State-corporate nexus: The unholy alliance in the telecom sector

Published: September 17, 2012
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TThe ICH will reduce choices for the consumers, enhance entry barriers, increase dominance of PTCL and facilitate cartelisation in the telecom sector.

TThe ICH will reduce choices for the consumers, enhance entry barriers, increase dominance of PTCL and facilitate cartelisation in the telecom sector.

LAHORE: Recent developments in the telecom sector indicate that the federal government is undoing its own acts by inviting, coercing and facilitating private sector players to form a cartel, thus not only ruining the gains made from competition, but also potentially robbing off consumers.

The Ministry of Information Technology has issued a policy directive for the establishment of International Clearing House (ICH) for incoming international calls for long distance international, fixed-line local loop, wireless local loop and mobile operators.

The ICH and the policy directive will not only reduce competition significantly, but are also in direct violation of the ministry’s own deregulation policy of 2003, which says “Increase service choice for customers of telecommunication services at competitive and affordable rates and liberalise the telecommunication sector by encouraging fair competition amongst service providers.”

This directive disregards the proceedings held earlier by the Competition Commission of Pakistan (CCP), which were initiated on the request of long distance international (LDI) operators themselves. As per the policy note of CCP, available on its website, the LDI operators, who had earlier requested CCP for its approval, were warned against creation of ICH.

At present, there are 13 LDI operators in addition to PTCL who are licensed to originate and terminate voice traffic in Pakistan. The sector dynamics are such that incoming international voice traffic dominates the outgoing international voice traffic despite the fact that international dialing is now easily available on pre-paid SIMs and on PSTN lines.

Under ICH arrangement, all incoming traffic in future will terminate on PTCL infrastructure, which will lead to less incentive to use international bandwidth from PTCL’s competitors. This will not only eliminate competition, but also further strengthen PTCL’s dominant position.

Presently, it is possible to call overseas high-volume destinations in US, Canada, UK and Australia for Rs2 plus tax or around 2 cents, so termination cost to foreign operator has to be less than that. Similarly, termination costs for Pakistan are presently under 8.8 cents. With the ICH agreement, the termination rates for Pakistan will be increased by the consortium to approved PTA levels, which will likely result in foreign operators increasing outgoing termination rates.

This potential increase to around 8.8 cents will affect consumers in Pakistan, who are likely to pay more for making international calls in future under ICH arrangement and it can also foreclose the option for the remaining LDI operators to negotiate.

Through ICH, it appears that competition among LDI operators is prevented as each operator will have a guaranteed quota of incoming international traffic as per their existing market share. This is a typical example of cartelisation. In this environment, there is no incentive for an LDI operator to improve sales or enhance quality of service or for that matter to invest in network.

In the instant matter, a substantial advantage will be available to existing LDI operators. They will be in a position to exploit the arrangement through cost advantage over potential new entrants. They may use this advantage to cut prices if and when new players enter the market.

The policy directive of the ministry mentions the appointment of an independent undertaking to monitor the said arrangement and submit MIS reports on a daily basis to PTA or the IT ministry to prevent “collusive behaviour and to ensure transparency”. This is ridiculous, impractical and in fact counter-productive.

In fact, such monitoring tools are typically used by cartels to monitor the observance of the common policy and not otherwise. Monitoring essentially is a regulatory role entrusted to the sector regulator and should be discharged accordingly.

The ICH will reduce choices for the consumers, enhance entry barriers, increase dominance of PTCL and facilitate cartelisation in the telecom sector.

It is apparent that the federal government, instead of protecting interests of public at large, which are guaranteed through competition in a free market economy, has itself colluded with the corporate sector. It has not happened for the first time and examples of a similar state-corporate nexus abound, for instance in fertiliser, sugar, cement, banking, etc. This nexus not only brings bad name to market economy, it also denies fruits of economic development to the public.

The Competition Act 2010 was a step in the right direction. It is time that its scope should be widened to include the policy directives and frameworks issued by the government with a punitive clause. The CCP should be authorised to refer to any such policy directives to parliament, which is the mother of all institutions, for corrective action.

The writer is a managing partner of economic research organisation Development Pool, and a founding member of the Economic Freedom Network Pakistan

Published in The Express Tribune, September 17th, 2012.

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Reader Comments (19)

  • Khalil Arbi
    Sep 17, 2012 - 9:54AM

    Good article. I support the suggestion of empowering CCP.

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  • Nida
    Sep 17, 2012 - 4:55PM

    CCP (Competition Commission of Pakistan) and SCP (Supreme Court of Pakistan) are the last hope for this country!

