The ICH itch

The matter of proposed International Clearing House, for LDI telephony, is fast becoming a heated duel between the countrys telecommunications watchdog and its prominent competition agency. While they are at it, the trading activity in telecom shares of World Call, Wateen and PTCL (all having LDI businesses) has been spectacular since August 23, with PTCLs share price appreciating by nearly 50 percent since then. The stock market has certainly priced in the ICH agreement among LDI operators whose single biggest beneficiary would be PTCL. The ICH would serve as a single termination exchange for all international voice traffic, and may turn the situation around for the loss-making LDI operators as they would be guaranteed higher Approved Settlement Rate (ASR) and fixed LDI business based on their existing market shares. The PTA has its own reasons to be optimistic about the scheme. In his recent interview with BR Research, PTA Chairman claimed that the development of ICH will bring in 37.5 million dollars in foreign exchange each month - which amounts to 450 million dollars per annum. This could be a result of improvement in ASR and anticipated drop in grey trafficking. The Competition Commission of Pakistan is concerned that the ICH regime will hand PTCL a monopoly over all incoming international traffic; effectively forming a cartel over the market for incoming international calls by instituting fixed quotas and prices; and close the market to new entrants to the detriment of competition and consumer benefit. There is no official word yet, but unconfirmed reports suggest that the wheels may start rolling as early as October 1. The CCP is not happy at all, for all its policy notes and orders seem to have been ignored, and PTA is not responding directly to its competition concerns. CCP Chairperson recently hinted in a TV interview that the Commission will consider litigation should the ICH regime go operational. Since the matter concerns the LDI telephony, what is required is a thorough and disinterested analysis of what brought the LDI sector to its knees in the first place. On one hand, there is rampant grey trafficking (reported as high as 40 percent) costing the country 800 million dollars a year. Besides the still-existent price components like APC, lax regulatory crackdown on unscrupulous operators is also responsible here. On the other hand, the termination charges for international incoming calls are kissing the floor - a consequence of issuance of way too many licenses for LDI telephony, with 14 active operators currently operating. PTA must come clean and inform the public if the situation in the LDI sector cannot be turned around by addressing the fundamental flaws, leaving ICH as the only solution. Some other things also require clarity. PTA must also substantiate as to how (in an ICH regime) will Pakistan be able to save 800 million dollars a year from grey trafficking and illegal exchanges when the regulator, admittedly, cannot check 70 percent of the incoming traffic. Shouldn the regulator also be focusing on effective legislation, enhanced surveillance and proactive prosecution to fight the menace? It has been reported that the ASRs may go up in the ICH regime. Its too early to tell if that would impact incoming traffic or raise the international rates for outgoing calls in the long run. However, doing that may further incentivise the grey traffickers to cheat given the status quo. It is CCPs mandate to ensure competition in the marketplace, but it is the job of the PTA to present and make its own case. While there is still time, the two bodies must sit together and find a middle ground on the dual objectives of making the LDI telephony business both viable and competitive.