Reversal: Lessons to learn from the ICH fiasco
Clearing house failed to achieve goal, caused national kitty billions
Clearing house failed to achieve goal, caused national kitty billions. CREATIVE COMMONS
ISLAMABAD:
In 2012, the Ministry of Information Technology and Telecommunication issued a policy directive for the establishment of the International Clearing House (ICH) for incoming international calls for telecom operators. It established a consortium of telecom operators to “centralise traffic route through a single channel so that illegal traffic could be detected and curtailed”.
One direct effect of the formation of ICH was an increase of cost for overseas callers into Pakistan – a steep rise from 2 cents to 8 cents per minute.
The second consequence of ICH was the formation of a virtual cartel of telecom operators (one major operator exited later).
The policy directive of the ministry mentions the appointment of an independent undertaking to monitor the said arrangement and submit management information service (MIS) reports on a daily basis to Pakistan Telecommunication Authority (PTA) or the Information Technology (IT) ministry to prevent “collusive behaviour and ensure transparency”.
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.
Not surprisingly, this directive was termed anti-competition by an advisory issued by Competition Commission of Pakistan.
The ICH failed to achieve its stated goals.
The main goal of ICH was to centralise traffic route through a single channel so that illegal traffic could be detected and curtailed.
Since the formation of ICH, over two years, the formal voice traffic was reduced from 1.9 billion minutes per month to around 300 million minutes per month. These lost minutes are tantamount to lost rupees.
According to the policy statement of the Minister of IT and Telecommunication on the Senate floor, “ICH regime caused a loss of around 44.4 billion international call minutes to the telecom sector, translating into a loss of Rs400 billion.” Thus, just one bad policy ate up nothing less than half of the federal PSDP budget.
The ICH and the policy directive not only reduced competition significantly, but were also in direct violation of the ministry’s own deregulation policy of 2003, which states “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”.
In June 2014, better sense prevailed, and the ministry withdrew its ICH policy directive. Although it was challenged by several telecom operators in high courts and stay orders were granted in their favour, the federal government eventually won the battle at the Supreme Court in April 2015. ICH is now a past and closed chapter. This policy reform not only deserves to be applauded but also a careful scrutiny as a case-study of reform.
Lessons to learn
The policy reform leading to annulment of ICH has several important lessons.
First, lessons of Economics 101 should be taught to every regulator of this country. Any student of the basic course would have predicted that after increasing the charges levied on overseas callers making calls into Pakistan, from 2 cents to 8 cents per minute, formal voice traffic will be reduced. This is how we incentivise the creation of informal trade.
Second, when competition is compromised, only a handful of private sector players and some sections in the government benefit, whereas overall the industry loses, consumer loses, and exchequer loses too. Pakistan lost a mammoth Rs400 billion due to ICH on account of lost formal voice in-coming traffic. Each economic policy reform should enhance competition.
Third, the role of the external governments is extremely critical. In the case of ICH, pressure from United States Federal Communications Commission and regulators from the Middle East to withdraw from ICH helped in building a strong political opinion against ICH. When foreign governments reprimand, rather than fund reform avoidance, the governments have little choice but to seriously reform.
Fourth, the government is really moved by fear of losing cash into its coffers, and any reform having a potential of increasing its revenue is likely to be implemented sooner than later.
Fifth, the emerging role of technology beats every policy design. While our erstwhile regulators and policy-makers were signing on ICH, Pakistani consumers were getting handy with over-the-top services like Skype and Viber. Thus, any policy reform has to be technology friendly.
The policy reform of ICH annulment is bringing positive dividends. Within one year of new policy directive, despite stay orders, formal or white voice traffic into Pakistan has witnessed a spike from 300 million minutes to 1 billion minutes per month. One big lesson — reformers should have some patience – results eventually bear them out.
The writer is executive director of PRIME Institute, an independent think tank based in Islamabad
Published in The Express Tribune, June 15th, 2015.
In 2012, the Ministry of Information Technology and Telecommunication issued a policy directive for the establishment of the International Clearing House (ICH) for incoming international calls for telecom operators. It established a consortium of telecom operators to “centralise traffic route through a single channel so that illegal traffic could be detected and curtailed”.
One direct effect of the formation of ICH was an increase of cost for overseas callers into Pakistan – a steep rise from 2 cents to 8 cents per minute.
The second consequence of ICH was the formation of a virtual cartel of telecom operators (one major operator exited later).
The policy directive of the ministry mentions the appointment of an independent undertaking to monitor the said arrangement and submit management information service (MIS) reports on a daily basis to Pakistan Telecommunication Authority (PTA) or the Information Technology (IT) ministry to prevent “collusive behaviour and ensure transparency”.
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.
Not surprisingly, this directive was termed anti-competition by an advisory issued by Competition Commission of Pakistan.
The ICH failed to achieve its stated goals.
The main goal of ICH was to centralise traffic route through a single channel so that illegal traffic could be detected and curtailed.
Since the formation of ICH, over two years, the formal voice traffic was reduced from 1.9 billion minutes per month to around 300 million minutes per month. These lost minutes are tantamount to lost rupees.
According to the policy statement of the Minister of IT and Telecommunication on the Senate floor, “ICH regime caused a loss of around 44.4 billion international call minutes to the telecom sector, translating into a loss of Rs400 billion.” Thus, just one bad policy ate up nothing less than half of the federal PSDP budget.
The ICH and the policy directive not only reduced competition significantly, but were also in direct violation of the ministry’s own deregulation policy of 2003, which states “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”.
In June 2014, better sense prevailed, and the ministry withdrew its ICH policy directive. Although it was challenged by several telecom operators in high courts and stay orders were granted in their favour, the federal government eventually won the battle at the Supreme Court in April 2015. ICH is now a past and closed chapter. This policy reform not only deserves to be applauded but also a careful scrutiny as a case-study of reform.
Lessons to learn
The policy reform leading to annulment of ICH has several important lessons.
First, lessons of Economics 101 should be taught to every regulator of this country. Any student of the basic course would have predicted that after increasing the charges levied on overseas callers making calls into Pakistan, from 2 cents to 8 cents per minute, formal voice traffic will be reduced. This is how we incentivise the creation of informal trade.
Second, when competition is compromised, only a handful of private sector players and some sections in the government benefit, whereas overall the industry loses, consumer loses, and exchequer loses too. Pakistan lost a mammoth Rs400 billion due to ICH on account of lost formal voice in-coming traffic. Each economic policy reform should enhance competition.
Third, the role of the external governments is extremely critical. In the case of ICH, pressure from United States Federal Communications Commission and regulators from the Middle East to withdraw from ICH helped in building a strong political opinion against ICH. When foreign governments reprimand, rather than fund reform avoidance, the governments have little choice but to seriously reform.
Fourth, the government is really moved by fear of losing cash into its coffers, and any reform having a potential of increasing its revenue is likely to be implemented sooner than later.
Fifth, the emerging role of technology beats every policy design. While our erstwhile regulators and policy-makers were signing on ICH, Pakistani consumers were getting handy with over-the-top services like Skype and Viber. Thus, any policy reform has to be technology friendly.
The policy reform of ICH annulment is bringing positive dividends. Within one year of new policy directive, despite stay orders, formal or white voice traffic into Pakistan has witnessed a spike from 300 million minutes to 1 billion minutes per month. One big lesson — reformers should have some patience – results eventually bear them out.
The writer is executive director of PRIME Institute, an independent think tank based in Islamabad
Published in The Express Tribune, June 15th, 2015.