable in the long run but requires reducing the capital cost and viability gaps in addition to the policy reforms actions. The outer boundary of the Zone-2 represents the market sustainability frontier beyond which the market requires continuous subsidies and concessions; and − Zone-3 to map locations where coverage is not sustainable without ongoing subsidies. 55. The DGAF assesses the policy and regulatory efficiencies which can reduce the market efficiency gap and enables the market to expand to its full efficiency. It should be noted that although the DGAF is technology-neutral in nature and can be applied across geographies and markets as needed, in this report, the framework is applied and explained in the context of fixed- broadband network connectivity only. 56. This analytical work takes a phased approach and, in the first instance, focuses on the Khyber Pakhtunkhwa (KP) province. KP is the fourth largest province by land area and is in the northwestern region of Pakistan. It has a population of approximately 39 million (about 17 percent of the total population of Pakistan). 57. The first phase focused on KP for several compelling reasons. Firstly, it encompasses all five poverty zones, making it an ideal region for conducting a thorough analysis of the supply and demand dynamics within the broadband market. Secondly, the scope of the analytics is aligned with the first pillar of the KP Digital Policy, which prioritizes digital access. Based on the survey by the Pakistan Bureau of Statistics, the urban households in KP own the highest percentage of digital devices for accessing internet as compared to the urban households in the remaining three provinces, providing the potential for further insights about the demand stimulation options. Additionally, KP offers geographic diversity, spanning from mountainous regions in the northwest to fertile plains in the central districts and arid lands/deserts in the southern part. The terrain diversity also provides a unique opportunity to examine the terrain dependent variation in the capital cost and the resulting investment gaps for deploying the broadband infrastructure, as demonstrated by the analysis of recent fiber rollouts in Pakistan where the cost per kilometer of fiber optic cable deployment varies across the four provinces because of the terrain differences. 58. The proposed "gaps model", which divides underserved areas into two distinct segments or "gaps" (the market efficiency gap and the access gap), provides a simple yet insightful analytical framework that should help governments design their digital infrastructure strategy. Many governments recognize the importance of digital infrastructure for development. The question of the relevance of public investment to fund digital infrastructure is raised in the context of the high opportunity cost of public investment versus the unnecessary use of public resources creates distortions in the economy that could crowd out private investment and reduce overall network deployment by operators. 59. One of the key purposes of the Digital Gaps Assessment Framework (DGAF) is to understand the structure of a broadband market and then estimate the potential size of the various zones that exist. The first purpose is to determine the zones and their respective sizes. The second purpose of applying the DGAF is to identify zone-specific policy and regulatory bottlenecks 25 that hinders the flow of private capital and are responsible for market inefficiencies. The third purpose is to identify zone-specific logic of public investments to mobilize private capital. Finally, the DGAF provides a matrix of options for policy and regulatory reforms, and investments and the estimated private capital such options can mobilize. 60. As mentioned, the DGAF methodology uses the concept of zones where each zone represents a market segment. Applying the DGAF methodology in the KP region while classifying geographic locations (towns, tehsils, union council, etc.) highlights four types of market zones as illustrated in the Figure 8 . These four zones, with respect to the realities in KP, are explained below: Zone-0 comprises of locations where optical fiber fixed-broadband services are already available. Since, the legacy DSL technology and wireless broadband options are on the recess, the DGAF’s Zone-0 only focuses on the existing coverage of FTTH deployment. Based on the analysis in this report, the Zone-0 locations are typically the affluent households, public offices, and business centers in the major cities of the province. Zone-0 is indicative of the current market potential. Analysis of data, available publicly on the service providers’ websites 16, shows that the Zone- 0 is less than 2 percent of the total households in the province. Zone-1 represents locations which are currently experiencing the market efficiency gap. Zone-1, in other words, also means the potential of additional number of lines which could have been available in an efficient regulatory environment. In terms of physical mapping, a Zone-1 would include locations, in most cases, having close physical proximity with Zone-0 locations and those where investments are already made in the allied infrastructure. Such allied infrastructure includes the availability of feeder cables and drop points and includes the L3 and L4 segments as shown in the Figure 7. In addition, Zone-1 also includes those locations with existing connectivity of DSL broadband. Zone-2 represents the sustainable coverage segment of the market. These include locations where the broadband coverage remains sustainable in the long run but require reducing the capital cost and viability gaps in addition to the policy reforms actions. The outer boundary of the Zone-2 represents the market sustainability frontier beyond which the market requires continuous subsidies and concessions. Zone-3 represents the market segment which is outside the sustainable market frontier. This zone includes locations which are remote and mostly rural. In Pakistan, Zone-3 is served by the USF according to its mandate and fixed broadband market cannot sustain without long- term subsidies and concessions. 