The deregulation of 2003-04 has been a mixed blessing for the telecom sector. While the mobile network operators grabbed the voice and VAS business and now seem ideally placed to capture the data segment; the 14 odd LDI operators have been beaten black and blue due to price wars and the menace of illegal gateways & exchanges.
To sustain the viability LDI telephony in Pakistan, the telecom watchdog and the LDI operators - many of them struggling to survive - have reportedly agreed to install an International Clearing House. The ICH would serve as a single termination exchange for all international voice traffic. This will likely improve the profitability of the LDI operators for two reasons.
Firstly, the elements of price wars would be absent in an ICH regime. In case the Approved Settlement Rate (ASR) is revised upwards, the hitherto constricted margins will also improve.
The ICH mechanism may also deal a blow to grey traffickers, who have been snatching around 40 percent business from registered operators. Governments tax revenues and foreign exchange reserves will also shore up.
In the ICH arrangement, it is PTCL that stands to gain significantly because the Etisalat-run company is the dominant operator in the LDI segment, handling around half of the business. A recent research note by BMA Capital reveals that PTCL will lead the technical consortium where the entire international traffic would land.
If that is the case, PTCL will become the sole LDI operator with the right to exclusively terminate all incoming international voice traffic to Pakistan. The telecom giant will sell its call terminating services to international operators at the PTA-notified ASR. Later, it will distribute the revenues generated from the traffic among rest of the LDIs as per their respective market shares or any other arrangement agreed.
A little history is in order here. The ICH proposal is not new, as it was first considered by the PTA back in 2008. The market participants got serious about it again, last year, and in September, various LDI operators - including PTCL, WorldCall and Wateen - filed an application with the CCP to seek exemption from the proposed ICH agreement between PTCL and other LDI operators.
The ICH was strongly objected by TransWorld Associates Private Limited, the owner and operator of Pakistans only other undersea fiber optic cable system. Being a direct competitor of PTCL, TWA became a necessary party to CCPs proceedings. Later, some LDI operators, including PTCL, decided to withdraw their exemption applications because the industry could not reach a consensus on ICH modalities.
In its order dated February 8, 2012, the CCP observed that "The ICH Agreement, in essence, (i) was giving PTCL the monopoly to receive all incoming international traffic; (ii) having a single rate for incoming international traffic; and (iii) dividing the market share of incoming international traffic".
Concluding the order, the competition agency made it mandatory that the LDI operators, "prior to its (ICH) execution would require clearance from the Commission, as, prima facie, it has serious competition concerns and would attract the provisions of the Competition Act, 2010".
The market seems to have priced in the ICH development already. The stock of PTCL, the seemingly major beneficiary of the proposed regime, is hot these days even as the brokerage houses remain bullish on the scrip. For the success of any such agreement, the market participants would have to evolve consensus amongst all the LDI operators and to also allay the CCPs competitive concerns.