The telecom sector loses nearly $1 billion in revenues per annum on account of grey traffic, as revealed by the Auditor General of Pakistan (AGP).
The report on the accounts of the Telecommunication Sector audit year 2020-2021 stated that the telecom sector faces numerous challenges in Pakistan, and requires important multiple initiatives to harness the potential of the market.
A problem that plagues Pakistan’s telecom industry is grey traffic, which is defined as the illegal routing of calls to/from the country to avoid applicable taxes and regulatory fees.
According to the Pakistan Telecommunication Authority (PTA), the sector loses an estimated $1 billion in revenues per annum. Another challenge is the renewal of the licenses of the three telecom operators namely Telenor, Zong, and Warid that were due in May 2019 upon the expiry of the 15 years period.
The PTA has fixed the renewal price at $449.2 million each, which prompted the telecom operators to move to the courts seeking identical treatment with Ufone whose license was renewed for $291 million.
Meanwhile, the other three telecoms have deposited 50 percent of the renewal fees. The litigation is depriving the national exchequer of revenue and foreign exchange.
Spectrum management remains a contentious issue due to the persistent disagreement between the PTA and the Frequency Allocation Board (FAB) on the issue of the awarding of the 4G spectrum to mobile companies on the basis of the technology neutrality of their licenses.
The matter has been pointed out by audit as it entails a potential loss of millions of dollars. Further contractual management issues in the PTA have led to disputes and litigation with service providers blocking potential revenue.
The role of the Special Communication Organization (SCO) running commercial services in Azad Jammu and Kashmir (AJ&K) and Gilgit-Baltistan (GB) without buying the spectrum needs to be addressed.
The report revealed a loss of $17.306 million due to the non-vacation of the additional frequency spectrum from M/s CM Pak (Zong).
It was observed that M/s CM Pak (Zong) had been assigned a temporary additional spectrum of 2 x 6.6 MHz (1755.7-1762.3/1850.7-1857.3 MHz) until the expiry of the license (22 October 2019) as per the FAB forty-second board meeting, but M/s CM Pak (Zong) was still utilizing the additional frequency spectrum.
Furthermore, M/s CM Pak had obtained a stay order from the Islamabad High Court (IHC). On 21 October 2019, the court had directed to maintain the status quo.
According to the policy directive issued by the Ministry of Information and Telecommunication (MoIT&T) vide its letter dated 9 May 2019, the price of the 1800 MHZ spectrum was $29.5 million per MHz for a 15 years license. The national exchequer had sustained a loss of $17.306 million equivalent to Rs. 2.697 billion.
The matter was reported to the management and PAO in November 2020. It was replied that after multiple hearings, the IHC had ordered on 20 October 2020 that the PTA and the FAB would be at liberty to implement the policy directive.
Subsequently, the Enforcement Order was issued on 14 December 2020 to CM Pak directing to vacate additional spectrum immediately and also liable to make payments for the unauthorized use of the frequency spectrum. The matter would be concluded in light of the Enforcement Order and the decision of the IHC.
In its meeting on 7 January 2021, the DAC had directed that the case be pursued in a court of law and progress thereof be intimated to audit. Audit recommends that the matter be vigorously pursued in a court of law under intimation to audit.
The report also mentioned the non-recovery of $72.562 million late payment additional fee from operators for the renewal of license fee.
It was observed during the scrutiny of the records regarding the renewal of licenses during 2019-20 that the PTA management had not recovered an amount of $72.562 million on account of the late payment additional fee on the renewal of licenses during 2019-20.
It was further noticed that the PTA management had issued show-cause notices to all three companies (Jazz, Telenor, and CM Pak Zong) for the non-payment of LPAF.
The matter was reported to the management and PAO in November 2020. It was replied that facts of the cases pursuant to the order passed by the IHC, the PTA had issued an order dated 22 July 2019 wherein the licensees — PMCL and Telenor — were directed to pay the renewal of the license fee.
All the licensees had filed appeals in the IHC and the cases were sub-judice. It was clarified that all the actions regarding the recovery of dues would be subjected to a court order. Therefore, until such time, the amount could not be recovered. The audit recommended that the court cases may be pursued, and the progress thereof be intimated to the audit.
The report further noted the non-recovery of Annual Regulatory Dues to the tune of Rs. 391.884 million.
It also highlighted a loss to the national exchequer due to the late deposit of the amount in the FCF by the NBP to the tune of Rs. 43.640 million.