Tariff for on-net calls may be increased to protect the industry’s profitability while also preserving competition
In a move to streamline the ‘unhealthy competition’ among cellular mobile operators (CMOs), Pakistan Telecommunication Authority (PTA) has asked telecom industry and consumer rights organisatoins to submit their input on setting a floor price for on-net calls.
The telecom sector’s regulatory body has issued a consultation paper highlighting the discrepancy in on-net and off-net tariffs offered by the CMOs, which it says are leading to ‘unhealthy competition and price wars’, thus impacting the overall industry.
In other words, the PTA has sought consultation from the industry and rights groups as it intends to regulate cellular tariffs by introducing a floor price mechanism for on-net calls.
Explaining the rationale behind this move, the PTA said the difference between on-net and off-net tariffs, which favours the former, creates a cult behavior whereby related subscribers club into a particular network to take advantage of the lower on-net call charges.
Service providers compete on prices and offer low tariff to attract subscribers. Low tariffs are coupled with a myriad of call packages. For example, Warid Telecom is offering 17 call packages, the least by any operator, while China Mobile Pakistan (Zong) offers the highest number of mobile bundles, around 153 – some of which are offered across the country while others are specific to a region. The paper states that these packages create confusion among mobile subscribers as they are overcharged for off-net calls.
This practice, the paper highlights, hurts the industry as some operators have been reporting losses despite having positive gross margins.
Though the PTA has the power to regulate cellular tariffs through Pakistan Telecommunication Re-organization Act, the idea of setting a price floor may appear anti-competitive and face criticism from consumer rights groups.
However, telecom analysts say some situations demand regulator’s intervention and the case under discussion fits into that category.
“The PTA, it appears, is preparing for a scenario where one operator can become a significant market player and kill the competition,” Parvez Iftikhar, an Islamabad-based expert on Information and Communications Technology said referring to the merger of Mobilink and Warid – which hold a combined market share of 37% as of February, 2016.
Giving an example, the ICT expert said in the absence of a floor price, a large operator – say one with more than 40% market share – can reduce on-net charges to lure consumers to its network, and thus kill the competition. The PTA’s consultation paper seems to protect the market from that situation, he said.
Moreover, Iftikhar said majority of the operators are reporting losses because of these price wars, and thus are not willing to invest in the country. Putting a lower cap on on-net calls can help improve industry’s profitability and allow it to invest on network expansion and quality of service, which will benefit consumers in the long run, he said.
Currently, there is a floor price (lower cap) on off-net calls as operators terminating the calls charge Re 0.9 (90 paisa). However, prices of on-net calls are decided by operators and this is what the PTA intends to regulate.
“The PTA has not yet finalised whether to go for a floor price, it is only seeking advice from the industry,” an official close to the developments said while requesting not to be named.
Explaining, the official said the regulator may fix the floor price of on-net calls to somewhere between Re 0.1 and 0.2 (10 and 20 paisa) and lower off-net cellular tariff by an equal amount at the same time to keep the competition alive. However, he added it would like to protect the market from any kind of collusion between big players.