There is a lot of debate going on now-a-days regarding the tariff regulation of telecom players by the Pakistan Telecommunication Authority (PTA). The debate has been ignited from the very fact that PTA has given its decision whereby it has determined several independent telecom markets and also declared significant market powers (SMP) in those respective telecom market. For instance PTCL, being the incumbent and natural monopoly, has been determined as having SMP status in the fixed line local loop market; fixed line long distance & international market, leased line market; and in the national interconnection market. Similarly, Mobilink has been determined by PTA as having SMP status in the cellular mobile market and national interconnection market. The Special Communication Organization (SCO) has been given the status of SMP in the cellular mobile and local loop market.

After this decision all those telecom market players which have been declared SMP shall be required to fulfill certain additional requirements put forward by the regulator. These include, among others, the publication of Reference Interconnect Offer (RIO); carrier pre-selection; accounting separation; unbundling of services; and last but not least tariff, and price regulation by PTA.

The question is why PTA is or should be allowed to check so many things of the telecom market players when the number of telecom players is already on the rise due to massive licensing by PTA to introduce new operators in the sector? This is imperative to understand as many people (some of them belong to learned educated class of Pakistan and others are so called telecom experts) think that steps taken by the telecom regulator, PTA are based on malafide and just to protect the vested interests of some market players, and that PTA is not fairly playing its role to boost the telecom sector in Pakistan. Another allegation leveled against PTA is that it is not duly protecting the interests of consumers in Pakistan. Before we go into the details of exploring and understanding this issue it is better to look, very briefly, at the existing regulatory framework and other important dynamics of the telecom market.

PTA has been established by the Federal Government through a legislation called as Pakistan Telecommunication (Re-organization) Act (the Act) in 1996. In this legislation PTA was given a very wide mandate which include, among others, to regulate the establishment, operation and maintenance of telecommunication system and the provision of telecommunication services in Pakistan; promote and protect the interests of users of telecommunication services in Pakistan; promote the availability of a wide range of high quality, efficient, cost effective and competitive telecommunication services throughout Pakistan; and promote rapid modernization of telecommunication systems and telecommunication services.

The Pakistan Telecommunication Rules, 2000 (the Rules) provide that an operator shall be presumed to have significant market power when it has a share of more than twenty five percent of a particular telecommunication market. The relevant market for these purposes shall be based on sectoral revenues. Furthermore, the Rules also empower PTA to determine an operator with a market share of less than twenty five percent of the relevant market to have SMP status.

In the year 2000, the Federal Government decided to open up and de-regulate the fixed line telecom. That is the year when PTCL's monopoly was supposed to terminate under the Act and as per the license of PTCL. A de-regulation policy was, therefore, announced by the Federal Government on 13 July 2003 to de-regulate the fixed line sector. According to that policy PTCL, being the incumbent and definitely having the SMP status, was obligated with extra responsibilities which include the publication of RIO and regulation of pricing regime. In the early 2004, the Federal Government also gave a cellular mobile policy to introduce more market players in the cellular mobile sector. It is pertinent to mention here that PTA has been mandated under the cellular mobile policy of the Federal Government to regulate the retail price cap on fixed line and mobile licensees till such time the market, in view of PTA, becomes sufficiently competitive.

Having the mandate and obligation to implement both the telecom policies PTA, as a first step, issued two cellular mobile licenses to: (1) M/s Telenor; and (2) M/s Warid Telecom. With the introduction of two mobile operators in the cellular mobile sector it was thought that appropriate competition will be emerge in the market. In the fixed line, PTA has been successful in issuing 72 licenses in the local loop market and 12 in the long distance & international market. There are many other companies who are in the process of getting wireless local loop (WLL) licenses from PTA. It is hoped that all these new companies will be able to start their operations during the next year.

 

In the light of very brief introduction to the regulatory framework being implemented now-a-days, it is now easy to understand that PTA has been given a very wide scale and well-coordinated mandate to achieve telecom objectives as enshrined in the Act and intended by the August legislature. PTA is not only required to promote and protect the interest of users of telecommunication facilities but it has to also look at the sustainable growth in the telecom sector by promoting modernized telecommunication system and services in the country. Besides, PTA is also required, under the Act, to ensure that the rights of the licensees are being protected.

