Monopolising the telecom sector

Mobile giants’ great game?

Before the Arab sheiks, in 1870, The Standard Oil Company (SOC) through its owner, history’s richest man, John D. Rockefeller, monopolised the refined oil market in the US for over a century. SOC occupied 88pc of the US oil market

In Tang China, (618-907 AD), the salt commission was one of the most influential monopolies. In 758, after a peasant revolution and after the land tax revenues fell, a salt commission was created. The Tang Dynasty, then rulers of China, knew salt’s essentiality for its nutritional and preservation values. The Dynasty controlled all major salt productions and maintained a virtual monopoly on the salt trade. The salt was taxed to an extent that by 1300 AD, it was creating 80pc of all tax revenue in China. Although the salt commission began and ended with the Tang Dynasty, the state monopoly on salt in China existed from sometime in the 1st century BC to the end of Imperial China in the early 20th century, making it the most enduring monopoly of all time.

Before the Arab sheiks, in 1870, The Standard Oil Company (SOC) through its owner, history’s richest man, John D. Rockefeller, monopolised the refined oil market in the US for over a century. SOC occupied 88pc of the US oil market. To tackle this century of oil monopolisation, Congress helplessly passed the Sherman Antitrust Act — the first American anti-monopoly law – targeted the SOC by dividing the corporate behemoth into smaller companies (which included many currently famous oil companies Amoco, Texco, Exxon, Chevron) but the monopoly wasn’t broken because the old John D. still controlled all those smaller companies. The real competition began only years later when Rockefeller’s heirs sold the inherited shares.

Since then, the governments learned that the monopolies are fatal to national economies and only help in accumulation of wealth on the price of their people’s miseries. Monopolies boast poor service, low-quality goods, higher prices, no consumer sovereignty and no competition.

In Pakistan, however, the telecom sector is still the “salt” and the government of Pakistan is nothing different than the Tang Dynasty. For this, instead of introducing free market economics, the government found it fitting to create monopolies. In some sectors to ensure the strategic strength and in others for profit maximisation, necessary to satiate the national exchequer. But this is giving rise to “Rockefellers” like Etisalat (PTCL) by keeping the monopoly in landline, PMCL (Mobilink) by buying Warid and China Mobile (Zong)’s ambitions to buy Ufone. This is a shut up call to the remaining little competition in the telecom sector of Pakistan.

The governmental efforts to create monopolies were intensified when it offered only three licenses for 3G spectrum instead of five (the number of existing players). This not only made the 3G license so expensive (good for a government) but also effectively destroyed the market position of Ufone now at the verge of a merger or selling out. This also affected Warid to an extent that it could not justify the license price to ROI, preferred a merger with Mobilink hence reducing competition reasonably (bad for all of us).

It repeated the same practice by limiting the number of Direct to Home (DTH) licenses to three, when very recently Pakistan Electronic Media Regulatory Authority (PEMRA) sold them at the highest bid of Rs4.91 billion to Mag Entertainment, followed by M/s Shahzad Sky for Rs4.90 billion and M/s Star time for Rs4.89 billion.

In such a hostile situation, a further threat is Telecom Policy 2015, which makes it harder for the Competition Commission of Pakistan (CCP) to intervene and keep the competition healthy. The telecom policy, which was announced on 12 December 2015, took the responsibility of framing competition rules in an attempt to bar telecom companies from any possible monopolistic practices. Experts then, including Finance Minister Ishaq Dar, questioned the establishment of a parallel competition framework, as the Competition Commission of Pakistan (CCP), being a statutory body, had already been working with powers to perform such functions but somehow it was approved and functionalised.

Section-5 of the telecom policy states that the ministry of information technology (MoIT) will maintain the current competitive and open telecommunications market structure. But the promise made in 2015 was broken in 2016 with the Mobilink-Warid merger. CCP could not intervene due to overlapping authorities that vest in MoIT through TP-15. It also promised to consolidate the robustness of the market structure, managing it through the application of competition rules for the telecommunications sector. The ministry said that it will make competition rules herself that will govern all competition related matters of the telecommunications sector.

