December 1, 2003	Monday	Shawwal 6, 1424

Over the past two decades, a far-reaching change has occurred in the institutional and regulatory framework of the telecommunication industry. Most of the countries have partially or completely privatized their public telecommunication operators (PTOs).

Regulations concerning access to telecommunications markets, provisions of services to users and pricing mechanisms have been overhauled. This reform process was generally spurred due to rapid evolution of both telecommunication technology and the structure of demand for telecommunication services.

Technical progress and regulatory changes are generally presumed to bring improvements in the amount, range, quality and prices of telecommunications services in the countries. In Organization for Economic Cooperation & Development (OECD) countries, the size of the communications industry has been increasing for the past two decades. In the mid-eighties, the industry represented around 2.5 per cent of GDP while in the mid-nineties the share in GDP had risen to around 3 per cent points. This growth in volume of the communication industry is the obvious result of changes in technology, level of prices, market and regulatory structure.

Regulatory reform is a pre-condition for market liberalization. In the landmark pact by the WTO, 68 countries (including Pakistan) agreed to liberalize their telecom markets and presented specific schedule of commitments. To provide impetus and oversight to this reform, regulatory authorities were evolved. These authorities proved out to be instrumental in the transformation of the telecommunications landscape. Pakistan, since the early 90’s, is moving forward on the road of liberalization of its telecom services by promulgation of the Telecom (Reorganization) Act 1996 and the formation of the Pakistan Telecom Authority (PTA).

Value-added services were the first sector exposed to competition. Since then, significant investments have been taking place in the sector and generating huge amount of revenues. Access to Internet and mobile communications has been increased dramatically. The share of services sector in GDP has increased up to 50.7 in 2002-03 as compared to 48.8 per cent in 1996-97. Keeping this growth trend in view,the government has now opened its basic telephony market (under WTO commitments) and exclusivity of the PTCL for providing basic telephony is over since 1st January 2003.

While there is a broad consensus that regulatory reforms in telecommunications is beneficial for the industry and the economy, it brings along new set of challenges for the regulators. Expected issues that need regulatory concerns are: 1) what should be the regulatory framework that leads to quick and effective development of competition? 2) How can the new operators be protected from the abuse of dominant position of the incumbents? 3) What is the best regulatory framework for interconnection rights and access pricing? 4) How can equal access by consumers to multiple telecommunications operators be ensured? 5) What is the desirable degree of vertical and horizontal integration in the telecommunications industry? So on and so forth.

From the above it implies that the introduction of competition in the market with multiple operators requires much more than just the issuing of new license. The whole regulatory structure needs to be changed. Governments must define clearly the regulatory environment and develop the necessary regulatory legislation for telecommunications. To this end, as a first step to the deregulation, Pakistan has announced a ‘deregulation policy’ on 13th July 2003. The policy clearly defines the market (i.e open entry without any restriction of license) and the regulatory structure (i.e role and responsibilities of PTA) in the new scenario.

Central to a regulator’s responsibility is the introduction and encouragement of competition in the telecom sector. This requires action at four fronts. First, when all regulatory barriers to entry and competition are dismantled at the outset, authority must decide from time to time who, how many, and under what conditions should be allowed in the market. To address this issue the policy provides,”the PTA shall prepare the requisite applications, license templates, information package and other necessary measures with the approval ofthe government to facilitate the licensing process”.

However, the policy does not address the issue that how many operators could profitably operate in the market and how many licenses should be awarded accordingly. Since it is an open policy and whosoever demands for the license (and if it fulfils the criteria) will get a license, even then a framework is needed to avoid concentration which itself is harmful for the industry. Internet Service Providers (ISPs) and Payphone market are the perfect examples of such situation.

Second, new entrants need access to scarce resources, which are initially controlled by the incumbent, among which the radio spectrum, telephone number blocks, and rights of way are the most critical. In the telecom policy, it is entrusted to the Authority to organize and manage numbering in order to ensure contiguous numbering for new entrants, wherever practicable. In this connection PTA has to set a nominal charge for numbering to discourage misuse, and a procedure for taking back numbering ranges, if not used within a reasonable period of time.