The decision of PTA to declare PTCL, Mobilink, and SCO as SMP has been given at the very right time as the whole telecommunication sector is going through a dynamic change and a lot of licensing is being done by PTA. This decision of PTA will put these SMP operators under necessary check and control of PTA and this definitely secures and protects the interests of users and consumers of telecommunication services. The question is how? The answer to this question lies in understanding the basics of competition law.

The competition law requires that there should be enough market players in the relevant market so that consumers have enough choice to select any one of the operator for providing desired services. If that choice of operator is not available we can say that there is not enough competition in the market. With regard to a relevant market this is not the right question whether there is competition in the market? The right question is what is the level of competition in a relevant market? For instance in the cellular mobile market although four operators are providing services but PTA has determined that there is not desired level of competition in the market. Hence declared Mobilink as SMP.

The question now is whether PTA has taken the right decision by declaring them SMP? Yes, there is and should not any doubt that PTA has taken very wise and advisable decision by the declaring them SMP. To comprehend it properly and for those who might not agree with this conclusion we just presume that if PTA had not issued new licenses in the fixed line and in the cellular mobile sector these operators would have never thought about reducing their tariffs. If these companies intend to serve the consumers by providing reduced tariff why they did not do it in the last ten year. And if they say that now market is ready for such package why not wait for the new entrants to come and provide the services on competitive rates so that loyalty to the consumers could be checked against actions and all have equal level playing field. This would not only give breathing space to the new operators but would also create fair competitive environment in the country.

This is important to note that till this time PTA had been regulating the tariff of telecom market players under the Price-Cap Mechanism (PCM). Under this mechanism, PTA was setting prices for different telecommunication services in such a way that they cover costs of production and include a rate of return on capital that is sufficient to maintain investors' willingness to replace and expand the company's assets. In some cases, the company is required to set the price for each service equal to costs.

The fact that PTA has determined some operators as having SMP and now these operators are required to take prior approval of PTA is completely mis-understood by many. Since by just asking the SMP operators to take prior approval of the Authority before having any new tariff does not in any way tantamount to the stoppage of reduction in tariff. PTA did never and will never stop these operators to reduce tariff. PTA is willing to further reduce the tariff as it has endeavored many times to do the same. The introduction of Calling Party Pays (CPP) regime; reduction in royalty; and settling interconnection and leased lines disputes with PTCL are few examples of PTA efforts.

To better understand the objective and purpose of declaring the SMP status and to get the fruits of all these initiatives we need to look at both sides of the coin. By looking at just one side of the coin we can never understand the whole philosophy and objective of different measures which are being taken or required to be taken by PTA. The competition law is meant to protect the interests of consumers and users of telecommunication services. This law where requires that minimum level of competition should be in the market, also requires that the big players should be regulated in such a manner that they are not at liberty to change the market dynamics according to their own will and pleasure. As without having any such check on them they will be in a position to distort the whole market. Moreover, they can take the market to such point where new entrants cannot either survive or sometimes are not in a position to enter the market even. This distorted market will be then on the mercy of these SMPs. These SMPs will therefore, not only be successful in failing the government's de-regulation and liberalizing policy but also take the market to pre-liberalization period. Thus completely distorting the whole telecommunication sector.

The story will not end here but these SMPs then will again be in a position to dictate their own terms and conditions to consumers. If PTA does not act this time and does not take corrective measures to put the market on the right track there is a great possibility that PTA will not be fulfilling its statutory obligations under the existing regulatory framework and people will be blaming PTA for not doing right things at the right time. The ultimate goal, then, to serve the consumers and provide modern telecommunication facilities in the county would only turned into a fiction.

Moreover, the purpose of the competition law is not limited to check the tariff or to declare operators as SMP but when an operator is declared as SMP many other obligations are also required to be met by him. These include, as stated earlier, interconnection and other disclosures regarding the company affairs. If PTA does not determine them as SMP that necessary information cannot be obtained from them which is very essential for taking future policy decisions by the regulator. And, if PTA does not take information, it cannot determine whether SMP operators are getting themselves involved in the anti-competitive practices?