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  • Ali
    Sep 17, 2012 - 5:57PM

    Nida 100% right, Please stop this ICH FRAUD…..

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  • Khalil Arbi
    Sep 17, 2012 - 6:59PM

    Ali why should not we launch awareness campaign at FB “Stop the ICH”. How is the idea?

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  • Ali
    Sep 17, 2012 - 7:28PM

    Please share your email or contact to discuss this further.

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  • Tym M
    Sep 18, 2012 - 1:14AM

    This has serious implications for this country, I hope people recognize what will happen and can use VOIP to show the government they cannot resist change forever.

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  • Ali
    Sep 18, 2012 - 3:30AM

    well said , Hope they get trap into their own snug…

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  • Sep 18, 2012 - 9:50AM

    I agree with the suggestion of launching a campaign on FB and other social media to pressurize the Ministry of IT to tack back the policy directive. Let’s use the power of new media to show the government-industry that they will have to respect consumers.Recommend

  • Yasmin Malik, Visiting Lecturer, IBA
    Sep 20, 2012 - 12:40PM

    An insightful article. Look forward to more on the subject from this author.Recommend

  • Rabia
    Sep 25, 2012 - 8:16PM

    This article seemso to be written by someone who is completely oblivious as to how foreign carriers operate.Itnseems that tit is meant to protect the foreign criers and cwho have been siphoning off millions of dollars every month whereas the poor Pakistan has to run after IMF for shoring up its foreign reserves…These foreign operators have been enjoying. Joyride at the expense of Pakistan paying a measly I cent to Pakistani operators while milkingnthe US Consumers as much as 20 cents a minute….This was scam of the century whereby foreign carriers in collusion with corrupt pakistani officlias milked and siphoned off funds in overseas accounts…..Itnwas better if the authormhasd done some insight of telecomm sector.On a lighter note my husband won’t be making luxurious one hour call very night to his pak based friends and rather spend some quality time withnfamily…By the way theere are a thoudsand ways to integrate into world economy rathernthan cheap shone calls which even for a SME company are not even one percent of their entire open,and for those who wanner make zero centncalls can use sky ping…..Recommend

  • Sep 28, 2012 - 12:07PM

    The regulation of the Telecom Industry is a highly complex matter.

    In short, the Pakistanis living in Pakistan will not be affected by this policy directive. It directly impacts the international telecom carrier space; though, it is possible that expatriate Pakistanis might have to pay higher to call Pakistan.

    Pakistanis living in Pakistan calling abroad will not be affected by this whole scheme.

    Also, Pakistan will benefit from increased foreign exchange in the tune of USD 1 billion per annum by virtue of this policy directive if implemented properly.Recommend

  • Joanna V
    Sep 28, 2012 - 10:24PM

    I don’t understand the complexities and complications of the Telecom industry in Pakistan. I have just found out from Rebtel, the online company I use to call Pakistan, which was charging under 1 pence a minute, that this means that Rebtel will also be required to increase their current rate for calls to Pakistan. Effective October 1st, the per-minute Rebtel tariff will be 8.9c/min USD (6.19 p/min GBP or 7,09 cents/min EUR) for calls to any phone in Pakistan. This is a very large increase. I wonder if all telecoms companies are doing this?

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  • Canadian Pakistani
    Sep 29, 2012 - 6:53AM

    Look like Overseas Pakistanis have to bear the cost of upcoming elections for the ruling not so Peoples Party …

    Very Sad…

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  • mux212
    Sep 29, 2012 - 2:56PM

    looks like they have planned to rob overseas pakistani

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  • mux212
    Sep 29, 2012 - 3:17PM

    look like they have planned to rob overseas pakistani

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  • M Sheikh
    Oct 1, 2012 - 5:52PM

    This is almost 700% i think we all should go for the Fb plan

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  • Ali
    Oct 3, 2012 - 7:36PM

    Now that our corrupt Politicians have squeezed out everything from people in Pakistan, they have found this way to rob overseas Pakistanis. We are the new target of our incompetent leaders.

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  • Oct 4, 2012 - 5:10PM

    pakistan govt not fill there packet bank acounts and houses supreme court and politician must take decision on the calls rates to pakistan and give us justice stupped govtRecommend

  • Hasan khan
    Oct 8, 2012 - 9:29PM

    Pakistani gov should think about the overseas student who are facing very difficulties in foreign countries so how we take the more burden in shape of costly call. I apeal to cheaf justice that he take notice against this decision.

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