IHC. has stayed the PTA from further action against CMPak

ISLAMABAD ( MEDIA REPORT )

The Islamabad High Court has stayed the Pakistan Telecom Authority from further action against CMPak while issuing a conditional order on the request of the telecom operator. CMPak operates in Pakistan under the brand name of Zong 4G. The court has issued an order to CMPak to deposit the equivalent amount of penalty as bank security. Thus, the court has not entirely ruled out the authority’s decision.

Pakistan Telecom Authority fined CMPak Rs. 100,000,000 for multiple license violations. At the same time, it had issued an order to CMPak to submit a report on the sale of mobile phone SIMs. Under the authority of PTA Chairman, Major General (Rtd) Aamir Aziz Bajwa, the authority had held a session on CMPak and its violations. PTA had decided that the Chinese telecom company was not following the rules and regulations and identified various violations, including how it was selling SIMs. Without proper process in place to sell SIMs, it had been found that Zong 4G SIMs were being used to make illegal international calls which caused significant losses to the national treasury and to other telecom operators in the country.

The licensee has failed to satisfy the Authority about the contraventions and the same

cannot be taken lightly keeping in view the conduct and noncompliance of regulatory laws and directions of the Authority by the licensee as discussed above, the licensee is hereby imposed with a fine of Rs.100,000,000 (Rupees One Hundred Million). The licensee is directed to deposit the fine within ten working days from date of receipt of this enforcement order.

4.2 The licensee is further directed to submit a report, to Director Enforcement at PTA’s HQs,Islamabad, on quarterly basis for sale of SIMs in accordance with applicable regulatory regime on the format as provided by him. Time period for submission of report will commence from the date of receipt of this order. This quarterly report will continue till further order(s) of the Authority.

3.1 After careful examination of the contents, the licensee’s replies to the SCN including verbal submissions made during hearing and written arguments submitted vide letter dated 10th May, 2020, findings of the Authority are as under: Licensee’ Action against its Franchises / Retailers: 3.1.1 The licensee submitted that in aggregate action has been taken against 183 franchises / retailers for violating Regulations, SOP and the determination. As per the licensee’s submissions, a total of 176 retailers had been terminated and 76 franchises had been warned or fined for an amount varying from Rs.5,000/- to Rs.150,000/-. Furthermore, the licensee has also submitted as

documentary evidence two letters showing termination of franchises for violation. In this

connection, the central question which needs to be determined is whether the licensee has taken No: PTA/Enf/Subscriber Verification/4/2020/ Page 10 of 12 adequate steps commensurate with the seriousness of the issue. Unfortunately, the answer to this

question is in the negative. Use of grey SIMs in illegal activities and heinous crimes is a serious national security concern. Moreover, the menace of grey SIMs and trafficking has been causing immense loss to the national exchequer on regular basis. More so, such activities also hamper the legitimate business of other license holders. The Authority in order to curb this problem has taken and is continuously striving for implementing regulatory provisions to bring the offenders to justice. It is appropriate at this juncture to highlight that the Authority has issued several reminders to the licensee on monthly basis informing the licensee about the sale of SIMs being used for

illegal activities and grey trafficking, however, despite the continuous reminders, the licensee took action only against the sale channels pointed out by PTA. Moreover, despite clear instructions/deadlines, PTA was informed about these actions only once i.e. vide letter dated 21.10.2019 and thereafter only when the instant Show Cause Notice was issued. In addition, the lists of 118 Unique Franchisees shared by the licensee shows that “no action has been taken” against 23 Franchisees despite the fact that they were found involved in selling SIMs used in grey trafficking. Thus, the practice in essence adopted by the licensee against sale and issuance of grey

SIMs has been “reactive” rather than being a “proactive” one. The licensee has paid inadequate attention to the fact that sale of grey SIMs can have profound ramifications for the subscribers and other stakeholders that can manifest in the form of terrorism, concerns for national security, financial fraud, defamation, cyber fraud and numerous other illegal activities. Furthermore, the record also highlights (as per termination letter submitted) that action was taken against a franchisee in the month of December 2019, following a lapse of three (03) months after PTA’s first warning letter. Further, a franchise of the licensee by the name of Man Communication was terminated following a raid conducted by the Federal Investigation Agency (FIA) on 25th July 2019. This is one of the instances that reflects that the licensee had failed to take appropriate action

on its own accord and rather he was forced to terminate the franchise on recovery of pre-activated SIMs. In addition, there are a number of Franchisees which have been found involved in selling of SIMs purportedly to be used in grey traffic multiple times (as shown below) but action on part of the licensee was negligible: Count of Franchisees Violations Repeated for Number of Months 22 6,16 5,12 4,14 3,34 2 and 3.1.2 It is relevant to point out submission of the licensee made in its letter dated 10th May, 2020

which is reproduced below:

“The upshot of the above is that CMPak has completely revamped its policy form the month of April, 2020. Another major steps that the licensee has enforced form the month of April is to expressly dis-incentivize grey trafficking. As a matter of policy all grey traffic number will not be considered as part of franchise sale performance, thereby making it pointless for franchise to perform any fraudulent sales and earn commission / incentive against it. No: PTA/Enf/Subscriber Verification/4/2020/ Page 11 of 12

The fruits of these steps is already evident from recent grey traffic trends. Number of new sales of found in PTA Grey Traffic Report March 20 has reduced by half of to 4,545 and further declined in April 20 to 609 only.”

