CCP. fine Rs.9bn was made against the LDI operators, with the lion share against PTCL (Rs. 8.3bn)


Last week, the Competition Commission of Pakistan (CCP) finally made its Order, on 30 April last, regarding the fate of the amounts charged on making international telephone calls to Pakistan.

The CCP had the Pakistan Telecommunication Company Limited (PTCL) and thirteen other long distance and international telecommunication service operators (LDI operators) in its sights and has now found against the LDI operators.

In total a fine of just over Rs.9bn was made against the LDI operators, with the lion share against PTCL (Rs. 8.3bn). This is further to the Rs. 8.6bn ordered against the urea manufacturers, Engro Fertilizers Limited and Fauji Fertilizers in March. So far, the CCP appears to have fared better than the Federal Board of Revenue’s (FBR) tax amnesty schemes in its recovery for the Government coffers. One can only question the motive during an interim government.

The CCP’s Order focuses on an agreement entered into by PTCL and the other LDI operators in 2012 (the ICH Agreement). The LDI operators were ordered by both the Ministry of Information and Technology (MOIT), the Federal Ministry responsible for telecommunications, and the Pakistan Telecommunication Authority (PTA), the regulatory body for the telecommunication sector, to establish an organisation known as the International Clearing House (ICH).

The ICH Agreement provides for the LDI operators to put in place a set of tariffs for all incoming, international telephone call. The tariffs are then passed on to the international telephone companies, through which calls are made to Pakistan. So, in fact, no-one in Pakistan was actually the ‘victim’ of the so called ‘cartel’.Subsequently the PTA declared that only PTCL’s infrastructure was to be used for international telephone calls.

An important factor to note is that the MOIT and the PTA has always set the tarriffs; and that the LDI operators and PTCL were simply following the orders of a Federal Governmnet and the regulatory body.

However, the Competition Commission has overruled such observations and declared itself and the Competition Act, 2010, as an all powerful body with the power to overule the role of the Government. The thrust of the CCP’s order is basically- “You should not have listened to your bosses and regulator, you should have listened to us as we are more important”. This sounds almost childish but, alas, it is true. Rather than make such declatory statements, it would have been more prudent to refer the matter to a judge, or the Attorney General to determine the issue of legal superiority.

If one was to look at the larger picture, one must ask who actually benefits from the CCP’s Order. It surely is not the average Pakistani who the CCP paints as the victim. Afterall, PTCL’s major shareholder is the Pakistan Government. No doubt PTCL is a well performing company, but there is little chance it has over Rs. 8bn in its reserves. Therefore the company will have to ask its shareholders for further capital, and effectively the Government would have to bail out PTCL, only then to receive the fine once it has been paid.

Of course with any crime , we must consider the motive. The officers of PTCL had nothing to gain personally from entering into the ICH Agreement. They were ordered to do so by the Government, having been appointed by the Government. In newly privatized companies, there is often a sentiment that the Government is still the paymaster.

Furthermore, why is the order not directed at the MOIT or the PTA, and why were they not made a party to the CCP’s investigation? After all, these are the parties that ordered the LDI operators to enter into the ICH Agreement, notwithstanding the fact they ignored the CCP’s earlier requests to desist from insisting on the ICH agreement; and so they would have to be penalised as well as the LDI operators. Perhaps the MOIT and PTA could have justified their instructions to the LDI operators.

It could well be that the CCP did not consider such bodies to be under the remit of the Competition Act, 2010. If this was the case, then the same argument would apply to PTCL. There is much confusion, to date, as to whether or not PTCL is a public body or if it is a private body, and even the Honourable Supreme Court has not provided a definitive answer.

Many parts of the CCP Order simply do not make sense. Many of the cases relied upon by the CCP are its own, former judgements. Technically this is possible but overall, it appears that CCP officers are simply justifying previous judgements. However, it is not clear whether these judgements were later approved, or set aside by the Courts or not.

Further, the Order, quite matter of factly, states that international telephone call traffic has been reduced by the high tariffs set by the LDI operators and the ICH Agreement. However, it is not clear how the CCP reached such a conclusion. There are a variety of reasons why international call traffic has declined. For instance, the growth in VOIP services, such as Skype, social media and simply people talk less and prefer to use other mediums such as emails. TeleGeography, a telecommunications and market research firm based in the USA, reports that, overall, since 2004 the growth rates for international calls, globally, has been in steady decline. Is this because of cartels squeezing telephone operators? Of course not.

In addition, the CCP often seeks reliance on the decisions of cases in other jursdictions. Competition law in the European Union and the United States of America is much more advanced than in Pakistan, with the European Union regarded as being even more advanced than the United States in terms of the scope of its decisions. It is therefore common to find many of the CCP’s orders littered with references to decisions of the European Competition Commission. However, the Order seems to rely mainly on American law. To see why this is the case, one must considerthe nature of what MOIT and PTA have done. Effectively they have provided aid, which when given by a Governmental body is known as ‘state aid’, to the LDI operators. Generally, European competition law prohibits state aid; but European law does allow such aid in a number of limited circumstances. It is arguable that if reliance was placed on European law, the CCP would have had to apply the exceptions and thus negate its very own enquiry.

Sikandar Naqi joins zong

Sikandar Naqi

Another issue that the CCP has ignored is security. This is not the forum for a discussion on the moral justification for eavesdropping telephone conversations, but it is a sad fact that there is a need to monitor a small percentage of telephone traffic. Surely it would be easier for the security agencies to monitor telephone traffic through one network rather than more than two dozen international networks?

It seems that the issues that have arisen from the Order can now only be resolved in Court and thus causing further expense to the public purse- so watch this space!

The article is written by Sikandar Naqi who is working with Zong (CM-Pak) as ‘Advisor to CEO’.

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