Data is essential to PTCL now, if PTCL loses this niche it will be in crisis. PTCL's landline installations have been decreasing year over year. They're only making money with value added services.
http://dawn.com/2012/06/20/ptcl-forces-half-of-dsl-operators-to-quit/
PTCL forces half of DSL operators to quit
From the Newspaper | Iftikhar A. Khan | 6 hours ago
ISLAMABAD, June 19: Pakistan Telecommunications Company Limited by manipulating its dominant position has forced almost half of digital subscriber line (DSL) service providers to close down their operations over the last seven years, an inquiry reveals.
The report of an inquiry committee of Competition Commission of Pakistan (CCP), exclusively available with Dawn, says that PTCL's pricing for the access to copper network owned and controlled by it makes it impossible for the DSL operators competing with the PTCL itself since its entry in the retail DSL market.
The report says that five out of eleven DSL operators had to exit the market since 2005 and with the gradually reducing profit margins the remaining six existing players were operating under huge losses.
The PTCL rejected the report as one-sided saying that important facts had not been taken into consideration by the CCP lacking expertise to examine the technical issues involved.
The cost analysis of PTCL's DSL operations shows that it had been able to earn profits despite offering low retail prices since its entry in the retail market in 2007. The PTCL being a vertically integrated company, its DSL business does not incur some of the expenses its competitors have to bear such as co-location charges, copper pair rent, additional overheads etc.
Additionally the offers like double the speed without additional cost, upgrading of packages etc., are impossible for the competitors 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 monopolising the relevant market by PTCL".
The inquiry report says apparently the lower tariffs were beneficial for the customers and were a good way to penetrate in a growing market for DSL-based broadband services. However such low tariffs and low margins were 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 at the mercy of a super dominant player free to exploit customers at will. This also has the effect of preventing new undertakings from entering the DSL market".
The inquiry committee headed by Director Cartels and Trade Abuses, CCP, Ms Shaista Bano, noted that price squeezing has been established as an abusive practice in all the leading jurisdictions of the world and has the impact of monopolising the market and preventing new entrants and thereby preventing, reducing and distorting competition within the relevant market, prohibited under the Competition Act 2010.
PTCL's pricing strategy in the broadband wholesale market is inducing a margin squeeze in the DSL retail market thereby making it impossible for an equally efficient competitor to conduct profitable operations in the DSL retail market.
The margin squeeze is not only driving out competition in the downstream DSL retail market, but is also preventing new entrants.
"This pricing strategy appears to be a prima facie violation of section 3 of the Act", the inquiry committee observed.
It proposed proceedings under section 30 of the Act against PTCL for prima facie violation of the act, given the importance of broadband DSL sector in development of the country.
PTCL's VIEW
The PTCL on the other hand says that the findings of the report were based on conjecture and superficial assumptions and these were neither shared nor discussed with PTCL which make the exercise prejudiced and one-sided.Senior Executive Vice President (Corporate Development) PTCL Sikandar Naqi told Dawn that costing of telecom networks was a very complicated exercise requiring expertise which, he believed, was not available with the CCP.
In other countries telecom regulators hire expert consultants and provide agreed methodology based on consultation with the stakeholders and it falls in the direct domain of Pakistan Telecommunication Authority (PTA).
He said costing of telecom services is only considered credible if it has the buy-in of all stakeholders as in the case of interconnect costing exercise carried out by the PTA in 2007 by engaging consultants of international repute.
PTCL is not required to un-bundle its local loop network under the Telecom De-Regulation Policy and other DSL operators were given a free hand prior to opening of broadband market for direct competition.
If PTCL would have not entered the market, the objective of broadband proliferation could not be achieved as other DSL operators do not have the financial strength to meet the investment requirements. In addition, Broadband Policy 2004 also encourages PTCL role in proliferation of broadband services.
As per policy clause 5.2.1 operators with local loop infrastructure (PTCL) should use aggressive approach for provision of broadband services. The broadband market is open for competition and the period during which some DSL operators have shrunk, other broadband service providers (using WiMax, EvDO and FTTH) that are also acquiring services from PTCL have flourished, Naqi pointed out.