16 PTCL. Coverage Areas tab on the website, Nayatel. Coverage Areas tab on the website, Stormfiber. Check Availability (of coverage) tab on the website, Additional data from consultations. 26 B. Digital Gaps Assessment in Khyber Pakhtunkhwa 61. To understand the broadband market in KP province of Pakistan, it is important to have a broad overview of the population distribution and the number of urban households. The details of selected districts (32 of the total 38) are shown in the descending order of the total population in the Table 1. Additionally, the Table 1 shows jurisdiction of the USF to show if most of the area of a district is either un- or under-served and where most of the historic USF funding has been spent. Some of the districts which are marked as non-USF may also include geographic locations where USF feeder cables have been funded but such locations are the rural areas in those districts. Table 1. List of administrative level two locations (districts) in KP with estimated number of urban households (HH). Total Urban HH Total Population Jurisdiction Admin level 2 (Districts) Households Percentage (2023) (2023) (2017) Non-USF Peshawar 4,758,762 685,701 46.16 Non-USF Mardan 2,744,898 395,518 18.55 Non-USF Swat 2,687,384 387,231 30.14 Non-USF Dera Ismail Khan 1,829,811 263,662 22.17 Non-USF Swabi 1,894,600 272,997 16.98 Non-USF Charsadda 1,835,504 264,482 16.77 Non-USF Mansehra 1,797,177 258,959 9.31 Non-USF Nowshera 1,740,705 250,822 22.32 USF Lower Dir 1,650,183 237,779 2.81 Non-USF Abbottabad 1,419,072 204,477 22.05 Non-USF Bannu 1,357,890 195,661 4.28 USF Bajaur 1,287,960 185,585 0.00 Non-USF Haripur 1,174,783 169,277 13.90 Non-USF Kohat 1,234,661 177,905 27.20 USF Khyber 1,146,267 165,168 9.90 USF Upper Dir 1,083,566 156,133 4.65 USF Buner 1,016,869 146,523 0.00 USF Lakki Marwat 1,040,856 149,979 10.19 USF Kohistan 1,043,126 150,306 0.00 USF Shangla 891,252 128,422 0.00 USF Malakand PA 826,250 119,056 9.43 USF Karak 815,878 117,562 7.24 USF South Waziristan 888,675 128,051 0.00 USF Kurram 785,434 113,175 6.80 USF North Waziristan 693,332 99,904 0.00 USF Hangu 528,902 76,211 19.76 USF Batagram 554,133 79,846 0.00 USF Mohmand 553,933 79,817 0.00 27 USF Chitral 515,935 74,342 11.20 USF Tank 470,293 67,766 12.05 USF Orakzai 387,561 55,845 0.00 USF Tor Ghar 200,445 28,883 0.00 Source: Pakistan Bureau of Statistics, 2017 and 2023 census data. 62. The mapping of data for the Zone-0 and Zone-1 is based on the consultations with the three main licensed broadband operators including the PTCL, Jazz and Nayatel. Inputs were also recorded from other operators including Transworld, Multinet, Wateen and Supernet. Details of the consultations is given in the Annex 1. 63. In addition, further insights are also generated through Ookla’s Speedtest Intelligence report which shows several additional service providers. The data from Ookla used in the report shows only fixed broadband operators and includes instances of speed test requests submitted by various internet users using the Ookla’s internet speed testing software application (both web and mobile). The data also shows the DSL broadband connections and shows the FTTH connections separately for PTCL subscribers. The subscribers of Nayatel and Cybernet (marketing brand name of Stormfiber) do not have DSL connections and only have FTTH connectivity. It is important to highlight that such a dataset from Ookla is not an exhaustive list of the subscribers but shows the geographic distribution of where Zone-0 is broadly located. This dataset reinforces the data made available from the top three broadband operators operating in the province. 64. Further information from the urban settlement map 17 was used to identify the geographic spread of fixed broadband connectivity in the province. These datasets in combination with the number of urban households in various districts of the KP province enables the geographic mapping of the zones. 65. While the geographic mapping can certainly give an overall view of the physical spread of the infrastructure and may serve as a useful datapoint in planning future rollouts, it on its own cannot give the size in terms of the number of the potential households in the Zone-1 and Zone- 2. To arrive at substantially accurate sizes of these zones, four additional datasets are used by the DGAF. These include the number of existing FTTH lines available in different urban locations for sizing the Zone-0 in terms of the number of household connections. Approximately 15 percent of the existing FTTH lines are considered to be serving businesses including small and medium enterprises, retail shops, hospitals, banks, ATMs, other corporations and public sector institutions. Based on these datasets, the size of Zone-0 is estimated for every district and is shown in the Table 1. The overall estimates indicate that Zone-0 includes approximately 5.8 percent of the total urban households in KP and is currently available in 13 out of the 32 selected district locations. 66. Zone-1 includes those locations and households and SME broadband connections which are using the legacy DSL technology. Three key factors underscore the inclusion of these connections in this zone: (a) there is existing demand and affordability of the services as these are already active connections, (b) there is existing allied network infrastructure which enables the broadband service where CAPEX is needed only for upgrades in the last mile access technology, and (c) it is consistent 17 The settlement data is provided by the Deutsches Zentrum für Luft- und Raumfahrt (DLR). 