Third, effective development of competition hinges on new entrants being able to access the incumbent’s customers as well as to use parts of the incumbent’s network at prices that reflect costs. This places interconnection between new and established operators at the centre of the competition agenda. In practice, it is very useful to have interconnection rules or guidelines that provide a framework for negotiation and eventual regulatory adjudication. Bearing this in mind, policy clearly identifies that “the initial interconnection prices will be notified by PTA by October 2003. Lead times for provision by the PTCL to entrants of interconnect facilities (inter-alia) shall be set out in a “reference interconnect offer” to be made available by PTA, and will be in accordance with international benchmarks.”

Fourth, continuous vigilance against anti-competitive behaviour is needed for the emergence of the fair competition. In order to protect the new service providers from market power abuse by the incumbent, it is the responsibility of the Authority to determine the operator with significant market power and allegation against these activities. Section 2.3.4.6 of the policy states:”At present, the PTCL’s license contains prohibitions against anti-competitive conduct. These prohibitions shall be updated, incorporated in the rules and made applicable to all such licensees that are determined by the PTA to possess SMP.” Further in the next section it is stated “ the PTA shall have the responsibility of promptly investigating allegations of anti-competitive conduct and taking remedial measures against such conduct.”

A fully commercial approach to telecommunications will go a long way towards meeting development objectives, including extending access to rural and low-income urban areas. Thus calling for Authority’s initiatives for financing, in order to complement and catalyze the private sector for rural development. To cope with this issue a universal service fund (USF) has been established. The same has been identified in the policy “the main financing mechanism to promote universal service in Pakistan will be the USF. The precise form and working of USF including USF rules will be determined by the PTA, with the approval of the government Once approved it will be administered by the PTA. It shall include collection of the funds, within specified policy framework, from the licensees and its disbursement within approved the USF framework. The amounts and usage of the USF will be made public, and shall be subject to independent audit.”

Some other issues like ‘access promotion contribution’ (APC) and pricing mechanism are also an important area that needs to be synchronized with the new scenario. It is determined in the Policy that the PTA has the responsibility of the regulatory supervision on the APC programme and the specification of the formula for the revenue sharing arrangements among the licensees. As far as pricing mechanism is concerned, the PTA will continue to regulate the PTCL’s tariffs, subject to price cap regulation. As the competition grows, it will subsequently reduce the regulatory burden on the PTCL. In addition, operators who have not SMP will not be subject to price regulation. the PTA is also entrusted upon to prepare detailed pricing framework for fixed-line telephony licensees.

As the main objective behind this transformation is to attract foreign and domestic private investment to telecommunications in order to improve public services. It is therefore vested upon the regulator to create a favourable environment by assuring them that the rules of the game under which they are investing can futuristic and firm. This will also ensure that the broad requirements, such as interface compatibility and spectrum management are in place, but freedom of choice should be given to the operators regarding technical aspects and choice of equipment whilst ensuring reliability and technical excellence.

While exercising these responsibilities, the role of the regulator in the new scenario comes out to be a “facilitator”. Whenever possible, the market operations should continue without interference.The Authority should carry out its responsibilities as an administrative tribunal and a regulator. At the same time, it should enhance its role as a quasi-judicial body by seeking new ways to resolve disputes. Openly and informally, it will communicate with parties involved in disputes and, when possible, help them to resolve issues before they require adjudication of regulation. Hence, the best course of action would be “not necessarily regulation, but regulation where necessary”.

It is worth mentioning here that the success of deregulation process heavily depends upon the establishment and maintenance of effective regulatory framework. The effectiveness of regulation, however, is ultimately constrained by broader country governance, independence, and its human resources. Hence, regulators must have ability to undertake commitments that are stable from one government to the next; a judiciary that is impartial, immune to government and political pressures, and a strong administrative tradition. Substantial professionals are required, capable of handling complex regulatory concepts and processes.

Having realized this, PTA has taken various initiatives to up build the Authority in face of the new challenges. Many professionals have been inducted and efforts are being made to develop a tailored skill-set for its human resource. In this regard, many foreign and in-house trainings have been conducted. A deregulation cell, comprising dedicated officers of PTA, has been established to facilitate the deregulation process. As far as independence is concerned, Policy itself propounds PTA’s autonomy and independence. However, formation of deregulation facilitation unit in the ministry and placement of FAB under the ministry, are some aspects, which create confusions in minds of the investors and thus act as a constraint in developing an investor friendly environment. Hence, if these constraints are not dealt before hand, regulatory effectiveness and, consequently, sector development can be seriously undermined and the task of deregulation of services could be hardly achieved.