Axing LDI operators with Rs9bn CCP fine

| | No Comments

05-563x220

By Sikander Naqi

RECENTLY, THE Competition Commission of Pakistan (CCP) finally made its order regarding the fate of the amounts charged on making international telephone calls to Pakistan.

The CCP had the PTCL and 13 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 9 billion was made against the LDI operators, with the lion share against PTCL (Rs 8.3 billion). This is further to the Rs. 8.6 billion 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 Revenues tax amnesty schemes in its recovery for the Government coffers. One can only question the motive during an interim government.

The CCPs 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 PTCLs infrastructure was to be used for international telephone calls.

An important factor to note is that the MoIT and the PTA have always set the tarriffs; and that the LDI operators and PTCL were simply following the orders of a federal government and the regulatory body.

However, the CCP has overruled such observations and declared itself and the Competition Act, 2010, as an all powerful body with the power to overrule the role of the government. The thrust of the CCPs 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 CCPs order. It surely is not the average Pakistani who the CCP paints as the victim. After all, PTCLs major shareholder is the Pakistan government. No doubt PTCL is a well performing company, but there is a little chance it has over Rs 8 billion 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 it. 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 CCPs investigation? After all, these are the parties that ordered the LDI operators to enter into the ICH agreement, notwithstanding the fact they ignored the CCPs 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 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 judgments. Technically this is possible but overall, it appears that CCP officers are simply justifying previous judgments. However, it is not clear whether these judgments were later approved, or set aside by the courts or not.

Further, the order, quite matter of fact, 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 jurisdictions. The competition law in the European Union and the United States of America is much more advanced than that 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 CCPs 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 consider the 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.

Another issue that the CCP has ignored is the 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!

RECENTLY, THE Competition Commission of Pakistan (CCP) finally made its order regarding the fate of the amounts charged on making international telephone calls to Pakistan.The CCP had the PTCL and 13 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 9 billion was made against the LDI operators, with the lion share against PTCL (Rs 8.3 billion). This is further to the Rs. 8.6 billion 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 Revenues tax amnesty schemes in its recovery for the Government coffers. One can only question the motive during an interim government.The CCPs 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 PTCLs infrastructure was to be used for international telephone calls.An important factor to note is that the MoIT and the PTA have always set the tarriffs; and that the LDI operators and PTCL were simply following the orders of a federal government and the regulatory body.However, the CCP has overruled such observations and declared itself and the Competition Act, 2010, as an all powerful body with the power to overrule the role of the government. The thrust of the CCPs 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 CCPs order. It surely is not the average Pakistani who the CCP paints as the victim. After all, PTCLs major shareholder is the Pakistan government. No doubt PTCL is a well performing company, but there is a little chance it has over Rs 8 billion 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 it. 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 CCPs investigation? After all, these are the parties that ordered the LDI operators to enter into the ICH agreement, notwithstanding the fact they ignored the CCPs 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 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 judgments. Technically this is possible but overall, it appears that CCP officers are simply justifying previous judgments. However, it is not clear whether these judgments were later approved, or set aside by the courts or not.Further, the order, quite matter of fact, 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 jurisdictions. The competition law in the European Union and the United States of America is much more advanced than that 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 CCPs 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 consider the 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.Another issue that the CCP has ignored is the 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 writer is working with Zong (CM-Pak) as Advisor to CEO.


--

Short Link: http://www.technologytimes.pk/?p=10330