28 with the FTTH rollout trend in the market where the market has historically prioritized rollouts in those locations with DSL subscriptions. The existence of the legacy broadband access market is indicative of the market inefficiency where the supply is not fulfilling existing demand. Policy reforms in conjunction with investments which can reduce such market efficiency and merge Zone-1 into Zone-0 are explained in the subsequent sections. Based on the available data, this report estimates Zone-1 to include approximately 17.4 percent of urban households and SMEs in KP. 67. For estimating the size of Zone-2, the affordability data for each district is used to identify the potential number of additional FTTH connections to household and SME. This is determined using the affordability thresholds as a share of income to determine the percentage of households who can afford a fixed broadband connection in Pakistan which ranges from US$8 to 13, as advised in previous World Bank studies. The baseline numbers of the Broadband Commission for Sustainable Development are used to map the following four scenarios: Scenario 1 – The monthly price of fixed broadband package is US$8, and the US$8 is equivalent to 5 percent of the monthly income of a household; then scenario 1 includes the percentage of households in KP with a monthly income of at least Pakistan Rupee (PKR) 44,800; Scenario 2 – The monthly price of fixed broadband package is US$8, and the US$8 is equivalent to 2 percent of the monthly income of a household; then scenario 2 includes the percentage of households in KP with a monthly income of at least Pakistan Rupee (PKR) 112,000; Scenario 3 – The monthly price of fixed broadband package is US$13, and the US$13 is equivalent to 5 percent of the monthly income of a household; then scenario 3 includes the percentage of households in KP with a monthly income of at least Pakistan Rupee (PKR) 72,800; and Scenario 4 – The monthly price of fixed broadband package is US$13, and the US$13 is equivalent to 2 percent of the monthly income of a household; then scenario 4 includes the percentage of households in KP with a monthly income of at least Pakistan Rupee (PKR) 182,000 18. 68. Estimates of the household consumption from the Pakistan Poverty Map (based on the national household survey) and the Pakistan Social and Living Standards Measurement (PLSM) is used to determine the share of households in each district that fall within the definition of the affordability thresholds in each of the four scenarios. The affordability thresholds as a percentage of the total households in Zone-2 are shown in Table 2. 18Calculation of percentage of households falling in the Scenario 4 is not considered in the analysis as the US$13 represent the high paying customers and this scenario would exclude several households currently paying less than US$ 13 per month for a fixed broadband connection. 29 Table 2. Market Potential Given District Purchasing Power. District Scenario 1 Scenario 2 Scenario 3 Abbottabad 74% 17% 51.0% Bannu 65% 14% 42.5% Charsadda 48% 7% 27.3% Dera Ismail 40% 6% 21.5% Khan Haripur 75% 19% 52.6% Kohat 67% 13% 43.4% Lower Dir 69% 15% 46.4% Mansehra 61% 10% 36.7% Mardan 69% 15% 46.1% Nowshera 67% 14% 43.9% Peshawar 74% 25% 54.9% Swabi 78% 22% 57.5% Source: Authors' calculations 69. Focusing on scenario 2, the table shows that in the Abbottabad district, 17 percent of households have a monthly income above PKR 112,000. For the rest of the districts, the share of the population that can afford the internet package under this scenario goes from 6 percent in Dera Ismail Khan to 25 percent in Peshawar. 70. It is important to note that these are district level averages. In the wealthier areas of the district, it is likely the share of households that find scenario 2 affordable is higher. The size of Zone- 2 in each location is shown in Table 3. The overall estimated number of additional FTTH lines in Zone-2 are 6 percent of the urban households. 71. It is important to understand that the affordability threshold only factors the ability of subscribers to pay for the internet service and does not consider additional demand-side factors that contribute to the actual uptake of FTTH service, such as an individual or household’s digital competence and awareness, among other challenges. All the Zone-2 locations which are within the affordability threshold include households where FTTH connectivity can be provided by the private sector operators but require policy reforms along with supply-side investments for reducing capital expenditure (CAPEX). Table 2 shows locations within the affordability frontier as Zone-2(A). Beyond the affordability frontier there are additional urban households in every district, which are represented as Zone-2(B). For the FTTH market to expand to the second part of Zone-2, demand- side investments are required to mobilise private capital. 30 Table 3. Mapping of Fixed Broadband Market Zones in KP Province, Pakistan. Urban HH Admin level 2 Affordability Percentage Z0 (%) Z1 (%) Z2 (A) (%) Z2(B) (%) (Districts) (%) (2017) Peshawar 46.16 25.0 6.4 8.7 12.2 21.2 Mardan 18.55 15.0 6.3 17.5 0.0 3.6 Swat 30.14 15.9 3.7 5.6 8.0 14.2 Dera Ismail Khan 22.17 6.0 5.1 7.6 0.0 16.2 Swabi 16.98 22.0 0.0 23.7 1.8 0.0 Charsadda 16.77 7.0 0.0 16.7 0.0 9.8 Mansehra 9.31 10.0 3.1 39.9 0.0 0.0 Nowshera 22.32 14.0 3.7 13.1 0.0 8.3 Lower Dir 2.81 15.0 0.0 5.0 10.8 0.0 Abbottabad 22.05 17.0 22.8 14.9 0.0 5.1 Bannu 4.28 14.0 0.7 1.0 12.5 0.0 Bajaur 0.00 4.9 0.0 0.0 4.9 0.0 Haripur 13.90 19.0 18.7 5.5 0.0 0.0 Kohat 27.20 13.0 4.8 3.5 5.9 14.2 Khyber 9.90 6.3 0.0 0.0 6.3 3.6 Upper Dir 4.65 14.8 0.0 0.0 14.8 0.0 Buner 0.00 12.1 0.0 2.2 10.3 0.0 Lakki Marwat 10.19 8.1 0.0 0.0 8.1 2.1 Kohistan 0.00 2.5 0.0 0.0 2.5 0.0 Shangla 0.00 7.7 0.0 0.0 7.7 0.0 Malakand PA 9.43 13.5 0.0 37.0 0.0 0.0 Karak 7.24 11.4 0.0 1.4 10.2 0.0 South Waziristan 0.00 3.7 0.0 1.8 2.2 0.0 Kurram 6.80 16.3 0.0 0.0 16.3 0.0 North Waziristan 0.00 7.0 0.0 6.0 1.9 0.0 Hangu 19.76 10.1 10.9 9.6 0.0 9.7 Batagram 0.00 13.6 0.0 0.0 13.6 0.0 Mohmand 0.00 10.2 0.0 0.0 10.2 0.0 Chitral 11.20 11.6 6.9 5.7 0.9 0.0 Tank 12.05 8.4 9.6 0.3 0.0 3.7 Orakzai 0.00 5.6 0.0 0.0 5.6 0.0 Tor Ghar 0.00 7.7 0.0 0.0 7.7 0.0 Source: Authors' calculations 31 Table 4. Anticipated Uptake in Zone-0, and Zone-1. Year Subscribers 1st 2nd 3rd Conversion to FTTH 50% 30% 20% New FTTH connections 15% 30% 45% Source: Authors' calculations C. Policy Actions and Investments 72. To understand the type of policy actions and investments in the Zone-1 and Zone-2, it is important to understand the CAPEX drivers for providing an FTTH line to a household or to an SME with the same service level agreement (SLA) for simplicity. The