IN MANY countries of the world the termination charge for international incoming calls is determined by national regulatory bodies. Here in Pakistan the government of Pakistan has mandated this assignment to the Pakistan Telecommunication Authority.
The LDIOs (Long Distance and International Operators) are licensed to terminate the international calls in Pakistan. Currently there are 14 LDI operators who compete in the international market to get a sizable chunk of traffic to make it financially viable. Due to negative competition among the 14 LDI operators, the PTA determined settlement rates were not followed. The independent and non-transparent rate negotiation by all LDIs gave rise to fierce competition for share in international traffic and ultimately undercutting.
This undercutting resulted in a significant loss to telecom industry and Government of Pakistan during the last seven years. It is important to highlight that although the market termination rates for Pakistan in the pre ICH period were low, the foreign operators were still charging higher tariffs to their subscribers. Therefore, the entire margin was reaped by the foreign operators resulting in loss to national economy.
In a bid to stabilize termination rate and minimize the possibility of grey traffic, the Long Distance International Operators (LDIOs) requested the government for formulating a policy. The Government of Pakistan very prudently issued a Policy Directive, thereby providing a platform for all the LDIOs to ensure the implementation of the approved settlement rate. Through the policy directive, the LDIOs were asked to form the International Clearing House (ICH).
The major objectives of ICH are:
• Stabilization of PTA determined termination charge for Pakistan bound calls in order to ensure the legitimate inflow of foreign exchange to the country.
• To enable the business viability of LDI operators and minimize the possibility of default in discharge of their obligations.
• To ensure that additional tax revenue for the government is realized.
• To increase funding for Universal Service Fund to bridge the digital divide providing access to telecom facilities to all citizens of Pakistan.
• To protect against job losses on account of business failures.
• To deploy a unified comprehensive system for monitoring of the international incoming traffic addressing national security concerns, blocking of harmful contents and illegal (grey) traffic.
• Generate sustainable funding to promote local manufacturing in telecom sector.
There is a misconception that the Pakistan termination rates have increased many folds after the establishment of ICH. The settlement rate in pre ICH scenario was US cents 6.25 which has increased to US cents 8.8 in the post ICH scenario. Thus the rate increase in the post ICH scenario is only a mere US cents 2.55.
It is relevant to mention here that the termination rates of the foreign operators in Middle East and Europe (for mobile termination) are in the range of 10-15 US cents that is still higher than 8.8 US cents. These countries account for two third of the traffic terminated in Pakistan.
It is pertinent to mention that although the market termination rates for Pakistan in the pre ICH period were low, the foreign operators were still charging higher tariffs to their subscribers. Therefore, the entire margin was reaped by the foreign operators resulting in loss to national economy.
The ICH framework will ensure high revenues for the LDIOs as well as valuable foreign exchange for the national economy and is expected to generate more than $1 billion per annum worth of valuable foreign exchange. The government of Pakistan directly or indirectly will be recipient of more than $400 million revenue from ICH. This will provide strong support to ailing economy of the country at times when all its earning resources are drying up. The government is forced to issue Euro Certificates to collect foreign exchange amounting to five hundred million US dollars to meet the critical payment issues towards 10. IMF by December, 2012. On the other hand, it is expected that ICH will inject $240 million in the national economy by the end of December, 2012.
In first 15 days of ICH operation, following results have been achieved:
• ICH has done business of approx USD 40 million (Rs 3.8 billion).
• ICH has generated approx USD 7.7 million (Rs 731.5 million) for development funds (USF).
• ICH has recovered approx USD 1.125 million (Rs 106.88 million) against the disputed on account of APC for USF.
• Based on these figures; additional income tax of approx USD 7.9 million (Rs 750 million) to government of Pakistan will be paid.