ISLAMABAD: Pakistan lost nearly $1 billion in foreign direct investment (FDI) in the telecom sector in just one year, with inflows plunging from $1.67 billion in 2021–22 to $750 million in 2022–23, according to a new report by the Asian Development Bank (ADB).

The dramatic decline reflects growing unease among investors about Pakistan’s digital infrastructure landscape, which suffers from high taxation, poor spectrum allocation, limited fiber penetration and regulatory unpredictability. While demand for mobile Internet continues to grow, with over 138 million mobile broadband users as of late 2024, the enabling environment for investment has worsened, especially amid Pakistan’s macroeconomic volatility.

Fixed broadband penetration remains at just 1.3 percent, and only 14.8 percent of cell towers are connected to fiber, making it difficult to meet rising data demands or prepare for 5G deployment. The report notes that the telecom sector has contributed over PRs1.28 trillion to the national treasury in the past five years, yet sustained investment in digital infrastructure has failed to materialize.

The bank has warned that without urgent reforms, the sector may fail to deliver on its potential as a key enabler of digital transformation and economic growth.

“The telecom sector in Pakistan has experienced a decline in revenues and foreign investment, which reflects a very challenging business environment,” the ADB wrote in its Pakistan Digital Ecosystem Diagnostic Report, released in July 2025.

The report singles out Pakistan’s spectrum auction model as a major constraint. Starting prices are set in US dollars and often considered unaffordable by private operators, discouraging participation and delaying the deployment of next-generation networks.

“The spectrum auction starting prices and commercial conditions need to be reasonable and attractive for operators,” the ADB said. “This would facilitate the timely and cost-effective launch of 5G technology and enable new applications and innovations in the digital economy.”

Taxes imposed by both federal and provincial authorities are described as among the highest globally for the sector. Right-of-way (RoW) fees, charged annually in Pakistan, further burden service providers, unlike in countries like India where such fees are levied only once and at a nominal rate.

To reverse the downward trend, the ADB has recommended a long-term tax policy guarantee, reform of spectrum pricing mechanisms, and a unified national RoW regime. It also called for deeper engagement with provincial governments to generate “anchor demand” for fiber services through public institutions like schools and hospitals in tier 2 and tier 3 cities.

The report emphasizes that the telecom sector must be viewed not only as a commercial domain but as foundational infrastructure for Pakistan’s future. Without decisive action, it warned, digital inequality will widen and Pakistan’s competitiveness will suffer.

“Pakistan’s digital infrastructure is dragging down its overall digital readiness and economic performance,” the ADB concluded.