CAPEX drivers are shown in Table 5 for each zone. This table helps in determining the CAPEX efficiencies which are possible through joint policy actions and investments. Table 5. Existing Average CAPEX per House Pass in Fiber to the FTTH Network in Pakistan 19. FTTH Elements Number Cost Headings Zone 0 ($) Zone 1($) Zone 2 ($) Feeder A Material 14.00 18.00 19.00 Distribution B Services 18.00 20.00 Optical C Material 52.00 50.00 50.00 Distribution Network (ODN) D Services 55.00 54.00 54.00 Right of Way E RoW 42.50 17.00 17.00 F Subtotal (A to E) 168.50 153.00 159.00 ISP & Transport G Transport 4.00 69.00 69.00 H Subtotal (G+F) 172.50 222.00 228.00 Operational I Operational 7.45 17.00 24.00 Upfront J Total (H+I) 179.95 239.00 252.00 Source: Authors' calculations 73. The combined cost of the RoW in Zone-0 is between US$42 to US$45. In Zone-1 and Zone-2 the cost of the RoW component is between US$15 to U$17. A policy action which rationalises the RoW cost across all zones to the lowest which means reducing the RoW of Zone-0 locations to match the cost of RoW in the Zone-1 and Zone-2 will free up private capital for market expansion. This policy action will reduce the CAPEX per FTTH connection from US$179.85 to 19Costs in the table are in the United States Dollars. Costs estimates are based on trenched buried underground optical fiber installation. 32 US$154.95 in Zone-0. Additionally, to enable the flow of private investment in the locations with existing demand and affordability (which includes the Zone-1 and Zone-2(A)), the CAPEX in these locations needs to be subsidised by investments in the allied infrastructure which causes the CAPEX increase in the Zone-1 and Zone-2. Such investments must level the CAPEX of the Zone-1 and Zone- 2 to the optimized CAPEX of US$154.95 per FTTH line of the Zone-0. This translates into public investments per FTTH connection of US$84 and U$97 in the Zone-1 and Zone-2(A). 74. For the Zone-2(B), a demand-side investment which subsidies the monthly cost of the lowest FTTH internet connection by 30 percent for a period of 18 months would trigger the mobilisation of the private capital to the additional urban households that fall outside the affordability frontier. The combined supply-, and demand-side investments in the Zone-2(B) will contribute to the reduction of the CAPEX and OPEX cost and will collectively make up as US$140 investment per FTTH household connection. Table 6. Private Capital Mobilization Potential in Different Fixed Broadband Market Zones in KP. Broadband market zones Zone 0 Zone 1 Zone 2(A) Zone 2(B) Total Percentage of urban Households covered by 5.84% 17.41% 6.12% 12.06% 41.42% FTTH connection Supply side investments 0 $84.05 $97.05 $97.05 - per FTTH connection Demand side investments 0 0 0 $43.20 - per FTTH connection Public investment n.a. $14,211,258 $5,766,202 $16,427,088 $36,404,547 Private investment n.a. $26,114,560 $9,176,608 $18,090,294 $53,381,462 Public Private Ratio (Public n.a. $1.84 $1.59 $1.10 (Average)$1.51 US$: Private US$) Additional Lines n.a. 169,081 59,415 117,127 345,623 Source: Authors' calculations 75. The private capital mobilisation potential in each zone is summarized in Table 6. It is important to note that the ratios of the public investment to the private capital mobilisation is highest in Zone-1, followed by Zone-2(A) locations and lowest in the Zone-2(B). However, the concept of zones does present a menu of options for initiating phase-wise investments. These phases may start from Zone-1 and go further out to all the way to Zone-2(B) or these may be in the reverse order where subsidies can enable the FTTH availability in the Zone-2(B) in the first phase. It would be interesting to see the impact on the market if the option of the investments in the Zone-2(B) are prioritised as in this case investments made in the allied metro and feeder network infrastructure for providing connectivity to Zone-(B) would not be required for the Zone-2(A) and Zone-1. A more contextual regulatory framework which can improve the sharing of the infrastructure established using the subsidies for the Zone-2(B) has the potential to reduce CAPEX inefficiencies for the Zone- 2(A) and Zone-1 which may or may not require subsides. The response of the market if the menu of investment options is reversed needs to be further analysed. 33 Conclusion 76. Bringing Uniformity in the cost of the Rights of Way. Without the consideration of the possible cost efficiencies that could be possible through infrastructure sharing, one of the policy reforms that can reduce the cost to a fair extent is to bring uniformity of the right of way (RoW) cost across different zones. The existing, higher per line RoW cost of US$42.5 in Zone-0 could be made consistent and reduced to upto US$17 in other zones. Box 1. Policy based CAPEX efficiencies. Increased implementation capacity for a reformed right of way (RoW) mechanism, which must target the adoption of a uniform RoW fee, has the potential to reduce the CAPEX in Zone-0 by 14 percent. • Implementation of such policy reforms at the local government level requires a national dialogue on the important agenda of increasing optical fiber densification in Pakistan. The Public Private Right of Way Policy Directive 20 of the federal government is a step in the right direction; however, its implementation requires capacity building within key institutions at the national, provincial, and local government levels, development of a unified digital channel to process the RoW requests of the TIP licensees and establishment of an effective dispute resolution mechanism in faster than 60 days. The dispute resolution for the RoW cases requires visibility of challenges across the country and needs a mandate across the three tiers of the government. • Through the policy intervention, supported by the suggested actions for the adoption of the RoW reforms, the possible cost efficiencies in the Zone-0 are approximately 14 percent of the total per line cost and can reduce the per line cost to US$154.50 from the existing cost of US$179.95. 