ICH arrangement held as null and void by CCP Penalty of 7.5% of annual turn over imposed on each LDI


A Bench of the Competition Commission of Pakistan (CCP) comprising Chairperson Ms. Rahat Kaunain Hassan, Member Dr. Joseph Wilson and Member Shehzad Ansar in the order passed on 30-05-13 has annulled the International Clearing House (ICH) Agreement entered into among all (14) the LDI operators and has imposed a penalty of 7.5% of annual turn over of each LDI for violation of 4 of the Competition Act, 2010 (the ‘Act’).

The penalty runs into several billion of rupees as only the penalty of PKR PKR 8.309 billion, 534 Million and 189 million has been imposed on PTCL, Worldcall and Telecard respectively.

The Bench referred to the data furnished by PTA which shows that the volume of incoming calls as on September 2012 before the ICH Agreement was 1.9 Billion minutes, which decreased to 579 million minutes in Feb-13 after the establishment of ICH.

It has been observed by the Bench, referring to PTA’s data, that the estimated revenue of LDI Operators for the month of September 2012 before the ICH arrangement were US$ 8.37 million, which post ICH, has increased to US$ 59 million in the month of October 2012 and currently stands as US$ 34 Million in the month of February 2013. Despite reduction in the incoming traffic by 70% after the establishment of ICH, the revenue of LDI’s increased by 308% in Post ICH period. The main reason behind increase in Revenue of LDI’s is that ASR now has been taken as to 8.8 cents/minutes from rates around 2 cents/minute pre ICH. The order states that the monthly APC received/ receivable by the PTA, has decreased from $ 24.33 million to $ 16.78 million in the month of
February 2013 (Decrease of 31%).

The Bench held that the facts and figures available highlight the pernicious nature of the ICH arrangement, its harmful effects on the telecom sector, consumers and the economy in general which must be condemned and cannot be condoned at any cost.

The order states that the ICH Arrangement reduces choice, forecloses the market, removes incentive for better quality of service, removes incentives for investments in improvement of infrastructure, reduces the size of the market and market players, confers anti-competitive advantages and becomes a clear threat to consumer welfare in total negation of spirit of Telecom De-regulation Policy, 2003 apart from the provisions of the Competition Act.  In fact, ICH Agreement squanders any gains that we have made in the telecom sector till now – gains that have accrued precisely because of a focus on competition.

LDI Operators have been directed to cease and desist from carrying such prohibited  practices and not to enter into any other agreement of similar nature having object or effect of restricting competition and PTA has been advised to ensure restoration of competition amongst the LDI Operators as it existed prior to implementation of the ICH Agreement.

For failure to comply with the earlier order passed by the Commission requiring the LDI operators to seek clearance if  at any point of time they intend to enter into ICH arrangement, a penalty of PKR 1,000,000 (one million) has been imposed on all the LDI Operators . The order also provide that for any loss resulting from illegal gains received by LDI Operations under the ICH Agreement, the aggrieved parties can claim compensation from the LDI Operators before the Court of competent jurisdiction in pursuance of this Order.

According to the order of CCP, the LDI operators by entering into the ICH Agreement have colluded to fix prices of international incoming telephony, close down competing networks and divide revenues among themselves without any competition. This behaviour amounts to hard core cartelization which is strictly prohibited under Section 4 of the Act and is the most pernicious anti-competitive activity possible. Through this cartelization, the LDI operators have not only eliminated competition in the market for international incoming telephony but have also made it impossible for new entrants to enter the market and pose any competitive pressure.

During the proceedings the LDI operators pleaded before CCP that they entered into the ICH Agreement on the directives of the Ministry of Information Technology (MOIT) and PTA. However, in view of the settled principle of law that a policy directive cannot override or prevail an express provisions of the statute passed by the legislature, the Bench held that no protection or immunity can be sought from the application of the Competition Act by the undertakings under the umbrella of such a policy directive.





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