The comparison of tariffs upon which the so called costing has been done by the CCP committee are incorrect and based on wrong information provided by the DSL operators to the CCP inquiry committee.
PTCL in order to remain competitive and profitable has been upwardly revising its tariffs to offset the inflationary impact of input prices during the last two years.
PTCL now offers 1 Mbps subscribers at Rs1,250 pm and Student Package at Rs979 pm. In addition, PTCL also charges its subscriber Rs1,000 as installation charges to recover the cost of modems etc. that seem to have been ignored in so called costing exercise done by the CCP committee.
It is a common knowledge that the other DSL operators' are offering 1 Mbps DSL subscription at as low as Rs750 per month yet the CCP model seems to pick the lowest and outdated PTCL tariffs while working out the cost comparison and margins available to PTCL and other DSL service providers.
As the cost of maintaining a copper line is much higher than the copper loop charges recovered from DSL operators and voice customers, PTCL had to revise the Line Rent charges for its PSTN subscribers last years and is also considering increasing Local Loop charges from the DSL operators.
From: pakgrid@yahoogroups.com [mailto:pakgrid@yahoogroups.com] On Behalf Of Wahaj us Siraj/MGMT
Sent: Tuesday, June 19, 2012 11:05 AM
To: pakgrid@yahoogroups.com
Subject: [pakgrid] CCP issues show cause notice to PTCL for Predatory Pricing of Broadband
CCP issues show cause notice to PTCL
June 19, 2012
TAHIR AMIN
http://www.brecorder.com/top-stories/single/595/0/1202338/#comments
ISLAMABAD: The Competition Commission of Pakistan (CCP) has issued show cause notice to Pakistan Telecommunication Company Limited (PTCL) for prima facie, preventing, restricting, reducing and distorting competition in the market for provision of broadband services through Digital Subscriber Line ('DSL') technology while the PTCL maintains that the complaint is based on a misunderstanding of competition law, the purpose of which is not to punish market leaders but to enhance economic efficiency and protect consumers.
A copy of the enquiry report available with Business R! ecorder revealed that a formal complaint was filed by Mircronet Broadband (Private) Limited, LinkDotNet Telecom Limited and Nexlinx (Private) Limited, alleging that PTCL has abused its dominant position in the market for provision of DSL services by being involved in the practice of predatory pricing and refusal to deal. The Commission initiated an enquiry and appointed Shaista Bano (Director) and Mehreen Ibrahim (Deputy Director) as enquiry officers to conduct a detailed enquiry. The enquiry report was completed and submitted by the enquiry officers on June 4, 2012.
In view of the importance of the broadband DSL sector in the development of the country, it is proposed that proceedings under Section 30 may be initiated against the PTCL for prima facie violation of Section 3(1) read with Section 3 (2) of the Competition Act, 2010.
According to the enquiry report, the relevant product market has been divided into the upstream market for access to the coppe! r infrastructure and the downstream market for the provision of broadb and services through DSL technology. The relevant geographic market for both products has been determined to be the whole of Pakistan.
The PTCL having a nation wide copper infrastructure holds a dominant position in the upstream market for access to copper infrastructure, which is an essential input for the downstream market. Based on the findings of cost analysis conducted by the enquiry officers, PTCL being a vertically integrated incumbent, through its pricing for access to its copper infrastructure, has reduced and squeezed the margins in the downstream retail DSL market to an extent that an equally efficient competitor cannot operate profitably.
The findings of the enquiry report revealed that this margin squeezed by PTCL through low retail prices has gradually reduced the profit margins of the other retail operators which as per their financial statements are incurring losses. Furthermore, importantly since PTCL's entry in the DSL retail market, the num! ber of total service providers has reduced from 11 to 6 and no new player has entered the market - an indication that the competition is reduced in the relevant market.
The enquiry report stated that generally lower tariffs in the retail market would be regarded as beneficial for customers, however, in this case lower retail tariffs have led to competitors being driven out of the market and may in the long run lead to the creation of a monopolistic situation. This would leave the consumers at the mercy of one super dominant player who will be able at its free will to exploit the consumers.