77. Public investment to facilitate the flow of Private Investment. In addition to the policy reforms, investment is required to facilitate the flow of private capital in Zone-1 and Zone-2. These investments should equalize the additional costs in Zone-1 and Zone-2 to the cost of Zone-0. • As shown in the Table 5, the additional costs in Zone-1 and Zone-2 are a result of the investments for feeder distribution, the internet service provider and transport costs. • To equalize CAPEX for the rollout of the optical fiber access network in Zone-1 and Zone-2 to the CAPEX of Zone-0, a per line investment of US$84 and US$97 is required in Zone-1 and Zone-2 respectively. In other words, investment is needed to reduce the CAPEX in Zone-1 by 35 percent and in Zone-2 by 38.5 percent. 20 Public Private Right of Way Policy Directive, SRO/1474(I)2020, Ministry of Information Technology and Telecom, October 9, 2020. Published in the Extraordinary Gazette of Pakistan on December 31, 2020. 34 Box 2. Public investment to private capital mobilization ratio. A one US dollar public investment can crowd in between US$1.1 to US$1.8 of private capital to support the addition of more than 300,000 new FTTH lines in the Khyber Pakhtunkhwa province of Pakistan. 78. The preparation of a National Fiberization Plan with a decentralized implementation strategy at provincial if not community level. The fiber plan should aim to establish high-speed fiber-optic connectivity across Pakistan, enhancing internet access and supporting digital infrastructure along the following pillars: • National framework: Develop a comprehensive national framework outlining the objectives, goals, and standards for laying fibera cross the country. This framework should align with existing digital and telecommunications policies. • Decentralized implementation: Empower provincial and community-level authorities to customize and execute the plan based on local needs and priorities. This ensures flexibility and responsiveness to unique regional challenges. • Climate resilience of digital infrastructure: Improve the disaster resilience of the connectivity infrastructure (long-haul backbone fiber network) and prepare a national emergency digital framework through in-depth consultation with stakeholders and communities. • Funding and resources: Allocate funding and resources equitably across provinces, with a focus on underserved or remote areas. Encourage public-private partnerships to support investments. • Technical support and training: Provide technical assistance and training to provincial and community stakeholders, enabling them to manage the installation and maintenance of fiber- optic networks effectively. • Local infrastructure: Use existing local infrastructure (e.g., utility poles, roadways) where possible to share infrastructure, reduce costs and minimize disruption. • Community engagement: Involve local communities in the planning process to understand their specific needs and concerns. This helps gain public support and ensures that the network serves local interests. Box 3. Market expansion and private capital mobilization. Implementation of reformed policy along with supply-side and demand-side investments will increase the FTTH coverage of the urban households from 5.8 percent to 41.4 percent in Khyber Pakhtunkhwa and mobilize US$36 million in public capital and US$53 million in private investment. 35 79. Implementation of a mapping tool. As part of implementation of the National Fiberization Plan, its recommended to develop and implement an interactive map allowing the analysis of investment opportunities in infrastructure networks. Such a map should be used as a policy instrument that would help, on one hand, to establish the right objectives for any interventions, and to reduce costs for operators, on the other. It should employ geographic information systems, and should provide information regarding: • Passive fiber infrastructure networks (completed, in progress and planned) including roads, utility infrastructure and collocating opportunities; • Possibility to filter the data by provider, type of network (fiber versus non-fiber) and type of ownership (leased versus owned) and other infrastructure facilities including schools, health clinics, etc; • Demographic and socio-economic characteristics such as population density, urban versus rural settlements, income levels, GDP per capita and relevant market information, i.e., characteristics of supply and demand; and • Available broadband service information at the household level including percentage of households having various levels of high-speed internet access and other characteristics: topology, land use, security, environmental. This map should be accessible by the public on federal and provincial ICT Administration/Board websites and be interactive and searchable. This map should not duplicate what has been already done. Rather, it should improve and enhance what is available. Eventually, the mapping tool should be designed to help MIS to publish report containing: (a) information on the coverage of the territory of Pakistan with digital infrastructure and public telecommunications networks enabling broadband access to the internet; and (b) information on the implemented and planned investments and on buildings enabling co-location. 