International Clearing House Not So Clear

The menace of illegal gateways and exchanges has beaten the 14 local LDI operators black and blue over the years. These service providers are mandated to pay part of their proceeds from each international call in the form of Access Promotion Charge (APC) to the Universal Service Fund (USF), which adds to the rates they are able to offer customers. On the other hand, grey traffickers are able to undercut legitimate businesses simply by circumventing the governments share. The Pakistan Telecommuni-cation Authority (PTA) has been cognizant of the loss from grey traffic to the registered LDIs as well as the government in terms of foreign exchange flows. For this reason, APC rates have been progressively scaled down to discourage grey traffic. It has also stepped up raids against illegal gateways in collaboration with the Federal Investigation Agency (FIA). But the most significant effort to curtail grey traffic and improve foreign exchange flows in this realm through the financial sector has met resistance in its nascent state. Some months ago, the PTA had announced its intent to establish an International Clearing House (ICH), which would serve as the sole gateway for incoming international calls; effectively wiping out much of the grey traffic. The PTA expects the ICH to bring in over 37 million dollars in foreign exchange to the country, per month. The LDI operators shall be happy that the current under cutting of rates by illegal exchanges will end, allowing them to improve margins. But the Competition Commission of Pakistan (CCP) is not so ecstatic over the idea. Back in February, the CCP had warned that "reliance on single operator will result in local consumer impacted by higher prices and declining quality" and that the allocation of fixed quotas to existing LDIs based on current market share would be uncompetitive. PTCLs competitor, Transworld International had also expressed concerns that its business would be unfairly jeopardized by the move. At that time the PTA and local LDIs had withdrawn their application for an exemption from Competition laws on the pretext that they had "decided to shelf (the ICH Agreement) for the time being". Yet the competition watchdog had warned that any similar attempts to establish the ICH in the future "would attract the provisions of the Competition Act 2010". Now with the Ministry of Information Technology announcing its renewed resolve to launch the ICH, the CCP has issued a policy note to both MoIT and PTA, warning that the move will run contrary to competition laws. However it is also a fact that the ICH will lead to a significant reduction in grey trafficking. It will also cut down on the flow of proceeds from such illegal activities into the country through Hundi and other illegal means; instead the flows will be channeled through the financial sector, bolstering the official foreign reserves. In a nutshell, it appears that the creation of the ICH will lead to a quagmire, where both negative and positive externalities may accrue. While the CCP is well within its right to issue a policy note to the relevant authorities, the MoIT is also working within its domain when it has devised a mechanism for cutting down on illegal activity in its sector and bolstering the existing players viability. At the core of the issue, lies the lack of reconciliation between the CCP, its relevant regulations and the vast majority of other laws of this land. While the creation of the Commission is a positive step towards boosting competitive behaviour in the economy, it appears as the sole step in this regard. Legislators are not only at fault for not incorporating the same spirit of competition through successive legislation among other regulatory bodies; they are often the raison deter behind violations of the Competition law. In previous cases where the competition watchdog raised red flags over collusion among vegetable oil manufacturers, it was found that much of the collusive behaviour, such as the fixing of transport rates was done under the guidance of senior government officials during the previous regime. Similarly, a terminal operated at Port Qasim was reprimanded over a guarantee that was initially given by the Government; a guarantee without which the foreign investors in the project would never have entered the deal in the first place. While the intent of the Commission cannot be questioned; its coordination with other regulators is certainly anything but exemplary. In this case, the CCP has actually been quite proactive in informing the relevant authorities of a possible breach of law. It remains to be seen if and how the PTA, MoIT and CCP will work together to address the concerns for local consumers and PTCLs competitors that have been raised by the watchdog.