CCP Hammers PTCL for Anti-Competitive DSL Pricings

PTCL-logoA Competition Commission of Pakistan (CCP) inquiry team has decided that commission will commence legal proceedings against PTCL, said a report issued by Competition Commission of Pakistan.

CCP inquiry said that PTCL is likely to face legal action under Section 30 for prima facie violation of Section 3(1) read with Section 3 (2) of the Competition Act by monopolizing the market by offering anti-competitive DSL tariffs, that could lead other broadband companies to quit businesses.

Complaint Against PTCL

PTCL was facing an inquiry from CCP based on a complaint filed by Aqlaal Advocates on behalf of their clients Mircronet, LINKdotNET and Nexlinx by alleging that under the current regime for provision of Digital Subscriber Line (DSL) services, DSL Operators are dependent upon the infrastructure of PTCL as it owns and controls the required copper line infrastructure.

Complainant alleged that PTCL refuses to provide access to its copper infrastructure by refusing to cater requests of DSL Operators for issuance of new connections in a timely manner as required by SOP on DSL services.

The DSL Operators submitted that PTA informed the DSL Operators that such delays were caused in December 2009 as PTCL was upgrading its system. However, the DSL Operators have stated that PTCL was issuing new connections to its own customers during this period of system up gradation. PTCL has denied that it issued any new connections at the time the DSL Operators were not being issued new connections.

Complaint said that PTCL has shifted its public switched telephone network (PSTN) consumer numbers from the copper network to an optical fiber network which the DSL Operators do not have access to.

DSL operators said that PTCL has not only violated PTA’s Numbering Plan Regulations, 2005 but also clause 7.2.1 of the IA and PTA’s determination No. 15-70/07 (CA)/PTA dated August 3, 2007, according to which PTCL may not change the copper pair of a customer to optical fiber without the customers consent

DSL operators further alleged PTCL for creating operational problems for the DSL Operators, such as denial of their authorized staff to enter PTCL exchanges in violation of clause 7.2.1 (c) of the IA, delaying provision of infrastructure, cutting of cables, refusal to
provide collocation space, etc.

It was further added in complaint that PTCL has forcefully disconnected the connections of the DSL Operators provided to customers and started providing these customers DSL services through PTCL‟s DSL connection without even informing the customers.

Operators alleged that PTCL, through cross-subsidization and predatory pricing, is driving competitors out of the DSL market in violation of Section 3 (3) (f) of the Act, Section 26 (e) of the Pakistan Telecommunication (ReOrganization) Act, 1996 (the “PTA Act”) and Article 11 of Schedule 2 of the 2000 Rules.

PTCL’s Response:

PTCL in its response to complaint said that the determination of PTA that PTCL holds a dominant position has been challenged before LHC, Rawalpindi Bench and has been suspended. The matter is sub-judice and the complaint is an attempt to frustrate the judicial process.

PTCL said that it reserves the right to challenge the validity of the Act and constitution of
the Commission at an appropriate forum as the Commission lacks jurisdiction in this respect

PTCL said that the complaint incorrectly defines DSL as a service in the market, when it is merely one technology for provision of Broadband Internet Access. Therefore, it cannot be said that consumers cannot interchange or substitute the DSL technology for other technologies.

PTCL mocked by saying that the DSL Operators misunderstand the concept of predatory pricing which is clear as the allegations have not been substantiated by any legal argument.

PTCL in its reply said that it is incorrect that the DSL Operators are solely dependent upon PTCL for infrastructure as Nayatel provides broadband services through use of optical fiber technology (FTTH) instead of depending upon PTCL’s copper lines.

PTCL said that there have been exceptions where extra time has been required by the DSL Operators have been timely informed by PTCL and PTA. PTCL customers were not given preference over DSL Operators customers and had to face the same problems.

The fault incidence is not attributed to PTCL only as numerous external factors are also responsible, such as poor in-house wiring, large scale damage to PTCL outside plant, utility companies, malicious cable cuts and theft and right of way (ROW).

PTCL denied that it has forcefully disconnected customers of other DSL Operators and only provides services on request of customers. PTCL also informed that it has offered the ISPs to work in partnership with PTCL for its white label DSL broadband services on revenue sharing basis. Under which PTCL will provide end to network infrastructure and resources and DSL Operators will provide marketing, sales, provision and installation of customer premises equipment, billing and revenue collection and after sales support services.

CCP Inquiry Findings:

Based on investigation conducted by CCP team, the findings of cost analysis suggested that the margins in the DSL retail market due to PTCL’s pricing for the access to its copper network are insufficient for an efficient competitor to operate profitably.

The analysis of financial statements of DSL Operators appears to confirm that as a result of such low prices the profit margins of DSL Operators have gradually reduced and now they are operating under huge losses. Many of the players in the DSL retail market have exited the market.

The cost analysis of PTCLs DSL operations shows that it has been able to record profits despite offering very low retail prices and having very low margins. PTCL being a vertically integrated company, its DSL business does not incur/record some of the expenses such as co-location charges, copper pair rent, additional overheads etc. that other operators have to bear.

Additionally, the offers like double the speed without additional cost, upgrading of package etc are impossible for the competitors of PTCL 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 monopolizing the relevant market by PTCL.

Inquiry report said that lower tariffs are beneficial for the customers and are a good way to penetrate in a growing market for DSL based broadband services. However, such low tariffs and low margins are 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 on the mercy of a super dominant player who will be at its free will to exploit customers.

In light of its findings, inquiry team  proposed that proceedings under Section 30 may be initiated against PTCL for prima facie violation of Section 3(1) read with Section 3 (2) of the Act.

Tech reporter with over 10 years of experience, founder of ProPakistani.PK