36 Annexes Annex 1. Stakeholders Consultation No. Organization 1 Pakistan Telecommunication Authority 2 Ministry of IT and Telecom 3 Khyber Pakhtunkhwa Information Technology Board 4 Nayatel 5 Cybernet 6 Pakistan Telecommunication Company Limited (PTCL) 7 Transworld Associates 8 Multinet 9 Telenor Asia 10 Jazz 37 Annex 2. Pakistan’s digital readiness Pakistan is consistently ranked at the bottom of global indices. This phenomenon has been persistent for now more than a decade. Various indices consistently show access and availability, governance, regulation, inclusiveness, and digital literacy as the major areas of concern. • Affordability: One of the few areas where Pakistan fares well is in terms of affordability. It is regularly found to be among the countries with the cheapest mobile data plans according to a global survey of mobile data pricing conducted by Cable.co.uk. The survey, which looked at 233 countries and over 5,000 mobile data plans, ranked Pakistan 13 out of 233 with the average price of 1GB of data coming to $0.36 after an analysis of 47 locally available plans. • Access and availability: The lack of high-quality connectivity infrastructure continues to bring Pakistan’s scores down in many global indices. For instance, consistently achieves low scores in the telecommunications infrastructure index (50 percent below the regional average in 2022) and human capital index in the United Nations e-Government Development Index 2022. Pakistan's score is 35 percent less than the regional average and puts it as fifth worst e- government regime in the world, with an overall rank of 150 out of 193 countries in the index. • Similarly, the Inclusive Internet Index of 2022 21 commissioned by Meta and executed by Economist Impact, saw Pakistan ranked last out of 22 countries in Asia overall, and 79th of 100 countries globally across the key indicators of Availability, Affordability, Relevance and Readiness. Pakistan’s score was negatively impacted largely due to issues in availability of the internet and relevance to citizens. In addition to that, the massive gender gap in both internet access and mobile phone access for females and lack of literacy skills were noted as major issues in the country. • The International Telecommunication Union (ITU) Development Index (IDI) is an assessment of ‘Universal Connectivity’ and ‘Meaningful Connectivity’ across 169 member states. This evaluation considers factors such as the provision of high-quality infrastructure and ensuring a safe and secure internet for all. With nearly 131 million people not using the internet, Pakistan is ranked in the 142nd position in the IDI 2023. Pakistan falls short scoring just 28.5 in the Universal Connectivity pillar and does better on the Meaningful Connectivity pillar with a score of 68.8 out of 100. The Global Fiber Deployment Index 2023 by Omdia also placed Pakistan at 76th position out of 93 countries, indicating significant room for improvement. • Gender gap and inclusion: According to GSMA’s latest Mobile Gender Gap Report 2024, Pakistan has the widest gender gap in mobile ownership (38 percent) of all countries surveyed with just half of women (53 percent) owning a mobile phone, as compared to over 86 percent of men.22 The GSMA report noted that the lack of relevant literacy and digital skills and family approval were the top barriers for women to get access to mobile phones and use the internet in Pakistan. The figure below provides details on Men’s and Women’s Mobile Ownership and Mobile Internet Use, by Country. 23 21 Source: Inclusive Internet Index 2022 22 Source: GSMA Mobile Gender Gap Report 2024 23 Source: GSMA Mobile Gender Gap 2022 Report 38 Figure 9. Men’s and women’s mobile ownership and mobile internet adoption, by country Percentage of total adult population. Source: GSMA Consumer Survey, 2023 • Literacy and digital skills: Pakistan fares poorly on most indices in relation to the availability of digital skills and ICT literate users. This impacts the ability for users to create and access content of relevance, making it less meaningful for people to get connected and stay connected to internet services. The Network Readiness Index (NRI) for 2023, Pakistan ranks 90th out of the 134 economies, with poor scores identified across the Governance (inclusion, trust and regulation) and People (Government services and literacy) pillars. • Governance and regulation: While the Pakistan’s regulatory environment has fared relatively well on the ITU’s ICT Regulatory Tracker, being the first in South Asia to achieve a G4 rank (meaning that its regulatory environment is collaborative and led by econ­omic and social policy go­­a­ls). At the same time, however, Freedom Houseʼs 2022 Freedom on the Net report ranked Pakistan a low 26/100 “Not Free”, with an overall improvement of just one 39 point over the previous year. Freedom Houseʼs 24. The report cited excessive state control over the internet as one of the major reasons holding Pakistan back, with issues ranging from increased taxation to forced internet shutdowns/blackouts, blockage of specific content, extended power breakdowns as well as a poor response to the floods and infrastructure issues that led to internet outages. 24 Freedom House. (2022). Pakistan: Freedom on the Net 2022 Country Report. 40 Annex 3. Segments of Optical Fiber Connectivity Value-chain in Pakistan Connectivity Description Pakistan snapshot: License requirement, business level model, and segment challenges L1 Cross border and international fiber − License types: Long Distance International (LDI), connect countries and terminate at and Telecommunication Infrastructure Provider landing stations. Landing stations (TIP) act as gateways to inbound and − Business model: Wholesale segment for managed outbound international traffic service − Challenges: o Alternate connectivity route is only with People's Republic of China o Regional connectivity will improve resilience L2 National Core backbone (long-haul) − License types: Long Distance International (LDI), connects landing stations with the and Telecommunication Infrastructure Provider central office of telcos. The national (TIP) core backbone also aggregates − Business model: Wholesale segment providing traffic from various interconnection dark and managed service to L3 and onwards. points and connects central offices − Challenges: LDI license conditions mandate of telcos across the country access to passive sharing for competition providing national coverage L3 Feeder cable (metro network) − License types: Incumbent dominant segment connects the central office of telcos − Challenges: with the fiber distribution hub (FDH) o Need for effective infrastructure sharing of towns, residential areas models o No wholesale regulated provider o Additional cost of L3 makes it difficult for small operators to expand to new locations L4 (last mile) Feeder cable (feeder distribution network) connects telco office with the street level FDH L5 (last mile) Distribution cable (Distribution network) connects the multi-street FDH with a street level fiber access terminal (FAT) and a FAT usually connects 8 to 32 houses in a GPON 25architecture L6 (last mile) Drop fiber connects the FAT with the consumer premises equipment typically the FTTH router at a house 25 GPON (Gigabit passive optical network) is a point-to-multipoint access network technology that delivers high- speed internet services to homes and small businesses using optical fiber cables. Its main characteristic is the use of passive splitters in the fiber distribution network, allowing a single feeding fiber from the provider to serve multiple locations. 