There is a need to understand how PTA is introducing competition in the market. PTA has been very vigilant by taking right steps at the right time. For the purpose of deregulating the market and introducing competition, PTA at the first step liberalized entry into the sector what had formally been a statutory monopoly. After the introduction of new operators in the telecom market, it is responsibility of the regulator to analyse the level of competition in the market. PTA has comprehensively analysed the whole telecom market and has concluded that there is not enough or sufficient competition in the market. It, therefore, gave its decision and determined PTCL, Mobilink, and SCO as having SMP status. Now PTA will ensure that these SMP operators do not take any such measure whereby the provisions of competition law are attracted. Due to this status the incumbent and/or the dominant players (SMPs) are put under certain restrictions on its pricing, publication, and information disclosure and other forms of behaviour from which firms with a smaller market share are exempt. These obligations are imposed on the SMP operators are interim measures and will continue to be imposed till such time PTA determines that market is sufficiently competitive.

Since this is a transition period from monopoly to competition the introduction of such interim measures by PTA are fully justified. This is also the practice even in Europe and USA where such interim measures were taken by the regulator and were thought to be necessary for the development of adequate level of competition in markets. These measure have not been thought of by the regulator over night. The same measures were envisioned by the policy makers, and in both the telecom policies it was clearly mentioned that PTA shall determine the SMP operators in the telecom sector. The cellular mobile policy states that:

"The Government believes that the success of market liberalization depends on the development of a fair competitive environment for all licensees. In this regard, Mobile and fixed line licensees who emerge with Significant Market Power (SMP) shall be prohibited from abusing their dominant positions through anticompetitive conduct. PTA will incorporate provisions of anti-competitive practices in the licenses for SMP(s). Operators with SMP will also have to produce a Reference Interconnection Offer (RIO) detailing the services and tariffs they provide to other Licensed operators."

The proper introduction of competition demands that new market players who are in the position of taking off should have appropriate chance and opportunity to launch their services in a conducive environment and their should be level playing field for all the market players. Those companies who have a lot of resources and who are doing business for the last ten to fifteen years have already got too much profit as against their investment. They are, therefore, in a position to sell their services at through away prices. The intentions and objective are very clear. They do not want to compensate the users or consumers but they want to exploit and saturate the market as much as possible for the new telecom operators. PTA has also the responsibility, under the Act, to duly protect the rights of the licensees. The new licensees have paid huge revenues to the government in terms of license fees. By doing this and after becoming a licensee of PTA they have a valid right against PTA to be duly protected. This protection demands PTA to give them level playing field and the operators should be stopped to indulge in such practices which are commonly termed as anti-competitive.

As said earlier that the ultimate objective and goal of the competition law is to achieve welfare of the consumers. The introduction of reduction in tariff by the SMP operators would give only small benefit to consumers and that is even for a short period of time. These packages are being introduced with the sole objective to hook on the consumers on their system and not to benefit the consumers ultimately. These packages can be withdrawn at any stage and time. However, in that scenario, when the consumers will be on their system, the SMP will be in a position to dictate their own terms again. PTA, being the watchdog of the interests of the consumers, intends to introduce such policies which ultimately benefit the consumer and provide solutions to all their telecom related problems. This objective, i.e. to achieve substainable growth at affordable cost to consumers, can only be achieved when PTA ignores the short term advantage and achieves long term objectives in the telecom sector by asking the SMP operators not to, reduce their tariff without prior approval of the Authority. The intention is not to unduly protect the vested interests of the operators but to have sustainable competitive environment in the country.

There is an urging need to understand the nexus between the competition law and the protection of consumers. With the introduction of proper and adequate competition in the telecom market all the market players will be able to play with fair terms and upto their muscle powers. Whereas, in the absence of such competition, those who already have their market presence are in a position to curb "proper and adequate" competition. This is a transition phase in the telecom industry, new market entrants are taking their positions to take off and the old operators are trying their level best to exploit the existing untapped markets before the entry of new operators. What PTA has analysed and concluded is that there is not proper level of competition in the telecom sector.

Another important misconception in minds of many people is that probably PTA is stopping these SMP operators from introducing new tariff to consumers which is not actually the case. PTA is just asking these SMP operators that from now on wards, before introducing any new package or tariff, you have to take prior permission of the Authority. By this it does not mean that permission or approval will not granted but the intention is that SMP operators are stopped from introducing predatory pricing with the objective to oust the prospective market players. By taking such protective and corrective measures, PTA hopes to achieve ultimate goal of competitive prices in the telecom sector. The consequential result would be that users will also have wide ranging choice to select their service provider who fulfills their demands regarding quality of service, improved telecom services and last but not the least competitive prices and affordable prices for all such services.