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Sorting out micro issues

March 29, 2012

SOME time ago, I received a bill from my mobile phone service provider showing another number in my name, in addition to one I use.

I called and told them that the second number did not belong to me. Given the legal issues of having phones registered in one’s name, I asked them to remove that number. They said they would look into it.

Later, they called to say that they had reorganised their data and the second number had been put under my name by mistake.

For the next six months, while I tried again and again to get them to correct their mistake, they kept sending me the bill for the second phone and kept insisting that it was my phone.

Even when I got the other number blocked, the owner would get it unblocked — and the bill would come to me. I did not pay for the other phone but it continued to show in my name. At one point a manager suggested that they had found that my mother was using that number. Given that my mother passed on some 17 years ago, I let the company know that I would be quite impressed if they managed to have a connection for my mother: in that case, I would not mind paying for it at all. It was threats of legal action that finally got the company to rectify their mistake. I did not switch to another company. I was comfortable with the number (prefix and all) that I had. Though I did threaten to switch a couple of times, that did not prove too helpful in getting the problem resolved.

Telephony is often given as an example where competition has worked well in Pakistan to provide lower prices to customers and expand the market significantly. More than 100m mobile phone connections have been sold in the country and the market is still expanding rapidly. If price competition is keen, why has it not translated to improvements in the quality of service?

I gave only one example but if you talk to friends, each person has a story to tell about the poor quality of service that mobile phone companies provide: frequent dropped and incomplete calls, excessive charging (especially on pre-paid cards), hidden charges, network issues and so on. Why has competition worked in one area (price) and not in the other (quality)? Do we have a clientele that is much more lexicographically concerned about price than quality?

The other industry quoted as an example where competition has transformed it is that of banking. With the advent of foreign banks, the entrance of many private banks and the privatisation of state-owned banks, we have seen the banking industry change significantly. But the change and increase in competition has not even led to competitive prices, and the initial gains in improved quality seem to be eroding. Recently, it took a friend a month to get a debit card replaced from one of the top foreign banks working in the country. I talked to one of the managers of the bank and he said that this was “normal” nowadays.

What is even more interesting is that these two sectors are ones that have dedicated regulators: the Pakistan Telecommunications Authority (PTA) and the State Bank of Pakistan (SBP) have standard operating procedures for most things, and each company in the sector has 24-hour helplines and even grievance-registration and redress systems. Despite the above, the quality of service tends to be quite poor.

Most industries/providers in Pakistan work under murkier conditions. For some, competition is present (private education providers, for example) but no regulation; for others, there is little competition (car manufacturers), lots of protection and little regulation; for most (wholesale, retail) there is no regulator and not much regulation. We have a competition commission and it has taken up some issues over the last few years but it is relatively new, has limited experience, limited capacity for data collection/research, and limited resources with which to do everything. It is unlikely that it will be an effective tool for managing competition issues, including issues of prices and quality, across the country, for the next few years.

Competition alone is not sufficient to ensure the development of an industry in terms of prices, the desirable quality of services and innovation for the future. Competition has to be complemented with the right environment, where environment means the right regulations and their effective implementation.

This is where the problem lies for most Pakistani industries. Even where we have competition, we do not have regulation, and even where we have both, the implementation part is very weak.

In some recent research we have come across private schools that have cut back on the quality of education in order to compete with schools that charge lower fees. If parents are more price-conscious, competition can drive quality down. And this can happen in all goods/ services markets, from televisions to medicines and even medical diagnosis markets. Here, the role of regulation and its implementation, in a very dynamic manner, becomes crucial.

The dialogue on what ails Pakistan’s economy is too focused on macro issues of global slowdown, fiscal deficits, inflation and interest-rate policy. These topics are important, but for growth to take off and be sustainable, it is the micro issues that need attention. We need to work through, at the sector and industry level, what it takes to make competition work and for growth to be sustainable. Even our most competitive sectors have major incentive compatibility issues. The problems are larger in other sectors.

If we do not resolve them, dreams of sustainable growth will remain dreams.

The writer is senior adviser, Pakistan at Open Society Foundations, associate professor of economics, LUMS, and a visiting fellow at IDEAS, Lahore.