41 Annex 4. Regulatory considerations in deploying fiber broadband Two regulatory and operational challenges faced by stakeholders involved in the provision of fixed broadband infrastructure are discussed below: Rights of way and Infrastructure sharing. Rights of Way. As defined by the Organization for Economic Co-operation and Development as: “Right of Way (RoW) is an easement granted by the property owner that gives the rights to travel over the land and the provision by the property owner of reasonable use of the property to others, as long as it is not inconsistent with the use and enjoyment of the land by the owner.” A RoW provides the right to pass across the lands of another to build facilities such as roads, railroads. The rules and regulations that govern rights of way can serve as a significant barrier to infrastructure roll- out and therefore, should be carefully considered. Some of the key considerations include: • Single point of contact for approvals: A centralized information point where network investors can easily access information on rights of way procedures transparently should be ensured. The lack of transparency and the complexity of the administrative procedure induce uncertainties which can cause delays and slow down the pace of FTTH deployment. This is likely to have a bigger impact on new entrants who have fewer legal resources to untangle different procedures. • Standardization of rules: In many places, local municipal requirements vary and may even be conflicting. As such there is a need for standardizing certain rules to ensure fiber roll-out can be supported efficiently. If when investing in a network which crosses a number of different municipalities, applicants may be required to provide the same information but in different formats for different public authorities, this can cause applicants to spend unnecessary time and resources to satisfy administrative requirements. • Where there are different entities and laws at federal and municipal levels, it is important for operators to be clear on the applicable laws. If there is a dispute, there should be clarity on which entity is responsible for settling disputes. In many countries, authorization to use public lands may also be subject to other legislation which aims to meet other objectives, such as environmental protection or the preservation of historic sites, etc. To ensure the clarification of jurisdiction for granting public rights of way, it is important for governments and/or regulators to be clear on which entity has jurisdiction to grant public RoW permits, and which entity is responsible for setting disputes. In Austria and Canada, for example, the central government has issued special rules for the granting of rights of way in telecommunication-specific legislation at the federal level. • Timeline for approvals: To prevent delays in the application process for rights of way, a system of safeguards is required which ensures that deadlines for decisions concerning permits are respected. For example, in India the “GatiShakti Sanchar” portal for unified RoW approvals has significantly reduced the number of days of RoW processing. Delays in rolling-out networks can be costly for operators and can delay the development of competitive markets. • Charges and fees: Given the high costs of constructing new public rights of way conduits, determining fair compensation for access is crucial for the telecom industry. Various countries have adopted different taxation and fee structures. France and Spain, for instance, have imposed additional taxes on telecom revenues to finance public television and local municipalities. 42 Greece introduced a tax on mobile subscriptions, while Slovakia temporarily applied a tax on utility company profits to reduce the public deficit. In contrast, some countries like Austria, Denmark, and the United Kingdom do not require payments for public rights of way, although fees to recover costs may be imposed. Compensation systems also vary: the United States sets maximum rates for pole attachments and conduit use, France calculates fees based on the duration and rental value, and Portugal uses a percentage-based municipal fee on invoices issued by network operators. These approaches reflect a range of strategies to balance industry costs and public funding needs. Infrastructure Sharing. There are several infrastructure-sharing models and depending on the level of sharing each one has their own challenges. Some the models which exist and have benefits for introducing competition while reducing capital costs includes: • Virtual network operator (VNO) model. In this model, one operator builds the physical network infrastructure and provides access to virtual network operators (VNOs) to use that infrastructure and provide services to their customers. It saves small operators from making capital investments for building the infrastructure and allows infrastructure providers to maximize their revenues by leasing to multiple VNOs. VNOs are responsible for their own customers, billing systems but only lease network capacity from the infrastructure provider. The VNO model, because of its layered structure of dependencies, has its own challenges and if appropriate regulatory frameworks are not in place, then those dependencies may result in the model failure. Some of these dependencies include infrastructure access fee and such negotiations in the absence of a regulatory framework may result in higher cost for the VNO especially if the infrastructure provider has market dominance. In addition, maintaining a level of the