ONE BILLION US $ WILL GO TO NATIONAL EXCHAQURE

ISLAMABAD (SPECIAL REPORT) In many countries of the world the termination charge for international incoming calls is determined by national regulatory bodies. Here in Pakistan the GOP has mandated this assignment to Pakistan Telecommunication Authority (PTA).

2. The LDIO’s (Long Distance & International Operators) are licensed to terminate the international calls in Pakistan. Currently there are 14 LDI operators who compete in the international market to get a sizable chunk of traffic to make it financially viable. Due to negative competition among the 14 LDI operators, the PTA determined settlement rates were not followed. The independent and non-transparent rate negotiation by all LDIs gave rise to fierce competition for share in international traffic and ultimately undercutting.

3. This undercutting resulted in significant loss to telecom industry and Government of Pakistan during the last seven years. It is important to highlight that although the market termination rates for Pakistan in the pre ICH period were low, the foreign operators were still charging higher tariffs to their subscribers. Therefore, the entire margin was reaped by the foreign operators resulting in loss to national economy.

4. In a bid to stabilize termination rate and minimize the possibility of grey traffic, the Long Distance International Operators (LDIO’s) requested the GoP for formulating a policy. The Government of Pakistan very prudently issued a Policy Directive, thereby providing a platform for all the LDIO’s to ensure the implementation of the approved settlement rate. Through the policy directive, the LDIO’s were asked to form the International Clearing House (ICH).

5. The major objectives of ICH are:

Stabilization of PTA determined termination charge for Pakistan bound callsin order to ensure the legitimate inflow of foreign exchange to the country.

To enable the business viability of LDI operators and minimize the possibility of default in discharge of their obligations.

To ensure that additional tax revenue for the GoP, is realized.

To increase funding for Universal Service Fund to bridge the digital divide providing access to telecom facilities to all citizens of Pakistan.

To protect against job losses on account of business failures.

To deploy unified comprehensive system for Monitoring of the int’l incoming traffic addressing national security concerns, blocking of harmful contents and illegal (grey) traffic.

Generate sustainable funding to promote local manufacturing in telecom sector.

6. There is a misconception that the Pakistan termination rates have increased many folds after the establishment of ICH. The settlement rate in pre ICH scenario was US Cents 6.25 which has increased to US Cents 8.8 in the post ICH scenario. Thus the rate increase in the post ICH scenario is only a mere US Cents 2.55.

Description Pre-ICH Post-ICH % Increase
US Cents/minute US Cents/minute
Settlement Rate 6.25 8.80 41%
APC for USF 1.25 2.90 132%
LDI Share 5.00 5.85 17%

7.  It is relevant to mention that the termination rates of the foreign operators in Middle East and Europe (for mobile termination) are in the range of 10-15 US cents that is still higher than 8.8 US cents. These countries account for two third of the traffic terminated in Pakistan.

Country Rate US Cents Country Rate US Cents
Europe Union Mobile 8 to 10 Qatar 15
Afghanistan 16 Sri Lanka 9.5
Oman 21.5 Saudi Arabia 10.5
Indonesia 10 UAE 13
Norway 15 UK Mobile 8

8. It is pertinent to mention that although the market termination rates for Pakistan in the pre ICH period were low, the foreign operators were still charging higher tariffs to their subscribers. Therefore, the entire margin was reaped by the foreign operators resulting in loss to national economy.

Country Operator Pak Calling Rate/ min in USD Discounted Termination Cost for Pakistan in USD Margin for International Operators in USD
Saudi Arabia STC 0.45 0.013 0.437
Mobily 0.51 0.013 0.497
Zain 0.51 0.013 0.497
U.K. BT 0.35 0.013 0.337
Vergin 1.62 to 0.095 0.013 1.607 to 0.0837
U.A.E Etisalat 0.58 0.013 0.567
Du 0.1 0.013 0.087
U.S.A Verizon 1.99 & 0.35 0.013 1.977 to 0.0337
AT&T 0.28 0.013 0.267
Sprint 0.36 0.013 0.347
Above tariffs rates are extracts from websites of respective Operators.

9. The ICH framework will  ensure high revenues for the LDIO’s as well as valuable foreign exchange for the national economy and is expected to generate more than 1 Billion US$ per annum worth of valuable foreign exchange. The Government of Pakistan directly or indirectly, will be recipient of more than Four Hundred Million US$ of revenue from ICH. This will provide strong support to ailing economy of the country at times when all its earning resources are drying up. Government is forced to issue Euro Certificates to collect foreign exchange amounting to five hundred million US$ to meet the critical payment issues towards 10. IMF by December, 2012. On the other hand, it is expected that ICH will inject two hundred forty million US$ (22,800 million PKR) in the national economy by the end of December, 2012.

In first 15 days of ICH operation, following results have been achieved:

ICH has done business of approx USD 40 Million (PKR 3.8 Billion).

ICH has generated approx USD 7.7 Million (PKR 731.5 Million) for Development funds (USF).

ICH has recovered approx USD 1.125 Million (PKR 106.88 Million) against the disputed on account of APC for USF.

Based on these figures; additional income tax of approx USD 7.9 Million (PKR 750 Million) to GoP will be paid.

11. Annual impact of ICH on national economy:

Description USD (Million) PKR (Million)
Pre-ICH Post-ICH Increase Pre-ICH Post-ICH Increase
Annual Revenue 300 950 650 28,500 90,250 61,750
Additional Income Tax 0 195 195 0 18,525 18,525
Old APC for USF Recovery* 0 45 45 0 4,275 4,275
Development Fund (APC for USF) 43 185 142 4,085 17,575 13,490
Additional USF Annual Fund @ 1.5% 0 11 11 0 1,045 1,045

12. Approved Termination Rates (History):

From To PTA Determined Rate Min Market Term. Rate
APC LDI Share ASR
US Cents per minute
Jan-05 Jun-05 10.29 6 16.29 15.4755
Jul-05 Dec-05 7.5 6 13.5 12.825
Jan-06 Jun-06 6.83 6 12.83 12.1885
Jul-06 Oct-06 5 5 10 9.5
Nov-06 Sep-07 2.5 5 7.5 7.125
Oct-07 Apr-08 2 5 7 6.65
May-08 Jan-09 5 5 10 9.5
Feb-09 Jun-09 7.5 5 12.5 11.875
June 1,   to July 19,2009 7.5 5 12.5 9.5
July-20 2009 March 31,2011 5.5 5 10.5 7.98
Apr-11 Sep-11 2.75 5 7.75 5.89
Oct-11 Sep-12 1.25 5 6.25 1.25
Oct-12 Onward 2.9 5.9 8.8 8.8

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