PTCL is a dominant player in the upstream market for provision of access to country wide copper infrastructure, which is an essential input for the undertakings operating in the market of providing DSL based broad band services. Based on the findings of cost analysis it appears that the margins in the DSL retail market due to PTCL's pricing for the access to its copper net! work are insufficient for an efficient competitor to operate profitabl y.
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 PTCL's 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 compet! itors and thus monopolising the relevant market by PTCL.
Apparently the 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 at the mercy of a super dominant player who will be at its free will to exploit customers. This also has the effect of preventing new undertakings from entering the DSL market, it added.
As per PTCL's reply, 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. The complaint does not touch upon th! e homogeneity of the conditions of competition in the geographic marke t, which has been presumed to be the entire territory of Pakistan without considering that barriers to entry and exit vary from region to region.
The PTCL maintains that the market definition makes it impossible to determine market shares and market power for the purpose of assessing dominance. The failure to determine the relevant market in the complaint in accordance with the Act renders cognisance of the matter and holding of enquiry without jurisdiction, lawful authority and of no legal effect. The complaint fails to demonstrate the ability of PTCL to behave independently of competitors, customers, consumers and suppliers and dominance cannot be presumed as PTCL's share does not exceed 40% for provision of any service. The DSL operators, the PTCL claims, misunderstands the concept of predatory pricing which is clear as the allegations have not been substantiated by any legal argument. In order to allege predatory pricing, certain criteria needs to be fulfilled wh! ich includes:
The PTCL argues that an alleged predator must be offering services below an appropriate measure of cost. Case law suggests that appropriate measure is either prices below average variable costs or simply when the difference in cost between the cost of manufacturing and price charged to consumers is excessive. DSL operators have not shown that prices of PTCL are below appropriate measure of cost and in fact several ISP's are offering services at rates substantially lower than PTCL, the company argued.
In failing to define the relevant market, DSL operators have failed to recognise that unlike them PTCL provides various other services other than broadband services and provides the same all over Pakistan which the DSL operators failed to due to lack of feasibility, the PTCL further contends.
Due to the definition of 'interconnection' provided under regulation 2 of the Pakistan Telecommunication Rules, 2000, PTCL and the DSL operators canno! t be said to be interconnected as there is no interdependency between the customers of both parties, PTCL maintained.
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, the PTCL further states. The DSL agreements as alleged by the DSL operators are not one sided but have been thoroughly negotiated over the span of 2 years between PTCL and the ISP's and PTCL has acted in accordance with PTA's determinations and amendments.
The DSL operators should be aware that laying of unrestricted and unlimited installation of independent fiber optic cables is harmful to PTCL and DSL operators as provides opportunity for selling unauthorised bandwidth to third parties and/or grey operators and hence misuse of facilities. PTCL had increased the lease line tariff in view of inflation but these were revoked vide PTCL letter No DD (Tariff) 064/2005/DPLC dated July 8, 2008.
The PTCL denies violation of applicable law and PTA determinations. Also PTCL submitted that the DSL operators cannot blame PTCL for upgrading its technologies when they have themselves failed to do so. The shift from copper infrastructure which is an older technology is for the benefit of the customers and customers have an option to choose the new numbers given upon shift from copper to optic fiber. In some cases there is an automatic change of numbers, but the customer has option to use that number or forgo the service.
The PTCL further denied that it has intentionally or illegally ever created problems for DSL Operators at PTCL's installation and collocation at exchange. PTCL accommodates all operators provided the PTCL exchange has space. The PTCL denies that it has forcefully disconnected customers of other DSL operators and only provides services on request of customers. PTCL also stated that it has offered the ISPs to work in partnership with PTCL for its! white label DSL broadband services on revenue sharing basis under whi ch 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. The allegations of DSL operators that PTCL is providing 4MB package at PKR 1999 and 10MB at 9999 and putting negative impact on competitors in the market is absolutely false and frivolous, PTCL added.
Sheikh Usman N.
"First they ignore you, then they laugh at you, then they fight with you, then you win"
-Gandhi
http://sheikhusman.blogspot.com/
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