It was also notified that these new rules will provide processes for market review, including but not limited to: identifying product markets, determining the respective market power of service providers within each market, determining whether the anti-competitive behaviour is prevalent and what remedies should be applied as ex-ante or ex-post measures.

But now The Competition Commission of Pakistan (CCP) has issued a policy note to the government of Pakistan recommending it to review the Telecom Policy, 2015 in relation to the Competition Rules for the Telecom Sector as it is the sole jurisdiction of CCP under the Competition Act, 2010.

The CCP has observed that Claus-5.1 of the Telecom Policy 2015 formulated and issued by the ministry of information technology and telecom (MoIT) overlaps its authority. Article-18 of the Constitution of Pakistan 1973 clearly marks the distinction between the regulation of any trade and profession through a licensing system [Article 18(a)], which role in the telecom sector has been assigned to PTA. On the other hand, the regulation of trade, commerce or industry in the interest of free competition [Article 18(b)] is exclusively vested with the Commission since its inception in 2007 with the primary and sole object to provide for free competition in all spheres of commercial and economic activity, to enhance economic efficiency and to protect consumers from anti-competitive behaviour.

If the Telecom Policy 2015 is correct, then the ministries of water and power, food security, petroleum, science and technology and others can launch their own respective policies as well undermining the role of CCP in terms of competition management. MoIT’s can never devise and implement competition rules effectively because of the fact that its own performance and smooth working heavily depends on the happiness of market giants. CCP being an independent body can only do this effectively.

Although there is nothing concrete on record about how the competition policy of MoIT worked in 2015 except for many negative points, the CCP has however proved its worth by intervening in many market monopolistic practices. Recently it slapped a fine of Rs30 million on Pakistan Engineering Council (PEC) for restricting competition in the market for insurance coverage of public civil works.

On 29 November 2016, it issued a show cause notice to Pakistan State Oil Company Ltd for deceptive marketing practices. On 18 March 2016, it also issued a show cause notice on the issue of amalgamation of Pakistan Mobile Communications Limited and Warid Telecom (private) Limited but both never bothered to reply because of the protective umbrella of MoIT and Telecom Policy 2015.

CCP has previously intervened and blocked many cartel attempts by Pakistan Poultry Association (PPA), on the integration of Karachi Stock Exchange limited, Lahore Stock Exchange limited and Islamabad Stock Exchange limited, Pakistan Automobile Manufacturers Authorised Dealers Association (PAMADA) and others. It has more than 150 timely interventions to its credit which show that it has the full capacity to manage the competition in the telecom sector effectively as well.

Out of 138 countries present in the index, Competitiveness Report (2016-17) of the World Economic Forum (WEF) has placed Pakistan at 122. The report states that certain macroeconomic indicators of the country have improved in the last one year but are far behind the Switzerland which for the eighth consecutive year is the most competitive economy in the world. The report also found corruption as the most problematic factor for doing business in Pakistan, followed by crime and theft, tax rates, access to finance, government instability, and coups.

Of the 114 global competitiveness indicators, Pakistan showed improvements on 54 key indices, whereas it lost its previous position on 50 indices. The remaining 10 indices were the same as compared to the last year. For the telecom sector, CCP powers shall be restored by removing clause-5 of the Telecom Policy 2015. We need to break the PTCL monopoly by allowing new submarine cables. Recently Multinet Pakistan, a voice and data company, and Omantel of Oman announced the initiation of a new 20 TBs submarine cable network “Silk Route Gateway 1” to connect Karachi with Barka (near Muscat in Oman) with a strategic landing point at Gawadar in future. It is hoped that with effective intervention on CCP and with Multinet as part of SRG1, the duopoly of PTCL and 1.28 TBs TW1 in space of international bandwidth will end.

Telecom must not be monopolised. Can we attract more dollars into it?