PTCL forces half of DSL operators to quit
Published in Daily DAWN, Written By Iftikhar A. Khan, Published on June 20, 2012
Islamabad (June 19, 2012) – Pakistan Telecommunications Company Limited by manipulating its dominant position has forced almost half of digital subscriber line (DSL) service providers to close down their operations over the last seven years, an inquiry reveals.
The report of an inquiry committee of Competition Commission of Pakistan (CCP), exclusively available with Dawn, says that PTCL’s pricing for the access to copper network owned and controlled by it makes it impossible for the DSL operators competing with the PTCL itself since its entry in the retail DSL market.
The report says that five out of eleven DSL operators had to exit the market since 2005 and with the gradually reducing profit margins the remaining six existing players were operating under huge losses.
The PTCL rejected the report as one-sided saying that important facts had not been taken into consideration by the CCP lacking expertise to examine the technical issues involved.
The cost analysis of PTCL’s DSL operations shows that it had been able to earn profits despite offering low retail prices since its entry in the retail market in 2007. The PTCL being a vertically integrated company, its DSL business does not incur some of the expenses its competitors have to bear such as co-location charges, copper pair rent, additional overheads etc.
Additionally the offers like double the speed without additional cost, upgrading of packages etc., are impossible for the competitors to match.
“Resultantly prima facie, DSL operators are losing market shares and incurring huge operational losses and if this continues, it may lead to exclusion of further competitors and thus monopolising the relevant market by PTCL”.
The inquiry report says apparently the lower tariffs were beneficial for the customers and were a good way to penetrate in a growing market for DSL-based broadband services. However such low tariffs and low margins were making this market unattractive for further investment, research and development.
“This may result in competitors leaving the market and creating a monopolistic situation in the long run, thus leaving the customers at the mercy of a super dominant player free to exploit customers at will. This also has the effect of preventing new undertakings from entering the DSL market”.
The inquiry committee headed by Director Cartels and Trade Abuses, CCP, Ms Shaista Bano, noted that price squeezing has been established as an abusive practice in all the leading jurisdictions of the world and has the impact of monopolising the market and preventing new entrants and thereby preventing, reducing and distorting competition within the relevant market, prohibited under the Competition Act 2010.
PTCL’s pricing strategy in the broadband wholesale market is inducing a margin squeeze in the DSL retail market thereby making it impossible for an equally efficient competitor to conduct profitable operations in the DSL retail market.
The margin squeeze is not only driving out competition in the downstream DSL retail market, but is also preventing new entrants.
“This pricing strategy appears to be a prima facie violation of section 3 of the Act”, the inquiry committee observed.
It proposed proceedings under section 30 of the Act against PTCL for prima facie violation of the act, given the importance of broadband DSL sector in development of the country.
The PTCL on the other hand says that the findings of the report were based on conjecture and superficial assumptions and these were neither shared nor discussed with PTCL which make the exercise prejudiced and one-sided.
Senior Executive Vice President (Corporate Development) PTCL Sikandar Naqi told Dawn that costing of telecom networks was a very complicated exercise requiring expertise which, he believed, was not available with the CCP.
In other countries telecom regulators hire expert consultants and provide agreed methodology based on consultation with the stakeholders and it falls in the direct domain of Pakistan Telecommunication Authority (PTA).
He said costing of telecom services is only considered credible if it has the buy-in of all stakeholders as in the case of interconnect costing exercise carried out by the PTA in 2007 by engaging consultants of international repute.
PTCL is not required to un-bundle its local loop network under the Telecom De-Regulation Policy and other DSL operators were given a free hand prior to opening of broadband market for direct competition.
If PTCL would have not entered the market, the objective of broadband proliferation could not be achieved as other DSL operators do not have the financial strength to meet the investment requirements. In addition, Broadband Policy 2004 also encourages PTCL role in proliferation of broadband services.
As per policy clause 5.2.1 operators with local loop infrastructure (PTCL) should use aggressive approach for provision of broadband services. The broadband market is open for competition and the period during which some DSL operators have shrunk, other broadband service providers (using WiMax, EvDO and FTTH) that are also acquiring services from PTCL have flourished, Naqi pointed out.
The comparison of tariffs upon which the so called costing has been done by the CCP committee are incorrect and based on wrong information provided by the DSL operators to the CCP inquiry committee.
PTCL in order to remain competitive and profitable has been upwardly revising its tariffs to offset the inflationary impact of input prices during the last two years.
PTCL now offers 1 Mbps subscribers at Rs1,250 pm and Student Package at Rs979 pm. In addition, PTCL also charges its subscriber Rs1,000 as installation charges to recover the cost of modems etc. that seem to have been ignored in so called costing exercise done by the CCP committee.
It is a common knowledge that the other DSL operators’ are offering 1 Mbps DSL subscription at as low as Rs750 per month yet the CCP model seems to pick the lowest and outdated PTCL tariffs while working out the cost comparison and margins available to PTCL and other DSL service providers.
As the cost of maintaining a copper line is much higher than the copper loop charges recovered from DSL operators and voice customers, PTCL had to revise the Line Rent charges for its PSTN subscribers last years and is also considering increasing Local Loop charges from the DSL operators.