3.1.3 The overall stance of the licensee as submitted in his reply and written submission make it evident that it has acted in a callous, negligent and irresponsive manner. The licensee failed to pay any heed to the seriousness of the situation and the rectifying actions taken by it are insubstantial and a mere eyewash.

3.1.4 Another important question that begs the indulgence of the Authority is the argument raised by licensee for not being able to exercise proper control over its franchisee/retailers. This notion is based on unfounded and perverse logic. The franchisee/retailers of the licensee are operating under subsisting franchisee agreements and are acting as agents of the licensee. The conduct of thelicensee shows its inability to implement the procedure(s) for sale of SIMs. Whereas, in accordance

with regulation 4 (4) of the Regulations any SIM(s) sold by any means shall be the sole

responsibility of the operators. Furthermore, as per clause 4.2 of Appendix-B of Pakistan Telecommunication Rules 2000 read with Rule 7(4) of the said Rules the licensee, is at liberty to enter into contract or arrangements for the purposes or exercising its rights under the license in its absolute discretion without any reference to the Authority. Therefore, in these circumstances it is the primary responsibility of the licensee to ensure that its franchisee/retailers are in compliance with the applicable regulatory regime, regulations, SOPs and determinations of the Authority.Door to Door/Kiosk activity

3.1.5 With regards to conducting door to door kiosk activities without prior approval of the Authority, the licensee did not address this contravention in his responses to the SCN. In the course of the hearing, the licensee however submitted that no data/information had been received identifying the area in which activities were being carried out. This assertion is incorrect on the premise that the licensee vide the PTA’s letter dated 14th February 2020 was duly informed about areas in which door to door kiosk activities were being carried out by the licensee without prior approval of the Authority. These areas had been identified following a survey conducted by the

Authority in December 2019. Later on, the licensee in its written submission denied the allegation related to door to door/kiosk activity and stated that Kiosk activity was carried out with approval obtained from PTA, however, no specific denial or justification with regard to areas identified through said letter and shared during hearing has yet been provided. As per available record, there is no approval of door to door kiosk activities of the areas as identified and shared with the licensee.

PTA’s Determination dated 7th November, 2016- Minimum Sale Price for a Mobile SIM

3.1.6 In the context of the licensee selling SIMs below the price of Rs. 200 as determined by the Authority, the outright denial on the part of the licensee is not justified on the pretext that it has limited or no control on its retailer/outlets. As the same is contrary to Rule 7(4) read with clause 2.4 of Appendix-B of the Rules further read with regulation 4(4) of the Regulations. In addition the argument is in itself contradictory to the written arguments/ additional submissions dated 10th May, 2020 where it is stated that by 15th May, 2020, it plans to share specifically revised communication with all its franchises / retailers to strictly monitoring of SIM sales price at their Walk-in-Centers and retailers along with circulating SMS and trade letters ensuring that SIM(s) are sold in accordance with the Determination, SOP and all applicable Rules, Regulation and

Directive of PTA. The aforesaid manifestly transpires the licensee is filling up the gap and further No: PTA/Enf/Subscriber Verification/4/2020/ Page 12 of 12 shows non-serious conduct of the licensee in terms of implementation of PTA’s determination for minimum sale price for a Mobile SIM. As per applicable license terms and conditions and enabling

regulations, all directives, notifications, standard operating procedures and orders issued by the Authority from time to time are binding and applicable on the licensee

  1. Decision of the Authority:

In light of the foregoing discussion and findings, the Authority hereby concludes and decides as under:

4.1 The licensee has failed to satisfy the Authority about the contraventions and the same cannot be taken lightly keeping in view the conduct and noncompliance of regulatory laws and directions of the Authority by the licensee as discussed above, the licensee is hereby imposed with a fine of Rs.100,000,000 (Rupees One Hundred Million). The licensee is directed to deposit the fine within ten working days from date of receipt of this enforcement order.

4.2 The licensee is further directed to submit a report, to Director Enforcement at PTA’s HQs,Islamabad, on quarterly basis for sale of SIMs in accordance with applicable regulatory regime on the format as provided by him. Time period for submission of report will commence from the date of receipt of this order. This quarterly report will continue till further order(s) of the Authority.

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