Telecom giant in trouble!?

A dark halo seems to have encircled the countrys telecom behemoth. An enquiry report by the Competition Commission of Pakistan recently proposed that proceedings be initiated against PTCL - the license-holder in almost all the key ICT segments - for prima facie restricting and reducing competition in the broadband services market. What prompted this action from the competition watchdog needs to be understood and kept in the right perspective. The detailed Enquiry Report, placed on the Commissions website, indicates that three DSL broadband service providers approached the CCP to complain against PTCLs alleged abuse of its dominant position in the DSL broadband market. The complainants alleged that the PTCL resorted to predatory pricing, and refused to deal with the DSL operators as per various agreements. Later, the complainants decided to rather approach the PTA and sought a withdrawal of their complaint with the CCP. However, the CCP decided to proceed with its enquiry into the allegations owing to "the nature of the case and the potential impact on the market and consumers". The CCPs Enquiry Committee dismissed this allegation that PTCL had abused its dominant position by refusing to deal with the DSL operators. The findings indicate that the DSL operators were unable to provide the Commission with substantive evidence showing PTCL was issuing new connections to its customers at the time when it refused the DSL operators requests for new connections. To look into the allegation of predatory pricing, the Committee first determined that there are two relevant product markets in the DSL broadband market: the upstream market of copper wire infrastructure, and the downstream retail market of DSL broadband service using copper infrastructure. The geographic market was determined to be whole of Pakistan, as PTCL has a nationwide license for DSL services and its copper infrastructure is available across the country. The Committee determined PTCL to be in a dominant position (and the only company) in the upstream market for the provision of copper infrastructure to other DSL operators. It was also determined that PTCL has been a dominant player in the downstream market of DSL broadband services, having a nationwide DSL footprint compared to other DSL operators presence limited to a few major metropolis. Based on a costing analysis, the Committee found PTCL to be, prima facie, engaging in the practice of margin squeeze - an anti-competitive behaviour wherein a vertically integrated company abuses its dominant position in the upstream market to affect the price cost margin for its downstream competitors. While other DSL operators have been incurring losses, PTCLs DSL services remained profitable. The Committee observed that PTCLs pricing strategy in the upstream market is driving out competition in the downstream DSL retail market, preventing new entrants from coming in, and "appears to be a prima facie violation of Section 3 of the Competition Act". If PTCL is indeed found guilty by the CCP in proposed proceedings, it will be liable to pay financial penalties in accordance with the Competition Act. Judging from its response to the Enquiry Committee and its press release on the issue, the PTCL management sounds keen to contest the Commissions findings and its jurisdiction. Yet this particular case would certainly mean a lot to the competition agency which has been asserting itself to establish its writ in the countrys competitive landscape. Who stands on a weaker wicket, only time will tell!