quality of service (QoS) by the VNO is dependent on the QoS of the infrastructure provider and in the absence of the QoS framework such dependencies may distort the market for the VNOs. Furthermore, VNOs may also find market differentiation challenging since the same underlying infrastructure provides the services to multiple VNOs in the market. • Passive last mile sharing is a strategic approach that allows telecommunications operators, utility companies and others to optimize resources, reduce costs, and improve service delivery by sharing the physical components of their network infrastructure, to provide connectivity to the end user. Regulatory oversight is necessary to ensure that access to fiber infrastructure is granted based on objective criteria rather than subjective claims. Regulators should assess the actual utilization of fiber capacity and require incumbents to provide evidence to support their claims. Regulators should establish transparent and standardized pricing mechanisms for wholesale fiber services, ensuring that pricing reflects actual costs and promotes fair competition. Clear service level agreements should be put in place to govern the quality of service and performance metrics for wholesale fiber access. If the incumbent is unable to demonstrate full utilization of all fibers serving the MSAGs, the regulator should regulate the scenarios by offering the unused or underutilized fiber capacity by the incumbent for access by new entrants. This would enable private investors to lease or share existing fiber strands to deploy their own access fiber networks, reducing the need for redundant infrastructure and promoting efficient use of resources. 43 Annex 5. Average Download and Upload Speed of Fixed Broadband in KP Source: Ookla, Speedtest intelligence report for 3rd quarter of 2023 for fixed broadband services in Khyber Pakhtunkhwa. Average download speed is 9.26 Mbps, average upload speed is 9.9 Mbps. ISP Name Download Speed Mbps Upload Speed Minimum Sample Mbps Latency Count All Providers Combined 9.1 9.24 12 58242 PTCL 6.97 3.45 26 33073 Cybernet 12.88 14.1 4 17183 Nayatel 11.38 14.28 3 4490 PTCL DSL 5.04 0.75 37 1202 Zong Telecom 7.77 9.43 13 1024 Ebone 6.96 6.5 21 850 PTCL Flash Fiber 18.8 24.57 4 832 Airmax 6.94 8.52 14 785 NTC 6.66 5.7 14 567 Transworld 10.26 7.83 9 560 SCO 11.38 6.75 7 542 Wateen 7.11 8.6 15 520 Connect Communic. 7.29 7.4 17 456 DREAMNET 4.86 7.38 22 379 Khan Telecom 8.38 10.78 16 285 Hazara Communication 3.44 5.39 7 274 Pace Telecom 9.7 10.96 8 256 Telenor 8.2 9.45 7 221 WideBand 7.09 9.22 5 186 Communications Pace Telecom 8.64 9.79 10 173 REDtone 10.93 13.49 17 144 KCN 8.73 10.7 13 133 Khybernet 4.33 4.51 14 131 SB Communications 7.76 9.58 7 121 Waylink 12.33 14.61 8 98 Falcon Broadband 7.94 8.97 16 82 Falcon Broadband 8.51 9.25 22 77 Optix 15.09 16.8 14 62 WorldCall 23.33 19.32 5 26 44 Annex 6. Broadband Market Zones mobilization potential in mobilization potential in mobilization potential in Additional FTTH lines in Additional FTTH lines in Additional FTTH lines in Administrative Level 2 Urban HH Percentage Total Households Private capital Private capital Private capital Affordability Zone 2(A) Zone 2(A) Zone 2(A) Zone 2(B) Zone 2(B) Zone 2(B) (Districts) 261 Zone 0 (2023) Zone 1 Zone 1 (2017) Zone Peshawar 685,701 46.16% 25.0% 6.4% 8.7% 12.2% 21.2% 27,550 38,889 67,364 $4,255,098 $6,006,386 $10,404,334 Mardan 395,518 18.55% 15.0% 6.3% 17.5% 0.0% 3.6% 12,918 - 2,620 $1,995,185 $- $404,611 Swat 387,231 30.14% 15.9% 3.7% 5.6% 8.0% 14.2% 21,587 9,445 16,716 $3,334,112 $1,458,736 $2,581,795 Dera Ismail Khan 263,662 22.17% 6.0% 5.1% 7.6% 0.0% 16.2% 4,456 - 9,507 $688,229 $- $1,468,320 Swabi 272,997 16.98% 22.0% 0.0% 23.7% 1.8% 0.0% 11,066 851 - $1,709,144 $131,452 $- Charsadda 264,482 16.77% 7.0% 0.0% 16.7% 0.0% 9.8% 7,445 - 4,358 $1,149,880 $- $673,165 Mansehra 258,959 9.31% 10.0% 3.1% 39.9% 0.0% 0.0% 9,685 - - $1,495,848 $- $- Nowshera 250,822 22.32% 14.0% 3.7% 13.1% 0.0% 8.3% 7,354 - 4,685 $1,135,825 $- $723,572 Lower Dir 237,779 2.81% 15.0% 0.0% 5.0% 10.8% 0.0% 11,817 724 - $1,825,136 $111,847 $- Abbottabad 204,477 22.05% 17.0% 22.8% 14.9% 0.0% 5.1% 6,736 - 2,290 $1,040,375 $- $353,707 Bannu 195,661 4.28% 14.0% 0.7% 1.0% 12.5% 0.0% 2,046 1,051 - $316,005 $162,308 $- Bajaur 185,585 0.00% 4.9% 0.0% 0.0% 4.9% 0.0% 1,792 - - $276,774 $- $- Haripur 169,277 13.90% 19.0% 18.7% 5.5% 0.0% 0.0% 9,370 - - $1,447,197 $- $- Kohat 177,905 27.20% 13.0% 4.8% 3.5% 5.9% 14.2% 6,310 2,879 6,911 $974,580 $444,717 $1,067,441 Khyber 165,168 9.90% 6.3% 0.0% 0.0% 6.3% 3.6% - 1,036 592 $- $160,030 $91,445 Upper Dir 156,133 4.65% 14.8% 0.0% 0.0% 14.8% 0.0% - 1,081 - $- $166,920 $- Buner 146,523 0.00% 12.1% 0.0% 2.2% 10.3% 0.0% 3,168 - - $489,298 $- $- Lakki Marwat 149,979 10.19% 8.1% 0.0% 0.0% 8.1% 2.1% - 1,245 321 $- $192,304 $49,619 Kohistan 150,306 0.00% 2.5% 0.0% 0.0% 2.5% 0.0% - - - $- $- $- 26Business and commercial connections include all those connections used by businesses irrespective of the type of the service level agreement with the service provider. This number is estimated to be around fifteen % of the active subscribers in a district. Shangla 128,422 0.00% 7.7% 0.0% 0.0% 7.7% 0.0% - - - $- $- $- Malakand PA 119,056 9.43% 13.5% 0.0% 37.0% 0.0% 0.0% 4,179 - - $645,447 $- $- Karak 117,562 7.24% 11.4% 0.0% 1.4% 10.2% 0.0% 1,635 875 - $252,526 $135,102 $- South Waziristan 128,051 0.00% 3.7% 0.0% 1.8% 2.2% 0.0% 2,267 - - $350,138 $- $- Kurram 113,175 6.80% 16.3% 0.0% 0.0% 16.3% 0.0% - 1,262 - $- $194,870 $- North Waziristan 99,904 0.00% 7.0% 0.0% 6.0% 1.9% 0.0% 5,947 - - $918,514 $- $- Hangu 76,211 19.76% 10.1% 10.9% 9.6% 0.0% 9.7% 7,294 - 1,463 $1,126,558 $- $225,984 Batagram 79,846 0.00% 13.6% 0.0% 0.0% 13.6% 0.0% - - - $- $- $- Mohmand 79,817 0.00% 10.2% 0.0% 0.0% 10.2% 0.0% - - - $- $- $- Chitral 74,342 11.20% 11.6% 6.9% 5.7% 0.9% 0.0% 4,243 77 - $655,331 $11,936 $- Tank 67,766 12.05% 8.4% 9.6% 0.3% 0.0% 3.7% 216 - 300 $33,361 $- $46,301 Orakzai 55,845 0.00% 5.6% 0.0% 0.0% 5.6% 0.0% - - - $- $- Tor Ghar 28,883 0.00% 7.7% 0.0% 0.0% 7.7% 0.0% - - - $- $- 32 5,887,046 17% 169,081 59,415 117,127 $26,114,560.45 $9,176,608.21 $18,090,293.70 46